The Supreme Court has held that a developer cannot evade its contractual and statutory obligation to provide alternate accommodation after obtaining possession of an old building for redevelopment. 

Setting aside the Bombay High Court’s order, the bench of Justice J. B. Pardiwala and Justice K. Vinod Chandran directed the developer to execute the Permanent Alternate Accommodation Agreement (PAAA) and hand over possession of three flats to the occupants within two months. 

The dispute arose from the redevelopment of a cessed building in Mumbai under the Maharashtra Housing and Area Development Act, 1976 (MHADA Act). The appellants claimed entitlement to permanent alternate accommodation under a PAAA executed on 17 October 2019 after vacating their premises to facilitate redevelopment.

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The developer had obtained a No Objection Certificate (NOC) from the Maharashtra Housing and Area Development Authority (MHADA) and secured possession from occupants on the assurance that they would receive permanent accommodation in the redeveloped building. MHADA later directed the developer to execute the PAAA, register it, and hand over possession. When these directions were ignored, a show-cause notice was issued threatening action under Section 91A of the MHADA Act. 

The Bombay High Court had accepted the developer’s argument that the redevelopment plan had been reduced from 34 floors to 30 floors, resulting in lesser fungible Floor Space Index (FSI) being available. According to the developer, this made it impossible to allot the area promised under the PAAA.

The High Court treated the PAAA as a private contractual arrangement not enforceable in writ jurisdiction and observed that the parties should pursue their remedies before a civil court. It also restrained MHADA from taking coercive action against the developer. 

The Supreme Court disagreed with the High Court’s approach and held that the PAAA was not merely a private agreement but one executed under the statutory redevelopment framework governed by the MHADA Act and Development Control Regulations.

The Bench observed that redevelopment of cessed buildings is a statutory scheme intended to ensure that existing occupants are rehabilitated while allowing developers to commercially exploit additional development rights. Consequently, the obligations undertaken by the developer could not be treated as purely contractual in nature. 

One of the central issues before the Court was whether the first appellant qualified as an “occupant” entitled to alternate accommodation.

The Court examined the statutory definition of “occupier” under the MHADA Act and noted that occupancy is distinct from statutory tenancy. It held that even a person who is in lawful occupation, irrespective of formal tenancy rights, can qualify as an occupant entitled to rehabilitation under redevelopment schemes.

The Court found that multiple contemporaneous documents—including the developer’s own public notice issued in 2010, MHADA’s certified list of occupants, consent documents, and redevelopment records—consistently recognized the first appellant as a joint occupant. Significantly, no objection had ever been raised at the relevant time regarding her status. 

The Court strongly criticized the developer for attempting to deny the appellant’s status years after obtaining possession of the premises.

It observed that the developer had accepted possession from the appellant, demolished the old structure, constructed the new building, and thereafter sought to challenge the very rights on the basis of which redevelopment had proceeded.

According to the Court, such conduct was impermissible, especially when the developer itself had consistently treated the appellant as an eligible occupant throughout the redevelopment process. 

The developer argued that the PAAA had been executed by an erstwhile partner whose actions were subsequently disowned following internal disputes within the partnership.

Rejecting this contention, the Supreme Court held that internal disputes among partners could not defeat the rights of third-party beneficiaries who had acted upon a validly executed agreement.

The Court remarked that a settlement between partners could not absolve the developer from obligations arising under agreements executed with occupants, particularly after vacant possession had been obtained and redevelopment completed. 

The Bench also rejected the developer’s plea that reduced utilization of fungible FSI justified scaling down the accommodation promised under the PAAA.

The Court held that failure to fully utilize available FSI cannot permit a developer to resile from commitments made to occupants at the time redevelopment was undertaken. Once alternate accommodation had been agreed upon and possession obtained on that basis, the developer remained bound by its promise. 

The Court took note of a civil suit filed by the developer after giving an undertaking before the High Court that two flats would remain free from encumbrances.

It observed that the subsequent suit, which sought to invalidate the PAAA altogether and deny the appellant’s status as an occupant, was contrary to the undertaking given before the High Court.

Describing the suit as “misconceived and mala fide,” the Supreme Court directed that the High Court should not proceed further with Civil Suit No. 4579 of 2026. 

Allowing the appeal, the Supreme Court restored MHADA’s orders directing execution of the PAAA and held that they were fully sustainable under the statutory redevelopment framework.

The Court directed the developer to execute the Permanent Alternate Accommodation Agreement. Hand over possession of all three apartments within two months. Pay damages based on the monthly rental value of the three flats if possession is not delivered within the stipulated period. Face a separate claim for damages arising from delayed delivery of possession.

The Court also awarded costs of ₹50,000 each for proceedings before the High Court and the Supreme Court, payable by the developer to the appellants. 

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