Bombay High Court
Quantum Park Chs Ltd vs Ace Housing And Construction Ltd. And 5 ... on 11 March, 2020
Author: A.K. Menon
Bench: A.K. Menon
901-NMS-2149-19 & 95-2020.doc
Dixit
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
NOTICE OF MOTION NO.95 OF 2020
IN
SUIT NO.419 OF 2018
Ace Housing and Construction Ltd., Mumbai ....Applicant
In the matter between
Quantum Park CHS Ltd., Mumbai ....Plaintiff
V/s.
Ace Housing and Construction Ltd., Mumbai and Ors. ....Defendants
ALONG WITH
NOTICE OF MOTION NO.2149 OF 2019
IN
SUIT NO.1037 OF 2018
Ace Housing and Construction Ltd., Mumbai ....Applicant
In the matter between
Shishir Baijal and Ors. ....Plaintiffs
V/s.
Ace Housing and Construction Ltd., Mumbai and Ors. ....Defendants
Mr. Haresh Jagtiani, Senior Advocate, with Ms. Vandana Mehta and Mr. B.
Vora, i/by Mr. Siddhesh Bhole, for the Plaintiffs in S/1037/2018.
Mr. Vikramji Garwal, i/by Kanga & Co., for the Plaintiff in S/419/2018 and for
Defendant No.5 in S/1037/2018.
Mr. Sharan Jagtiani, Senior Advocate, with Ms. Shradha Achliya, Mr. Rupesh
Gite and Ms. Sailee Dhayalkar, i/by Parinam Law Associates, for the
Applicant-Original Defendant No.1 in both the suits.
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Ms. Saasha Malpani, i/by Khaitan and Co., for Defendant No.2.
Mr. D.V. Deokar, with Mr. Pinakin Modi, i/by Parimal K. Shroff & Co., for
Defendant No.4.
Mr. Himanshu Takke, A.G.P., for Defendant Nos.6 & 7 in S/1037/2018.
Mr. Kedar Dighe, A.G.P., for Defendant Nos.5 and 6 in S/419/2018.
CORAM : A.K. MENON, J.
DATED : 11TH MARCH, 2020.
P.C. :
1. These notices of motion have been filed by defendant no.1 in both the above suits seeking reference of disputes that have arisen between the plaintiffs and defendant nos.1 to 4 to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996. In Suit No.419 of 2018, the plaintiff is a co-operative society of flat purchasers in a building constructed by defendant nos.1 to 4. Some of the members of the society are plaintiffs in the second Suit No.1037 of 2018 (Members' Suit). Reference to arbitration has been sought in view of identical arbitration clauses contained in multiple Agreements for Sale executed between the flat purchasers and defendant nos.1 to 4. There is no separate agreement to refer dispute to arbitration as between the society and defendant nos.1 to 4. By consent of the contesting parties, Advocates agreed to file written submissions and accordingly vide an order dated 11th February 2020, written submissions on behalf of both plaintiffs and the defendant no.1-applicant were taken on file. Defendant no.4 has also filed separate submissions.
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2. Suit No.1037 of 2018 is filed by 5 flat purchasers against defendant nos.1 to 4, who are the developers. Defendant no.5 is a co-operative housing society, which is plaintiff in Suit No.419 of 2018. Defendant nos.6 and 7 are the Deputy Registrar and Divisional Joint Registrar of Co-operative Societies.
3. In Suit No.419 of 2018, the plaintiff is a co-operative housing society. Defendant nos.1 to 4 are the developers. Defendant nos.5 and 6 are the Deputy Registrar and Divisional Joint Registrar of Co-operative Societies.
4. Both the notices of motion are filed by defendant no.1-Ace Housing and Construction Limited. Defendant nos.1 to 4 are collectively the developers of the property. Defendant nos.1 and 2 are limited companies. Defendant no.3 is a partnership firm, wherein defendant nos.1 and 2 were partners at the material time. Defendant no.4 is a joint developer with defendant nos.1 to 3.
5. With this background, the plaintiffs in Suit No.1037 of 2018 seek a declaration that (i) construction of the 14 th floor is illegal; (ii) that the purported transfer in favour of defendant no.1 is illegal; (iii) to restrain defendant no.5-society from admitting defendant no.1 as member; (iv) to restrain defendant no.6-Deputy Registrar of Co-operative Societies from transferring the 14th floor flats to defendant no.1 and from implementing the orders dated 26th August 2016 passed by defendant no.6-Deputy Registrar of Co-operative Societies (annexed at Exhibits N1 to N4 to the plaint being Suit 3/29 ::: Uploaded on - 16/03/2020 ::: Downloaded on - 08/06/2020 18:02:42 ::: 901-NMS-2149-19 & 95-2020.doc No.1037 of 2018) and the orders dated 31 st July 2017 and 31st October 2017 passed by defendant no.7-Divisional Joint Registrar of Co-operative Societies (annexed at Exhibits O and Q1 to Q4 to the plaint being Suit No.1037 of 2018); (v) to direct defendant no.1 and/or defendant no.5 and/or defendant no.6, who is in possession of the share certificates, to deliver-up the share certificates issued by Rajendra Nikam in favour of defendant no.1; (vi) for appointment of Court Receiver of the property; (vii) in the meanwhile, to restrain defendant nos.1 to 4 from selling, transferring, alienating or parting with possession of 14th floor flats and; (viii) to restrain defendant nos.1 to 3 from restricting the plaintiffs' access to the 14 th floor and terrace above the 14th floor. It is in this background that the parties have contested the suits.
