Whether third party having agreement with developer can claim specific performance of contract from society?

The clauses quoted above, read together and in their proper perspective to
be gathered from the whole agreement, clearly envisage the development and
sale of the free sale component of the project by Vaidehi on their own account
and as an independent contracting party, and not as agents of the Society. The
contract between Vaidehi and the Society is on a principal to principal basis; it
neither constitutes a partnership nor a joint venture or agency between the two.
The third party purchasers with whom Vaidehi might enter into agreements for
sale would have no privity of contract with the Society and the Society would in
no way be responsible for any claim made by such purchasers against Vaidehi
under their respective agreements for sale.
16.6 There being no privity of contract between the Society and the third party
purchasers claiming under Vaidehi, the third party purchasers cannot claim
specific performance of their respective agreements for sale except through
Vaidehi. They stand or fall by Vaidehi. If the rights of Vaidehi are brought to an
end upon a lawful termination of the Society Development Agreement, the third
party purchasers cannot lay any independent claim against the Society or anyone
claiming through the Society. The agreements with third party purchasers are
premised upon a valid, subsisting and enforceable agreement between their
vendors, namely, Vaidehi and the owners, namely, the Society and in fact refer to
the Society Development Agreement in this behalf. Admittedly, therefore, the third
party purchasers had, or at any rate, ought to have, notice of the Society
Development Agreement and its terms and conditions, and Vaidehi's obligations
to perform the same. If Vaidehi fails to perform these obligations, the purchasers
cannot but suffer the consequences. In other words, the purchaser's rights are
subject to Vaidehi's rights and not higher than those. Therefore, from a
contractual standpoint, the third party purchasers have no case against the

Society or Rustomjee, who claim through the Society.

  IN THE HIGH COURT OF JUDICATURE AT BOMBAY
 ORDINARY ORIGINAL CIVIL JURISDICTION
NOTICE OF MOTION NO. 961 OF 2013
IN
SUIT NO. 262 OF 2012

Vaidehi Akash Housing Pvt.Ltd. Vs. New D.N. Nagar Co-op.Housing Society Union Ltd. & Ors.
                                                                                                                           
 CORAM : S.C. GUPTE, J.
 PRONOUNCED ON : 01 DECEMBER 2014
Citation: AIR 2015(NOC)722 Bom


These Notices of Motion, and the respective suits in which they
have been taken out, concern the development of a large property in the suburb
of Andheri in Mumbai. The property belongs to a co-operative society of residents
and consists of 8 buildings housing nearly 480 families together with the
appurtenant land. The chief contest is in respect of (i) the development rights
claimed by two rival developers in respect of this property, (ii) the rights of the
original member residents occupying tenements within the property of being
rehabilitated, and (iii) the respective rights of new purchasers with whom
agreements have been entered into by the developers at various stages during
the course of the development of the property. Each of these different
stakeholders have filed their own suits or adopted proceedings, seeking inter alia
interim reliefs concerning their respective rights. All these interlocutory
applications are heard together. The main order, dealing with their respective
submissions, is being passed in Notice of Motion No.961 of 2013 in Suit No. 262
of 2012, filed by M/s.Vaidehi Akash Housing Pvt.Ltd. (the erstwhile developer,
whose agreement has been terminated by the society), against the society, the
new developer with whom the society has been dealing and some others. Based
on the order, the other Motions are being disposed of.
2 Short facts of the case :
2.1 The suit plot, bearing Survey No.106 at New D.N. Nagar, Andheri (West),
Mumbai 400 058, admeasuring in the aggregate about 20,218 sq.mtrs. is owned
by MHADA. MHADA has erected 8 buildings of 3 wings each, each wing
                                                                                                                           
comprising of 20 tenements. The buildings in the suit plot thus contain 480
tenements, each admeasuring about 211.37 sq.ft. (carpet). The occupants of
each building, i.e. 60 members each, have formed their respective co-operative
societies, save and except building No.4 (Sakalp Sagar), the occupants of each
wing of which have organized and formed themselves into their own separate cooperative
societies. There are, thus, in all 10 registered co-operative societies in
respect of the 8 buildings on the suit plot. These 10 societies, in turn, have
established an apex or federal society called “New D.N. Nagar Co-operative
Housing Society Ltd.”, who is Defendant No.1 in the suit. (Defendant No.1 is
hereinafter referred to as the 'Federal Society' or simply 'Society'.) MHADA has
executed lease deeds in favour of the 10 societies in respect of the respective
plots and sale deeds in respect of the respective buildings. In or about July 2005,
the 10 societies amalgamated with the Federal Society, who now claims to be the
lessee of the suit plot and owner of the 8 buildings therein.
2.2 The buildings have become dilapidated and are beyond repairs (though
some of the resident members contest this position). The suit plot, however, has
a development potential. Under DCR 33(5) of the Development Control
Regulations for Greater Mumbai, applicable to low cost housing under schemes
devised by MHADA, the development, earlier permissible upto 1.2 FSI, now can
consume upto 2.5 FSI on the gross plot area.
2.3 The Society was desirous of exploiting this development potential and
reconstructing new buildings to house the existing member occupants and also
providing for allotment of free sale areas to new flat purchasers. In 2005, the
Society discussed various redevelopment proposals. In April 2005, bids / offers
were invited in sealed covers for redevelopment of the suit property. Various
developers including the Plaintiff submitted their bids. (The Plaintiff, Vaidehi
Akash Housing Pvt.Ltd., is hereinafter referred to as 'Vaidehi'.)
2.4 On 7 August 2005, Vaidehi's bid was accepted by the Society. On 31
December 2005, a development agreement was executed between the individual
societies, the Federal society (Defendant No.1) and Vaidehi. (For convenience of
                                                                                                                           
reference, this agreement will hereinafter be referred to as the 'Society
Development Agreement'.) This agreement envisaged redevelopment of the suit
plot by utilizing the plot FSI together with TDR FSI (i.e. FSI available by virtue of
transfer of development rights permissible under the relevant DCR) and additional
FSI permissible for redevelopment under DCR 33(5). Under the agreement, the
members of the Society were each to be given a flat admeasuring 540 sq.ft. plus
100 sq.ft (non FSI area) as permanent alternative accommodation free of cost. In
addition, Vaidehi agreed to give corpus fund, deposit for transit accommodation
rent, shifting expenses etc. to the Society and its members.
2.5 On or about 16 January 2006, a proposal for redevelopment of the suit
property by utilizing 2.5 FSI was submitted by Vaidehi (through the Project
Management Consultant) to MHADA. On 28 February 2006, a letter of
acceptance was issued by MHADA, directing inter alia payment of Rs.9 crores as
a premium. On 16 May 2006, this premium was paid by Vaidehi. On 1 July 2006,
MHADA granted its permission for construction of built up area of 48524.76
sq.mtrs. on the suit property (on the basis of 2.4 FSI). This built up area had a
rehab component of 12523.12 sq.mtrs. (i.e. residential area for rehousing the
members of Defendant No.1) and 36001.64 sq.mtrs. of free sale component (i.e.
10114.70 sq.mtrs. of commercial area and 25886.94 sq.mtrs. of residential area,
for sale to third party purchasers). On 17 July 2006, plans submitted by Vaidehi to
the Municipal Corporation were sanctioned and an IOD was issued for
construction up to 1.2 FSI.
2.6 According to Vaidehi, the redevelopment project, however, could not
proceed further as proposed, because of several impediments including refusal of
the Municipal Corporation to issue an IOD beyond 1.2 FSI due to the CRZ
notification, restriction of the area to be allotted to each member towards the
Rehab component under the amended DCR, cases filed by members in Court,
etc. In between, there was an enormous increase in the cost of the project. In the
premises, Vaidehi decided to involve investors and other developers to finance
the project.
                                                                                                                           
2.7 On or about 4 April 2007, Vaidehi entered into an agreement with
Defendant No.2 (i.e. Rustomjee Realty Pvt. Ltd., hereinafter referred to as
'Rustomjee') agreeing to assign the rights to exploit the FSI of about 2,53,500
sq.ft to the latter from out of the total FSI of 5,22,320.52 sq.ft. (equivalent to
48524.76 sq.mtrs.) available on the suit plot at or for an agreed consideration of
Rs.112 crores. The balance F.S.I. of 2,68,820.52 sq.ft. was retained by Vaidehi
for construction of the rehab portion to be allotted to the members of the Society.
(For convenience of reference, this agreement will hereinafter be referred to as
the 'Rustomjee Agreement'.) Under this agreement, Rustomjee agreed to
construct and allot a saleable area of 57,050 sq.ft. carpet to Vaidehi, comprising
of 20000 sq.ft. of commercial area and 37,050 sq.ft. of residential area.
2.8 On or about 28 March 2008, Vaidehi commenced construction of rehab
buildings on the suit property for rehousing the members of the Society. Vaidehi
claims to have demolished all 8 buildings and constructed 6 rehab buildings of
ground and four floors and 2 rehab buildings upto plinth, between March 2008
and January 2010. It is Vaidehi's case that Vaidehi incurred aggregate costs of
over Rs.200 crores towards the project.
2.9 On or about 17 January 2010, a Special General Body resolution was
passed by the members empowering the Society to execute a confirmation
agreement and a supplementary agreement with Rustomjee. In pursuance of this
resolution a tripartite confirmation agreement was executed between Vaidehi,
Society and Rustomjee on 3 February 2010 confirming inter alia the terms and
conditions of the Rustomjee Agreement. Further to this confirmation agreement,
on 9 February 2010 Vaidehi executed a writing in favour of Rustomjee that
Vaidehi was not interested in any additional F.S.I. that may become available in
respect of the suit plot in future and that the same could be exploited by
Rustomjee, under the Rustomjee Agreement as confirmed by the Society.
2.10 On or about 10 February 2010, a Tripartite Supplementary Agreement was
executed between Vaidehi, Society and Rustomjee, by which the Society granted
unto Rustomjee the right and entitlement to exploit full development potential of
                                                                                                                           
