Two members of a Chembur co-operative housing society have failed to stall redevelopment at the interim stage after the Maharashtra State Co-operative Appellate Court held that a 20 per cent bank guarantee from the developer is only recommendatory and not a legal condition that can freeze a majority-approved project.
The order was delivered on 4 September 2026 by Member-1 Dr. Srishty Neelkanth in Appeal from Order No. 26 of 2026. The appellants were Smt. Sheila Viswanath and Shri Sunder Seshan Kalpathi, members of Shanti Co-operative Housing Society Ltd., Plot No. 84, 2nd Road, Chembur. The society was the respondent. The appeal challenged only the trial court’s 10 March 2026 rejection of their interim application (Exhibit 19) seeking a stay on an eviction notice dated 1 February 2026.
The main dispute is still pending. What the Appellate Court decided is narrower and more important for other societies: missing a 20 per cent bank guarantee, by itself, does not make redevelopment illegal and does not entitle a minority to an interim injunction once the general body has approved the project and possession has moved.
What the two members were fighting
Shanti CHS first resolved to redevelop at its AGM on 25 September 2022. In an SGM on 19 March 2023 it appointed Mangal Buildhome Private Limited and issued a letter of intent. That developer later backed out. On 18 February 2024 the society appointed Laxmina Argentum Realties India Private Limited.
The two members said they checked Ministry of Corporate Affairs records and raised unanswered doubts about the developer’s financial capacity and experience. They alleged the appointment was made without due diligence and without written reasons, even though other developers had offered about 10 per cent more area — a difference they valued at ₹25 lakh to ₹30 lakh per member.
They challenged resolutions dated 29 January 2025 and 22 February 2025. In the main dispute they want those resolutions declared void, Laxmina’s appointment quashed, a fresh tender under a PMC or architect, and a restraint on execution of a development agreement.
At the interim stage their case was more immediate. They said redevelopment cannot be forced on members without three safeguards: a Permanent Alternate Accommodation Agreement (PAAA), a 20 per cent bank guarantee, and a Project Management Consultant. They sought a stay on the 1 February 2026 eviction notice and a restraint on dispossession.
The society’s reply was that 14 of 17 members — 82 per cent — had approved the project and signed and registered the development agreement. It argued the two members were trying to stall a project already in motion, and that freezing it would cause cost escalation for the majority and the developer.
What the 20 per cent bank guarantee actually is
A bank guarantee in society redevelopment is a performance security issued by a bank in favour of the society. If the developer defaults after members vacate — stops construction, stops paying transit rent, or abandons the site after demolition — the society can invoke the guarantee and draw money from the bank without waiting years for a damages decree.
It is meant to cover the most dangerous phase of redevelopment: the period after the old building is down and members are in rented rooms. The typical risks it is designed to meet are unpaid rent, incomplete rehab work, and the cost of bringing in another contractor if the chosen developer walks away.
The figure of 20 per cent is not in the Maharashtra Co-operative Societies Act, 1960. It comes from government guidelines issued under Section 79A of that Act.
The 3 January 2009 redevelopment directive first said the development agreement should include a bank guarantee of 20 per cent of the project cost. The Government Resolution dated 4 July 2019 updated those guidelines. Clause 18 lists points that “shall be included” in the agreement with the developer. One of them is that the developer shall give a bank guarantee “to the extent of 20 per cent of the total value of the Re-development Project.”
The same clause also speaks of a construction period of generally two years from the first or plinth commencement certificate (three years in exceptional cases), transit accommodation or rent, and registration of both the development agreement and individual PAAAs.
Society consultants and many public explainers treat that 20 per cent clause as a hard legal mandate: no guarantee, no valid redevelopment, and members must not vacate. That is why dissenting members repeatedly use the missing guarantee as a ground for stay.
Why the court said it is not mandatory
The Appellate Court held that the two members had not made out a prima facie case, that the balance of convenience was against them, and that refusal of injunction would not cause irreparable injury of the kind that justifies freezing the project.
