Empire Realty v. Virani Tower Cooperative Housing Society Ltd. & Ors

What happened

Virani Tower Co-operative Housing Society entered into a Development Agreement dated 19 May 2025, registered at Borivali, with Empire Realty for the redevelopment of its property after its general body approved the terms in February 2025. The society executed 58 Permanent Alternate Accommodation Agreements and furnished 19 more consents, so that 77 of 79 units had consented. Respondents 2 to 4, the owners of Flat Nos. A-303 and A-304, did not consent. The State Bank of India, respondent 5, had taken physical possession of those flats under the SARFAESI Act as a secured creditor. The developer sought urgent interim reliefs under section 9, relying on the arbitration clause, clause 29, of the Development Agreement, including vacant possession from the bank or the appointment of a court receiver, and a restraint on obstruction. The bank was not a party to the agreement and said that a section 9 petition could not interfere with its statutory possession under section 14, but that it had no objection in principle to redevelopment provided its charge, priority and security interest continued over the replacement flats and the related payments. The flats measure 414 square feet, with a free additional area of 41 square feet and a compulsory purchase area of 33 square feet costing ₹6,60,000.

Questions before the court

• Can the court, under section 9, permit redevelopment of flats held by a secured creditor under the SARFAESI Act, and on what terms?

Why the court ruled this way

The Court accepted that the bank is not a party to the arbitration clause and cannot be compelled to arbitrate, but the developer was not asking the Court to decide any dispute between the bank and the owners; the question was how the secured creditor's rights are to be protected when the mortgaged flats are demolished and replaced (paragraphs 13–14). Following Transcore v. Union of India, possession under section 13(4) gives the bank control for enforcing its security, and as a mortgagee in possession it must deal with the property as a prudent owner would, but this does not make every future benefit its absolute property (paragraphs 15–19). Under the principle in sections 63 and 90 of the Transfer of Property Act and the Trusts Act, applied by the Privy Council in K.B. Seth Sorabjee, the existing security continues in the redeveloped premises and in the benefits connected with the security, but the bank has not signed the Development Agreement or agreed to buy the additional area, so the cost cannot be put on it, and it must have the choice of whether to take that area, within a limited time (paragraphs 20–31). The transit rent, corpus, brokerage and similar sums arise in connection with the secured premises and are to be paid to the bank against the dues of the owners (paragraphs 32–35). The Court did not decide the enforceability of the compulsory purchase clause between the society, its members and the developer (paragraph 35).

Controlling point

A section 9 court may allow redevelopment of flats in the secured creditor's possession under the SARFAESI Act on terms that preserve its mortgage and priority over the replacement premises and related payments, without compelling the bank to buy additional area.

Order and next steps

The petition was partly allowed. The owners of the two flats must cooperate and are restrained from obstructing the demolition and redevelopment, and from transferring or encumbering the flats inconsistently with the redevelopment and the bank's rights. The bank must hand over vacant possession within seven days of written intimation, for the limited purpose of demolition and redevelopment, without waiver of its mortgage, charge or priority, which attach to the replacement premises; it may decide within two weeks whether to take the additional area on payment, failing which the developer may proceed without allotting it, and it may include an option for the additional area in any auction terms. Transit rent, corpus, brokerage and shifting or hardship compensation for those flats are to be paid to the bank against the owners' dues, the bank may hold the alternate premises until its dues are satisfied, its rights under sections 13 and 14 of the SARFAESI Act are unaffected, and the appointment of a receiver was not required. The petition was disposed of, and the final rights of the owners over the additional area are left open.

Practical implications

A developer redeveloping a society where a flat is in a secured creditor's possession should approach the creditor for terms that carry its security into the new premises, and a bank facing redevelopment should put its preferences on additional area and payments before the Court early.

Limits of this ruling

• The order is an interim measure under section 9; it does not adjudicate the owners' final rights to additional area or the bank's recovery rights, and the Court said that the bank is not compelled to arbitrate with the developer.