the suit plot by utilization of such FSI and/or TDR as may be permissible in law,
i.e. without any restriction of 2.4 FSI. The agreement inter alia provided for
payment of consideration of Rs.5500 per sq.ft. of FSI in excess of 2.4 FSI in the
manner stipulated therein.
2.11 Soon after the execution of these agreements, disputes arose between the
parties which were followed by separate notices published in newspapers by
Rustomjee, Vaidehi and some of the members of the Managing Committee of the
Society asserting their respective rights and affirming or questioning the
agreements referred to above, as the case may be. Correspondence also ensued
between their respective advocates.
2.12 On or about 16 April 2010, the Society terminated the Society
Development Agreement with Vaidehi, after purportedly passing a Managing
Committee resolution in that behalf.
2.13 Pursuant to a Notice of Special General Body of the Society dated 17 April
2010 called for the purpose, a Special General Body resolution was passed on 25
April 2010 ratifying and confirming the termination of the Society Development
Agreement with Vaidehi. (This resolution is one of the subject matters of contest
between the parties and will be discussed later.)
2.14 On or about 29 January 2011, an agreement was executed between the
Society and Rustomjee providing for construction of the rehab portion at the cost
of Rustomjee. The agreement inter alia provided for sale of 57,050 sq. ft. of F.S.I.
by Rustomjee in the market and reimbursement of its costs for construction of the
rehab portion from out of the sale proceeds by Rustomjee.
2.15 Rustomjee was thus seized of the construction of both the free sale portion
and the rehab portion of the redevelopment project. Rustomjee claims to have
paid a sum of Rs.70 crores to/under the instructions of Vaidehi and further
incurred a sum of Rs.47.94 crores towards obtaining approvals and permissions
for and construction of the rehabilitation buildings for rehousing the 480 members
                                                                                                                           
of the Society. Rustomjee also claims to have spent for temporary alternative
accommodation of the 480 families. Rustomjee claims to have expended more
than Rs.160 crores towards all these costs. It claims to be incurring an expense
of Rs.8.64 crores per annum as and by way of rent for the temporary alternative
accommodation of the 480 families.
3 Proceedings between the parties Under the Co-operative
Societies Act and some of the orders passed, which are relevant in the
context of these Notices of Motion:
3.1 Proceedings were initiated against the Society and its Managing
Committee under Section 78(1) of the Maharashtra Co-operative Societies Act,
1960 and other provisions. The earlier Managing Committee of the Society was
superseded and an administrator was appointed. The matter was carried in
appeal and revision. Finally, by an order dated 23 June, 2008 passed in a writ
petition, Writ Petition No. 1570 of 2008, the then Managing Committee was
allowed to continue and manage only the day to day and routine affairs of the
Society subject to certain directions. These directions included (i) convening of a
general body of the Society, (ii) framing and passing of new bye-laws and
adoption of Model Bye-laws including election rules, and (iii) initiation of a fresh
election process after approval of these bye-laws. All contentions of the parties
concerning the redevelopment were kept open.
3.2 The process of new elections in pursuance of the directions referred to
above was duly completed during the pendency of the above mentioned Writ
Petition and the newly elected Managing Committee of the Society was duly
constituted. By his order dated 11 November 2008, a learned Single Judge of this
Court accordingly permitted the Petitioners to withdraw the Writ Petition,
observing inter alia that once the election has been duly conducted and the newly
elected Managing Committee duly constituted, the order passed by the
appropriate authority under Section 78 of the Act stood worked out by itself.
3.3 The order of the learned Single Judge dated 11 November 2008 was
                                                                                                                           
carried in appeal before a Division Bench of this Court. By its order dated 7
September 2009, the Appellate Bench set aside the order and remitted the
petition back to the learned Single Judge for de novo consideration and decision
in accordance with law. The Appellate Court inter alia observed whilst setting
aside the order that if the interim order, pursuant to which the elections were held
by the Managing Committee (which was removed from office by the order
impugned in the petition), is not confirmed at the final hearing and the petition is
(simply) withdrawn, then the order passed under Section 78 of the Act removing
the Managing Committee would remain in the field and may render the election
held in the interregnum invalid. The Court held that the learned Single Judge
should have, if the Petitioners wanted to withdraw the petition, either vacated the
interim order or should have made an appropriate order in relation to the interim
order. It was in the light of these observations that the order was set aside and a
fresh decision was directed to be taken in accordance with the said
observations.
3.4 Finally by consent of the parties, the Writ Petition was disposed of on 13
October 2010 by directing the Deputy Registrar of Co-operative Societies,
MHADA, to appoint an administrator to hold elections for the Managing
Committee of the Society and the existing Managing Committee to hand over the
charge to the new Managing committee upon it being so elected. This Court
further directed by consent of the parties that the impugned orders of the Cooperative
Authorities under Section 78(1) and other provisions of the Act would
not survive in view of the order passed on the Writ Petition.

4 Contentions of the Plaintiff ('Vaidehi'):
4.1 Having noted the brief facts and relevant orders of Courts in the
proceedings under the Co-operative Societies Act, Vaidehi's submissions in the
Notice of Motion may now be noted briefly. In his opening address, Mr. Anturkar,
learned Senior Counsel appearing for Vaidehi, only made the following
submissions :
                                                                                                                         
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(i) The actions of the Society in terminating the Society Development
Agreement with Vaidehi and executing confirmation and supplementary
agreements with Rustomjee, were in violation of the orders of the Court noted
above;
(ii) The termination of the Society Development Agreement was without the
authority of law, since there was neither a resolution of the Managing Committee
nor of the General Body of the Society authorizing such termination;
(iii) Vaidehi was entitled to specific performance of the Society Development
Agreement, particularly having regard to the fact that Vaidehi as a promoter
under the Maharashtra Ownership Flats Act (“MOFA”) had entered into
agreements for sale of flats with third party flat purchasers, who had no privity
with the new developer, Rustomjee, and who could look to Vaidehi alone for
compliance of their respective agreements as well as of the provisions of MOFA.
4.2 Of course, in his rejoinder, Vaidehi's Counsel advanced submissions in
detail on various other aspects of the matter, particularly dealing with the
submissions of the Defendants. These will be considered in the order below in
the context of the Defendants' submissions.
5 Submissions of Defendant No. 1 ('Society'):
5.1 The principal submissions advanced by Mr. Seervai, learned Senior
Counsel appearing for the Society, were these:
(i) Vaidehi has not made out any prima facie case of its readiness and
willingness to perform its obligations under the Society Development Agreement.
(ii) Various breaches of the Society Development Agreement by Vaidehi were
pointed out by the Society. (These will be taken up and discussed in the light of
the answers by Vaidehi in the order below.)
                                                                                                                         
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(iii) The termination of the Society Development Agreement by the Society
was legal and proper.
(iv) The considerations of balance of convenience and irreparable injury were
against Vaidehi and in favour of the Society.
5.2 In addition to these submissions, which were specifically advanced against
the Plaintiff's case, the learned Counsel for the Society made detailed
submissions in connection with the cases set up by the various categories of third
parties as well as members of the Society opposing the redevelopment of the suit
plot through Rustomjee. These will be discussed later in this order.
6 Submissions of Defendant No. 2 ('Rustomjee'):
6.1 Principal submissions of Mr. Tulzapurkar, learned Senior Counsel
appearing for Rustomjee, were these:
(i) Vaidehi committed several breaches of the Society Development
Agreement and was not entitled to specific performance of that agreement. (The
breaches are dealt with in the order below.)
(ii) Rustomjee duly performed all its obligations under the Rustomjee
Agreement, but Vaidehi failed to perform its obligations thereunder.
(iii) Rustomjee is entitled to develop the free sale component by virtue of the
Rustomjee Agreement as confirmed by the confirmation Agreement (to which all
three, namely, Vaidehi, the Society and Rustomjee, were parties).
(iv) The considerations of balance of convenience/irreparable injury were clearly
in favour of Rustomjee and the Society.
6.2 Rustomjee's Counsel also made submissions on the respective case set
up by the third party purchasers and the disgruntled members opposing the
                                                                                                                         
