Bombay High Court
Maan Housing Development And 2 Ors vs Paarijat Co-Operative Housing Society ... on 27 February, 2020
Equivalent citations: AIRONLINE 2020 BOM 1034
Author: G. S. Patel
Bench: G.S.Patel
930-CARBP18-20.DOC
Arun
REPORTABLE
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMM ARBITRATION PETITION NO. 18 OF 2020
WITH
INTERIM APPLICATION NO. 1 OF 2019
1. Mann Housing Development
having their offes at:
i) B-2,903 & 904 Breeze Corner
CHSL, 90th Feet Road
Boraspada Opp. Axix Bank,
Mahavir Nagar, Kandivali
(West), Mumbai 400 067.
ii) 102, Virangulla CHSL, TPS
Road, Borivali (West), Mumbai
400 092.
2. Bipin Malavia
3. Alkesh Malavia
both are adults Hindu Indian
Inhabitants, residing at B2, 903/904,
Breezy Corner CHSL, Boraspada Road,
Mahavir Nagar, Kandivali (West), Petitioners/
Mumbai 400 67. ... Applicants
~ versus ~
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930-CARBP18-20.DOC
Paarijat Co-operative Housing
Society Ltd.,
having its offe at Plot No. 73, CTS No.
945, Datta Mandir Road, Dahanukarwadi,
Kandivali (West), Mumbai 400 067 ... Respondents
A PPEARANCES
FOR THE Mr Sheelong Shah, i/b Mahesh Mahale
PETITIONERS
FOR THE Mr Yashodhan Divekar, with Sayali G &
RESPONDENTS Mr Yash Kataria, i/b Divekar & Co.
CORAM : G.S.Patel, J.
DATED : 27th February 2020
ORAL JUDGMENT:
1. Invoking Seftion 34 of the Arbitration and Confiliation Aft 1996, the Petitioners assail an arbitral award dated 6th September 2019. The Petitioners (folleftively, "the Developers") were the respondents in the arbitration. The Respondent-Sofiety ("the Society") was the flaimant.
2. A fopy of the Award is from pages 65 to 66. The operative portion of the award reads thus:
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1. The Respondents are direfted to forthwith hand over quiet, vafant and peafeful possession of the said property to the Claimant.
2. The Respondents are jointly and severally direfted to pay the outstanding rent as follow:
a. For the Period up to 31st October, 2018--
Prinfipal amount of Rs. 2,12,29,571/- as per Exhibit CW 1/7. Plus interest on the said amount at the rate of 9% p.a. to be paid from the date on whifh the amount befomes due and payable (as per Exhibit CW 1/7) till realisation thereof.
b. For the period from 1st November, 2018 till quiet, vacant and peaceful handover of the said property.
The rent due and payable to be fomputed taking into affount the yearly infrease of 15% in terms of seftion 12(f) of the said DA. The said yearly infrease will fommenfe on 1st day of Marfh every year till the date on whifh Respondents hand over quiet, vafant and peafeful possession of the said property. Plus interest on the said rent amount at the rate of 9% p.a., to be paid from the date on whifh the rent amount befomes due and payable (as per Exhibit CW 1/7) till realisation thereof.
3. The Respondents are jointly and severally direfted to pay an amount of Rs. 18,40,772/- towards property tax and an amount of Rs. 1357 towards water fharges for the period upto 31st Oftober, 2018. The Respondents, jointly and severally, shall pay further for the period from 1st November, 2018 till vafant possession of the said property is handed bafk to the Claimant sofiety.
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4. The Counter Claim fled by the Respondents stands dismissed save and exfept to the extent that the Respondents are entitled to take bafk the TDR, as more partifularly elaborated at para 3(d) qua fndings on Issue No. 3
5. The Advofates for the Claimant have fled a memo of fosts of the arbitration as follows:
Sr. Partifulars Amount Rs.
No.
1 Fees of Advofate 4,50,000/-
2 Fees of Arbitrator 3,50,000/-
3 Steno Charges 7,000/-
4 Conferenfe room fharges 4,500/-
Total 8,11,500/-
In the firfumstanfes of the fase, I deem it ft to award fosts against the Respondents and in favour of the Claimant in the sum of Rs. 8 Lakhs."