6. Both plaintiffs and the defendant no.4 opposed the motions. This order disposes both these notices of motion.
7. Before I deal with the submissions of the parties, a few relevant facts will be required to be gone into which led to disputes. In the Members' suit, plaintiffs are flat purchasers, having purchased flats in a building known as "Quantum Park" at Khar (West), Mumbai, developed under the Slum Rehabilitation Authority Scheme (SRA Scheme). It is the case of the plaintiffs that the building was initially to consist of 13 floors and vide agreements of sale executed between the plaintiffs and defendant nos.1 to 4, the defendant nos.1 to 4 agreed to sell and transfer to the plaintiffs the flats in a building to 4/29 ::: Uploaded on - 16/03/2020 ::: Downloaded on - 08/06/2020 18:02:42 ::: 901-NMS-2149-19 & 95-2020.doc be constructed. By way of an example, the agreement for sale on which the applicant-defendant no.1 relies for the present applications is dated 2 nd March 2009 and plaintiff no.1-Shishir Baijal, along with his wife-Sadhana Baijal, have agreed to purchase Flat No.2 on the 9 th Floor, admeasuring about 744 sq.ft. built-up area in "A" Wing of the "Quantum Park". These agreements are registered with the concerned Sub-Registrar of Co-operative Societies and a copy thereof is annexed at Exhibit-A to the plaint and to the affidavits-in- support of both the notices of motion. The agreement entails constructions of a building upto 13 floors with liberty reserved to defendant nos.1 to 4 to utilize additional F.S.I. by constructing additional floors above 13 th floor. Needless to mention that additional construction would be subject to sanctions to be obtained in accordance with law.
8. The dispute pertains to construction of the 14 th floor. The plaintiffs have opposed to the construction of 14 th floor, which, according to them, is not legal and is in violation of sanctioned plans of the building. The suits, therefore, seek various reliefs against defendant nos.1 to 4, defendant nos.6 and 7 (in NMS/2149/2019) and defendant nos.5 and 6 (in NMS/95/2020).
9. As against defendant nos.1 to 4, the plaintiffs seek a direction to execute / grant a lease in favour of the plaintiffs for a declaration that the construction of 14th floor flats is illegal, unlawful and unauthorized and that the same be demolished. Plaintiffs also seek a declaration that a purported 5/29 ::: Uploaded on - 16/03/2020 ::: Downloaded on - 08/06/2020 18:02:42 ::: 901-NMS-2149-19 & 95-2020.doc transfer of 14th floor flats to defendant no.1 is illegal, void ab initio and defendant no.1 has no right, title or interest to the 14 th floor flats. That share certificates issued on 9th December 2017 by one Rajendra Nikam were illegal. The suits also seek to restrain defendant nos.5 and 6 viz. Deputy Registrar and Divisional Joint Registrar of Co-operative Societies from admitting defendant no.1 as a member of the society and restrain defendant no.6-Deputy Registrar of Co-operative Societies from enforcing or acting upon;
"(i) Orders dated 26th August 2016 passed by defendant no.6-Deputy Registrar of Co-operative Societies (annexed at Exhibits N1 to N4 to the plaint being Suit No.1037 of 2018 and Exhibits M1 to M4 to the plaint being Suit No.419 of 2018);
(ii) Orders dated 31st July 2017 and 31st October 2017 passed by defendant no.7-Divisional Joint Registrar of Co-operative Societies (annexed at Exhibits O and Q1 to Q4 to the plaint being Suit No.1037 of 2018 and Exhibits N and Q1 to Q4 to the plaint being Suit No.419 of 2018) ;
(iii) Orders dated 7th December 2017 passed by the defendant no.5-Deputy Registrar of Co-operative Societies (annexed at Exhibits S1 to S4 to the plaint being Suit No.419 of 2018);
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(iv) For temporary injunction from acting upon the same;
(v) Directing delivery of the share certificates issued to defendant no.1 for cancellation and, in the meantime, for appointment of the Court Receiver, High Court, Bombay as Receiver of the flats."
10. The issue which now falls for consideration is whether there is an arbitration agreement between the parties to the dispute and, if so, whether these disputes are liable to be referred to arbitration.
11. It is contended on behalf of the applicant-defendant no.1 in each of these notices of motion that 14 th floor has an occupation certificate issued by the Slum Rehabilitation Authority (SRA) on 25th April 2016, which is annexed at Exhibit-O to the plaint in Suit No.1037 of 2018. That the plaintiffs' contention that defendant nos.1 to 4 have violated terms of the agreement for sale by carrying out construction contrary to the specific consent given by the members, is a contractual dispute covered by the arbitration agreement.
