Bombay HC Rebukes 'Interest-Free' Use Of Funds For 21 Years In Realty Dispute

The Bombay High Court has intervened to protect the interests of a group of doctors who were allegedly cheated by developers, ruling that the disposal of subject land would leave claimants remediless in suits for specific performance. In a sharp rebuke of the respondents' conduct, the Bench highlighted the potential for fraud when developmental rights are negotiated behind the back of investors who have already paid substantial consideration.

A division bench of Justice A. S. Gadkari and Justice Kamal Khata heard the appeal against a Single Judge order that had previously dismissed the appellants' petition for interim relief. The Bombay High Court expressed grave concern over the long-standing deprivation of the appellants' rights despite their investment of hard-earned money over two decades ago.

Key Takeaways

Preservation of Subject Matter

Section 9 of the Arbitration and Conciliation Act, 1996 is intended to preserve the subject matter of the dispute to ensure that claims for specific performance are not rendered frustrated by the creation of third-party rights.

Strict View on Fraudulent Intent

Courts may take a prima facie view of fraudulent intent under Section 420 of the Indian Penal Code where developers retain investor funds for decades without delivering the promised premises or returning the money.

Limitation in Development Agreements

Where a developer fails to obtain mandatory approvals like an 'Intimation of Disapproval' (IOD) within the promised timeframe, the issue of limitation does not necessarily bar the claim for performance.

Judicial Scrutiny of Developer Conduct

The Bombay High Court observed that the respondents had received Rs. 60 lakhs as far back as 2005 under a Memorandum of Understanding (MoU) but failed to deliver the 4360 square feet of commercial premises promised in the 'Krishna Ambika Arcade' project. In its reasoning, the Bench observed that "In our view, the Appellants, who are a group of doctors by profession, had together invested their hard-earned money with the Respondents, who continue to use the monies of the Appellants interest free for over 21 years and now claim that the MoU stood terminated or that it came to an end long ago by the conduct of the parties. Prima facie, it appears to be a bald and baseless contention."

Invocation of Penal Principles

During the proceedings, the Court noted the respondents' attempts to transfer rights to a third party. The bench specifically referenced the definition of cheating and dishonest inducement under Section 420 of the Indian Penal Code, noting that the respondents appeared to have carried an intention to cheat from the inception of the deal.

Ratio

Interim protection under Section 9 of the Arbitration and Conciliation Act, 1996 must be granted to prevent the disposal of land in a manner that would frustrate a claim for specific performance, particularly where there is prima facie evidence of long-term retention of consideration without project progress.

Background

The dispute arose from an MoU dated June 27, 2005, regarding a plot at S.V. Road, Goregaon (W), Mumbai. The appellants sought the appointment of a Court Receiver and an injunction against the creation of third-party rights. The Single Judge had dismissed the petition, prompting the appeal. The Bombay High Court found that while the appellants might not have direct rights over the entire plot, they were entitled to the proposed construction. If the land were sold, their claim for specific performance would be lost. Consequently, the High Court set aside the Single Judge's order and granted the interim reliefs.

Case Details:
Case No.: COMMERCIAL ARBITRATION APPEAL (L) NO. 25270 OF 2026
Neutral Citation: 2026:BHC-OS:22768-DB
Case Title: Dr. Devidas R. Sheregar & Ors. v. Zeenal Constructions Pvt. Ltd. & Ors.
Appearances:
For the Petitioner(s): Mr. Bahraiz Irani a/w. Mr. Amit Padwal, Mr. Anosh Irani and Mr. Afrin Dalal
For the Respondent(s): Mr. Gaurav Mehta a/w. Mr. Sahil Wagh i/b. DM Legal Associates for Respondent Nos. 1 and 2; Mr. Aseem Naphade a/w. Mr. Y.S.Shukla for Respondent Nos. 3 to 6.

Source: 2026 CaseBase(BOM) 6543