Introduction:

The Hon’ble Bombay High Court in Writ Petition No. 3140 of 2019 has observed that there were consistent defaults being made by developers in payment of transit rent causing inconvenience to the slum dwellers including filing litigations for recovery of transit rent and in this context stated that the Slum Rehabilitation Authority (“SRA”) needs to issue an appropriate circular to prevent such situations, by freezing a part of the free-sale component which can be permitted to be dealt only after the rehabilitation building is completed, and all issues relating to payment of transit rent are duly addressed. The important provisions of the NI Act are reiterated hereinbelow for quick reference:

Accordingly, the SRA issued Circular No. 231 dated 19th December 2025 and Office Order dated 8th January 2026 passing directions stating that a part of the free-sale component will be frozen as security for the payment of transit rent to the slum dwellers. Following is a brief of the directions set out in the Circulars: (2) The interim compensation under sub-section (1) shall not exceed twenty per cent. of the amount of the cheque.

Freezing of Free Sale Component:

(a) A part of the free-sale component will be frozen at the time of issuance of the intimation of approval/letter of intent by the Executive Engineer.

(b) the developer’s transit rent liability for 3 years will be decided basis (i) the number of slum dwellers (ii) monthly rent (iii) applicable annual increment. (5) The interim compensation payable under this section may be recovered as if it were a fine under section 421 of the Code of Criminal Procedure, 1973 (2 of 1974).

(c) Basis the (i) developer’s transit rent liability (ii) corresponding ready reckoner value for sale area, flats on the lower floors of the sale area will be frozen as security (“Secured Flats”).

(d) These Secured Flats have to be marked on the approved plans and mentioned as a condition in the IOA/LOI and cannot be sold or mortgaged until all transit rent dues are cleared and eligible slum dwellers are allotted permanent accommodation

(e) To ensure compliance, the Executive Engineer has also been directed to intimate the details of the Secured Flats to the Inspector General and Controller of Stamps and the MAHA RERA authority. These flats cannot be included in the free sale flats for registration/ sale or disclosure as an inventory on RERA, until clearance from the SRA in respect thereof.

Does this apply to existing Slum Rehabilitation Scheme?

Dispelling any ambiguity, it is clear from the Circular that this would apply to ongoing projects also as the Engineering Department is directed under the Circular to evaluate the transactions status of the sale component in existing slum schemes and accordingly freeze the appropriate sale area.

It is also clarified that if the entire free sale component is already sold, then the developer will have to give a bank guarantee. The circular is silent on the quantum and the method of calculation of the bank guarantee. However, it is likely that the manner of computation for the freezing of flat may be adopted.

Release of the Free Sale Component

The proposal for de-freezing of frozen free-sale components will be considered by the SRA on:
(a) Completion of rehabilitation buildings;
(b) Allotment of permanent alternate accommodation to eligible slum dwellers
(c) Addressing all issues related to payment of transit rent and allied dues.

Upon the application being received for de-freezing, the Executive Engineer has to ensure that the approved plans are amended after taking prior approval of the Deputy Chief Engineer SRA

Thereafter, an intimation of de-freezing has to be made by SRA to the Inspector General and Controller of Stamps, MAHA RERA only after which the developer can deal with the Security Flats.

The SRA had in 2023, taken steps to prevent defaults in payment of transit rent by its Circular No. 210 by requiring deposit of advance rent for 2 years by developers. It appears that this has not been sufficient to effectively address the situation as can be clearly seen by numerous proceedings filed through 2024 and 2025 in regard to non-payment of transit rent. The present circular clarifies that the freezing of Security Flats is in addition to compliance of this Circular No. 210.

It is hoped that the freezing of Security Flats together with deposit of advance payment will deter non-compliance and in fact, actively encourage developers to complete rehabilitation buildings without delay, thus advancing the core intent of slum rehabilitation schemes.

Disclaimer

• This material has been published by Dhaval Vussonji and Associates, Advocates and Solicitors and is subject to the copyright of Dhaval Vussonji and Associates. The update is not intended to be a form of solicitation or advertising. The material herein contained is a general discussion on the manner in which the Act and the Rules are worded. The examples contained herein should not be used in real life situations and do not constitute any advise given by Dhaval Vussonji and Associates. You are advised to take specific legal advise on the manner of application of the Act and the Rules to you. The provisions of the Act and the Rules discussed herein are subject to interpretation by Courts and concerned authorities and may be amended by the appropriate government. Dhaval Vussonji and Associates is NOT a firm of accountants and does not claim any expertise in advise on accounting principles. Dhaval Vussonji & Associates will not be responsible for any reliance placed on the material contained herein.

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Written by:

Ms. Manisha Paranjape, Partner

Ms. Arpita Joshi, Principle Associate