12. In Suit No.419 of 2018 filed by the society, it is contended that the society is acting as a representative body of its members and seeking to enforce an agreement between the members and defendant nos.1 to 4 for contractual breaches of agreement for sale. The society therefore claims "through and under" its members. Furthermore, no suit can be filed against Deputy Registrar and Divisional Joint Registrar of Co-operative Housing 7/29 ::: Uploaded on - 16/03/2020 ::: Downloaded on - 08/06/2020 18:02:42 ::: 901-NMS-2149-19 & 95-2020.doc Societies (defendant nos.6 and 7 in Suit No.1037 of 2018 and defendant nos.5 and 6 in Suit No.419 of 2018) in view of section 162 of the Maharashtra Co-operative Societies Act, 1960 and therefore there is no statutory relief that can be claimed through the suit. Defendants-Deputy Registrar and Divisional Joint Registrar of Co-operative Societies cannot be impleaded as parties to the suit and that these defendants not being parties to the agreement for sale is of no consequence since the defendant no.5-society is claiming through and under the members.
13. Reliance is placed by learned counsel for the applicant-defendant no.1 on the extracted definition of "party" in the case of Ameet Lalchand Shah & Ors. Vs. Rishabh Enterprises & Anr.1. The applicant has also placed reliance in the case of Chloro Controls India Pvt. Ltd. Vs. Severn Trent Water Purification Inc and Ors.2, wherein it was held that a person, who is not a signatory, claiming through or under a signatory or a third party can be subjected to arbitration without their prior consent, but, in such cases, courts will have to examine these exceptions from the touchstone of direct relationship to the signatory to the arbitration agreement and direct commonality of the subject matter and the agreement between the parties being a composite transaction. It is contended that the Supreme Court had held that all agreements were executed with the same commercial purpose; they were inter-related; that all 1 (2018) Vol.15 SCC 678 / AIR 2018 SC 3041 2 (2013) 1 SCC 641 8/29 ::: Uploaded on - 16/03/2020 ::: Downloaded on - 08/06/2020 18:02:42 ::: 901-NMS-2149-19 & 95-2020.doc the parties, including non-signatories, will be referred to arbitration. It is contended that once a link is established between a non-signatory and a signatory, courts must refer them to arbitration.
14. The applicant's submissions in the suit filed by the members, being Suit No.1037 of 2018, are similar. It is the applicant's case that the plaintiffs' contention that the entire subject matter of the dispute does not fall within the scope of arbitration is of no consequence since the main relief is arbitrable and demolition of the 14th floor is not an independent statutory relief.
15. The applicant has relied upon Olympus Superstructures Pvt. Ltd. Vs. Meena Vijay Khetan and Ors.3, wherein the Supreme Court held that disputes connected with the main agreement can also be governed by the general arbitration clause in the main agreement. According to the applicant, the reliefs sought in relation to orders dated 26th August 2016 passed by defendant no.6-Deputy Registrar of Co-operative Societies (annexed at Exhibits N1 to N4 to the plaint being Suit No.1037 of 2018) and the orders dated 31st July 2017 and 31st October 2017 passed by defendant no.7- Divisional Joint Registrar of Co-operative Societies (annexed at Exhibits O and Q1 to Q4 to the plaint being Suit No.1037 of 2018), are infructuous since these orders have already been implemented and share certificates had been issued. The contention is that by including causes of action not covered by the arbitration agreement, the parties cannot avoid the arbitration agreement. 3 (1999) 5 SCC 651 9/29 ::: Uploaded on - 16/03/2020 ::: Downloaded on - 08/06/2020 18:02:42 ::: 901-NMS-2149-19 & 95-2020.doc Reliance is placed on the judgment of the Supreme Court in the case of Taru Meghani, through his Constituted Attorney Ms. Shraddha Khandhadia and Ors. Vs. Shree Tirupati Greenfield (Shree Tirupati Greenfield Developers) and Ors.4. The plaintiffs' contention that defendants-Deputy Registrar and Divisional Joint Registrar of Co-operative Societies are not parties to the arbitration agreement is of no consequence since the plaintiffs cannot add statutory authorities to defeat the arbitration clause. Although plaintiffs are dominus litis, this privilege vesting in the plaintiffs cannot be misused as a gate-pass to avoid the arbitration agreement. It is further contended that the defendants' reply to the motions cannot be considered as a first statement on the substance of the dispute, since the Supreme Court in Booz Allen and Hamilton Inc. Vs. SBI Home Finance Ltd. and Ors. 5 and Rashtriya Ispat Nigam Ltd. and Anr. Vs. Verma Transport Co. 6 has held that filing of a reply to oppose the interim application for injunction is not to be considered as the first statement on the substance of the dispute.
16. It is further submitted that parties had arrived at consent terms in Notice of Motion (Lodging) No.2447 of 2017 in Suit No.1037 of 2018 and although an order dated 6th February 2018 was passed by consent in the said motion, that by itself does not amount to waiver of the arbitration clause. As far as the plaintiffs' contention that defendant no.1 had not complied with the 4 2020 SCC OnLine Bom 110 5 (2011) 5 SCC 532 6 (2006) 7 SCC 275 10/29 ::: Uploaded on - 16/03/2020 ::: Downloaded on - 08/06/2020 18:02:42 ::: 901-NMS-2149-19 & 95-2020.doc statutory requirement under section 8(2) of the Arbitration and Conciliation Act, 1996 of providing original arbitration agreement, it is contended that existence of the arbitration agreement is not disputed and therefore the defendant no.1 is not required to produce a certified copy or file an application to call upon the plaintiffs to produce the original arbitration agreement. That pedantic approach is not called for.
