Additional Fees For Changing Slum Developer's Structure Not Applicable When Owner Inducts Legal Heirs As Partners: Bombay High Court

The Bombay High Court recently held that additional fees applicable for changing the structure of a slum developer company/firm and inducting third parties is not applicable when the owner inducts his legal heirs as partners in order to ensure smooth transition after his death.

Justice Milind N Jadhav quashed an order of the Slum Development Authority (SRA) directing a slum developer to pay additional fees after the owner converted the sole proprietorship to a partnership and inducted his legal heirs as partners.

“it is crystal clear that the exemption provided in clause (ix) of the SRA office order dated 23.03.2015 is applicable to the facts of the Petitioner's case as the conversion of the proprietorship firm into partnership firm was never intended to induct any third party but only the legal heirs, which even otherwise eventually would have taken place after the demise of Mr. Ramesh Malhotra”, the court observed.

The court allowed a writ petition filed by Gemini Developers challenging the order of the Apex Grievance Redressal Committee (AGRC) of SRA.

The AGRC had on June 28, 2019 directed Gemini Developers to pay an additional 5 percent of the land cost in adherence to an SRA office order dated March 23, 2015 due to a change in the structure of the Developer. The AGRC also mandated the completion of the slum rehabilitation project within 24 months from the date of commencement certificate.

Gemini Developers owns a slum rehabilitation project in Santacruz, Mumbai. Ramesh Malhotra, the sole proprietor, in his Will dated February 18, 2014 bequeathed the slum rehabilitation project undertaken by the proprietorship in favour of his wife and son. He also formed a partnership firm with his wife and son in January 2016 due to his deteriorating health as he was suffering from cardiac arrest and renal failure. He passed away two months later in March 2016, and the AGRC's order in 2019 imposed the fees. Gemini Developer challenged the AGRC order before the high court.

Gemini Developers argued that the alteration in the firm's structure from sole proprietorship to a partnership was not intended to introduce a new Developer but rather to continue the project smoothly with Malhotra's wife and son, who would otherwise also have been entitled to the same as his legal heirs after his death. It contended that the SRA office order did not apply in this case, citing the exemption clause (ix) for changes due to the death of the sole Developer.

Advocate Jagdish Aradwad for AGRC asserted that the office order applied to changes in partnership, justifying the imposition of the 5% fees. He submitted that transfer of shares/shareholding that occurred after Ramesh Malhotra's death would be exempt from the fees under clause (ix) of the office order, but for the change from proprietorship concern to a partnership firm January 2016, i.e., before his death, the developer is liable to pay the fees.

The court underscored that the primary intent behind the office order was to charge fees for third-party induction, which was not applicable in the case of Malhotra's death. The court concluded that the exemption in clause (ix) of the SRA office order applies, as the conversion was not intended to bring in third parties but only the legal heirs.

“Therefore, under no circumstances was there any intention on this part either to induct or transfer the subject slum rehabilitation project to any outside third party and change the constitution of the firm. Rather it was undertaken only to ensure smooth transition and completion of the redevelopment project by his own legal heirs”, the court observed.

Consequently, the court set aside the direction to pay the 5 percent fees and directed the authorities to promptly grant the necessary permissions for the completion of the slum rehabilitation project. The court, however, left open the consideration of an extension beyond 24 months for project completion, subject to the merits of any application made by Gemini Developers.

Advocates Anoshak Daver and Deepa Pahuja i./by J Law Associates represented Gemini Developers

AGP Manish Upadhye represented the State of Maharashtra.

Advocate Jagdish G Aradwad (Reddy) represented the Apex Grievance Redressal Committee

Advocate Vijay Singh i./by Desai Legal represented the Slum Rehabilitation Authority.

Case no. – Writ Petition No. 103 of 2020

Case Title – Gemini Developers v. State of Maharashtra & Ors.

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