Maha REAT: Builder Firm Can't Argue That Partner Who Received Money From Home Buyer Retired, Firm Is Liable

Maharashtra Real Estate Appellate Tribunal (Tribunal) bench, comprising of Justice Shri Shriram R. Jagtap (Judicial Member) and Dr. K. Shivaji (Technical Member), has held the construction firm liable for the misapplication of consideration money by the erstwhile partner. The consideration money of Rs. 22 lakh was paid by the homebuyers to the erstwhile partner of the construction firm to book a flat. Background Facts On 01.01.14, the Homebuyers (Respondent no. 1 & 2) entered into an agreement to purchase a flat. The Homebuyers made a payment of 10 lakh rupees by cheque to respondent no. 3, who at the time was the partner of appellant no. 1 (Construction firm). In addition to the cheque payment, the Homebuyers also paid 12 lakh rupees in cash to respondent no. 3. Subsequently, the firm issued an allotment letter dated 01.01.14, to the Homebuyers. Despite having received more than 20 percent of the total consideration amount, the Builders (Appellant 1 & 2) failed to fulfill their obligation to execute an agreement for sale in favor of the Homebuyers. Since builders failed to execute an agreement for sale in favor of the homebuyers, the homebuyers filed a complaint in MahaRERA. In its order dated 30.10.19, MahaRERA directed the Builder (Appellant no. 1) to execute an agreement for sale within 30 days. The Builders (Appellant 1 & 2) filed an appeal before the Tribunal against the MahaRERA order dated 30.10.19. Contention of Parties The builder argued that MahaRERA hastily issued the order without providing the builders with a fair opportunity to respond. Additionally, they questioned the authenticity of a Rs. 12 lakh receipt, alleging it was fraudulent. Moreover, they claimed that only respondent no. 3 (Erstwhile Partner) should bear all the liability, as stipulated under clause 5 of the retirement-cum-admission deed. Furthermore, the appellant referred to clauses 4 and 5 of the deed to argue that appellant no. 2 (Continuing Partner) should not be held responsible for a deal that occurred before he joined the partnership firm. In response to the builder's contention that the Rs. 12 lakh receipt was fraudulently made, the Homebuyers argued that before filing a complaint with MahaRERA, they sent a legal notice to the builder in which they specifically mentioned that they had paid Rs. 12 lakhs to the builder in cash. Since the builder did not reply to the notice, the builder's contention should be rejected. The Homebuyers referred Section 4 of the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management, and Transfer) Act, 1963 (MOFA), which prohibits builders from accepting more than 20 percent deposit without an agreement for sale. They argued that since the builder accepted more than 20 percent without executing the agreement, they violated MOFA. Therefore, the Authority rightly directed the promoters to sign the agreement for sale. Respondent no. 3, who was a partner of the construction firm when the Homebuyers paid the consideration to purchase the flat, argued that since he was no longer a partner of the construction firm when the Homebuyers filed the complaint in MahaRERA, and his name is not mentioned on the MahaRERA website as a promoter, he is not liable to execute an agreement for sale in favor of the homebuyers. Therefore, as he is no longer a partner of the appellant no. 1 partnership firm, he should not be held responsible. REAT Verdict The Tribunal held that the appeal of builder lacks merit and hence tribunal dismissed the appeal of the builder with cost. The Tribunal held that the Rs. 12 lakh receipt was not fraudulently made by the allottees for multiple reasons. Firstly, it was issued by Respondent no. 3 (erstwhile Partner) Secondly, this receipt was generated subsequent to the receipt of Rs. 12 lakhs in cash from the homebuyers, indicating a legitimate transaction. Thirdly, the builder did not contest the validity of the notice sent by the homebuyers before filing a complaint with MahaRERA, suggesting acknowledgment of the payment. The Tribunal held appellant no. 1 (Firm) liable for the actions of respondent no. 3. In reaching this conclusion, the Tribunal referred to Section 27 of the Indian Partnership Act, 1932, which stipulates the liability of the firm for misapplication by partners. Section 27 reads as under : Section 27: Liability of firm for misapplication by partners. (a) a partner acting within his apparent authority receives money or property from a third party and misapplies it, or (b) a firm in the course of its business receives money or property from a third party, and the money or property is misapplied by any of the partners while it is in the custody of the firm, the firm is liable to make good for the loss. The Tribunal further held that Section 25 of Indian Partnership Act, 1932 does not make a distinction between a...

Maha REAT: Builder Firm Can't Argue That Partner Who Received Money From Home Buyer Retired, Firm Is Liable

Aryan Raj

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