Co-Promoters Found Responsible for Refunding Amounts Under Real Estate Laws: NCDRC

The National Consumer Disputes Redressal Commission, chaired by Justice Ram Surat Maurya
and Bharatkumar Pandya (member), recently ruled that shareholders are considered co-
promoters under the Maharashtra Ownership Flats Act of 1963. This decision aligns with the
Real Estate Act of 2016, where the promoter holds responsibility for refunding amounts owed by
other promoters.


The complainant initially booked a flat from Niraj Kakad Constructions and paid Rs. 85 lakhs
towards the flat cost, as per the agreement terms. However, after the agreement, the developer
revealed that they had taken a loan from Capital First Limited, creating a charge on part of the
property. The developer then requested the complainants to pay Rs. 55 lakhs directly to Capital
First Limited, which they did. The total payment made by the complainants amounted to Rs. 1.40
crores, with the balance of Rs. 20 lakhs to be paid at possession. Despite the agreement
stipulating possession by December, the developer canceled the development agreement. The
complainant, after informing the shareholders about their claim, right, title, and interest in the property, received no response. Consequently, the complainant lodged a consumer complaint
with the National Commission.


The developer contended that it violated clause 5 of the development agreement, which required
obtaining necessary approvals within a specified period before selling any flats. It breached this
clause by creating third-party rights with the complainants without shareholder permission, as
mandated in clause 9. The shareholders argued that the complainant failed to make specific
allegations against them but sought relief, which they deemed impermissible. They clarified their
role in entering the development agreement with the developer and providing land possession for
development purposes. Additionally, they asserted that despite their emails, the developer ceased
construction work for 1.5 years, leading to the termination of the agreement through legal and
public notices. They also mentioned filing an arbitration petition against the developer, which
was dismissed with the opportunity to appoint an arbitrator. The shareholders disclaimed
responsibility for the complainant’s bookings with the developer, citing no deficiency in service
on their part and urging dismissal of the complaint.


The National Commission reviewed the case and noted that the shareholders had authorized the
developer to construct the building on their land through a development agreement. According to
the terms of this agreement, the developer was responsible for funding the entire development
and was entitled to 42% of the built-up area for sale, while the shareholders were to receive 58%.Under this agreement, the developer allotted a flat to the complainant, who paid Rs. 1.40 crore,
with possession scheduled for a certain year. However, the shareholders terminated the
agreement, leading the developer to hand over possession of the building to them, as directed by
the Arbitrator.

The commission addressed the argument raised by the shareholders regarding the developer’s
failure to obtain necessary approvals within the stipulated period. However, it was found that the
developer had purchased Transferable Development Rights (TDR) later, making the termination
of the agreement invalid.

Highlighting the principal-agent relationship between the shareholders and the developer, the
commission cited legal precedents to emphasize the shareholders’ vicarious liability for the
actions of the developer. It also noted that shareholders are considered co-promoters under the
Maharashtra Ownership Flats Act 1963 and, therefore, are liable for refunds under the Real
Estate Act 2016.

Considering that the shareholders took possession of the entire construction funded by the
complainant, the commission ruled that they should refund the entire amount with interest.

The National Commission partially upheld the complaint, ordering the shareholders to refund the
entire amount deposited by the complainant along with interest set at 9% per annum.
Additionally, a cost of Rs. 50,000 was imposed.

Posted and reproduced in Public Interest by

Adv. Sulaiman Bhimani Legal Consultant

Expert in RERA & Consumer Matters, Co-operative Scty Matters,

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