17. On behalf of the respondents to the motions viz. plaintiffs in both the suits, the motions are being opposed on the basis that the applicant had submitted its first statement on the substance of the dispute by filing detailed affidavits to the notices of motion. When the motions came up for hearing for ad-interim relief, the defendant no.1 did not file any reply to resist the ad- interim relief but filed a detailed affidavit-in-reply on 18 th December 2017 and a further additional affidavit on 2 nd January 2018, which were filed well before the application under Section 8, which has been filed only on 30 th August 2019. These affidavits dealt with the substance of the dispute in great detail and therefore it is deemed to be the first statement on the substance of the dispute. Furthermore, Consent Minutes were arrived at on 6 th February 2018 and thereby defendant no.1 submitted to jurisdiction of the court, which also amounts to waiver of the arbitration clause in view of the order passed by consent. Defendant no.1 was allowed to create third party rights in respect of 14th floor flats on the condition such that rights would be subject to orders passed in the suit filed by plaintiff-members and the suit filed by the 11/29 ::: Uploaded on - 16/03/2020 ::: Downloaded on - 08/06/2020 18:02:42 ::: 901-NMS-2149-19 & 95-2020.doc plaintiff-society. Defendant no.1 undertook to give notice to such third parties of the pendency of these suits. It is on 30 th August 2019 that defendant no.1 filed this motion in Suit No.1037 of 2018.
18. The plaintiffs have thus opposed these motions on the basis that the first statement on the substance of the dispute has already been filed and on 11th December 2017 the parties were directed to maintain status-quo in relation to the 14th floor flats. No reply was filed to resist ad-interim reliefs on the basis that disputes were required to be referred to arbitration, but a detailed affidavit-in- reply dated 18 th December 2017 and a further additional affidavit dated 2 nd January 2018 were filed well before the application under Section 8, not merely to oppose grant of the lease, but seeking to interpret clauses of the agreement for sale. No objection was raised under Section 8. The present motions have been filed after about 20 months of filing the reply. For these reasons, these motions are opposed. The Consent Minutes of ad-interim order were sought and filed in the proceedings, which affected merits of the case, and inter alia permitting defendant no.1 to create third party rights. All of this was not without prejudice to the proposed reference of the dispute to the arbitration. On the other hand, the consent minutes clearly indicate that the orders were obtained by defendant no.1; that the defendant no.1 could deal with the property subject to the orders being passed in the suit, the submission being that the intention to submit to the jurisdiction of this court was complete and would amount to clear waiver of 12/29 ::: Uploaded on - 16/03/2020 ::: Downloaded on - 08/06/2020 18:02:42 ::: 901-NMS-2149-19 & 95-2020.doc the arbitration clause. Third party rights, if created, would also be subject to the rights of the parties in the suits and outcome in the suits. If third party rights are created in terms of the consent minutes, those third parties would have to be subjected to the result of the suits and the arbitration agreement cannot be imposed upon such third parties.
19. Reliance was placed on the judgment of the Supreme Court in Booz Allen and Hamilton Inc. Vs. SBI Home Finance Ltd. and Ors. 7, which held that by filing of an affidavit prior to filing written statement, if the affidavit is filed to oppose relief shows the intention of a party to submit to the jurisdiction of the court and waives the right to seek reference to arbitration. Considering the ratio in Booz Allen, it is obvious that whether or not the waiver must be ascertained with reference to the facts of each case. In the case at hand, a written statement has also been filed by the defendant no.1. That along with the defence taken up in the affidavit filed by defendant no.1 and submitting to the orders of the court in the consent minutes, the defendant no.1 has waived its right to submit disputes to the arbitration.
20. It is then submitted that the society has filed a separate suit. The society not being party to the arbitration agreement is not bound by the same and even if defendant no.1 succeeds in the motion against the plaintiffs in Suit No.1037 of 2018, the issue will have to be decided in the case of defendant no.5-society, resulting in multiplicity of proceedings. Defendant no.5-society, 7 (2011) 5 SCC 532 13/29 ::: Uploaded on - 16/03/2020 ::: Downloaded on - 08/06/2020 18:02:42 ::: 901-NMS-2149-19 & 95-2020.doc registered under the Maharashtra Co-operative Societies Act, 1960, is a legal entity separate from its members and therefore cannot be bound by the arbitration clause. In this behalf, reliance is placed on the decision of the Delhi High Court in Uniworld Garden Apartment Owners Association Vs. Unitech Realty Pvt. Ltd.8, which holds that a society is an independent legal entity and not amenable to arbitration under Section 8. Thirdly, it is contended that some defendants-Deputy Registrar and Divisional Joint Registrar of Co-operative Societies in both the suits are not parties to the arbitration agreement. Defendant no.5 in the Members' Suit being the society and defendant nos.6 and 7 being the Deputy Registrar and Divisional Joint Registrar of Co-operative Societies are the necessary parties since various reliefs have been sought against them. The relief sought against defendant no.5-society to restrain it from admitting defendant no.1 as a member of the society and that the prayers sought by the plaintiffs in the suits are not the subject matter of the arbitration agreement. Those disputes are not arbitrable. Reliance is also placed on Sukanya Holdings Pvt. Ltd. Vs. Jayesh H. Pandya 9, which held that third parties to the arbitration agreement cannot be subjected to arbitration under section 8. Lastly, it is submitted that the reliefs sought in the plaint in Suit No.1037 of 2018 are declaratory reliefs including those seeking demolition of the 14th floor. These are necessarily reliefs in rem and not in personam and therefore the issues raised in the suit are beyond the 8 246 (2018) DLT 735 9 (2003) 5 SCC 531 14/29 ::: Uploaded on - 16/03/2020 ::: Downloaded on - 08/06/2020 18:02:42 ::: 901-NMS-2149-19 & 95-2020.doc scope of arbitration between private persons. The prayer seeking demolition of the 14th floor is a statutory relief under the Maharashtra Ownership of Flats Act (Regulation of the Promotion, Construction, Sale, Management and Transfer) Act, 1963 (MOFA). Furthermore, relief in terms of cancellation of agreement with respect to 14 th floor between defendant no.1, where-under defendant no.1 seeks benefit, is not arbitrable and that the court is required to examine the legality of grant of occupation certificate by SRA. This aspect however does not appeal to me since SRA is not a party-defendant.
