Court’s Decision
The Bombay High Court refused to grant temporary injunctions sought by a housing society against developers and consultants in relation to Transferable Development Rights (TDR) transactions. The society alleged fraud, forgery, and unauthorized sale of TDR at undervalued prices. However, the Court held that developers had already acted upon the transactions, constructions had commenced or were completed, and third-party rights had crystallized.
The Court observed:
“Fraud vitiates everything, but restitution is an essential condition when challenging completed transactions. One cannot retain consideration and still seek to annul agreements.”
It held that the dispute involved issues of authority, fraud, registration, and adequacy of consideration, but interim relief could not disturb third-party developments. Instead, remedies lay under the Maharashtra Co-operative Societies Act and by way of recovery proceedings.
Facts
The housing society owned a large parcel of land, part of which was acquired by the municipal corporation in 1986 for a road. In lieu of monetary compensation, the society was entitled to Development Rights Certificate (DRC) and TDR.
In January 2023, the society passed resolutions authorizing its office-bearers to apply for TDR. Consultants were appointed—one for procurement and another for sale of TDR. In July 2023, the society mortgaged 6,000 sq.mtrs of TDR to a consultant against advance payment of ₹9 crores. On 7 August 2023, the municipal corporation issued DRC granting TDR equivalent to 14,568.20 sq.mtrs.
Between August and September 2023, the society executed multiple unregistered agreements with developers for sale/utilisation of TDR, receiving about ₹46 crores. Later, allegations arose that the agreements were unauthorized, forged, and undervalued compared to the Annual Statement of Rates. A fact-finding committee alleged fraud by office bearers. Parallelly, audit and inquiries under Sections 81 and 83 of the Maharashtra Co-operative Societies Act reported misappropriation of funds.
The society filed a suit in February 2025 seeking declarations that the TDR agreements were void, injunctions restraining developers from using the TDR, and recovery of ₹16.51 crores from consultants. The present application sought interim injunctions against use/recognition of TDR by developers and the municipal corporation.
Issues
- Whether the sale of TDR was unauthorized, having no basis in general body resolutions.
- Whether the transactions were vitiated by fraud and misappropriation by office-bearers.
- Whether the unregistered TDR agreements were void under Section 17 of the Registration Act, 1908.
- Whether inadequate consideration rendered the sale invalid.
- Whether temporary injunction could be granted despite developers’ completed or ongoing construction.
Petitioner’s Arguments
The society contended that the agreements executed in favour of developers were void, as resolutions only authorized consultants for procurement, not sale. It argued that TDR, being a benefit arising from land, is immovable property and requires compulsory registration of transfer agreements. Reliance was placed on Chheda Housing Development Corporation v. Bibijan Shaikh Farid, Shahed Kamal v. Pagarani Universal Infrastructure Pvt. Ltd., and Supreme Court rulings such as Ananda Behera v. State of Orissa to argue that benefits arising from land require registration.
It was alleged that massive fraud was committed by consultants and office-bearers, leading to undervaluation—TDR worth ₹97.88 crores was sold for only ₹46 crores. Audit reports highlighted misappropriation and misuse of funds. The society argued that fraud vitiates everything, and therefore developers could not claim rights under such illegal agreements.
The petitioner also stressed that delay could not defeat injunctions, particularly when fraud is alleged. It argued that consideration need not be refunded at this stage, since agreements procured through fraud cannot be enforced. Reliance was placed on Loop Telecom v. Union of India and Hindustan Pencils Pvt. Ltd. v. India Stationery Products Co. to show that fraud and deceit disentitle beneficiaries from equitable relief.
Respondent’s Arguments
The developers and consultants opposed the injunctions. They argued that the suit itself was defective, lacking mandatory pre-institution mediation under Section 12A of the Commercial Courts Act. They contended that the managing committee and general body were aware of the transactions, resolutions authorised them, and payments were duly received.
They argued that TDR is not immovable property but a statutory compensation mechanism under the MRTP Act. Agreements for utilisation of TDR do not require registration. Reliance was placed on B. Jeejeebhoy Vakharia v. Sahara India Commercial Corp. (later upheld by Supreme Court) distinguishing Chheda Housing.