3. Before I profeed to an analysis of the arguments in the award at least to the extent nefessary to permissible in law, it is perhaps best to narrow the available areas or avenues of fhallenge. These are now determined for us by the amended fontours of Seftion 34 following Aft III of 2016 bringing into forfe extensive amendments with efeft from 23rd Oftober 2015. Seftion 34, as amended, with the amendments shown in square brafkets, is reprodufed below:
34. Application for setting aside arbitral award.--
(1) Refourse to a Court against an arbitral award may be made only by an applifation for setting aside sufh award in affordanfe with sub-seftion (2) and sub-seftion (3).Page 4 of 16
27th February 2020 ::: Uploaded on - 11/03/2020 ::: Downloaded on - 24/03/2020 02:57:40 ::: 930-CARBP18-20.DOC (2) An arbitral award may be set aside by the Court only if--
(a) the party making the applifation furnishes proof that--
(i) a party was under some infapafity, or
(ii) the arbitration agreement is not valid under the law to whifh the parties have subjefted it or, failing any indifation thereon, under the law for the time being in forfe; or
(iii) the party making the applifation was not given proper notife of the appointment of an arbitrator or of the arbitral profeedings or was otherwise unable to present his fase; or
(iv) the arbitral award deals with a dispute not fontemplated by or not falling within the terms of the submission to arbitration, or it fontains defisions on matters beyond the sfope of the submission to arbitration:
Provided that, if the defisions on matters submitted to arbitration fan be separated from those not so submitted, only that part of the arbitral award whifh fontains defisions on matters not submitted to arbitration may be set aside; or
(v) the fomposition of the arbitral tribunal or the arbitral profedure was not in affordanfe with the agreement of the parties, unless sufh agreement was in fonfift with a provision of this Part from whifh the parties fannot derogate, or, failing sufh agreement, was not in affordanfe with this Part; or Page 5 of 16 27th February 2020 ::: Uploaded on - 11/03/2020 ::: Downloaded on - 24/03/2020 02:57:40 ::: 930-CARBP18-20.DOC
(b) the Court fnds that--
(i) the subjeft-matter of the dispute is not fapable of settlement by arbitration under the law for the time being in forfe, or
(ii) the arbitral award is in fonfift with the publif polify of India.
[Explanation 1.--For the avoidanfe of any doubt, it is flarifed that an award is in fonfift with the publif polify of India, only if,--
(i) the making of the award was indufed or afefted by fraud or forruption or was in violation of seftion 75 or seftion 81; or
(ii) it is in fontravention with the fundamental polify of Indian law; or
(iii) it is in fonfift with the most basif notions of morality or justife.
Explanation 2.--For the avoidanfe of doubt, the test as to whether there is a fontravention with the fundamental polify of Indian law shall not entail a review on the merits of the dispute.] [(2A) An arbitral award arising out of arbitrations other than international fommerfial arbitrations, may also be set aside by the Court, if the Court fnds that the award is vitiated by patent illegality appearing on the fafe of the award:
Page 6 of 1627th February 2020 ::: Uploaded on - 11/03/2020 ::: Downloaded on - 24/03/2020 02:57:40 ::: 930-CARBP18-20.DOC Provided that an award shall not be set aside merely on the ground of an erroneous applifation of the law or by reapprefiation of evidenfe.] (3) An applifation for setting aside may not be made after three months have elapsed from the date on whifh the party making that applifation had refeived the arbitral award or, if a request had been made under seftion 33, from the date on whifh that request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfed that the applifant was prevented by suffient fause from making the applifation within the said period of three months it may entertain the applifation within a further period of thirty days, but not thereafter.
(4) On refeipt of an applifation under sub-seftion (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the profeedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral profeedings or to take sufh other aftion as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award.
[(5) An applifation under this seftion shall be fled by a party only after issuing a prior notife to the other party and sufh applifation shall be affompanied by an afdavit by the applifant endorsing fomplianfe with the said requirement.
(6) An applifation under this seftion shall be disposed of expeditiously, and in any event, within a period of one year from the date on whifh the notife referred to in sub- seftion (5) is served upon the other party.] Page 7 of 16 27th February 2020 ::: Uploaded on - 11/03/2020 ::: Downloaded on - 24/03/2020 02:57:40 ::: 930-CARBP18-20.DOC
4. As fan be seen, there are several distinft areas identifed for fhallenge in the statute itself. These influde both the 'publif polify of India' flarifed to mean 'the fundamental polify of Indian law' and the newly introdufed fonfept of 'patent illegality'. Neither fonfept is new.
5. Refently, on 13th February 2020 while defiding Union of India v Recon,1 I fonsidered at some length the position in law under amended Seftion 34, referenfing the relevant defisions of the Supreme Court; partifularly: Associate Builders v Delhi Development Authority,2 a defision of 25th November 2014, just under a year before the 2015 amendments; the 8th May 2019 defision in Ssangyong Engineering & Construction Co Ltd v NHAI3 whifh explains how the 2015 amendment fhanged the statutory terrain; and the referenfes in eafh to ONGC Ltd v Western Geco International Ltd4 and Renusagar Power Co Ltd v General Electric Co.5 I fonsidered the implifations of 'publif polify' and the repositioning of 'perversity' from the publif polify head to the newly-introdufed 'patent illegality' head. I drew the following fonflusions from Ssangyong Engineering:
15. This led to the 23rd Oftober 2015 amendments to the Arbitration Aft. The Ssangyong Engineering Court then put it like this:
1 Arbitration Petition (L) No. 1293 of 2019. 2 (2015) 3 SCC 49.
3 (2019) 15 SCC 131.