21. On behalf of defendant no.4, Notice of Motion No.2149 of 2019 is opposed on the basis that this motion is misconceived. It is contended that the arbitration agreement is not between plaintiff nos.1 to 5 and defendant nos.1 to 7 in Suit No.1037 of 2018. The defendants nos.5 to 7 are not parties to the agreement. Furthermore, one Rajat R. Patel and Sadhana Baijal, who are flat purchasers, are not even parties to Suit No.1037 of 2018. According to defendant no.4, the motion has been taken out is only to delay the hearing of the suit and to divert attention from failure to execute the lease of the land. Furthermore, defendant no.4 highlights non-compliance with section 8(2) of the Arbitration and Conciliation Act since the original agreement has not been annexed. The reliefs sought by the plaintiffs against defendant nos.1 to 7 are not pertaining to individual agreements for sale between flat purchasers on the one hand and defendant nos.1 to 4 on the other. The suit seeks a direction against defendant nos.1 to 4, who have executed lease in the land, 15/29 ::: Uploaded on - 16/03/2020 ::: Downloaded on - 08/06/2020 18:02:42 ::: 901-NMS-2149-19 & 95-2020.doc and a declaration that construction of the 14 th floor is unlawful and for its demolition. Orders are also sought against the authorities, namely, the Deputy Registrar and Divisional Joint Registrar of the Co-operative Societies, who are not parties to the arbitration agreement. That the reliefs sought involve contravention of sections 7, 7A and 11 of the MOFA and the rights created by the 3rd defendant in favour of the 1 st defendant in respect of 14 th floor flats. The disputes raised by the plaintiffs are not only against defendant nos.1 to 4 but also against the authorities. Defendant no.4, therefore, supports the case of the plaintiffs.
22. I have considered the pleadings and the submissions. On reviewing the factual aspects, it appears that 13 floors were completed in the year 2006. An occupation certificate is seem to have been issued in 2006 itself. The society was registered on 24th August 2010 and MHADA/SRA were expected to grant a lease in respect of the property to the society. Meanwhile, on 3 rd November 2010, Divisional Joint Registrar cancelled the registration of the society since according to him, the Deputy Registrar of H/West Ward did not have the authority to grant registration. The society thereafter challenged the said order before the appellate authority. In the meantime, defendant nos.1 to 4 proposed construction of the 14 th floor. A controversy arose relating to the load bearing capacity of the building. Defendant nos.1 to 4 then started construction. On 17th January 2012, a part occupation certificate was issued by the SRA for the 14th floor and on 14th July 2014, defendant no.3, being the 16/29 ::: Uploaded on - 16/03/2020 ::: Downloaded on - 08/06/2020 18:02:42 ::: 901-NMS-2149-19 & 95-2020.doc partnership firm, executed an agreement of transfer of four flats on the 14 th floor in favour of defendant no.1. This transfer was disputed by defendant no.2. Disputes arose between defendant nos.1 and 2 inter se and on 15 th July 2016, defendant no.1 applied for transfer of 14 th floor flats. The society declined the request on 21 st July 2016. The Deputy Registrar of Co-operative Societies directed the society to recognize defendant no.1 as a member. A revision application came to be filed by defendant no.2, which came to be rejected. On 25th April 2016, it appears that SRA issued a further occupation certificate for the 14th floor. According to the plaintiffs in both these suits, the construction of the 14th floor is illegal. The 14th floor was not constructed in accordance with the plans. No approval is obtained for construction and defendant nos.1 to 4 were allegedly in violation of all the sanctions. Moreover, the terrace area of the 15 th floor was reduced and the plaintiffs in both the suits seek (i) demolition of the 14 th floor; a declaration that the transfer in favour of defendant no.1 is null and void and; (iii) that defendant no.1 has no right, title or interest in the 14 th floor flats. Moreover, in Suit No.1037 of 2018, a further direction is sought that defendant no.1 cannot be a member of the society. The notices of motion now seek an order directing reference to arbitration.
23. In my view, no relief can be granted for more than one reason. The arbitration clause reads as follows :-
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901-NMS-2149-19 & 95-2020.doc "59. PROVIDED AND ALWAYS that if any dispute, difference or question at any time hereafter arises between the parties hereto or their respective representatives in respect of the construction of these presents or concerning anything herein contained or arising out of the premises or as to the rights and liabilities or the duties of the parties hereunder then the same shall be referred to Arbitrators of two persons one to be appointed by each party i.e. the Promoters and Purchasers respectively. The Arbitrators so appointed shall appoint a presiding Arbitrator before entering upon the reference. The provisions of the Arbitration and Conciliation Act, 1996 shall apply to such reference."
