The Death of the 'Privity' Defense: Why the Supreme Court’s Latest Rulings on JDAs and Redevelopment Will Force You to Rewrite Your Contracts

For decades, real estate litigation in India has been a cynical game of hot potato. When a builder defaults or absconds, the original landowners or housing societies suddenly develop legal amnesia, pointing to the builder and telling stranded flat buyers: "We didn't sign a contract with you." It is the classic defense of lack of privity of contract. But if you are still relying on this defense to shield your landowner or society clients, you are committing malpractice.

A recent slew of Supreme Court and NCDRC rulings in early 2026 has systematically dismantled this protective wall. The courts are sending a clear, unambiguous message: if you invite a builder to develop your land and reap the commercial benefits, you are on the hook when things go south. Consumer interests now definitively trump rigid, antiquated applications of contract law.

The Sandeep Grover Doctrine: Societies Cannot Have Their Cake and Eat It Too

The most consequential blow to the privity defense comes from the Supreme Court's affirmation of the landmark NCDRC judgment in Sandeep Grover v. Sai Siddhi Developers.

In redevelopment projects, it is standard practice for a housing society to execute a Development Agreement with a builder, granting them free sale rights in exchange for newly constructed society flats. When builders inevitably face financial ruin, societies frequently attempt to terminate the Development Agreement and usurp the partially built free-sale flats—completely ignoring the third-party buyers who funded the construction.

The Supreme Court has now shut this door. By dismissing all appeals and review petitions, the Court cemented the NCDRC's ruling: societies cannot usurp flats purchased by third-party buyers after deriving benefits from the redevelopment agreement.

"The defense of 'lack of privity of contract' is legally untenable when a society has actively facilitated and benefited from a commercial redevelopment ecosystem. You cannot sever the builder's obligations to third parties while retaining the fruits of their capital."

Practice Implication: If you represent a Cooperative Housing Society, relying on a boilerplate indemnity clause from the builder is no longer sufficient. You must draft robust step-in rights and escrow mechanisms into your Redevelopment Agreements. If the builder defaults, your society client will now face direct litigation from third-party buyers. You need a contractual mechanism to take over the project and sell the remaining inventory without being paralyzed by consumer forum injunctions.

Faqir Chand Gulati: The JDA Trap for Landowners

Parallel to the society redevelopment issue is the Supreme Court's examination in Faqir Chand Gulati v. Uppal Agencies (P) Ltd. regarding Joint Development Agreements (JDAs). The Court made it glaringly clear that landowners entering into JDAs can be held jointly and severally liable for buyer refunds and delay compensation.

For years, landowners assumed that because they only granted development rights and didn't execute the Builder-Buyer Agreements (Agreements for Sale under Section 13 of RERA), they were insulated from consumer claims. The Supreme Court has pierced this veil. The Court established that internal arrangements and liability-shifting clauses between builders and landowners do not bind third-party buyers. Under the Consumer Protection Act, the landowner is a joint venturer in the eyes of the consumer.

The Evidentiary Value of Agreements to Sell and Arbitral Traps

While consumer forums are expanding buyer rights, the Supreme Court's civil benches are strictly interpreting property statutes, requiring immense diligence from transaction lawyers.

In a recent 2026 judgment, the Supreme Court reiterated the mandate of Section 54 of the Transfer of Property Act (TPA): an agreement to sell does not create any right, title, or interest in immovable property. While the Court allowed an unregistered sale agreement to be admitted purely as evidence of the transaction, it sternly reminded the bar that possession alone does not finalize a sale without a registered sale deed. Lawyers advising buyers to rely on General Power of Attorney (GPA) sales or mere possession letters are leaving their clients entirely exposed.

Furthermore, the Court's February 12 ruling on arbitral attachments adds a dangerous layer to property due diligence. The Court ruled that a property buyer who is aware of an arbitral award against the seller cannot block the property's attachment for recovery of the seller's dues. Applying the doctrine of lis pendens (Section 52 of the TPA), the Court classified such buyers as a "transferee pendente lite."

The Bottom Line for Civil Practitioners

We are witnessing a paradigm shift. The jurisprudential pendulum has swung entirely in favor of the bona fide third-party purchaser.

What does this mean for your daily practice?

1. Rewrite your JDAs and Development Agreements: Your standard drafts are obsolete. Landowners and societies must be advised that they are entering a joint venture fraught with consumer liability, not just a passive land-lease.
2. Due Diligence Must Expand: Title searches are no longer just about encumbrance certificates. You must actively search for pending arbitrations and NCDRC execution applications against the promoter/seller, or your client risks becoming a transferee pendente lite. (Note: The NCDRC recently held directors of Ansal Hi-Tech personally liable, issuing attachment warrants across 70 execution applications—a stark reminder of how aggressive execution proceedings have become).
3. Stop Arguing Privity in Consumer Forums: It is a losing argument that will only frustrate the bench. When representing societies or landowners, focus on mitigating damages, proving builder fraud, or establishing force majeure, rather than pretending your client has no connection to the stranded flat buyer.

The era of hiding behind the builder's corporate veil is over. In the eyes of the modern Supreme Court, if you supplied the land and took the profits, you share the liability. Adapt your drafting accordingly.