Bombay HC Denies Housing Society Membership to Homebuyer Duped by Builder Fraud

When Mr. Sewadsha from Ghatkopar East purchased five apartments in a housing project in Bhandup, he was unaware that he had been deceived by the builder into buying refuge areas—designated vacant safety spaces rather than legal residential units. The reason the builder could dupe Sewadsha is that there was an error in the building plan annexed to the Occupancy Certificate, which incorrectly depicted a part of the vacant space as residential flats on the 8th and 15th floors of the housing society, even though no constructed residential apartment fit for occupation existed there.

Exploiting this discrepancy, the builder sold the refuge areas as finished residential apartments on April 30, 2019, to Sewadsha. The problem surfaced when municipal authorities did not levy property taxes on these units, as they were not recognized as legitimate apartments. This led to a dispute between Sewadsha and the housing society.

The housing society denied him membership, citing that these apartments were illegal and contrary to the building plan. Sewadsha argued that he genuinely purchased the five apartments and was unaware of the fraud. Sewadsha’s advocate cited a previous ruling stating that housing societies can’t refuse membership on the grounds of illegality of construction. However, the Bombay High Court rejected his plea.

On March 25, 2026, Sewadsha lost the housing society membership case in the Bombay High Court, as the court held that a housing society is within its rights to deny membership where the builder fraudulently sold “refuge areas” as residential flats. The high court held that even if the housing society admits Sewadsha as its member, it would violate Section 154B-5 of the Maharashtra Co-operative Societies Act.

Parallel to the dispute about Sewadsha’s admission as a member in the housing society, a separate civil case is pending in court, which pertains to the cancellation of the sale agreement signed by Sewadsha with the builder for these five illegal flats. That civil case is pending and is not discussed in this article. This article is limited to the housing society membership dispute only.

The Bombay High Court (case no. 2026:BHC-OS:7221) examined the material on record, including floor plans annexed to agreements of existing flats, and found that the areas in question were always shown as refuge areas and not as residential apartments. Moreover, the high court also referenced the municipal authorities' records, which had assessed the apartments sold to Sewadsha as refuge spaces and chose not to levy property tax on them.

Another aspect which reinforced the high court’s decision is that when the housing society was formed, the builder did not join the society as a member since there were no unsold flats. If there were unsold flats, then the builder, by virtue of the provisions of Section 10 of the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963, would have joined in the application for membership of the Petitioner Societies. However, the builder did not do so as there were no unsold flats.

In light of the above findings, the subsequent sale agreements executed by the builder with Sewadsha after deemed conveyance were without authority and could not be binding on the housing society. The high court also said that if the housing society admits Sewadsha as a member, this would violate Section 154B-5 of the Maharashtra Co-operative Societies Act. This Section prohibits a housing society from admitting members beyond the number of flats available for allotment, as reported by LiveLaw.

The Bombay High Court ruled that since the alleged flats did not exist, admitting Sewadsha would result in membership exceeding the permissible limit, thereby directly violating the statutory provision. Sewadsha’s advocate relied on a past judgment where it was ruled that a housing society can’t reject membership on this ground as taken in the present case. (Videocon Appliances Ltd. v/s. Maker Chambers V Premises Co-operative Society Ltd. & Others (Writ Petition No. 7471 of 2004))

The Bombay High Court distinguished this case law cited by Sewadsha’s advocate and observed that such a principle would not apply where the subject matter itself does not exist, and membership would result in a statutory violation. Thus, the high court held that refuge areas cannot be treated as flats or even unfinished units for the purpose of membership.

Also, the Divisional Joint Registrar, Co-operative Societies, Mumbai Division, to make his point, relied upon a certificate given by a private architect which states that the flats purchased by Sewadsha do not come within the refuge area. The Bombay High Court said that this certificate is contrary to the record and the actions of the parties as referred to hereinabove. As stated earlier, the Occupancy Certificate granted had wrongly shown certain flats in the refuge area. The architect’s certificate was based on the erroneous Occupancy Certificate.

Moreover, in this regard, the housing society had already issued a statutory notice dated October 10, 2022, calling upon the authority to rectify the plan annexed to the Occupancy Certificate, which shows part of the vacant space as residential flats on the 8th and 15th floors of the housing society, even though no constructed flat fit for occupation exists.

Accordingly, the High Court allowed the writ petition, quashed the orders directing the admission of Sewadsha as a member, as well as the consequential execution proceedings, and restored the earlier order rejecting their application for membership.