24. The agreement to refer the disputes to arbitration operates in a narrow space. As regards the parties to the dispute are concerned, section 2(h) of the Arbitration and Conciliation Act defines a "party" as follows :-
2(h). "Party" means a party to an arbitration agreement."
25. When one analyzes the arbitration clause, it is evident that a dispute, difference or question at any time should have arisen between the parties to the agreement for sale or their respective representatives in respect of construction of these presents or concerning anything contained in the agreement or arising out of premises or rights and liabilities or duties of the parties, such disputes shall be referred to arbitration of two persons, who would then appoint a presiding arbitrator. Thus, the dispute must be in relation to (i) construction of the agreement for sale or (ii) concerning 18/29 ::: Uploaded on - 16/03/2020 ::: Downloaded on - 08/06/2020 18:02:42 ::: 901-NMS-2149-19 & 95-2020.doc anything contained in agreement for sale or (iii) arising out of the premises or
(iv) as to the rights and liabilities or duties of the parties to the agreement.
26. One must therefore identify the parties to the agreement. The party described as party of the first part is the defendant no.4-Developer M/s. Jivesh Developers and Properties Private Limited. The party of the second part consists of defendant no.1-M/s. Ace Housing and Construction Ltd., defendant no.2-M/s. Patel Engineering Ltd. and one Rajat R. Patel, collectively described as "Party of the Second Part", all of whom, namely, the party of the first part and party of the second part, are jointly referred to as the "Promoters". On the other hand, in Suit No.419 of 2018, the flat purchasers Sadhana Baijal and Shishir Baijal constitute "the purchasers" and "party of the third part". It is possible for the sake of argument to interpret the scope of the arbitration agreement in two ways.
27. One interpretation of the arbitration agreement in the process of identifying the parties will reveal that there are only two parties viz. the "Promoters" comprising defendant nos.1 to 4 and Rajat R. Patel as party of one part and "the Purchasers" of the flat in the agreement at hand, namely, Sadhana Baijal and Shishir Baijal as the party of second part. The operation of the arbitration agreement will depend on who the parties are. If I come to conclusion that there are only two parties, the agreement would have to be invoked by one of these parties. In the instant case, arbitration agreement has 19/29 ::: Uploaded on - 16/03/2020 ::: Downloaded on - 08/06/2020 18:02:42 ::: 901-NMS-2149-19 & 95-2020.doc not been invoked by the purchasers. It has been invoked only by defendant no.1, who is one of the promoters. As we have seen above, there are four promoters. All four promoters constitute one party and the purchasers under the different agreements constitute the other party. If that view is taken, the arbitration agreement could not have been validly invoked by one of the promoters to the exclusion of the others. The promoters could have jointly invoked the arbitration agreement. They could not do so severally. In the instant case, defendant no.4 as one of the promoters has not invoked the arbitration agreement and in fact it opposes reference to arbitration.
28. In the alternative, interpreting the agreement as one between four different parties, any one of the four promoters or the partnership firm consisting of defendant nos.1, 2 and Rajat Patel on one hand and defendant no.4 on the other hand could have invoked the arbitration agreement, but when one reads the arbitration clause, without any additions or deletions, or reading into the clause any other elements by implication, it is clear that it contemplates only two parties, one arbitrator to be appointed by the promoters and the other by the purchasers. This clearly indicates that the second and alternate interpretation cannot be correct. Thus, in my view, the arbitration agreement could have been invoked only by the promoters jointly. This interpretation will be justified by incorporating the words " the same shall be referred to Arbitrators of two persons one to be appointed by each party i.e. the Promoters and Purchasers respectively " in clause 59. One of the 20/29 ::: Uploaded on - 16/03/2020 ::: Downloaded on - 08/06/2020 18:02:42 ::: 901-NMS-2149-19 & 95-2020.doc promoters cannot validly invoke the arbitration agreement. In the instant case, although neither party has taken up this contention in their submissions, it is but obvious that invocation of arbitration by one of the promoters will not be valid and would not justify this court referring the parties to arbitration. I hold accordingly.
29. This fundamental aspect having been considered, I proceed to consider the other aspects. The application under section 8 must also fail, because I am also of the prima facie view that defendant no.1-applicant has also waived its right to invoke arbitration having filed its substantial defence on the substance of the dispute. The use of the words "first statement on the substance of the dispute" cannot be expanded in a manner such that multiple affidavits dealing with the merits are contemplated. In the instant case, the affidavits filed on behalf of the 1st defendant dated 18th December 2017 and 2nd January 2018 cannot be considered to be the affidavits merely preliminary and to oppose the ad-interim reliefs. It deals with the substance of the dispute in great detail. Furthermore, acting upon these submissions, the court was invited to pass orders in terms of the consent minutes, thereby submitting to the jurisdiction of the court. On this count also, I am of the view that participation of the 1st defendant in the suit proceedings by filing affidavits dated 18th December 2017 and 2nd January 2018 would constitute submission of the first statement on the substance of the dispute and even beyond. The contention to the contrary cannot be accepted. 21/29 ::: Uploaded on - 16/03/2020 ::: Downloaded on - 08/06/2020 18:02:42 :::
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30. As far as compliance of section 8(2) is concerned, the law is fairly clear. The issues no longer res integra and in the present case, since the existence of the arbitration agreement is not disputed, no occasion arises to consider rejection of the application on the basis of non-compliance with section 8(2). The opposition to the application on the basis of section 8(2) in not having filed original arbitration agreement, in my view, has no merit since existence of such an agreement is not in dispute. The purchasers being one of the parties to the agreement obviously claim under that very agreement since the agreement of sale is evidence of their claim to the title of the flats in question and on the basis of which they became members of the society.
