The Bombay High Court has clarified that prolonged inaction by a developer in municipal redevelopment projects, especially when tenants languish in dilapidated structures for over a decade, justifies termination of the development agreement. Interim relief under Section 9 of the Arbitration and Conciliation Act cannot be granted where the developer's delay has rendered the project non-viable and the rights of residents to safe housing outweigh the developer's profit motive.
Background & Facts
The Dispute
The dispute arose from a Development Agreement dated 22 December 2014 between Ison Builders LLP, a private developer, and Om Sai Ram Cooperative Housing Society (Proposed), representing 28 municipal tenants of land owned by the Municipal Corporation of Greater Mumbai (MCGM). The agreement empowered Ison Builders to redevelop 75-year-old, structurally unsound tenanted buildings into modern residential and commercial units. The Society’s members, who had no financial or technical capacity to undertake redevelopment independently, relied on the developer to navigate complex regulatory processes under Regulation 33(7) of the Development Control Regulations, 1991.
Procedural History
- 2014: Development Agreement executed; not registered.
- 2015: Redevelopment proposal submitted to MCGM.
- 2016 & 2020: MCGM issued revised guidelines requiring two critical pre-Annexure-2 steps: inventory/tenancy verification and consent verification.
- 2021: MCGM requested proof of financial capacity; Ison Builders failed to respond for seven months.
- 2022: MCGM closed the proposal due to non-compliance; Society urged MCGM to revive it.
- 2023: Proposal revived after Ison Builders submitted financial documents; consent verification completed on 6 April 2023.
- 2024: Show cause notice issued to Ison Builders for delay; Society supported the developer.
- 2025: Society terminated the agreement on 24 September 2025 and appointed Aethon Developers as successor.
- October 2025: Termination notice served; MCGM refused NOC based on termination.
- November 2025: Ison Builders filed Section 9 petition for interim injunction and Section 11 petition for arbitrator appointment.
Relief Sought
Ison Builders sought: (a) stay of termination notice; (b) injunction against appointment of any new developer; (c) restraint on creation of third-party rights; (d) disclosure of any third-party interests; and (e) ad-interim relief. The Society and MCGM opposed the petition, asserting that the developer’s 11-year inaction and failure to meet statutory obligations justified termination.
The Legal Issue
The central question was whether a developer’s prolonged and unjustified delay in completing pre-Annexure-2 procedural steps under municipal redevelopment guidelines constitutes sufficient ground for termination of the Development Agreement, and whether such termination warrants interim relief under Section 9 of the Arbitration and Conciliation Act, 1996.
Arguments Presented
For the Petitioner
Ison Builders contended that delays were attributable to MCGM and the Society, not itself. It cited MCGM circulars to argue that inventory and consent verification were external obligations. It claimed financial capacity was eventually proven in 2023 and that the termination was malafide, motivated by collusion with a neighboring developer. It relied on Sushil Kumar Agarwal v. Meenakshi Sadhu to assert that the unregistered Development Agreement was capable of specific performance and that registration was no longer mandatory under the 2020 guidelines.
For the Respondent/State
The Society and MCGM argued that Ison Builders had been granted multiple opportunities over 11 years and failed to meet even basic obligations: non-submission of financial documents for 14 months, failure to follow up with MCGM, and lack of progress on consent verification. They cited Huges Real Estate Developers LLP v. Khernagar Adarsh Co-operative Society and Swashray Co-operative Society v. Shanti Enterprises to assert that tenant welfare supersedes developer profit interests. They emphasized that the developer’s attempts to sell the project to another entity demonstrated bad faith and undermined the Society’s trust.
The Court's Analysis
The Court conducted a meticulous review of timelines and correspondence, concluding that the delay was overwhelmingly attributable to the Petitioner. From March 2021 to May 2022, Ison Builders failed to submit financial documents despite two formal notices. The consent verification process, which should have taken months, was delayed for over two years due to inaction. Even after revival in 2023, no meaningful progress was made on Annexure-2 for another two years.
"Petitioner is solely responsible for non-conduct of consent verification for over 2 years. He has thereafter done precious little for issuance of Annexure-2 after the consent verification was completed on 6 April 2023."
The Court distinguished Sushil Kumar Agarwal, noting that while specific performance may be available in arbitration, it does not entitle a party to interim injunction under Section 9. The Court emphasized that Section 9 is an equitable remedy, and equity favors the party acting in good faith. The developer’s conduct - negotiating to sell the project to a rival, refusing to attend Society meetings, and threatening to block redevelopment - demonstrated bad faith.
The Court also relied on MCGM’s 2020 guidelines, which explicitly permit change of developer under paragraph (q) if the appointed developer fails to perform. The Court held that the Society’s termination was not arbitrary but a necessary response to protect the rights of tenants living in unsafe conditions.
"The ultimate interest of the developer in undertaking redevelopment project is to earn profits. When rights of residents of dilapidated buildings to reside in safe houses is pitted against the rights of the developer to earn profits through redevelopment contracts, the latter must yield to the former..."
The Court further noted that the neighboring developer’s involvement was not collusion but a pragmatic solution to a plot with severe planning constraints under DCPR 2034, as confirmed by MCGM’s own technical assessment.
The Verdict
The petitioner lost. The Court dismissed the Section 9 petition for interim relief, holding that the developer’s unjustified delay and bad faith negated any claim to equitable protection. The Section 11 application was allowed, and Smt. Justice Anuja Prabhudesai was appointed as sole arbitrator to adjudicate the merits of the termination and any claims for damages.
What This Means For Similar Cases
Developer Delay Justifies Termination
- Practitioners must now demonstrate that delays in municipal redevelopment are attributable to authorities or tenants, not the developer, to resist termination.
- Mere passage of time without progress, especially beyond five years, creates a strong prima facie case for termination.
- Failure to respond to statutory notices from municipal bodies is fatal to claims of good faith.
Section 9 Relief Is Not Automatic
- Section 9 relief cannot be granted merely because a Development Agreement exists or is capable of specific performance.
- Courts will prioritize the welfare of residents in dilapidated housing over developer profit interests.
- Evidence of developer’s attempts to sell or transfer the project to a third party will be viewed as malafide and disqualify equitable relief.
Municipal Guidelines Permit Developer Change
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Revised MCGM guidelines (2020) explicitly allow termination and replacement of developers without fresh Annexure-2 if 51% consent is retained.
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Practitioners must now advise clients that irrevocable consent under DCR 33(7) does not create an indefeasible right to remain as developer.
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Developers must proactively engage with municipal authorities and document all efforts to meet timelines.
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Developers must maintain contemporaneous records of all communications with municipal bodies and society members.
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Termination notices must be issued only after documented, repeated defaults and formal opportunities to cure.
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In arbitration, claims for damages remain viable even if interim relief is denied.