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redevelopment. These will be separately discussed below.
7 Submissions of some of the members of the Society opposing
the present Redevelopment Scheme:
7.1 Some of the members of the Society have filed their own suit, Suit No. 674
of 2013. They have been joined in the suit by some 'occupiers' of tenements in
the Society's buildings, who have also surrendered their respective flats
(occupied by them) by entering into individual agreements with Vaidehi for
permanent alternative accommodations. These Plaintiffs basically challenge the
various notices of General Body Meetings, Resolutions passed therein and
agreements entered into with Rustomjee on the basis thereof as well as the NOC
of MHADA to redevelopment by Rustomjee and the IOD and CC issued by the
Municipal Corporation to the redevelopment. In other words, every aspect of the
redevelopment scheme being implemented by Rustomjee is challenged as illegal,
null and void.
7.2 The jurisdiction of this Court, having regard to the reliefs sought in these
Plaintiffs' suit, is challenged by both the Society and Rustomjee. These
preliminary objections are dealt with by learned Counsel for these
members/occupiers. It is submitted that the challenge to the resolutions of a cooperative
society and redevelopment agreements executed in pursuance thereof
fell very much within the jurisdiction of the Civil Court.
7.3 Learned Counsel for the members/occupiers relied on several provisions
of the Co-operative Societies Act and the circular issued by the State
Government under Section 79 A of the Act as also the bye-laws of the Society
and submitted that actions taken on the basis thereof were contrary to these
provisions/directions/bye-laws etc. and thus, illegal. Learned Counsel also argued
that the directions/actions were in breach of the provisions of DCR 33(5)
applicable in this case. Learned Counsel also contended that there was non
compliance by the Society and Rustomjee with the offer letter of MHADA as well
as the booklet and directives of MHADA. Learned Counsel also relied on certain
                                                                                                                         
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provisions of the Society Development Agreement, in particular Clause 52 thereof
and contended that the agreement did not permit sale of F.S.I. above 2.4 to any
third party and that even otherwise, the Rustomjee Agreement was bad in law
and unenforceable. Learned Counsel also contended that the Confirmation
Agreement of 3 February 2010 and the Supplementary Agreement of 10
February 2010 were illegal, null and void. Learned Counsel produced several
charts to claim that the use of various components of the FSI proposed by
Rustomjee was illegal and unauthorized. It is submitted that certain FSI
generated on roads/public amenities/ open spaces in the layout belongs to
members of the society in their individual capacity as the owners/occupiers of
their respective tenements; that FSI is not available to the society and through it
to Rustomjee on the suit property. It is submitted that Rustomjee is liable to pay
for the use of the pro-rata/additional FSI and fungible FSI thereon on the suit
property. It is submitted that there have been several illegal and unjustified
changes in the areas of rehab portion/ plot and the free sale portion / plot in
various documents / agreements rendering the same illegal and void. A large
scale usurpation of areas and violation of FSI norms by Rustomjee are claimed
so far as the redevelopment project is concerned. These concern the loading
factor to arrive at the built up area, the fungible FSI usable in the project, parking
spaces etc.
8 Submissions of various sets of flat purchasers who claim to
have purchased premises in the proposed free sale buildings from Vaidehi:
8.1 Various flat purchasers have either filed their own suits or have intervened
in the different suits and have been claiming diverse reliefs against Vaidehi, the
Society and Rustomjee. These purchasers claim through Vaidehi under diverse
agreements/ arrangements entered into with the latter. There are purchasers who
hold (i) allotment letters issued by Vaidehi, (ii) unregistered agreements and
receipts for payment towards them issued by Vaidehi, (iii) registered agreements
and allotment letters, (iv) registered agreements and (v) unregistered agreements
with Vaidehi, for different premises in the buildings to be constructed as part of
the redevelopment project and available as free sale component of the project.
                                                                                                                         
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8.2 Counsel appearing for different sets of these purchasers/allottees have
made diverse submissions. Broadly it is contended that many of these
purchasers/allottees have entered into agreements with Vaidehi during the period
Vaidehi was entitled to enter into agreements for sale with third parties for the
free sale component of the redevelopment project under the Society
Development Agreement and the latter agreement was very much valid and
subsisting. It is submitted that these agreements/allotments are binding on both
Vaidehi and the Society in terms of the Society Development Agreement as well
as the provisions of MOFA. It is submitted that the Rustomjee Agreement
inasmuch as the same is in breach of the provisions of the Society Development
Agreement and MOFA is illegal, null and void. The purchasers/allottees also
contend that the termination of the Society Development Agreement by the
Society was unlawful and at any rate, could not affect the rights of the third party
purchasers/allottees. It is submitted that the Society is also a co-promoter of the
redevelopment project and a 'promoter' within the meaning of MOFA and even if
the Society Development Agreement is validity terminated, the Society is bound
to fulfill its responsibility as a promoter towards the purchasers/allottees and
cannot enter into any agreement with Rustomjee contrary to its obligations
towards the purchasers/allottees.
9 These contentions of various stakeholders are considered below
under particular topics relevant for their respective cases.
10 Breaches of the Society Development Agreement by Vaidehi:
10.1 Under the Society Development Agreement, it was the obligation of
Vaidehi to utilize the FSI of the suit property as well as the FSI of MHADA layout
area by utilizing TDR/FSI/MHADA FSI and construct a new building consisting of
ground podium/stilt 1 and 2 parking and 2 to 17 upper floors. The total FSI to be
utilized for redevelopment was reckoned at 5,27,696.23 sq. ft. An area of about
2,59,250 sq. ft. carpet (FSI area) and 48, 000 sq. ft. in the form of niches, flower
beds, dry balconies, etc. (non - FSI area) was to be constructed and provided by
                                                                                                                         
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Vaidehi free of all costs to the Society for rehousing of its members. Each
individual member was to get one flat of 540 sq. ft. carpet area comprising of two
bedrooms, hall, kitchen with two baths/toilets plus 100 sq. ft. of dry balcony,
flower bed area etc. The entire construction was to be completed and possession
of flats to be handed over not later than 36 months from the date of the execution
of the Society Development Agreement. None of these commitments has been
fulfilled by Vaidehi. Non–completion of the construction of rehab building is
sought to be explained by Vaidehi on various grounds. Vaidehi claims to have
constructed 6 rehab buildings upto 4 floors and 2 rehab buildings upto plinth from
out of 8 wings of stilt & 1 to 5 upper floors in accordance with the plans got
sanctioned by Vaidehi from the Municipal Corporation for the rehab portion. It is
submitted by learned Counsel for Vaidehi that one of the reasons for noncompletion
was that the Society itself could not fulfill its obligations under the
Society Development Agreement. For example, there was delay in starting
construction due to all members of the Society not handing over their respective
tenements in time. Then there were consumer complaints by some members;
there was some difficulty with the then existing rules of MHADA relating to
tenements to be allotted to the members/occupants; there was cancellation of
NOC by MHADA; even Municipal Corporation issued a stop work notice; and
finally, though the construction was made as per IOD (except for building No. 4
C), the construction was illegally demolished by the Society and Rustomjee.
10.2 It is a matter of fact that all 8 buildings of the Society have been
demolished. Vaidehi was bound to construct the rehab building in accordance
with the sanctioned plans. The MHADA related and CRZ issues had to be
handled by Vaidehi. It could not hold the Society responsible for these
impediments. There is no substance in Vaidehi's submissions regarding MHADA
area restriction. There was no impediment in granting additional area to the
members/occupiers . Vaidehi had to take effective steps to deal with CRZ issues,
as was successfully done by Rustomjee in its turn. Even otherwise, Vaidehi has
not explained why Vaidehi could not construct upto 1.2 FSI, which was admittedly
permissible. The commencement certificate granted by MCGM was admittedly
upto plinth for building No. 2 and yet the building was constructed for three levels
                                                                                                                         
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above the plinth. The stop work notice issued by MCGM was, therefore, in order
and Vaidehi alone was responsible for the same. (The stop work notice was
never disputed or challenged by Vaidehi.) It is claimed by Counsel for Vaidehi
that Vaidehi could have applied for regularization of the illegal construction and
there was no need or imperative for the Society to demolish the construction. Any
construction carried out beyond approvals or sanctions and in violation of law, is
very much a breach of both contract (which required the construction to be in
accordance with sanctioned plans) and law, and when such breach is alleged it is
no answer that there could have been a regularization of such illegal construction.
Besides, regularization, if any, would be a matter of discretion for the planning
authority and could not be claimed as of right. Secondly, admittedly no steps
were taken for regularization; so the matter is, at any rate, at worst merely
academic and at best speculative.
10.3 Vaidehi, in consideration of the Society allowing it to exploit the free sale
component of the redevelopment project, agreed to pay each of the members /
flat owners / occupiers a sum of Rs.1 lakh by way of an interest free refundable
security deposit and also a sum of Rs.8500/- per month in advance by post-dated
cheques to be deposited with the Society's Solicitors. Vaidehi also agreed that in
the event, the construction of the rehabilitation component was delayed beyond a
period of 18 months, Vaidehi would continue to pay the said sum of Rs.8500/- per
month upto the period of 21 months plus a grace period of three months and
thereafter pay penalty of Rs.500/- per day per flat to all the members / flat owners
/ occupiers. In addition to these amounts, Vaidehi also agreed to pay a corpus
fund of Rs.5,27,983 per flat/ member in stipulated installments. Vaidehi also
agreed to furnish a bank guarantee as specified in the bid document. In terms of
the stipulations of the Society Development Agreement, the bank guarantee,
which was originally stipulated to be for an amount of Rs.32 crores, was
subsequently reduced to Rs.10 crores by the parties. Vaidehi has not complied
with its obligations in this behalf. Though there have been several instances of
delayed payments of rent and instances of cheque bouncing in respect of these
payments, it is claimed by learned Counsel for Vaidehi that the entire liability of
rent for alternative temporary accommodation has been discharged by Vaidehi.
                                                                                                                         
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Learned Counsel for Vaidehi submitted that between June 2006 and March 2010,
Vaidehi paid a total sum of Rs.22.20 crores, which was due and payable towards
the rent. Vaidehi has not paid the corpus fund. Vaidehi has not furnished any
bank guarantee to the Society. The explanation of Vaidehi that under the General
Body resolution of 23 November 2008, the Society had agreed to take the bank
guarantee from Vaidehi after a certificate from Fire Brigade and related
documents in connection with Building Nos.4B and C were available and
resolution of Consumer Dispute Nos.370 and 371 of 2007 pending before the
Bandra Consumer Forum and execution of agreements with all members, does
not explain non-furnishing of bank guarantee at any time till 16 April 2010.
Admittedly, the possession of all the existing buildings of the Society was handed
over to Vaidehi for demolition and the buildings were in fact demolished and work
had started on all rehab buildings and yet no bank guarantee were ever
furnished.
10.4 In the premises, it must be held that Vaidehi has prima facie committed
breaches of the Society Development Agreement. Two consequences would
follow from such breaches. One, the society would be entitled to terminate the
Agreement and two, Vaidehi could not be said to be ready and willing to perform
its obligations under the Agreement.

