Justice Sandeep V. Marne, in a detailed judgment delivered on 30 March 2026 in Commercial Arbitration Petition No. 354 of 2024, sustained the termination of the Development Agreement (DA) and Power of Attorney dated 26 September 2007, as well as the Consent Terms of 16 May 2017. The Court also confirmed the society’s monetary claim of ₹7,08,53,695.03 towards arrears of transit rent, interest and costs. However, it set aside the part of the award that had rejected the developer’s claim for return of the money spent on purchasing extra FSI and tit-bit land.

The dispute dates back to 2007 when the 60-member society, occupying buildings B-3, B-4 and B-5 in a MHADA layout at Siddharth Nagar, Goregaon (West), appointed SSD Escatics as developer. Members vacated their flats in late 2007. Construction progressed slowly and largely halted after a stop-work notice from the municipal corporation in August 2011. The society later encashed a ₹5 crore bank guarantee, adjusting part of it towards rent arrears and the rest towards its share of additional FSI.

After prolonged disputes, the parties entered into Consent Terms before the High Court in May 2017, fixing the developer’s liability for arrears and setting fresh timelines for completion of the two wings. The developer again defaulted — post-dated cheques bounced, court-directed payments were not fully made, and construction deadlines were missed. The society terminated the agreements by notice dated 9 June 2018.

The sole arbitrator, by award dated 24 June 2023 (corrected on 26 June 2023), upheld the termination, restrained the developer from interfering with the society’s possession of the land and buildings, directed handover of original documents, and awarded the society ₹7.08 crore. All counterclaims of the developer for damages, loss of profits and return of expenses were rejected.

Challenging the award under Section 34 of the Arbitration and Conciliation Act, the developer argued that the termination was illegal, that the society had itself breached reciprocal obligations, and that the arbitrator had wrongly denied restitution of benefits under Section 64 of the Indian Contract Act. It claimed return of transit rent paid to members, construction costs of the incomplete RCC structure, and the amounts spent on purchasing additional FSI and tit-bit land.

The High Court rejected most of these contentions. It held that the arbitrator’s findings on the developer’s material breaches of both the original DA and the Consent Terms were not perverse. These included exceeding the agreed FSI of 2.4, amending plans without proper consultation, non-payment of rent and escalation, and repeated failure to meet construction timelines. The Court observed that any delay by the society in issuing certain NOCs did not excuse the developer’s defaults under Section 67 of the Contract Act.

Importantly, the Court enforced Clause 22 of the DA, under which the developer had agreed that it would have no right to claim damages or compensation if the society terminated the agreement for the developer’s default, and that it would also forgo rights over the saleable component. Justice Marne noted that in redevelopment contracts the developer’s right to profit remains imperfect until it fulfils the primary obligation of rehousing members. An arbitrator is bound by such contractual terms.

On the crucial issue of restitution under Section 64 of the Contract Act, the Court drew a clear distinction. It held that transit rent paid to members is not a “benefit” that must be restored, as it merely compensates them for being kept out of their homes. Similarly, the cost of the incomplete bare-shell RCC structure (seven floors of A-wing and 21 floors of B-wing) cannot be treated as a benefit because the structure was not usable by the members.

However, the Court ruled that the actual purchase price of additional FSI constitutes a benefit received by the society. The society has retained and can continue to utilise or monetise this FSI. Allowing it to keep both the FSI and the purchase money would amount to unjust enrichment, conflicting with the fundamental policy of Indian law. The three amounts directed to be refunded are:

• ₹8,18,03,435 paid for tit-bit land from MHADA
• ₹20,61,150 paid for RG-area FSI
• ₹2,50,00,000 adjusted from the encashed bank guarantee towards the society’s share of extra FSI

The Court observed that there is no clause in the DA that prohibits return of the purchase price of FSI once the commencement-certificate stage is crossed. Clause 22 bars only damages and compensation, not restitution of benefits under Section 64.

The rest of the arbitral award — upholding termination, the injunction against the developer, direction to hand over documents, the monetary award in favour of the society, and rejection of claims for damages, loss of profits, return of rent and construction costs — has been sustained. The petition was partly allowed with no order as to costs.

The ruling provides important clarity for cooperative societies and developers engaged in redevelopment. While societies can validly terminate defaulting developers and retain incomplete construction as well as rent already paid, they cannot unjustly enrich themselves by retaining both the additional FSI purchased by the developer and the money spent on acquiring it.

Also Read: Builder Fails in Redevelopment, Homebuyers Lose Flats — and Society Walks Free, Says Tribunal

The post Bombay HC upholds Goregaon Pearl society’s termination of developer, orders FSI cost refund appeared first on Square Feat India.