On the bank guarantee specifically, the court relied on a Bombay High Court decision that the appellants themselves cited: Antariksh Realtors Private Limited v. The Vidyavihar Palmview Co-op. Housing Society Limited and others, Commercial Arbitration Petition (L) No. 19179 of 2026, decided on 7 July 2026. That judgment holds that furnishing a 20 per cent bank guarantee is only recommendatory, not mandatory. Mere absence of the guarantee does not invalidate the redevelopment process. Members cannot insist on it as a veto.
That High Court view sits on a longer line of cases. In Maya Developers v. Neelam R. Thakkar (2016), the Bombay High Court held that the 2009 Section 79A directive is recommendatory, not a statute that wipes out a majority decision if every clause is not followed to the letter. In Nitin Ambavi Gami v. State of Maharashtra (2022), the High Court applied the same reasoning to the 20 per cent guarantee in the 2009 and 2019 circulars and treated the condition as recommendatory, especially where other security existed. Later orders on the 2019 GR as a whole have also described those guidelines as directory, meant to ensure a fair process, not to override the general body.
The legal distinction is important. Section 79A lets the State issue directions in public interest. It does not convert every sentence of a GR into a condition precedent. If the general body has approved the developer and the agreement, courts will not stall demolition and reconstruction only because one recommended security clause is missing.
A contractual promise is different. If the signed development agreement itself requires a bank guarantee and the developer never gives it, that is a breach of contract. That is a stronger case than saying “the 2019 GR was not followed.” The Chembur order was decided on the GR/guideline point, not on a finding that a contractual BG clause had been broken.
Why the rest of the interim case also collapsed
The bank guarantee was only one of three interim planks. The other two also failed on facts that had changed by the time of the appeal.
First, the PAAA. Both sides admitted that the two members had signed the PAAA, though they said they signed under protest because it did not meet their requirements. They had also handed over possession of their flats. Once possession is given, a prayer to stay an eviction notice and restrain dispossession becomes infructuous. The court said Exhibit 19 had, at this stage, lost its purpose.
Second, the PMC. The society pointed to minutes of the AGM dated 29 September 2024, already on record in the dispute, showing that 15 of 17 members voted to appoint the Project Management Consultant at a later stage. The court treated that as a majority decision, not a legal vacuum that justified a stay.
The court also recorded the admitted position that 14 of 17 members had approved the project. “The collective will of the housing society governs the project,” it said. Except the two disputants, the remaining members had not opposed redevelopment.
On balance of convenience, the court held that stalling the project now would cause financial loss to the society and other members through escalation in project cost. The two members, it said, still have the right to lead evidence in the trial court on their allegations about due diligence, the developer’s finances, and the selection process.
It found no infirmity in the trial court’s common order of 10 March 2026 and dismissed the appeal. Parties were directed to bear their own costs.
What the order does not decide
The Appellate Court has not given a clean chit to Laxmina Argentum. It has not held that the January and February 2025 resolutions are valid. It has not decided whether other developers offered better area, or whether the society answered the MCA-based objections. Those issues remain for the main dispute.
It has also not held that societies should stop asking for a bank guarantee. The guarantee remains a useful commercial safeguard. A well-drafted guarantee should name the society as beneficiary, state a clear amount linked to project cost, stay valid through construction and a defect period, and spell out when it can be invoked — delay, unpaid rent, abandonment, or termination. Societies that accept a weaker substitute, such as sale flats kept as security, should write that substitute into the development agreement.
The practical lesson from the order is narrower. After a large majority has approved redevelopment, after the PAAA is signed, and after possession is handed over, a member is unlikely to get an interim stay only because the 20 per cent guideline guarantee is missing. The fight then shifts to the trial of the main dispute, not to a freeze on the project.
For housing societies across Mumbai, the Chembur ruling is another signal that courts are treating the 2019 redevelopment GR as a roadmap, not as a veto in the hands of a minority. The 20 per cent bank guarantee is meant to protect members after they vacate. It is not, on current High Court law, a switch that turns a majority decision off.
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