11 Legality of the termination of the Society Development
Agreement by the Society:
11.1 As observed above, the Society was clearly within its rights to terminate
the Agreement on account of breaches by Vaidehi. But it is the case of Vaidehi
that the termination was not legal or proper. Two reasons are cited in support.
Firstly, it is contended that the Managing Committee of the Society was not within
its rights to take such a decision by reason of restrictions on its powers placed
under the orders of this Court passed in Writ Petition No. 1570 of 2008. Secondly,
it is submitted that there is no authority for such action, since it is not backed by
any valid resolution of either the Managing Committee or the General Body of the
Society. These objections may now be considered.
                                                                                                                         
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11.2 In support of his contention that the action of the Managing Committee is
in breach of the orders of this Court, learned Counsel of Vaidehi mainly relied on
the order dated 23 June 2008 passed in Writ Petition No. 1570 of 2008. The
argument is that the Managing Committee (which was dissolved by the order
impugned in the writ petition) was allowed to continue and manage only the day
to day and routine affairs (subject to directions noted in the order) and a decision
to terminate the Society Development agreement cannot be a matter of day to
day or routine management.
11.3 The order of 23 June 2008 was clearly an interim measure and was to
operate pending appointment of a new Managing Committee, which was
proposed to be constituted after fresh elections were held in accordance with the
directions of this Court in that order itself. The decision to terminate the Society
Development agreement was taken by the new Managing Committee which
came into existence after the elections were held. It is futile to contend that the
restrictions applicable to the earlier Managing Committee operating under the
interim measure ordered by this Court were also applicable to the new Managing
Committee, which came into being after the bye-laws were amended and
elections were duly held for the constitution of the Committee thereafter.
11.4 Counsel for Vaidehi, however, contended that the interim order dated 23
June 2008 stood revived when the disposal of the writ petition by order dated 11
November 2008 was set aside by the Division Bench of this Court by its order
dated 7 September 2009. Learned Counsel relied upon the order of this Court
dated 27 January 2012 passed in contempt proceedings arising out of Writ
Petition No.1570 of 2008, to support his contention. The observation of this Court
in its order dated 27 January 2012 in the contempt proceedings about the revival
of the order of 23 June 2008 post the Division Bench order of 7 September 2009,
was in an altogether different context. In the contempt proceedings, the Deputy
Registrar of Co-operative Societies insisted upon the assets, records and
property being handed over to the Administrator after the passing of the Division
Bench order of 7 September 2009. This Court held in its order of 27 January
                                                                                                                         
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2012 that this was not necessary since the setting aside of the disposal order
revived the writ petition and along with it the interim orders operating till its
disposal. The point I have noted above is that under the very interim order of 23
June 2008, the powers of the new Managing Committee appointed after duly
holding elections were not subject to any restrictions (which were applicable to
the earlier Managing Committee). If that is so, revival of that order is neither here
nor there so far as the powers of the new Managing Committee are concerned.
11.5 Besides, having regard to the scope of the dispute between the parties in
the writ petition and the reliefs claimed therein, it is quite clear that the writ
petition did not concern the controversy between the society and Vaidehi, and it
cannot possibly be suggested that the interim order of 23 June 2008 had anything
to do with the Society Development Agreement and its continuation or termination
by the society.
11.6 In that view of the matter, there is no substance in Vaidehi's contention
that the orders of this Court barred the Managing Committee of the society from
taking the decision of termination.
12 It is contended next by the learned Counsel for Vaidehi that there is
no valid resolution of either the General Body or the Managing Committee of the
Society regarding the termination of the Society Development Agreement and in
the absence of such resolution/s the action of termination of the Agreement is
illegal, null and void. Vaidehi also challenges the execution of the Confirmation
and Supplementary Agreements by the Society in favour of Rustomjee for want of
such authority.
12.1 The contention of Vaidehi in this behalf is also supplemented by the
Plaintiffs in Suit No.674 of 2013, who, as noted above, are some of the
members / occupiers of tenements. These Plaintiffs inter alia challenge the
various resolutions purportedly passed by the General Body of the Society in that
behalf on various grounds. It is submitted that the notices dated 2 January 2010,
17 April 2010 and 1 January 2011 of Special General Body Meetings were bad in
                                                                                                                         
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law; they were without any specific or clear agenda. It is submitted that the
Special General Body Meetings held in pursuance of these notices were also in
breach of the State Government directive of 3 January 2009 and also bye-law
Nos.97 and 99 of the Society. It is submitted that the Managing Committee of the
Society did not disclose various material documents and facts and circumstances
to the members in those notices or SGMs, thereby vitiating the whole process. It
is submitted that the actions of the Society in pursuance of these notices and
SGMs are illegal, null and void.
12.2 All these contentions are being considered under the present topic, since
they together reflect on the Society's authority to terminate the Society
Development Agreement and also to execute the Confirmation and
Supplementary Agreements in favour of Rustomjee.
12.3 At the outset, it must be noted that prima facie there is material on record
to show that there was a resolution passed by the Managing Committee on 22
March 2010 to terminate the Society Development Agreement. This resolution
has been referred to by the Society in its affidavit in reply filed in Notice of Motion
No.216 of 2010 in Writ Petition No.1570 of 2008. The resolution has also been
referred to by the Society's Advocate in his letter of termination addressed to
Vaidehi. Secondly, the Managing Committee's resolution and its action of
termination of the Society Development Agreement in pursuance thereof have
been ratified by the society in its Special General Body meeting held on 25 April
2010.This Special General Body meeting was called by a notice dated 17 April
2010 which had a specific agenda, namely, “to confirm the decision taken by
the Managing committee to terminate the agreement entered into with the
developer, Vaidehi Akash Housing Ltd.” The General Body considered this
item and confirmed the decision in its meeting of 25 April 2010.
12.4 The General Body resolution has, however, been faulted on several
grounds by Vaidehi and the Plaintiffs in Suit No.674 of 2013. These may now be
considered.
                                                                                                                         
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12.5 At the outset the society and Rustomjee question the maintainability
of Suit No.674 of 2013. It is submitted that challenge to the resolution of the
society at the instance of individual members cannot lie before a civil court, since
it is squarely covered by Section 91 of the Maharashtra Co-operative Societies
Act and lies before the special forum created under that Act. In view, however, of
the fact that this suit and the relief claimed therein involve third parties and go
much beyond the jurisdiction of the special forum created under Section 91 of the
Act, I have thought it fit to delve into the merits of these objections rather than
throw the Plaintiffs out at the threshold on a plea of jurisdiction. Besides, the
pleas raised, really speaking, reflect on the authority and power of the Court to
grant some of the reliefs claimed in the suit rather than maintainability of the suit
as a whole. Secondly, these pleas are also to some extent common to Vaidehi's
suit, which in any event have to be determined prima facie at this interim stage.
In that view of the matter, we may proceed to consider the prima facie merits of
the respective cases in this behalf.
12.6 The Plaintiffs in Suit No.674 of 2013 challenge the decision in the
SGM of 25 April 2010 on several grounds. Firstly, it is claimed that Bye-law
No.97 and 99 of the Bye-laws of the Society require a requisition of at least 1/5th
of the members of the society for an SGM and that there was no such requisition
for this SGM. Secondly, it is claimed that Bye-law No.100 requires a notice of 5
clear days for an SGM. Prima facie a meeting of Special General Body called to
transact a special business by a Managing Committee of a Society cannot be
faulted on the ground of want of a requisition. Merely because an SGM can be
called on such a requisition does not imply that no SGM can be called otherwise
that on such a requisition. The notice issued on 17 April 2010 of an SGM of 25
April 2010 prima facie fulfills the requirement of 5 clear days' notice. The
judgments cited in this behalf by the Plaintiffs in M.I.Builders Pvt. Ltd. Vs
Radhey Shyam Sahu1
, Kedar Shivkumar Kale Vs Digambar Shridhar
Mhapsekar2
, Kaye Vs Croydon Tranmways Company3
, Baillie Vs Oriental
1 (1999) 6 SCC 464
2 Appeal from Order no.56/2007 in Civil Application No.84/2007 dt.7.3.2007
3 1898 Chancery Division 358
                                                                                                                         