31. The other argument that needs to be considered is whether the arbitration clause would be binding on the plaintiff-society in Suit No.419 of 2018? In my view, it is not binding on the society. The contention on behalf of the applicant-defendant no.1 that the society claims "through and under" its members cannot be accepted. The society has a legal existence of its own. The society consists of its members, but contrary to the contention that society is claiming through and under its members, I am of the view that the contrary would be true. Conceptually speaking, the society is the owner of the building. The building vests in the society. The members, upon formation of the society, are entitled to what is popularly known as beneficial ownership 22/29 ::: Uploaded on - 16/03/2020 ::: Downloaded on - 08/06/2020 18:02:42 ::: 901-NMS-2149-19 & 95-2020.doc by virtue of their shareholding. By fiction of law, the members' interests under the agreements for sale are pooled together and merged into the society. That is the scheme of MOFA. MOFA contemplates participation of flat purchasers in a building amenable to MOFA, requiring them to submit to the provisions of the MOFA and indeed under the agreements for sale, the purchasers are obliged and enjoined to submit to the scheme of MOFA. The society becomes entitled to the ownership and/or leasehold interests in the land upon which the society's building is constructed.
32. I have also observed that the Delhi High Court had in the case of Uniworld Garden Apartment Owners Association (supra) held that it also occasioned to consider the decision of this court in Satyavart Sidhantalankar Vs. Arya Samaj10, which considered the society's registration and came to the conclusion that once the society is registered, it would be a legal entity enjoying status, apart from the members constituting the society. The society having been empowered to this extent, it is not possible to accept the contention that the society claims "through and under" its members. This contention on behalf of the applicant-defendant no.1 is therefore rejected. Clearly the plaintiff-society in Suit No.419 of 2018 is not party to the arbitration agreement. It cannot be impliedly held to be a party in the facts of the present case.
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33. The society plays a dominant role. The act, the rules and the by-laws provide that the members' role is subservient. The member is bound by the bye-laws. If a purchaser under a MOFA agreement becomes a member of the society, the member is deemed to be allotted a flat by the society. This is not keeping with the concept of beneficial ownership, which contemplates ownership only of the shares. The law pertaining to co-operative societies provides for action to be taken against defaulting members and overall control over members' activities. A member cannot sublet the premises without the permission of the society. A member is also obliged to contribute towards repairs, as has been specified by the society. If a member continues to be in default, even he is expelled from the society. The society's control over the building and its members is all pervasive. The society is entitled to approve membership, decline membership and remove membership of any flat purchaser. Upon default by a member, the society is entitled to evict the member and sell the shares and premises. Upon default by a member, the society is entitled to expel the flat user from membership of the society. It is entitled to sell the shares with the beneficial right of occupancy to an interested purchaser and the sale proceeds can be appropriated towards dues of the society at first instance and the residual amounts are required to be paid over to the members. Thus, the concept of claiming through and under and as considered by the Supreme Court in Ameet Lalchand Shah and Chloro Controls India Private Ltd. (supra) offers no assistance to the applicant. 24/29 ::: Uploaded on - 16/03/2020 ::: Downloaded on - 08/06/2020 18:02:42 :::
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34. According to the applicant-defendant no.1, the contention of the plaintiffs that they have challenged the transfer agreement is of no consequence since their challenge has become infructuous as the orders passed by the defendants-Deputy Registrar and Divisional Joint Registrar have already been implemented and enforced. Share certificates dated 17 th March 2018 have been issued in favour of the 1 st defendant for the 14th floor flats. It is contended that the attempt of the plaintiffs is merely to wriggle out of the arbitration agreement. The decision of this court in Taru Meghani (supra) clearly holds that addition of a cause of action not covered by the arbitration would not be sufficient to avoid the arbitration agreement. Furthermore, it is contended that the plaintiffs' opposition on the basis that defendant nos.5 to 7 are not signatories to the arbitration agreement is of no assistance to the plaintiffs, because the rights sought to be enforced against defendant nos.5 to 7 are contractual in nature. I am in agreement with the applicant's submission on this aspect but that offers no assistance to the applicant's attempt to seek relief.
