[Case note] Poverty, wealth and a developer’s obligations in Maharashtra

The development of the Powai Area Development Scheme (“PADS”) in Mumbai, has been fraught with legal controversy for the last twenty-odd years. In 1986, the Mumbai Metropolitan Region Development Authority (the “MMRDA”) entered into a tripartite agreement with the original landowners to develop 93 hectares of land in Powai, Mumbai. The land was leased to the Hiranandani group for development at a nominal rate of Rs. 1 per hectare. In return, Hiranandani was to construct low cost housing of two types – one of 40 square meters, and the other of 80 sq.m. The original owners would get housing for themselves and an 80-year lease over developed property. Of the remaining housing, 15% would be sold back to the state at low rates for allocation to government employees. The rest would be sold for profit by Hiranandani.

The original agreements with Hiranandani also had requirements for the provision of open spaces, roads, amenities, and so on, for the purpose of developing the PADS township. In reality, today, Hiranandani complex is home to some of the most luxurious apartment blocks in Mumbai, resulting in the filing of a number of Public Interest Litigation cases and private suits against the developers and the MMRDA. The area is now the subject of an investigation by the Anti-Corruption Bureau, with regular judicial intervention.

In such cases, it is inevitable that the rights of the people who bought luxurious developed apartments eventually came into conflict with the rights of those for whom the PADS project was originally intended. The Bombay High Court recently heard, and is adjudicating, on one such dispute, in Eternia Housing Co-operative Society and Others v Lakeview Developers and Others (pdf, referred to as “Eternia”).

Facts:

Eternia Housing Co-operative Society is one of 8 societies, each occupying one building in Sector IV-A of PADS.The original layout plan for that area, approved by the Mumbai Municipal Corporation, earmarked parts of the Sector for open areas and common amenities such as club houses and parks. The eight buildings that were eventually built in this sector were constructed after several revisions of the layout plans. These were all profitable commercial constructions, and none of them complied with the contractual size requirements or were low cost housing.

Following an intervention by the Bombay High Court, the Hiranandani group (the respondents in this case) were compelled to construct the low-cost housing that they had originally contracted to undertake. The Hiranandani group decided to build some of these on the land originally designated for open space in Sector IVA. This open space, unfortunately, fell between our eight petitioners’ buildings and the Powai lake, despoiling their lovely view. The eight co-operative housing societies, therefore, filed a suit before the Bombay High Court, challenging this construction. The suit is still ongoing but in the interim they filed an application asking the Court to pass an injunction, requiring Hiranandani to cease all construction on the low-cost housing. It is this application that the Court considered, and allowed, in Eternia.

The housing societies, represented by Mr Rohit Kapadia, argued that Hiranandani could not construct anything that was not on the approved layout plan without first seeking their consent. They relied on Sections 7 and 7A of the Maharashtra Ownership of Flats Act, 1963 (“MOFA”). MOFA is an enactment that was created to protect buyers from builders and developers – it requires the builders to seek consent before changing layout plans and it mandates that the property should be conveyed legally to the housing society once construction is complete.

The Hiranandani group, represented by Mr A Chinoy, on the other hand, argued that construction was not yet complete. They argued that they could develop the property in phases, and that the low cost housing was the next phase. Conceding that this was not on the approved layout plan, they nonetheless argued that the layout plan had been revised multiple times before, without objections from the societies. They also relied on a blanket consent clause in the contract, saying that this authorised them to increase and load additional FSI (floor space index) on the property, and make new constructions without express consent each time. The conveyance of the land, they argued would happen when Hiranandani determined that development was complete. Moreover, they were now legally obliged to construct low-cost housing – a bar against this would prevent them from fulfilling this contractual and court-mandated requirement.

Holding:

Justice Gautam S Patel, for the Bombay High Court, held in favour of the housing societies. He noted the background to the development of PADS, but pointed out that at each stage, the MMRDA and local authorities had approved the many irregularities. It was not possible, he held, for them to penalise the co-operative housing societies when all legal authorisations had been given. Moving to the arguments on MOFA, he held that the blanket consent clause did not absolve Hiranandani of its obligation to obtain the consent of the societies before making any new constructions that were not on the layout plan. Consent, he held, meant informed consent; this was the true legislative intent of MOFA, and it implied that builders were required to disclose their entire plans to buyers, and to not make changes to these plans without their consent. He held, therefore that the injunction could be granted, and ordered Hiranandani to cease construction on the low cost housing for the next twelve weeks, while the case is being heard.