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Telephone & Electric Co.Ltd.4
 and Narayanlal Bansilal Vs The Maneckji Petit
Mfg. Co. Ltd.5 do not help the Plaintiffs in the facts of this case. In M.I.Builders'
case (supra), the Court was concerned with the case of a meeting held by a
Municipal Corporation governed by U.P. Municipal Corporation Act, 1959. In that
case, in breach of the statutory requirement of a clear notice of the agenda, no
agenda was notified for the consideration of the members of the Executive
Committee in the notice of the meeting. In our case, not only was the notice
issued in time, but the agenda stated in it included the specific resolutions
proposed, namely, ratification of cancellation of the Society Development
Agreement by the Managing Committee and taking a decision on the subject of
redevelopment of the society's property. In Kedar Shivkumar Kale's case
(supra), the Court was concerned with the case of removal of a chairman of a
trust without following due procedure and in contravention of the principles of
natural justice. The notice of the meeting did not contain any item of business
concerning removal of the chairman or appointment of a new chairman. The
cases of Kaye Vs Croydon Transways Co. (supra) and Baillie Vs Oriental
Telephone & Electric Co. (supra) also dealt with sufficiency of a notice of a
meeting, having regard to the general nature of the business proposed, not
disclosing the special business actually transacted, and are clearly
distinguishable. Even in Narayanlal Bansilal Vs The Maneckji Patil Mills Ltd.
(supra), there were material changes proposed in the Articles, of which the
shareholders were not given any notice, and in fact the circular sent in that behalf
was misleading. That decision has no bearing on our facts. Prima facie having
regard to the peculiar facts of our case, some of which are noted below, the
notice of 17 April 2010 cannot be said to be vague or suffering from nondisclosure
of important events or documents. For the selfsame reasons challenge
to other meetings of the Society in connection with the redevelopment through
Rustomjee, on the ground breach of bye-laws, has no force. All these meetings
had been convened after adequate notice of the business to be transacted at the
meetings; the Managing Committee had the requisite authority to convene these
meetings.
4 1915 Chancery Division 508
5 Bombay Law Reporter Vol.XXXIII 556
                                                                                                                         
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12.7 It was next contended that the notice dated 17 April 2010 and the
SGM of 25 April 2010 were illegal and void by reason of being in breach or
violation of the State Government directive issued on 3 January 2009 under
Section 79A of the Co-operative Societies Act. This argument really concerns the
appointment of the new developers, namely, Rustomjee and not so much the
cancellation of the Society Development Agreement. The gravamen of the
charge is that after termination of the Society Development Agreement on 16
April 2010, there was no developer on record, and therefore, for taking decisions
on the redevelopment scheme, which was nowhere near completion, the society
had to follow the Government directive of 3 January 2009. This argument is
commonly advanced to challenge not only the resolutions passed in the meeting
of 25 April 2010, but even other meetings held by the Society in connection with
the redevelopment of the suit property by Rustomjee.
12.8 It is submitted that there was no proper quorum for these meetings.
For example it is submitted that the quorum required was 3 /4 or 75 % of the total
number of members ( i.e. 360 in the present case) under the directive of 3
January 2009, whereas only 231, 320 and 313 members attended the SGMs of
17 January 2010, 25 April 2010 and 9 January 2011, respectively. In the first
place, prima facie in the present case we are not concerned with a
redevelopment process initiated after 3 January 2009. The redevelopment
process was already initiated in 2005 and an agreement was arrived at with the
developer, Vaidehi, on 31 December 1995. Further that developer, i.e. Vaidehi,
had already entered into the Rustomjee Agreement with Rustomjee on 4 April
2007. On 17 January 2010, 25 April 2010 and 9 January 2011 the Society was
considering transactions with Rustomjee in confirmation or supplementation of
the Rustomjee Agreement. MHADA had approved FSI of 2.5 on 23 April 2010. A
supplementary agreement of 10 February 2010 was already executed by the
Society with Rustomjee for FSI over 2.4 by way of a tripartite agreement between
Vaidehi, Society and Rustomjee, after executing a tripartite confirmation of the
Rustomjee Agreement on 3 February 2010. In the light of these facts, the
reconstruction of the Society's building, i.e. the rehab portion, had to be
                                                                                                                         
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accomplished in co-operation with Rustomjee and financed from the monies
available from exploitation of the additional FSI. The meeting of 17 January 2010
gave authority to the Managing Committee of the Society to go ahead with
supplementary and confirmatory agreements with Rustomjee. The meeting of 25
April 2010 passed suitable resolutions for ratifying the termination of the Society
Development Agreement and take suitable steps in connection with
redevelopment through Rustomjee. The meeting of 9 January 2011 passed a
resolution to propose a draft agreement with Rustomjee after inputs from the
society's consultants. These resolutions do not in any way fall foul of the
Government directive of 3 January 2009. Besides, it is clear from the records of
the case and the respective stands adopted by the various stakeholders in this
Court that more than 75 % members of the society are standing by the
Rustomjee Agreement, the Confirmation and Supplementary Agreements as also
the Agreement between the Society and Rustomjee executed on 29 January
2011. It is not possible or in the interest of justice to now unsettle the apple-cart
on the ground of technical pleas such as this, when not only is there a serious
doubt as to the applicability of the 3 January 2009 directive but there is a broad
and substantial compliance with its purpose.
12.9 After all, the purpose of the directive is to ensure transparency and
adequate support to the redevelopment project on the part of the members. The
procedure adopted by the Society was transparent and bona fide in light of the
circumstances it found itself in. There is an overwhelming support of a large
majority of its members to the resolutions adopted by the society in duly
convened meetings. This majority of members ( which incidentally accounts for
more than 3/4th of the members) even today stands by these resolutions.
Besides, several irreversible steps have been taken by the various stakeholders
in pursuance of these resolutions.
12.10 The SGMs of 17 January 2010, 25 April 2010 and 9 January 2011 and the
decisions taken therein as also the actions following such decisions cannot be,
thus, faulted on the ground of breach of bye-laws or Government directive of 3
January 2009. The question of the alleged breach of court orders in this behalf
                                                                                                                         
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has already been dealt with above and answered prima facie in favour of the
Society and Rustomjee.
13 Challenge to the agreement dated 4 April 2007 between Vaidehi
and Rustomee (“Rustomjee Agreement”) :
13.1 Plaintiffs in Suit No.674 of 2013 claim that the Rustomjee Agreement is
illegal, null and void. They mainly rely upon some of the clauses of the Society
Development Agreement, particularly clause 36 thereof read with Clauses 17
and 27, and claim that Vaidehi was not entitled to transfer or assign the beneficial
interest of it under the Society Development Agreement without prior written
consent of the Society, which consent was not obtained. It is submitted that even
in the reply affidavit of the society in the Plaintiffs' Notice of Motion, the Society
had admitted to the lack of right or authority in Vaidehi to transfer or assign its
beneficial interest without consent of the Society, and that the Rustomjee
Agreement was in material breach of the terms and conditions of the Society
Development Agreement. In reply, it is urged by the Society that this particular
clause, Clause 36, was for the protection of the society and absent any objection
raised by the Society for breach of that clause, there is no case for illegality of the
Rustomjee Agreement on account of such breach. It is submitted that the Society
has not only not objected to the assignment of the free sale component by
Vaidehi to Rustomjee under the Rustomjee Agreement, but it has expressly
approved the same under the Confirmation Agreement, followed by the
Supplementary Agreement. The Society has also passed a resolution to that
effect at its Special General Body meeting followed by authority conferred by its
members to execute a tripartite Confirmation and Supplementary Agreements in
that behalf with Vaidehi and Rustomjee.
13.2 The particular clauses, namely, Clauses 17, 27 and 36 of the Society
Development Agreement, are quoted below :
“17. The Developers shall be entitled to bring in the project his own
financiers, associates, partners and bankers for the aforesaid construction and
                                                                                                                         
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the society has consented for the same and co-operate with the Developers for
the same and shall execute all the necessary documents for the Developers
area.
27. The Developers shall be entitled to sell to the persons of its Choice
flats/ commercial area, car parking spaces and other premises being the
Developers area and more particularly described in the Annexure “G” and to
receive and appropriate the sale consideration amount receivable from such
Allottees/ purchasers of the office premises, flats/ Commercial area and car
parking spaces in the said new building on the said property without in any way
being required to give any amount for the same to the Society or the Union.
36. The Developers shall be entitled to carry out the construction of the
said new building on their own, either departmentally or by appointing subcontractors.
However, the Developers shall not be entitled to transfer or assign
their beneficial interest under this Development Agreement to any one without
obtaining prior written Consent from the said Society and Union.”
13.3 Vaidehi was entitled, on the basis of the above clauses, to deal with the
free sale component of the project. By Rustomjee Agreement, Vaidehi agreed to
sell the free sale component to Rustomjee. Prima facie the authority of Vaidehi to
enter into Rustomjee Agreement for sale of the free sale component cannot be
doubted. After all, the Society Development Agreement is a commercial
document and has to be read as such, in its entirety and harmoniously. If
individual premises forming part of the free sale component could be dealt with by
Vaidehi, it is difficult to contend that the free sale component as a whole could not
be dealt with by it. Vaidehi, even after the Rustomjee Agreement, is bound by all
covenants of the Society Development Agreement, the essential of obligation of
Vaidehi under which consists in construction of the rehab portion free of cost for
the members of the Society. That obligation is not transferred to Rustomjee under
the Rustomjee Agreement. The society is not concerned and is not required to
assent to the manner in which the free sale component, which was to be
exploited by Vaidehi in consideration of its aforesaid obligation, would be dealt
with by Vaidehi.
                                                                                                                         
