Mumbai: MHADA's Neglect In Recovering Losses From Redevelopment Scams Faces Legal Backlash

Mumbai: Despite the State AntiCorruption Bureau (ACB) prima facie finding evidence that MHADA officials and developers connived and caused a loss to the state exchequer in the redevelopment of city’s cessed buildings, the housing body has neglected to recover the compensation from developers.

MHADA Approaches The Supreme Court Of India

Meanwhile, MHADA has approached the Supreme Court (SC) and sought to overturn the Bombay High court order of 2019, which directed registration of FIR against erring MHADA officials. Activist Kamlakar Shenoy has termed the housing body’s plea before the SC as “illegal and bad in law”, and accused it of suppressing crucial facts and not approaching the court with “clean hands”.

Shenoy has filed written submissions before the apex court seeking the dismissal of MHADA’s Special Leave Petition (SLP), which challenges a 2019 Bombay High Court judgment. This judgment directed the Economic Offences Wing (EOW) of the Mumbai police to register an FIR based on allegations that MHADA officials failed to recover surplus areas from defaulting builders, resulting in a loss of Rs 40,000 crore since the 1990s.

Shenoy, 65, was himself a victim of a property scam by a builder, which led him to uncover a larger scam worth at least Rs 40,000 crore.

About The Case

In 1991, the State of Maharashtra amended Development Control Rules to promote the redevelopment of old, dilapidated cess buildings by private developers or landlords under Rule 33(7). The state government offered builders an additional Floor Space Index (FSI) as an incentive, provided they rehabilitate existing tenants in newly constructed buildings and allocate a certain portion of flats to MHADA. Builders could sell the remaining flats in the open market.

Shenoy discovered that many builders failed to hand over the designated flats to MHADA and instead sold them in the open market, depriving MHADA of flats worth at least Rs 40,000 crore. Through RTI, it was revealed that up to March 14, 2014, MHADA had issued redevelopment NOCs for 1,728 projects, with 379 builders defaulting on their obligations.

Shenoy then filed a Public Interest Litigation (PIL) in the Bombay High Court in 2017. The HC, on September 18, 2019, directed the registration of an FIR against the errant MHADA officials.

MHADA Challenges Ruling In The SC

MHADA challenged this ruling in the Supreme Court, which subsequently issued a notice to Shenoy. The activist has now requested the dismissal of MHADA’s SLP, arguing that the HC’s order only mandates that the trial court proceed in accordance with the law after taking cognizance of the crime. He cautioned that overturning the HC judgment could set a dangerous precedent, encouraging negligence among public officials, thereby causing further losses to the exchequer.

The Rule 33(7) mandates that once the projects are sanctioned, the component of the constructed area to be surrendered by the developer to the MHADA becomes the “property of the State”.

Even the State Anti-Corruption Bureau found prima facie evidence of a cognizable offense and recommended an inquiry. MHADA, in an affidavit, admitted that it had neglected to recover surplus areas/tenements from developers and has since initiated a process to recover compensation at Ready Reckoner rates, following the HC’s directions. “... (This) suggests that the officials of the MHADA and the Developers are hand-in-glove with each other to cause the wrongful loss to the State and wrongful gains to developers and others,” Shenoy added. Notably, this recovery process was initiated after the HC directions.

The activist also pointed out that MHADA’s decision to recover compensation at Ready Reckoner rates, rather than at market rates, resulted in further losses to the State due to the deliberate negligence of its officials.

Under Rule 33(7), MHADA officials are required to conduct monthly inspections to ensure that original tenants receive possession of their tenements within 30 months. However, Shenoy highlighted that developers have often sold flats without either handing over the tenements to original tenants or surrendering them to MHADA, enabling the misappropriation of public property due to lapses by MHADA officials.

Shenoy also noted that an agreement is to be signed, wherein MHADA grants an NOC to developers for obtaining an Occupation Certificate (OC) from the BMC only after the developer surrenders the surplus area. However, many developers failed to execute a mandatory affidavit guaranteeing the surrender of surplus area tenements, instead selling them illegally even before the OC was issued.

Highlighting these violations, Shenoy argued that MHADA’s failure to enforce conditions on developers deprived the poor and needy of their rightful homes, underscoring a pattern of willful neglect and collusion that led to significant losses for the state.