Housing society’s contractor-directors were allotted four flats; Bombay High Court orders two unfinished flats transferred to original members for ₹2.5 crore

Le Chateau Co-operative Housing Society resolved in its EGM dated 24 April 1996 to construct additional floors on the society’s buildings and allot the additional flats to existing members, subject to payment of construction and TDR/FSI costs. Flat Nos. 701 and 702 were allotted to the petitioners, who were husband and wife and existing members of the society.

Jet Speed Developers Pvt. Ltd. was appointed as contractor under an agreement providing for payment of construction and TDR costs at the agreed rate.

The petitioners disputed the society’s demands and did not make the demanded payments, despite repeated correspondence and opportunities.

At the AGM held on 24 July 1998, the society treated the petitioners’ allotment as terminated and allotted Flat Nos. 701 and 702 to Respondent Nos. 4 and 5, who were directors of the contractor and relatives of the Mankani family controlling a substantial portion of the society’s membership.

Subsequently, Flat Nos. 801 and 802 were constructed on the eighth floor of the Shamrock building and allotted to the same respondents.

The petitioners challenged the cancellation and allotment before the Cooperative Court and sought, alternatively, allotment of Flat Nos. 801 and 802. The Cooperative Court dismissed the dispute on 30 January 2017; the Cooperative Appellate Court dismissed the appeal on 11 January 2018 and the review on 13 July 2018.

Whether the society’s cancellation of the petitioners’ allotment of Flat Nos. 701 and 702 and their subsequent allotment to the contractor’s directors was arbitrary and legally sustainable?

Whether the society could allot additional flats to persons who were not existing members, contrary to the original resolution restricting allotment to society members?

Whether the petitioners could seek allotment of Flat Nos. 801 and 802 despite the separate proceedings concerning construction and allotment of those flats?

Whether equitable relief could be granted by transferring Flat Nos. 801 and 802 to the petitioners upon payment of ₹2.50 crores, while leaving the allotment of Flat Nos. 701 and 702 undisturbed?

The Court applied the principles governing the fair and non-arbitrary administration of a co-operative housing society, including adherence to resolutions of the general body, equal treatment of society members, and the requirement that society property and development benefits be administered for the benefit of eligible members rather than insiders or non-members.

It treated the contractor’s entitlement as contractual and monetary—namely, recovery of construction and TDR/FSI costs—and held that such entitlement did not confer any proprietary right to obtain flats in the society’s building.

The Court further applied equitable and restorative principles in moulding relief under writ jurisdiction, balancing the petitioners’ membership rights, the respondents’ long occupation of Flat Nos. 701 and 702, and the unfinished and unoccupied status of Flat Nos. 801 and 802.

The Court also held that dismissal of separate proceedings concerning the validity of the eighth-floor construction did not bar adjudication of the petitioners’ independent claim to allotment of those flats, since that relief had not been sought in the separate dispute.

The Court accepted that the petitioners had defaulted in making timely payments for Flat Nos. 701 and 702, but held that this default did not justify the society’s direct and preferential allotment of those flats to the contractor’s directors, particularly when the original scheme contemplated allotment only to existing members and the respondents were close relatives of persons controlling approximately half the society’s flats.

If the petitioners’ allotment had to be cancelled, the society ought to have adopted a transparent process, such as auction, rather than transferring the flats to persons connected with the contractor in adjustment of disputed dues.

The contractor’s remedy for unpaid construction costs was recovery from the society, not acquisition of flats.

The Court nevertheless declined to disturb the allotment of Flat Nos. 701 and 702 because the respondents had occupied them for a considerable period and the petitioners had admittedly not paid their contributions.

In contrast, Flat Nos. 801 and 802 remained unfinished and unoccupied. Their allotment to the contractor’s directors was found to be a further arbitrary extension of the original illegality, and the separate dispute did not prevent the Court from granting relief because it concerned the validity of the eighth-floor construction and did not seek allotment of the flats to the petitioners.

To balance the equities, the Court directed transfer of Flat Nos. 801 and 802 to the petitioners upon payment of ₹2.50 crores to Respondent Nos. 4 and 5, rather than requiring payment of market value.

The orders of the Cooperative Court, the Cooperative Appellate Court, and the review order were set aside.

The petitioners were declared entitled to Flat Nos. 801 and 802 in the Shamrock building; the society was directed to cancel the respondents’ allotment and enter the petitioners’ names in its membership register.

The petitioners were directed to pay ₹2.50 crores to Respondent Nos. 4 and 5 within six weeks, against which the respondents were to surrender the allotment and hand over possession.

If the respondents refused payment, the petitioners could deposit the amount with the society and obtain possession with police assistance.

The petitioners would be liable for maintenance only from the date of possession, and failure to pay within the stipulated period would revive the respondents’ allotment.

The allotment of Flat Nos. 701 and 702 was not disturbed owing to the respondents’ long occupation and the petitioners’ admitted non-payment.