In order to do anything one should have the authority to do the thing. From your letter I understand that there are no flats on the ground floor except for the unauthorized shop which the builder is constructing and that it is a stilted area at the ground level. You also say that there are 2 upper floors. How many total numbers of flats are there in the building? Has the builder kept one or more flats for himself? How many flats have been sold? Are there any flats remaining to be sold? Has the builder given you conveyance and has it been registered paying appropriate stamp duty?
If all the flats have been sold, or most flats have been sold, you can form an Association under the Tamilnadu Apartment Ownership Act, 1997. You may not be able to form a co-operative housing society as such a society should have at least 10 members. In order to register under the Act, you will need approved plan of the whole building giving plans of all the floors, showing all the apartments. No one can construct or add anything to the plan without the approval of the concerned authorities. The Act contains byelaws also. When you register for the first time, you cannot make any changes in the byelaws, other than filling up the blanks, giving the names of members etc. After the registration you can amend the byelaws. The procedure and requirements for amending the byelaws are given under the byelaws themselves. The byelaws should contain a provision stating that no one can make any addition or alterations to the approved plan without the permission of the Association and, if necessary, the approval of the municipal authorities also. If it is not there already, you can add it afterwards also by amending the byelaws.
The builder may resist the registration under the Act, because he may not be able to do things as he likes.
You will also need the Association to collect common expenses from the members. In many buildings in Chennai, the members register the Association under the Societies’ Registration Act. It may be due to ignorance about 1997 Act or some may be doing on purpose mainly to retain control with a few individuals. According to me it is not advisable.
In the absence of Registration under the Act, it will be difficult to proceed against the builder. The reasons given by the builder, such as, that without violation of the law, the flats cannot be sold at a low price, are not valid.