Upon obtaining the necessary approval from the relevant authority, you are eligible to construct a one-room setup on the terrace, that construction must be in strict adherence to the local building regulations. Any concerns related to a pending civil suit should not cause undue worry. You can construct proposed one-room set flat on terrace if there is no stay order in respect of the property.
In the event of a court-issued stay order concerning future construction, it is advisable to file an application for the removal of the stay. In the context of your case, the water dampening issue is attributed to the faulty construction of an adjacent building and is unrelated to your property. If a stay order has been issued by the court, consider challenging it based on a technical survey.
Obtain a report on the cause of dampening from a reputable civil engineering firm or a company specializing in civil construction. Present this report to the court and request the vacation of the stay order.
You have another option. If court agrees, you can do the same (technical investigation of dampening issue) through the commission appointed by the civil court. Move an application under Section 75 of the Code of Civil Procedure for appointment of commissioner. The court may appoint a technical expert (commissioner) for technical investigation of the building towards dampening issue.