Bombay HC upholds court receiver in stalled Erandwane redevelopment dispute

The Bombay High Court has declined to interfere in a case involving a stalled redevelopment project in Pune's Erandwane area. It upheld an order making one of the partners the court receiver. The ruling laid particular stress on the rights of flat buyers and of housing society members who have moved out of their homes.

A division bench of Justice G. S. Kulkarni and Dr Neela Gokhale dismissed an appeal by Akshay Sanjay Dhumal. The appeal was against an order of the Commercial Court in Pune that allowed the other partner in Kiyaara Buildcon to oversee construction under judicial supervision, handle the redevelopment and complete work on the unsold flats.

The High Court noted that 16 members of the Radha Anand Co-operative Housing Society in Erandwane have vacated their homes and are living in rented houses. Buyers who have signed agreements are also waiting for possession.

According to court records, Dhumal became a partner in Kiyaara Buildcon on September 24, 2021. He held a 33 per cent share in profits and losses, while the other main partner held 67 per cent. The firm was working on only one redevelopment project, which has 47 flats. Of these, 18 were for existing members of the society and the rest for sale. At the time of the hearing, about 45 per cent of the work on Wing A and about 80 per cent on Wing B was complete.

The dispute began over money dealings, management and the sale of three flats. Dhumal alleged that the agreements for flats 502A, 503A and 702B were made below the market rate, which he put at about Rs 17,000 per square foot. He also alleged that about Rs 2 crore is due from the buyers and only Rs 12 lakh has been received. He had sought dissolution of the partnership, rendering of accounts and a stay on the sale of project assets.

Senior Advocate Atul Damle, appearing for Dhumal, argued that appointing as receiver the partner against whom financial irregularities are alleged is a serious conflict of interest. According to him, allowing that partner to operate bank accounts, use partnership funds, supervise construction and sell unsold flats could cause Dhumal financial loss. The appellant said the allegations of undervaluation and breach of fiduciary duty have not been framed, so the receiver should have been an independent third person.

Advocate Sitesh Sharma, for Kiyaara Buildcon and the other respondents, said the partner appointed receiver had handled the project's approvals, construction work and financial obligations. The respondents claim that this partner spent Rs 1.82 crore of their own money on the project. They said Dhumal invested about Rs 19.17 lakh and withdrew Rs 95 lakh from the firm as a loan. They also mentioned a counterclaim of Rs 7.82 crore against Dhumal. These financial claims remain disputed and were not finally decided in the appeal. The respondents also said that rent for the displaced members and responsibilities towards buyers continue despite the partnership dispute.

The High Court said the effect of a partnership dispute is not confined to the partners, and the court must consider its consequences. The rights of flat buyers and society members waiting to benefit from the redevelopment are important and cannot be ignored. It found nothing illegal in appointing an existing partner as receiver, especially when an outsider unfamiliar with the project's commercial and construction arrangements could create further difficulties. In the court's view, the appointment was proper to save the project and protect the interests of those affected.

The bench recorded that the parties were sent to mediation three times, but no settlement was reached. In later talks, Dhumal insisted on five flats, while the respondents reportedly offered three. No agreement was reached. The bench said the appellant's immediate grievance is limited to the dealings in three flats, yet the unresolved dispute has put the whole project at risk.

The High Court also found that the Pune District Court had imposed certain safeguards while allowing the receiver to take charge of the project. Before selling flats, the receiver was required to deposit Rs 2 crore in court. Sale agreements also cannot be finalised without completing the prescribed procedure and obtaining the court's prior consent. According to the High Court, these conditions protect Dhumal's interests and allow construction to continue.