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13.4 Even otherwise, a party for whose benefit a particular contractual
stipulation is made is entitled to waive the same. In our case, there is a clear
waiver on the part of the Society. The Society has confirmed the Rustomjee
Agreement and supplemented the same by a Supplementary Agreement in
favour of Rustomjee after duly passing resolutions of its general body in duly
convened Special General Body Meetings. On ratification of the Rustomjee
Agreement by the Society, it hardly lies in the mouth of anyone, particularly
anyone other than the two contracting parties of the Society Development
Agreement, that the Rustomjee Agreement is in breach of the restrictive
covenants of the Society Development Agreement.
13.5 All parties have duly acted under the Rustomjee Agreement and the
confirmation and Supplementary Agreements, which followed it. Rustomjee has
paid about Rs.70 crores to Vaidehi and a substantial sum to MHADA in
pursuance thereof.
13.6 For all these reasons, prima facie there is no merit in this objection.
14 Other miscellaneous challenges to the Confirmation and the
Supplementary Agreements and the final Agreement of 29 January 2011
with Rustomjee :
14.1 The Plaintiffs in Suit No.674 of 2013 have challenged the various
agreements executed by the Society in favour of Rustomjee on various other
grounds as well.
14.2 It is contended by the Plaintiffs in Suit No.674 of 2013 that the resolution of
17 January 2010, particularly, Resolution No.4A, as also other resolutions suffer
from non-compliance with para 7.15 of MHADB's booklet and also the offer letter
of MHADB of 20 May 2010. It is submitted that the resolution of 17 January 2010
was also fraudulent by reason of the proposer thereof not being a member of the
society and having regard to the various alleged machinations on the part of the
                                                                                                                         
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society to transfer a share certificate to his name.
14.3 MHADB directive in its booklet and offer letter is a general instruction in
keeping with the State Government directive of 3 January 2009. I have already
dealt with the question of applicability of the Government directive to the dealings
of the Society with Rustomjee and held that prima facie the directive does not
come in the way of the various dealings of the Society with Rustomjee in the
peculiar facts of our case. My observations in that behalf would apply with equal
force to the objections based on the MHADB directives.
14.4 As for the membership of the proposer and allegations in connection with,
these contentions can hardly sustain a challenge to the resolution which is not
only affirmed by an overwhelming majority of the society, but acted upon by
various stakeholders as shown above.
14.5 The Plaintiffs in Suit No.674/2013 next contended that there has been
illegal and unauthorized use of FSI in the project by Rustomjee on the basis of
the chart submitted by the Plaintiffs. In the first place, this chart is based on
certain assumptions which are not sustainable either in law or on facts. Firstly,
the chart proceeds on the fallacious understanding that each member is
personally entitled to a proportionate share in the FSI generated on roads / public
amenities / open spaces in the layout of D.N. Nagar or to the fungible FSI arising
in connection with the suit property. Prima facie the entire FSI / development
potential in respect of the layout of the suit property as also the fungible FSI
belongs to the Society. Besides, the fungible FSI, which cannot be termed as
inherent or basic in connection with the suit plot, is an incidence available only if
new construction is put up on the suit plot. In other words, the availability of
fungible FSI is directly attributable to and arises in connection with the new
construction which is being put up by Rustomjee on the suit property and not an
incidence of the land plate of the suit plot. Secondly, fungible FSI is subject to
payment of premium to the Municipal Corporation of Greater Mumbai. It becomes
available and can be used only upon such premium being paid. There is no
compulsion on the developer that can be spelt out from any of the development
                                                                                                                         
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agreements in the present case to pay any premium at all. Thus, there is no
inherent right in the society, much less in any member of the Society, to any
fungible FSI. In any event, the offer of Rustomjee to make fungible FSI available
to the Society for the benefit of its members by allotting an area of 640 sq.ft.
carpet, which includes not just the FSI / TDR / MHADA layout FSI, but also
fungible FSI, has been duly accepted by the Society and no individual member
can claim any right to any other area / FSI. After all, the agreement between the
Society and Rustomjee is a commercial document, which has been worked out
between the two after taking into account various considerations of their
respective entitlements and commercial feasibility of the project. No individual
member can take a stand alone position contrary to this agreement. Besides, the
calculations in the chart cannot be founded on any legal principles or provisions
and seem to be nothing but mere ipse dixit on the part of the dissenting
members. Except these few disgruntled members, no other member of the
Society has raised any grievance in respect of these so called FSI violations or
usurpations. Lastly, all contentions of the Plaintiffs in Suit No.674/2013 in this
behalf, at the highest, reflect on the members' right to receive compensation. If
the Plaintiffs' contentions are accepted at the hearing of the suit, an adequate
monetary relief can always be granted to the Plaintiffs in respect of these claims.
The entire project of redevelopment need not be held up on account of these
claims.
15 Rule of majority :
15.1 This discussion brings us to the issue of the rule of majority to be followed
in the actions of the society in matters including the redevelopment of the
Society's property. Shareholder members of a co-operate society are bound by a
decision of the majority in such matters, until such decision is overturned by a
forum of competent jurisdiction and cannot take a stand alone position in
opposition to such decision.
15.2 We shall do well in this behalf to simply recall the observations of this
                                                                                                                         
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Court in the case of Girish Mulchand Mehta vs. Mahesh Mehta6
, which are to
the following effect :
“16. In the present case, it is not in dispute that the General Body
of the Society which is supreme, has taken a conscious decision to
redevelop the suit building. The General Body of the Society has
also resolved to appoint the respondent No.1 as the Developer.
Those decisions have not been challenged at all. The appellants
who were members of the Society at the relevant time, are bound
by the said decisions. The appellants in the dispute filed before the
Co-operative Court have only challenged the Resolution dated 27-
4-2008, which challenge would merely revolve around the terms
and conditions of the Development Agreement. As a matter of fact,
the General Body of the Society has approved the terms and
conditions of the Development Agreement by overwhelming
majority. Merely because the terms and conditions of the
Development Agreement are not acceptable to the appellants, who
are in minuscule minority (only two out of twelve members), cannot
be the basis not to abide by the decision of the overwhelming
majority of the General Body of the Society. By now it is well
established position that once a person becomes a member of the
Co-operative Society, he looses his individuality with the Society
and he has no independent rights except those given to him by the
statute and Bye-laws. The member has to speak through the
Society or rather the Society alone can act and speaks for him qua
the rights and duties of the Society as a body (see Daman Singh
and ors. v/s. State of Punjab reported in AIR 1985 SC 973). This
view has been followed in the subsequent decision of the Apex
Court in the case of State of U.P. v/s. Chheoki Employees Cooperative
Society Ltd., reported in AIR 1997 SC 1413. In this
decision the Apex Court further observed that the member of
Society has no independent right qua the Society and it is the
Society that is entitled to represent as the corporate aggregate.
The Court also observed that the stream cannot rise higher than
the source. Suffice it to observe that so long as the Resolutions
passed by the General Body of the respondent No. 2 Society are in
force and not overturned by a forum of competent jurisdiction, the
said decisions would bind the Appellants. They cannot take a stand
alone position but are bound by the majority decision of the
General Body. Notably, the appellants have not challenged the
Resolutions passed by the General Body of the Society to
redevelop the property and more so, to appoint the respondent
No.1 as the Developer to give him all the redevelopment rights.
The propriety rights of the appellants herein in the portion (in
respective flats) of the property of the Society cannot defeat the
rights accrued to the Developer and/or absolve the Society of its
6 2010(2) Mh.L.J. 657
                                                                                                                         
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obligations in relation to the subject matter of the Arbitration
Agreement. The fact that the relief prayed by the respondent No. 1
in section-9 Petition and as granted by the Learned Single Judge
would affect the propriety rights of the appellants does not take the
matter any further. For, the propriety rights of the Appellants in the
flats in their possession would be subservient to the authority of the
General Body of the Society. Moreso, such rights cannot be
invoked against the Developer (Respondent No.1) and in any case,
cannot extricate the Society of its obligations under the
Development Agreement.”
15.3 The various decisions of the Society referred to above in connection with
the present dispute are prima facie taken bona fide and are not oppressive to the
minority or amounting to mismanagement. Members of the Society have
challenged some of these decisions before co-operative courts, but have been
unable to secure any reversal or even a stay thereof. Years have passed since
the taking of these decisions and the follow-up actions on the basis thereof. It is
too late in the day for this Court to even entertain a challenge now to these
decisions, though in the facts of the case this Court has considered the merits of
the various challenges in connection with these decisions and found these
challenges to be prima facie unsustainable.
16 Challenges to the redevelopment by the Society and Rustomjee
on the basis of third party rights created by Vaidehi in favour of various
purchasers :
16.1 This brings us to an important aspect of this group of matters and which
has engaged anxious attention of this Court. During the subsistence of the
Society Development Agreement, and in pursuance of various rights conferred
upon it thereunder with reference to disposal of the free sale component of the
project, Vaidehi has created third party rights in favour of various flat purchasers
and others. These flat purchasers and others themselves consist of different
categories. There are those who have come in between the dates of the Society
Development Agreement and the Rustomjee Agreement. During this period the
entire free sale component, i.e. nearly 2,53,500 sq.ft. of real estate, was at the
disposal of Vaidehi and it was free to deal with the same the way it liked. Third
                                                                                                                         
