The Flat Purchasers can use the provisions of MPID Act against errant Redeveloper/Builder

Podcast - Manohar Bhimraoji Mahalle Case

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The Judgment rendered by the Hon’ble High Court in the case of Manohar Bhimraoji Mahalle & Others v. State of Maharashtra, through P.S.O. City Kotwali and Others is a landmark judgment that comes to the rescue of Flat Purchasers who have been denied their rights including but not limited to possession by the errant Builders/Redevelopers. By the said judgment, a flat purchaser would be acting within the four corners of law, if he adopted to set the criminal law in motion, against the Builder/Redeveloper for denying his right including but not limited to possession of the Unit/Flat booked by him. Effectively by virtue of the judgment, the Builders/Redevelopers come under the ambit and scope of MPID Act. 

Analysis of the Judgment passed in the case of : Manohar Bhimraoji Mahalle & Others v. State of Maharashtra, through P.S.O. City Kotwali and Others

The Judgment passed by the Hon’ble High Court in the case of Manohar Bhimraoji Mahalle & Others v. State of Maharashtra, through P.S.O. City Kotwali and Others [herein after referred to as “Manohar’s Case” for short] outlines the scope of section 2(c) and section 2(d) of the Act vis-à-vis Redevelopers or Builders. The judgment rendered in Manohar’s Case is a landmark judgment providing shift in the prevelant law of MPID. By virtue of the observations in the case, the scope of MPID Act becomes applicable to flat purchasers, who are left at the mercy of Builders/Redevelopers. 

Background of the Case

The Appellants filed an Appeal under Section 11 of the MPID Act before the Hon’ble Bombay High Court challenging the Order dated 21st September 2018 [herein after referred to as “impugned Order” for the sake of convenience]. As per the impugned Order, the objection of the Appellants to the attachment of property being Survey No. 78, admeasuring 5H 10R of Mouja Kathora Bk., Pragane Nangaon Peth, Tq. And Dist. Amravati [herein after referred to as “property”] was rejected. The objection of the Appellants for attachment of the said property was made by an Application under Section 7(3) of MPID Act. 

Submissions on behalf of the Appellant

The Appellant submitted that an Agreement of Sale dated 14th June 2012 was executed between Appellants and one Rana Landmarks Pvt. Ltd. [herein after referred to as “Builders”] with respect to the said property. As per the Agreement of Sale dated 14th June 2012, failed to make the entire payment as per the Agreement of Sale, various Notices were addressed to the Builders and the said Agreement of Sale dated 14th June 2012 stood terminated. 

In light of the Termination of Agreement of Sale, there is no transfer of title in favour of the said Builders. It was argued that since there is no transfer of title in favour of the said Builders, the said property cannot be attached under Section 4 of the MPID Act. The Appellant further submitted that acceptance of “earnest money” under the Agreement of Sale cannot come under the four corners of the term “deposit” as per section 2(c) of the Act. 

Submissions on behalf of the Respondent

The Respondent State submitted that by virtue of the Agreement of Sale dated 14th June 2012, the Builders had started construction and in fact sold flats and accumulated an amount of Rs. 10 Crore. It is clear that the Builders have acquired the title of the said property. 

Conclusion by the Hon’ble Court of Bombay

The Hon’ble High Court of Bombay noted clause no. 6 and 8 of the Agreement of Sale dated 14th June 2012 to conclude that the clauses created a right in favour of the said Builders in the said property by specific right to sell plots as well as sell flats to be constructed on the said property. The clauses include the right to deal with the said property by the said Builders in any manner that they deem fit whatsoever. The Hon’ble Court observed that thus in view of the clauses, it cannot be said that the Agreement of Sale does not create any right in favour of the said Builders. 

The Hon’ble High Court rejected the contention of the Appellant that Section 4 of MPID Act is attracted when property is acquired by using depositors money and acquisition means the property should absolutely vest in the “Financial Establishment”. The Hon’ble Court while disagreeing with Appellants’ contention  observed that substantial payments were made to the Appellants after said Builders sold flats proposed to be constructed on the said property and thus it is clear that the depositors’ monies were utilized in acquiring the said property. 

The Hon’ble Court observed that in view of the above, it is clear that the Financial Establishment, i.e. the said Builders have rights in the said property and section 4 of MPID Act is hence applicable. Elaborating on application of section 2(c) of the Act, the Hon’ble Court stated that about 514 flat purchasers have paid substantial amounts to the Financial Establishment as it agreed to hand over possession of the flats to be constructed on the same plots. The Hon’ble Court noted that such payment of monies to the Financial Establishment and receipt by it for the purpose of delivery of flats is covered under the definition of Section 2(c) of the Act. 

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FAQ: Flat Purchasers and the MPID Act in India

What is the significance of the Manohar Bhimraoji Mahalle & Others v. State of Maharashtra case?

This landmark judgment from the Bombay High Court expanded the scope of the Maharashtra Protection of Interest of Depositors (MPID) Act to protect flat purchasers from errant builders/redevelopers. Previously, the law was primarily used against financial establishments. This ruling empowers flat purchasers to initiate criminal proceedings against builders who deny them their rightful possession or other rights.

 How does the MPID Act define "deposit" in the context of real estate transactions?

The court clarified that the term "deposit" in Section 2(c) of the MPID Act encompasses payments made by flat purchasers to builders for the purpose of acquiring flats. This means that even if the full price of the flat hasn't been paid, the payments made qualify as "deposits" under the Act.

 Can a builder's property be attached even if the flat purchaser hasn't received full ownership?

Yes, according to the Manohar case judgment. Even if the Agreement of Sale doesn't transfer full ownership to the builder, the builder acquiring rights over the property through the agreement, such as the right to sell plots or flats, can be sufficient for attachment under Section 4 of the MPID Act.

What evidence is needed to prove that a builder used depositors' money to acquire a property?

The court in the Manohar case considered the fact that the builder had sold flats and accumulated significant funds from these sales. This was deemed sufficient evidence to establish that the builder had utilized depositors' money to acquire the property, even if the funds weren't directly used for the initial purchase.

What constitutes a "Financial Establishment" under the MPID Act?

The court's interpretation in the Manohar case broadened the definition of "Financial Establishment" to include builders/redevelopers who collect money from flat purchasers for the purpose of providing flats. This means that such entities fall under the purview of the MPID Act.

Can a flat purchaser seek legal recourse if a builder defaults on their agreement?

Yes. The Manohar case empowers flat purchasers to take legal action, including initiating criminal proceedings, against builders who fail to fulfill their obligations under the Agreement of Sale, such as delivering possession of the flat.

 How does the Agreement of Sale impact the rights of both the builder and the flat purchaser?

The Agreement of Sale is a crucial document that outlines the rights and obligations of both parties. The court analyzes specific clauses in the agreement to determine the rights granted to the builder over the property, even if full ownership isn't transferred.

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