Comments:

While this is a notable judgment in favour of land owners, Justice Patel points out that he is merely following a long line of precedent interpreting Sections 7 and 7A of MOFA. Interestingly, however, the judgment discloses two key points that are of interest to urban studies scholars.

The B.A.N.A.N.A standpoint: In the course of arguments, Mr Chinoy for Hiranandani argued that the objection from the housing societies had its basis in elitism and class, and not in any legal rights: the desire not to have any low-income groups inconveniently block their view. As Justice Patel sums up the argument,

“This, Mr. Chinoy says, is the classic NIMBY syndrome: Not In My Back Yard. Carrying this further, Mr. Chinoy’s arguments suggest that Mr. Kapadia’s interpretation of the governing statute, MOFA, and in particular Sections 7 and 7A of it, would generate in a city like Mumbai yet another syndrome, and that is, though Mr. Chinoy does not use the word, the BANANA syndrome: Build Almost Nothing Anywhere Near Anyone.”

Justice Patel however, finds that it is in fact, the legal rights of the developers that have been violated. “It is, I think, the sheerest happenstance that the Societies’ members are evidently well-heeled,” he notes, continuing, “One cannot damn or deride them merely for that.” Poverty is not a consideration when determining whether the legal right to consent under MOFA has been met, he concludes, and nor, therefore, is wealth.

What happens to the low cost housing? The argument that Hiranandani supports is that there is a larger public objective at stake, and this ought to override concerns. The amenities, they argue, can be relocated within the Sector. If so, the societies respond, so can the low cost housing. Justice Patel agrees with this, holding, that “That MIG housing must undoubtedly be built. It just does not need to be built on Sector IV-A.”

The Implications for Mumbai and MMRDA: The other aspect that Justice Patel makes careful note of is the implications of holding this case in any other way, for Mumbai city. He holds,

“For a city like Mumbai, the consequences of the Hiranandanis’ stand are possiby catastrophic. Every single flat purchaser on any given large project in Mumbai, especially in its suburbs, is a potential victim. He or she will purchase a flat on an effulgent representation, a resplendent portrait with glossy images and ecstatic text. In a few short months, those dreams will turn to dust as the developer invokes these so-called ‘development rights’, nullifies all that went before and proceeds to construct new structures never before indicated, taking away in the bargain every promised benefit.”

Holding in favour of the Hiranandanis, he argues, will have its repercussions on all householders and not just the inhabitants of the “undoubtedly lavish” PADS. The responsibility for this situation, he goes, on, lies squarely with the development authority, the MMRDA. He holds, “It also lies at the door of the MMRDA, a public authority and about whose conduct throughout no condemnation is strong enough. It is one thing to have a statute that provides for the rights or the obligations of individuals. It is another to allow an authority to get away scot-free, absent any regulatory or statutory oversight, with what I can only describe as a complete abdication of its public and statutory function..”

This is only the beginning of the process to untangle the rights and obligations of Hiranandani and the group of societies, including Eternia. The injunction that Justice Patel has granted will last only 12 weeks, and the completion, or indeed, demolition of the low-cost housing will await the entire adjudication of the case. Nevertheless, Justice Patel’s judgment raises two valuable questions.

The first concerns the absence of state control over independent development authorities. The case of MMRDA here evidently disclose abuses (their own counsel conceded before the Supreme Court that “there has been rampant collusion between the officials of MMRDA and the developer in how the agreement was breached.”), and yet, as Justice Patel points out, there has been a puzzling absence of control and statutory oversight right from 1986 on.

The second, broader question, that this judgment raises is how we may balance the undoubted need to protect house owners from the abuses of developers, while simultaneously ensuring that developers do not avoid obligations to build low cost housing, whether under contract or the Development Control Regulations that govern Mumbai. Part of the answer may lie in rationalising the processes of building approvals with urban planning in general. This might make it possible to ensure that the diffusion of authority between development bodies like the MMRDA and local authorities like municipal corporations does not allow entities like Hiranandani to slip between and flout their legal obligations.

Eternia Co-operative Housing Society Ltd.and others v Lakeview Developers and Others, Notice of Motion no. 62 of 2014 in Suit No. 54 of 2014, Judgment dated 22 January 2015 (Justice Gautam S Patel)

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One thought on “[Case note] Poverty, wealth and a developer’s obligations in Maharashtra

  1. Reblogged this on ramblinginthecity and commented:
    The dovetailing of urban planning and development is incomplete even as development authorities and private real estate developers continue to fraternize and collude. What happens, then to low cost housing or private property rights? Is this an issue of class conflict or of irresponsible governance? Raeesa Vakil’s case note sheds light on these essential questions…

    Like

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