The Bombay High Court has held that a development agreement under which the developer is to develop the entire plot, hand over 50% of the area to the owner and retain the balance 50% cannot be construed as a pure construction contract for applying Section 14(3)(c) of the Specific Relief Act. The Court observed that when there was no clause in the agreement requiring satisfaction of the plaintiff's credentials as a developer, the plaintiff was not required to prove the same.

Justice Sharmila U. Deshmukh was hearing an Appeal From Order filed by the original Plaintiffs challenging the rejection of their application filed for temporary injunction in a suit seeking specific performance of an agreement for sale. Under the agreement, the Plaintiffs were to develop the entire suit plot and transfer 50% of the constructed built-up area to Defendant No.1, while 50% of the plot was to be transferred in favour of the Plaintiffs through a tripartite agreement. However, it was alleged that the defendants attempted to transfer the property to a third party, against which an injunction application was filed. The Trial Court rejected the application on the ground that the Plaintiffs did not produce any document to show that the Plaintiffs are developers and had carried out any development work.

The Court noted that the the contract entered into between the parties was for the development of the entire suit plot with 50% of the constructed area to be handed over by the Plaintiffs to Defendant No. 1. It further noted that Rs.70,80,000/- had already been paid by the Plaintiffs and that the Trial Court had not accepted the contention that Defendant No.3 was a bona fide purchaser for value without notice.

On the reason of the Trial Court for rejecting the application, the Court observed that the Trial Court had failed to notice Clause 7 of the development agreement which provides that after the physical possession of the plot is handed over by CIDCO, the Defendant No. 1 will execute the tripartite agreement either in favor of the Plaintiffs or in respect of the nominees of the Plaintiffs.

“It is not necessary for the developer to prove his credentials and it would have been perfectly possible for the Plaintiffs to engage a contractor for the purpose of carrying out construction. There was no clause in the agreement which required the satisfaction of such credentials of the Plaintiffs,” the Court remarked.

Referring to the Supreme Court's decision in Sushil Kumar Agarwal v. Meenakshi Sadhu [(2019) 2 SCC 241], the Court noted that a development agreement may describe a wide range of agreements.

The Court held that the Plaintiffs were not merely contractors engaged to undertake construction. They had agreed to develop the entire suit plot, hand over 50% of the constructed built-up area and consideration to Defendant No.1, while retaining the balance 50%. The Trial Court therefore erred in construing the agreement as a pure construction contract and applying Section 14(3)(c) of the Specific Relief Act.

“… the Trial Court erred in construing the agreement as pure construction contract by applying Section 14(3)(c). By construing the agreement as construction contract, the Trial Court has applied the consideration of absence of any construction carried out by Plaintiffs prior to present contract,” the Court remarked.

The Court further held that the Plaintiffs' rights to develop the entire plot could not be curtailed on the basis of the covenant that 50% of the land be thereafter conveyed in favor of the Plaintiffs.

Accordingly, the Court quashed and set aside the impugned order dated June 19, 2024 and allowed the Plaintiffs' application for temporary injunction.

Case Title: Rahul Ganesh Mehta v. Narayan Ganpat Gaikwad [Appeal From Order No. 548 of 2024]

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