Lenders and owners can trust occupation certificates

By Samreen Paloba and Karan Mathur, SNG & Partners

An anxious stage of property development is the issue of the occupation certificate (OC) by the planning authority. This confirms the property conforms with the approved plan, complies with the building code and is fit for use and occupation. Revocation of the OC by the authorities is a nightmarish situation with serious legal and practical implications for owners and mortgage lenders. Recent cases have shown that planning authorities do indeed act in this way.

In Satra Plaza Premises CHS v Navi Mumbai Municipal Corporation (NMMC), the Bombay High Court heard that the planning authority had cancelled the OC it had previously granted. The court held that other than the strict provisions in section 51 of the Maharashtra Regional and Town Planning Act, 1966, (act) the NMMC had no authority to revoke or cancel the OC.

Samreen Paloba, SNG & Partners
Samreen Paloba
Associate Partner
SNG & Partners

In 2000, the City and Industrial Development Corporation of Maharashtra (CIDCO) allotted two plots to NMMC, which decided to sell them. Satra Properties (India) Limited (developer) bought the leasehold rights. The developer, having completed the construction of Satra Plaza, received the OC from the NMMC in February 2012. The OC contained a condition that a no objection certificate was to be obtained from CIDCO within a year, otherwise it would be cancelled.

The unit owners of Satra Plaza formed and registered a co-operative society. Difficulties arose between the developer and CIDCO over CIDCO obtaining consent from the NMMC for, among other matters, the change of use of the land. In the middle of these negotiations, NMMC in December 2016 ordered the cancellation of the OC.

The society challenged the order. It argued that the principles of natural justice had not been followed and it had been given no opportunity to be heard before cancellation. The society further submitted that its members suffered serious prejudice, as it was not contemplated that the OC would be revoked. Its members could not deal with their premises. The cancellation violated the rights of members to carry on their occupations, trades or businesses guaranteed under article 19(i)(g) of the constitution. It also violated the right not to be arbitrarily deprived of property as provided in article 300A. The society argued that the order was patently arbitrary, unreasonable and contravened the grant of fundamental rights as set out in article 13.

Finally, the society submitted that the reasons given in the order for cancellation fell foul of the provisions of section 51 of the act.

The high court held that the grant of the OC affected not only the society, but also its members who had purchased the units. The members were entitled in law to occupy their units on the assumption that their occupation under the occupancy certificate was legally valid.

Karan Mathur, SNG & Partners
Karan Mathur
SNG & Partners

The court further held that an OC cannot be conditional. The NMMC had misused its powers by cancelling the OC for non-compliance with a condition. It had also given no opportunity to the society to be heard. This decision is clearly right and gives confidence that the judiciary will uphold individual rights against the capricious actions of public authorities.

In Sanjay Phulwaria and Others v MMRDA and Others, purchasers and occupiers in a residential development argued that the application for the part-OC submitted by the developer to the planning authority should not have been granted. They also applied for cancellation of the certificate because of the condition of the structure and deterioration of their units after the demolition of the top floors. This followed a revised height restriction imposed by the authority. The Bombay High Court was unimpressed by these submissions and refused the applications. The court further held that cancellation would cause serious prejudice to the large number of flat purchasers not parties to the case.

Similarly, in Glaxo SmithKline Pharmaceuticals Ltd v Municipal Corporation of Greater Mumbai, a show cause notice was issued over the subdivision and change of use of land covered by an OC granted years before. Cancellation was set aside as the company had been given no opportunity to be heard.

Where OC-covered property is being mortgaged, lenders should obtain technical opinions from approved architects or surveyors, certifying that the building does not violate permissions issued by the authorities or any legal requirements.

Samreen Paloba is an associate partner and Karan Mathur is an associate at SNG & Partners

SNG & Partners

96 Free Press House, Nariman Point

Mumbai – 400021


Contact details
T: +91 22 6825 5151
E: info@sngpartners.in