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party rights have been created by it in favour of various parties during this period.
Then there are others who have come in after the Rustomjee Agreement but
before the Society Development Agreement was terminated by the Society.
During this period Vaidehi had a limited right, namely, the right to deal with an
area of 37050 sq.ft. for residential use and 20000 sq.ft. for commercial use.
Different considerations may apply to those third parties whose rights have been
created within or beyond this limitation on Vaidehi's rights, as the case may be,
for Vaidehi seems to have gone much beyond its limitation during this period and
oversold its position. It purports to have created rights over an area far in excess
of this limited F.S.I. available to it for disposal. Another distinction as between the
various third parties is on the basis of the kinds of arrangements entered into with
them by Vaidehi. There are purchasers who hold registered agreements with
Vaidehi, whilst there are those who have unregistered agreements and there are
others who have simply allotment letters in their favour. The rights of these
various stakeholders vis-a-vis the entitlement of the Society and through it of
Rustomjee to go ahead with the redevelopment project need an anxious thought.
Whilst some of these third parties appear to be investors, there may certainly be
those who are genuine buyers who have staked their hard-earned money to
obtain premises within the project.
16.2 The flat purchasers' main arguments are that under the Society
Development Agreement, which was at any rate valid upto 16 April 2010, Vaidehi
had the authority to deal with the entire free sale component, i.e. nearly 2,53,500
sq.ft. of area; that even if such authority could be treated as having been divested
by it under the Rustomjee Agreement, between 4 April 2007 (i.e. the date of
Rustomjee Agreement) and 16 April 2010 (i.e. the date of termination of the
Society Development Agreement), Vaidehi had the authority to deal with 57050
sq.ft of area as shown above; that the agreements entered into by Vaidehi during
these periods were lawful and binding on the Society, since during these periods
Vaidehi was an agent of the Society and the former's acts within its authority
were binding on the latter; and that at any rate, the Society itself being a
'promoter' within the meaning of MOFA, the rights of the purchasers under MOFA
were binding on the Society and the latter could not enter into any agreement
                                                                                                                         
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with Rustomjee in breach of these rights.
16.3 The purchasers' rights may, thus, be examined from two angles, one from
the standpoint of the contract between the Society and Vaidehi (who was their
vendor) and the other from the standpoint of the obligations of the Society, if any,
under MOFA.
16.4 No doubt Vaidehi had been conferred with the authority to deal with the
free sale component of the project by the Society under the Society Development
Agreement, but the question is whether such authority was to be exercised by
Vaidehi for its own sake or on its own account as an independent contractor or as
an agent of the Society. Some of the important clauses of the Society
Development Agreement may be noted in this behalf. These are as follows :
“5. The party of the first part i.e. the eleven individual societies
and the party of the second part i.e. the new D.N. Nagar Cooperative
Housing Societies Union Limited hereby agree to execute
a sublease in favour of the party of the third part i.e. M/s.Vaidehi
Akash Housing Private Limited in respect of the construction of the
saleable part immediately after the party of the third part puts the
party of the first part in their respective possession of the individual
premises.
11. The Developers will be entitled to utilize the balance FSI
including additional area available for construction by way of
balcony, servant rooms and area in lieu of staircase, passage, lift
wells, and such other area available free of F.S.I. etc., on payment
of premium to BMC in the separate new building/s to be constructed
on the said property and to sell the said area in the separate new
building to be constructed on the said property, hereinafter referred
to as the “the Developers' area/flats” and appropriate the sale
proceeds to itself.
13. The remaining flats shall being to the Developers,
Hereinafter referred to as “the Developers' area”. The location of the
Developers' flats are given in Annexure-“G” and the Developers
alone will be entitled to sell/allot the same and appropriate the sale
proceeds to itself.
27. The Developers shall be entitled to sell to the persons of its
Choice flat/commercial area, car parking spaces and other premises
being the Developers area and more particularly described in the
Annexure “G” and to receive and appropriate the sale consideration
amount receivable from such Allottees/purchasers of the office
premises, flats/ Commercial area and car parking spaces in the said
new building on the said property without in any way being required
                                                                                                                         
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to give any account for the same to the Society or the Union.
28 It is expressly agreed by and between the parties hereto
that only after the Occupation Certificate in respect of the said new
building shall have been obtained and the Developers shall have
paid to the amount becoming payable as specified in Clause 19
hereinabove and after the Developers shall have offered to put the
Members herein in possession of their respective flats thereafter the
Developers shall be entitled to handover vacant possession of the
Developers' flats to the respective purchasers thereof.
30. The said Society and the Members herein hereby agree
that In Developers alone shall be entitled to sell on ownership basis
in their own name and in their own right the flats / commercials and
other premises and the car parking spaces being the Developers'
area [which are specified in Annexure-“G” ] and appropriate the
sale proceeds to itself and for that purpose, the Developers shall be
entitled to enter into Agreement for Sale of the Commercial
premises, flats in their own name.
32. The Society on its own will not execute any Agreement
and/or any writing with the prospective purchaser/s in respect of
Developers area.
33 The said Society its members and union herein hereby
agree and undertake with the Developers they will not to do deal
with or dispose off or create any third party right, title and interest in
respect of the said flats and other premises, the car parking spaces
which are earmarked for sale by the Developers being the
Developers' area more particularly described in Annexure-“G”.
38. It is agreed by the hereto that since the basis of this
Agreement, the Developers shall have incurred several obligations
[including financial obligations a herein mentioned], the said Society
and the Members herein will be entitled to cancel terminate and/or
rescind this Agreement for the grant of Development Rights or any
other Agreement as shall be executed pursuant to this Agreement
under circumstances stated herein only and no other circumstances.
41. It is further agreed that the Developers alone shall be
responsible for any claim made by any third party in respect of any
flats and other premises sold to the prospective purchaser/ Allottee
of the flat and other premises in the said new building constructed
on the said property and the Developers agree to indemnify and
keep indemnified and harmless the said Society and the Union
herein from all costs, charges and expenses and legal fees by any
third party and/or any damage caused to the prospective
purchasers/ Allottees.
45. This Agreement for Grant of Development Rights does not
constitute a partnership and/ or a joint venture between the parties
hereto. Each of the parties hereto shall be liable to pay and
discharge their respective liabilities and debts including their
                                                                                                                         

respective income-tax liabilities and each shall indemnify and keep
indemnified the other there from.”
16.5 The clauses quoted above, read together and in their proper perspective to
be gathered from the whole agreement, clearly envisage the development and
sale of the free sale component of the project by Vaidehi on their own account
and as an independent contracting party, and not as agents of the Society. The
contract between Vaidehi and the Society is on a principal to principal basis; it
neither constitutes a partnership nor a joint venture or agency between the two.
The third party purchasers with whom Vaidehi might enter into agreements for
sale would have no privity of contract with the Society and the Society would in
no way be responsible for any claim made by such purchasers against Vaidehi
under their respective agreements for sale.
16.6 There being no privity of contract between the Society and the third party
purchasers claiming under Vaidehi, the third party purchasers cannot claim
specific performance of their respective agreements for sale except through
Vaidehi. They stand or fall by Vaidehi. If the rights of Vaidehi are brought to an
end upon a lawful termination of the Society Development Agreement, the third
party purchasers cannot lay any independent claim against the Society or anyone
claiming through the Society. The agreements with third party purchasers are
premised upon a valid, subsisting and enforceable agreement between their
vendors, namely, Vaidehi and the owners, namely, the Society and in fact refer to
the Society Development Agreement in this behalf. Admittedly, therefore, the third
party purchasers had, or at any rate, ought to have, notice of the Society
Development Agreement and its terms and conditions, and Vaidehi's obligations
to perform the same. If Vaidehi fails to perform these obligations, the purchasers
cannot but suffer the consequences. In other words, the purchaser's rights are
subject to Vaidehi's rights and not higher than those. Therefore, from a
contractual standpoint, the third party purchasers have no case against the
Society or Rustomjee, who claim through the Society.
16.7 Let us now consider if these third party purchasers have any rights under
                                                                                                                           