35. Reliance is placed upon A.B.K. Dubhash and Ors. Vs. Petit Towers Co- operative Housing Society Ltd. and Ors. 11 to the effect that the pleadings and the prayers are to be considered while considering an application under section 8 and by merely joining a legal authority, the arbitration process cannot be frustrated. As far as the contention that the defendants have 11 2011 (2) Mh.L.J. 57 25/29 ::: Uploaded on - 16/03/2020 ::: Downloaded on - 08/06/2020 18:02:42 ::: 901-NMS-2149-19 & 95-2020.doc submitted themselves to the jurisdiction of the court is concerned, reliance is placed on Booz Allen and Rashtriya Nigam (supra). I have already considered this aspect and I am of the view that the steps taken by the applicant- defendant no.1 in the proceedings go beyond the first statement on the substance of the dispute, submitting to the orders of the court. In fact, Consent Minutes also constituted conduct, which must be construed as waiver of the arbitration clause. While it is correct that merely adding defendant nos.5 to 7, being Deputy Registrar and Divisional Joint Registrar, one cannot avoid arbitration clause, the statutory authorities are bound to act in accordance with the law and shall not necessarily be bound by the contractual obligations between private parties. If contractual obligations fit within the framework of law and allied provisions applicable and under which the statutory authorities are expected to operate, the arbitrability of the dispute and reference to arbitration cannot be affected by simply impleading certain statutory authorities.
36. In the facts of the present case, the requirement of demolishing 14 th floor premises would entail questioning the approvals granted by the planning authorities and prima facie I am of the view that participation of the planning authority in an arbitration proceedings will be mere in the nature of providing evidence. If there is a specific challenge to approval of the plans, such a relief cannot be granted in arbitration and would depend on the facts of the each case. In the facts of the present case, I am inclined to hold that no 26/29 ::: Uploaded on - 16/03/2020 ::: Downloaded on - 08/06/2020 18:02:42 ::: 901-NMS-2149-19 & 95-2020.doc reference can be made to arbitration since effective reference would entail examination of the process by which the plans were approved and considered. The plaintiffs' contention that the plans run contrary to the general scheme of the building and would threaten structural stability of the building, would have to be gone into and this cannot be done in the arbitration proceedings and these parties will not be amenable to arbitration not being parties to the arbitration agreement.
37. Reliance placed by the applicant on Olympus Superstructures Pvt. Ltd. (supra) is also of no consequence. The disputes raised in the present case, in my view, are not connected with the MOFA agreements with the individual members and which contains the arbitration clause. On facts, therefore, the ratio of Olympus Superstructures Pvt. Ltd. (supra) cannot be applied to the present case, so also Taru Meghani (supra), which considers the subject matter of the suit vis.a.vis the subject matter of arbitration, is of no assistance to the applicant. Even assuming that principle of splitting of the causes of action could apply in the case of the suit filed by the society, being Suit No.419 of 2018, the society being in a dominant position and as owner of the building cannot be forced to submit to arbitration on the basis that there is a connection or link between the agreements within a MOFA agreement.
38. I have also considered the effect of A.B.K. Dubhash (supra). The breaches in question encompass a larger area than what is covered under the 27/29 ::: Uploaded on - 16/03/2020 ::: Downloaded on - 08/06/2020 18:02:42 ::: 901-NMS-2149-19 & 95-2020.doc arbitration agreement, which is rather restrictive in its scope. Moreover, the prime reason for rejecting the application is the fact that one of the promoters cannot invoke arbitration since one of them will not constitute the others with powers to bind all especially in the light of opposition by a co-promoter- defendant no.4. The dispute in A.B.K. Dubhash pertained to a specific performance of an agreement for sale and enforcement of an agreement under section 10 of the MOFA. In the instant case, we are not concerned with specific performance. In A.B.K. Dubhash, there was no dispute about existence of arbitration clause between the parties. The society was seeking specific performance of the MOFA agreement as well. The factual matrix is not similar to the present case and in my view, no assistance can be derived by the applicant.
39. In Kotak Mahindra Bank Ltd. Vs. Sundaram Brake Lining Ltd. and Ors.12, the Madras High Court was essentially considering the scope of enquiry under section 8. It inter alia considered that the word "party" appearing in section 8(1) has a restrictive meaning and that it would be restricted by definition under section 2(h) to a party to an arbitration. Section 45, on the other hand, was also considered and it does not contain such a restriction. Thus, in the instant case, considering the view that I have taken on the ineligibility of a single promoter to invoke arbitration clause, reliance placed on Kotak Mahindra Bank (supra) is of no avail.
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40. In Booz Allen (supra), the court considered the feasibility of referring disputes, which determine rights in rem to arbitration. In the facts of the present case, I do not find necessary to enter into that controversy. The rights sought to be exercised by the plaintiffs include rights in rem, since there is certainly an element of enforcing rights in personam as well. However, I am clearly of the view that, as considered in Booz Allen and Rashtriya Nigam (supra), the applicant has clearly waived its right to seek reference to arbitration since it has already made its first statement on the substance of the dispute. In Rashtriya Nigam (supra), the Supreme Court clearly observed in paragraph 42 that waiver of a right on the part of a defendant to the lis must be gathered from the fact situation in each case. In my view, there is no reason to hold that the applicant had questioned the maintainability of the suits in view of the arbitration clause. Apart from general objections, in my view, this is not one of the aspects which the applicant had canvassed prior to filing the notices of motion. In any case, I am of the view that this is a clear case of waiver.
41. In view of what I have observed above, the notices of motion must fail and I pass the following order :-
(a) Notice of Motion No.2149 of 2019 and Notice of Motion No.95 of 2020 are dismissed.
(b) Costs shall be costs in the cause.
(A.K. MENON, J.)
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