Bombay High Court appoints Court Receiver to oversee slum rehabilitation project, permits supervised sale of flats to fund completion

The petitioner had obtained a Letter of Intent from the Slum Rehabilitation Authority (“SRA”) for redevelopment of the subject property.

Under a Development Agreement dated 31 December 2014, respondent No.1 was appointed co-developer and assumed responsibility for financing and executing the redevelopment project, including construction of the rehabilitation buildings, payment of transit rent, statutory dues, obtaining permissions and Occupation Certificates, and compliance with SRA requirements.

These obligations were reaffirmed through supplementary agreements dated 21 April 2016, 11 June 2021 and 14 June 2021.

Since Rehabilitation Building No.4 remained incomplete, the parties executed a Memorandum of Understanding (“MoU”) dated 11 September 2023.

The MoU earmarked approximately 6,560 sq. ft. of respondent No.1’s free-sale premises as security for completing the rehabilitation building, paying transit rent and discharging connected liabilities.

In the event of default, the security was to be released in favour of the petitioner for sale and utilisation of the proceeds towards completion of the project.

On 17 September 2025, the SRA terminated the petitioner’s appointment as developer under Section 13(2) of the Slum Act, principally citing non-payment of transit rent.

The petitioner challenged that order before the Apex Grievance Redressal Committee, which stayed its operation and directed deposit of Rs.50 lakhs towards transit rent and completion of the project by 1 September 2026.

The petitioner invoked arbitration on 13 June 2026 and filed the present petition under Section 9 of the Arbitration and Conciliation Act, 1996, seeking protection of the security, appointment of a Court Receiver, authority to complete Rehabilitation Building No.4, and related monetary and protective reliefs.

An ad interim order initially restrained the respondents from creating third-party rights in the unsold flats.

Whether Clause 16 of the MoU superseded or replaced the arbitration clause contained in Clause 31 of the Development Agreement?

Whether the restriction in Clause 31, limiting the Arbitrator’s power to terminate the agreement or stop development work, also restricted the High Court’s jurisdiction under Section 9 of the Arbitration and Conciliation Act?

Whether the contractual documents prima facie imposed upon respondent No.1 the obligations to complete Rehabilitation Building No.4, pay transit rent, discharge statutory liabilities and obtain the requisite Occupation Certificate?

Whether the petitioner had established, prima facie, non-performance or breach of those obligations by respondent No.1?

Whether the petitioner had established a prima facie case and real apprehension requiring protection of the security created under the MoU?

Whether the petitioner was entitled to invoke substituted performance under Section 20 of the Specific Relief Act, 1963?

Whether, notwithstanding non-compliance with Section 20, the Court could appoint a Receiver and appoint the petitioner as the Receiver’s Agent for the limited purpose of completing the rehabilitation component?

The Court applied Section 9 of the Arbitration and Conciliation Act, 1996, which empowers the Court to grant interim measures for preservation of the subject matter of arbitration, protection of property, securing the amount in dispute and maintaining the efficacy of the arbitral process.

Section 9 is discretionary and cannot be used to rewrite the parties’ contract, finally determine disputed rights or grant relief inconsistent with the contractual framework.

The Court applied the principle that contractual provisions executed between the same parties should, where possible, be harmoniously construed; accordingly, the original arbitration clause and the later MoU arbitration clause were permitted to coexist.

Section 20(2) of the Specific Relief Act requires a written notice of not less than thirty days calling upon the defaulting party to perform before substituted performance can be undertaken; the requirement is mandatory because of the statutory negative language.

Under Section 20(3), once substituted performance is undertaken, the aggrieved party cannot claim specific performance.

The Court also relied on Order XL Rule 1 of the Code of Civil Procedure, 1908, concerning appointment and powers of a Court Receiver.

The Court held that the MoU did not expressly cancel or substitute Clause 31 of the Development Agreement; however, Clause 16 remained operative for disputes arising from the rights and obligations created by the MoU.

Both clauses were therefore to be read harmoniously.

Clause 31 restricted the Arbitrator, not the High Court’s statutory jurisdiction under Section 9.

Nevertheless, the Court had to mould relief so that it did not effectively terminate the Development Agreement or displace respondent No.1 contrary to the contractual arrangement.

On the contractual merits, Clause 5 of the Development Agreement and the subsequent agreements clearly placed upon respondent No.1 the responsibility for construction, payment of transit rent and statutory and project-related liabilities, including obtaining the Occupation Certificate.

The MoU’s creation of specific security for completing Rehabilitation Building No.4 demonstrated that the parties themselves recognised continuing obligations.

The SRA proceedings, outstanding liabilities, absence of the Occupation Certificate and alleged alienation of secured flats collectively established a prima facie dispute and a real apprehension that the arbitral subject matter could be defeated.

The petitioner, however, could not claim substituted performance under Section 20.

Its notice dated 13 June 2026 allowed only seven days for compliance, whereas Section 20(2) mandates a minimum thirty-day notice.

The Court rejected substantial-compliance and prior-default arguments, holding that the statutory condition had not been satisfied.

The Court nevertheless distinguished statutory substituted performance from a Court-supervised interim arrangement under Section 9.

Since the project involved rehabilitation of slum dwellers and delay would increase transit-rent and other liabilities, merely restraining alienation would not adequately preserve the arbitral subject matter.

Appointment of a Receiver, with the petitioner acting only as the Receiver’s Agent under judicial supervision, would protect the security without transferring ownership or finally deciding the parties’ rights.

The Court Receiver, High Court, Bombay, was appointed under Order XL Rule 1 CPC over the approximately 6,560 sq. ft. security area, with symbolic possession and supervisory powers.

The petitioner was appointed merely as the Receiver’s Agent, without any proprietary, possessory, development or equitable rights, and solely to facilitate completion of Rehabilitation Building No.4, obtain the Occupation Certificate and discharge directly connected statutory obligations.

The Receiver could, after hearing the parties, permit sale of unsold free-sale flats to generate funds for completion of the rehabilitation building, payment of legitimate connected dues, transit rent, LUC charges and statutory charges.

Any sale required the Receiver’s prior written approval, and all proceeds were to be deposited in a Receiver-controlled escrow account.

Respondent No.1 was directed to hand over project documents and disclose details of the security area and unsold inventory.

Alienation or creation of third-party rights in the remaining security and unsold flats was restrained without the Receiver’s permission.

Immediate monetary reliefs and reimbursement claims were not granted, being disputed matters for arbitration.

The petitioner could seek reimbursement of expenditure incurred pursuant to the order before the Arbitral Tribunal, but no reimbursement was assured by the Section 9 order.

All findings were prima facie and non-binding on the Tribunal, and either party could seek modification or vacation of the arrangement under Section 17 after constitution of the Arbitral Tribunal.