MOFA against the Society. It is submitted on their behalf that the Society is very
much a 'promoter' within the meaning of MOFA as regards their respective
agreements for sale. Learned Counsel for the purchasers rely upon the definition
of “promoter” contained in Section 2(c) of MOFA. The definition is in the following
terms :
“promoter” means a person and includes a partnership
firm or a body or association of persons, whether registered
or not who constructs or causes to be constructed a block
or building of flats, or apartments for the purpose of selling
some or all of them to other persons, or to a company, cooperative
society or other association of persons, and
includes his assignees; and where the person who builds
and the person who sells are different persons, the term
includes both.”
It is submitted that the Society can at any rate be said to have caused the
building of flats to be constructed for the purpose of selling the same, and as a
person, who causes such building to be built, is as much a promoter as a person
who sells premises in such building.
16.8 The Society is the owner of the property and has entered into an
agreement with the developers, i.e. Vaidehi, for redevelopment of its property.
The redevelopment envisages construction of the Society's building to
accommodate its members and also construction of building/s of flats/premises to
be sold to outsiders. The agreement authorizes or entitles the developers to
construct such building/s and sell flats/premises therein to outsiders. Such
authority or entitlement is to the developers' account and in their own right, and
as an independent contractor. If in exercise of such authority or entitlement, a
building is constructed by the developers, it cannot be said that such building is
caused to be constructed by the Society within the meaning of Section 2(c) of
MOFA.
16.9 Any other interpretation would lead to anomalous consequences, which
could never have been contemplated by MOFA. The owners of lands entering
into agreements for sale or development agreements with promoters/developers
would be held as being subject all liabilities of a promoter, such as liability of
                                                                                                                           
disclosure of plans and specifications, outgoings etc. under Section 3 of MOFA,
entering into agreements in accordance with Section 4, giving possession of flats
and suffering the consequences of Section 8, forming co-operative societies of
flat purchasers under Section 10, and so on. This would be plainly inconceivable.
16.10 Prima facie, thus, there is no case to treat the Society, who is merely in the
position of an owner vis-a-vis the third party purchasers, as a 'promoter' within the
meaning of MOFA and foist the obligations of a promoter on the Society in
relation to the purchasers.
16.11 Besides what is discussed above, there are many other difficulties in the
way of many of these third party purchasers. In the first place, it now transpires
from the various proceedings that their vendor, Vaidehi, has proceeded to allot an
area far in excess of its entitlement, which was merely 2,53,500 sq.ft. FSI to start
with and thereafter restricted to 57050 sq.ft. (i.e. after the Rustomjee Agreement).
In fact, what Vaidehi appears to have dealt with is an area far in excess of even
the total FSI (at the rate of 2.4) available on the entire land. Secondly, the
individual transactions are evidenced only in a few cases by registered
agreements with Vaidehi. Many transactions are contained in unregistered
agreements or even allotment letters which are not even stamped. Many of these
transactions appear to be simply financial arrangements. Each individual case of
a third party purchaser would thus be subject to different considerations based on
the entitlement of Vaidehi at the relevant point of time and the nature and
incidents of the individual transaction. But we are dealing here with the rights of
the individual purchasers vis-a-vis the Society and Rustomjee claimed through
Vaidehi and not their rights qua Vaidehi. All these purchasers certainly have
independent rights to claim damages against Vaidehi, peculiar to their individual
cases, but they have prima facie no right to claim anything from the Society and
Rustomjee, much less specific performance of their individual agreements. In the
premises, the individual features of their respective cases, as noted above, have
no relevance to our discussion in this group of Motions and need not be
discussed any further. Even the best placed amongst them have no leg to stand
on as against the Society or Rustomjee.
                                                                                                                           
17 That brings us to sum up the result of the above discussion on the
prima facie case on merits of individual stakeholders. Prima facie, it is clear that
Vaidehi has committed breaches of the Society Development Agreement and that
the termination of the Agreement by the Society was legal and proper. Vaidehi
has not made out any case of its readiness and willingness to perform its
obligations under the Society Development Agreement. Vaidehi is not entitled to
specific performance of the Society Development Agreement or restrain the
development of the suit property by the Society or Rustomjee. The Rustomjee
Agreement and its confirmation by the Society by the Confirmation and
Supplementary Agreements as well as further Agreement dated 29 January 2011
between the Society and Rustomjee are valid and proper. Members of the
Society opposing the development through Rustomjee are not entitled to any
interim relief either on the basis of the aforesaid agreements being in breach of
the Society Development Agreement or on the basis of breach of bye-laws or
contravention of the State Government circular dated 3 January 2009 or on
account of the alleged non-performance of the offer letter by MHADA or the
booklet or directives of MHADA or indeed on account of any alleged FSI violation
or usurpation. The decisions of the Society in connection with the present dispute
are prima facie taken bona fide and none of the challenges of the members
opposing redevelopment are prima facie sustainable. None of the third party
purchasers, who claim through Vaidehi under their respective agreements for
sale / allotment letters, have any case for specific performance of their respective
agreements against the society or Rustomjee. None of these purchasers has any
enforceable right under MOFA against the Society or Rustomjee.
18 Even the considerations of balance of convenience and irreparable
injury clearly weigh in favour of the Society and its members, who support the
redevelopment project. The fundamental basis or rather the very raison d'etre of
the entire redevelopment project is the need for housing of 480 members of the
Society. These members have already surrendered their tenements to enable the
Society to carry out the redevelopment project first through Vaidehi and later
through Rustomjee, as noted above. Since 2006, these members have been
                                                                                                                           
living in temporary alternative accommodations. The buildings on the suit
property occupied by these members have since been demolished and a rehab
building for their permanent alternative accommodation is under construction.
The development of the free sale component is inextricably linked to the
construction of the rehabilitation component. The cost of the construction of the
rehabilitation component has to be necessarily funded from and out of the
development and sale of the free sale component. Any relief granted to either of
the stakeholders, namely, Vaidehi or the members opposing the redevelopment
project or the third party purchasers, who claim through Vaidehi, will necessarily
impact the construction of the rehabilitation component adversely and jeopardize
the members' right to their permanent alternative accommodation. The members
cannot be asked to wait indefinitely for years for getting something which they are
legally entitled to and which legal entitlement is not even questioned by any other
stakeholders.
19 We may now dispose of the individual applications forming part of
this group of Notices of Motion on the basis of the prima facie conclusions noted
by this Court above.
20 Notice of Motion No. 961 of 2013 taken out by Vaidehi in their
specific performance suit, the merits of which have been discussed above as the
lead matter, is dismissed with no order as to costs.
21 Notice of Motion No. 1477 of 2013 is taken out by the Plaintiffs in
Suit No.674/2013. This suit, as noted above, has been filed by some members of
the society / occupants of flats in the buildings of the Society, who have
challenged the various resolutions of the Society, noted above, and actions of the
Society on the basis of these resolutions. They seek re-starting of the entire
process of the redevelopment of the property by appointing a new developer.
They seek various permanent injunctions and reliefs in this behalf. The Notice of
Motion inter alia seeks an interim restraint order against the Society and
Rustomjee from going ahead with the redevelopment project or creating any third
party rights in respect thereof. For the reasons already discussed above, there
                                                                                                                           
is no merit in the Notice of Motion and the same is dismissed. There shall be no
order as to costs.
 Learned Counsel for Rustomjee states that the statement made by
the learned Counsel and recorded in the order of this Court dated 9 May 2014
shall continue upto 12 January 2015. Learned Counsel for Defendant No.1
Society, on instructions from Mr.Bhushan Sarang, Secretary of the Defendant
society, states that in accordance with the ad-interim orders passed in the suit so
far, the Society shall continue to pay rent for the temporary alternative
accommodation to Plaintiff Nos.1 to 7, 9 to 12 and 14 to 38 through the
Advocates of these Plaintiffs and deposit the rent payable to Plaintiff Nos.8 and
13 in Court as is being done presently under the ad-interim orders passed by this
Court. The rent deposited in Court shall abide by further orders that may be
passed in that behalf.
22 Notice of Motion No. 1333/2011 in Suit 943/2011 - This suit seeks
a specific performance of the Memorandum of Understanding executed by
Vaidehi along with 37 letters of allotment. The Notice of Motion seeks a restraint
order on all the Defendants including the Society and Rustomjee from creating
third party rights in respect of 37 shops. For the reasons discussed above, the
Notice of Motion is dismissed with no order as to costs.
23 Notices of Motion Nos.1886/2011, 1900/2011, 1953/2011,
2002/2011 - These Notices of Motion have been taken out by the same Plaintiff,
who claims to be an agreement purchaser in respect of premises from out of the
sale components under Agreements for Sale entered into by Vaidehi with the
Plaintiff. All these suits seek specific performance of the respective agreements
for sale. The Plaintiff has sought an interim injunction in these Notices of Motion
against the Defendants including the Society and Rustomjee from creating third
party rights in respect of these various premises. For reasons noted above, there
is no merit in the Notices of Motion and the same are dismissed with no order as
to costs.
                                                                                                                           
24 Notices of Motion No.2159/2011, 2160/2011, 2161/2011, 2162/2011,
2163/2011, 2164/2011, 2169/2011, 2170/2011, 1031/2011, 1185/2013,
1186/2013, 1452/2013, 1544/2013, 1545/2013, 206/2014, 207/2014, 223/2014,
417/2014, 419/2014, 429/2014, 464/2014 and Notices of Motion (Lodging)
No.643/2014, 644/2014, 645/2014, 648/2014, 649/2014, 650/2014, 651/2014,
652/2014, 655/2014, 722/2014, 724/2014, 728/2014, 323/2014, 766/2012,
686/2014 -
These Notices of Motion are taken out by the respective Plaintiffs in
these suits, who claim through Vaidehi under the Agreements for sale executed
between them and Vaidehi or letters of allotment issued by Vaidehi in their favour
in respect of sale of flats from the free sale component of the redevelopment
project. The Motions seek appointment of Court Receiver and / or interim
injunction restraining the Defendants including the Society and / or Rustomjee
from creating third party rights in respect of the respective flats. For reasons
noted above, the Notices of Motion are dismissed with no order as to costs.
25 Suit 322-2014 - Learned Counsel for Defendant No.1 Society, on
instructions of Mr.Bhushan Sarang, Secretary of the Defendant society, states
that the arrears of rent as may be due in the case of Plaintiffs in this suit as also
future rent from October 2011 will be paid to these Plaintiffs. The Plaintiffs shall
from time to time visit the office of Defendant No.1 society to collect the rent
payable to them from time to time as in the case of other members of Defendant
No.1 Society.
(S.C. Gupte, J.)
                                                                                                                           

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