It was further argued that consideration was paid in full, construction had commenced, occupancy certificates were obtained in some cases, and third-party rights had arisen. Under doctrines of “Indoor Management” and restitution under Section 65 of the Contract Act, the society could not retain ₹46 crores and still challenge the agreements.
Developers relied on Kuju Collieries v. Jharkhand Mines Ltd., N. Murugesan v. Union of India, and Authorised Officer, SBI v. C. Natarajan to argue that restitution is mandatory before cancelling executed agreements. They stressed that market rates cannot be equated with stamp duty ASR rates, and adequacy of consideration is not a ground to annul a sale.
Analysis of the Law
The Court examined the competing claims on whether TDR is immovable property. It noted conflicting precedents—while some judgments treated TDR as arising from land (thus immovable), others treated it as a statutory right akin to movable property.
On registration, the Court held that Regulation 6.4 of DCPR requires registration only when the entire DRC is transferred. For utilisation of TDR, registration was not mandatory.
On fraud, the Court reiterated the principle that fraud vitiates everything but emphasized restitution: if the society challenges agreements, it must return consideration received. Without refunding ₹46 crores, equitable injunction could not be granted.
On adequacy of consideration, the Court held that inadequacy alone cannot invalidate a transaction. ASR is for stamp duty purposes and does not necessarily reflect market rates.
Precedent Analysis
- Chheda Housing (2007) – Held TDR is a benefit arising from land, hence immovable property.
- B. Jeejeebhoy Vakharia (2008, SC 2011) – Distinguished Chheda Housing; held TDR need not always be registered as immovable property.
- Shahed Kamal (2022 Bom HC) – Reaffirmed TDR as benefit of land.
- Loop Telecom (2022 SC) – Fraudulent contracts confer no rights.
- Kuju Collieries (1974 SC) – Restitution required before cancellation of executed contracts.
- Hindustan Pencils (1989 Del HC) – Delay cannot defeat injunction when fraud is proved.
- Sabarimala Case (2019 SC) – Delegated legislation cannot exceed parent statute, relied on by developers.
The Court harmonised these authorities by holding that while TDR has features of immovable property, for purposes of registration and utilisation, statutory regulations govern and developers cannot be penalised without restitution.
Court’s Reasoning
The Court reasoned that:
- General body resolutions show society’s knowledge of consultants’ role; payments of ₹9 crores in advance negate the claim of secrecy.
- Developers acted in good faith, paying substantial sums; construction has progressed; equities favour them.
- Fraud allegations against office-bearers must be investigated under the Co-operative Societies Act, not by annulling developer contracts at interim stage.
- Since the society has not offered to refund the money received, it cannot seek equitable injunction.
The Court thus refused injunctions against developers and the municipal corporation. However, it clarified that the society may pursue recovery actions against erring office-bearers under the Maharashtra Co-operative Societies Act.
Conclusion
The interim application was dismissed. The Court held that injunctions cannot be granted to stop utilisation of TDR already acted upon, especially when construction is complete and third-party rights have crystallised. Fraud allegations must be pursued through statutory mechanisms, and restitution is a prerequisite to cancelling agreements.
Implications
This judgment clarifies the legal treatment of TDR transactions:
- TDR is a statutory right, and whether it is immovable depends on the context.
- Registration is required when the entire DRC is transferred, not for partial utilisation.
- Fraud must be proven, but restitution is mandatory before seeking to annul contracts.
- Courts will not grant injunctions disrupting third-party rights once TDR is loaded into construction projects.
For housing societies, the case underscores the importance of transparency and proper resolutions before monetising TDR. For developers, it offers protection where due consideration is paid and projects completed.
FAQs
Q1. Is Transferable Development Rights considered immovable property?
Courts have given conflicting views. Some judgments treat TDR as arising from land, hence immovable. Others hold it as a statutory right, movable in nature. The Bombay High Court clarified that for utilisation, TDR need not be compulsorily registered.
Q2. Can a society cancel TDR sale agreements after receiving money?
Not without refunding the consideration. The Court stressed that restitution is mandatory before annulling contracts, even if fraud is alleged.
Q3. Will inadequacy of consideration invalidate TDR agreements?
No. Inadequacy alone cannot void a contract. Stamp duty ASR rates do not determine market value.