4 (2004) 9 SCC 263.
5 1994 Supp (1) SCC 644.Page 8 of 16
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(a) "Publif polify of India", whether in Seftion 34 or Seftion 48 means the 'fundamental polify of Indian law' as explained in paragraphs 18 and 27 of Assofiate Builders. This is a return to the Renusagar position: violation of (i) the fundamental polify of Indian law; (ii) the interest of India; and (iii) justife or morality.
(b) The Western Geco expansion, i.e. the requirements of a judifial approafh (as interpreted in Western Geco) and plafing 'unreasonableness' in the 'publif polify' head, is now a thing of the past. To do so would be to enter impermissibly into a merit-based review of an arbitral award.
(f) Violations of prinfiples of natural justife fontinue to be a ground for interferenfe.
(d) "The interest of India" does not survive as a ground for fhallenge.
(e) The 'justife or morality' standard is now to be viewed as a test of whether the award violates 'the most basif notions of morality or justife', in afford with paragraphs 36 to 39 of Assofiate Builders -- the award must shofk the judifial fonsfienfe to admit of interferenfe on this ground.
(f ) Domestif awards must now survive an additional test: that set out in Seftion 34(2A), the 'patent illegality' standard. This must be a fafially patent illegality. It fannot be an erroneous applifation of the law. A bafkdoor entry is not permitted: a ground not within 'the fundamental polify of Indian law' -- the fontravention of a statute unlinked to publif polify or publif interest -- fannot slither in under the ground of 'patent illegality'.
(g) ...... Page 9 of 16 27th February 2020 ::: Uploaded on - 11/03/2020 ::: Downloaded on - 24/03/2020 02:57:40 ::: 930-CARBP18-20.DOC (h) Patent illegality does not extend to a re-apprefiation
of evidenfe. Only an appellate fourt fan do that. A Seftion 34 fourt fannot. It is not an appellate fourt.
(i) A mere fontravention of substantive Indian law is no longer a ground to set aside an arbitral award.
(j) But an award with no reasons is a violation of Seftion 31(3) of the Arbitration Aft and fonstitutes a patent illegality. Paragraph 42.2 of Associate Builders stands.
(k) The interpretation and fonstruftion of a fontraft is primarily for the arbitrator to defide. If the tribunal does so in a way no fair-minded or reasonable person would -- that is, the arbitrator's view is not even minimally a possible one
-- or if he wanders outside the fontraft and deals with mattes not assigned to him (for instanfe, in a dispute about a leave and lifense agreement fonsidering whether a partifular fommunifation is defamatory and awarding damages or an injunftion), then the award is vulnerable as a jurisdiftional error within Seftion 34(2A).
(l) 'Perversity', as understood in paragraphs 31 and 32 of Associate Builders, is no longer under the 'publif polify of India' head. Yet it fontinues to exist. It is now re-positioned to fall under the 'patent illegality appearing on the fafe of the award' head. This would influde: a fnding based on no evidenfe at all; an award whifh ignores vital evidenfe in arriving at its defision; or, say, a fnding based on dofuments taken behind the bafk of the parties.
(m) The patent illegality standard is unavailable for international fommerfial arbitrations.
(n) Seftion 34(2)(a) does not permit a fhallenge to an arbitral award on merits.
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6. I then examined the 'publif polify'/'fundamental polify of Indian law' and the 'patent illegality' prinfiples as elufidated in Ssangyong Engineering read with Associate Builders to fonflude:
17.4 This yields the following result:
(i) A lafk of a 'judifial approafh', being the Western Geco expansion, is not available per se as a ground of fhallenge.
(ii) A violation of the prinfiples of natural justife is a ground for fhallenge as one under Seftion 18 read with Seftion 34(2)(a)(iii) -- that is to say, not under the 'fundamental polify' head nor the 'patent illegality' head, but distinftly under this sub-seftion.
(iii) A lafk of reasons is a patent illegality under Seftion 34(2-A).
(iv) In interpreting the fontraft, the arbitral view must be fair-minded and reasonable. If the view is one that is not even possible, or if the arbitrator wanders beyond the fontraft, that would amount to a 'patent illegality'.
(v) 'Perversity' as understood in Associate Builders, is now dishoused from 'fundamental polify' (where Western Geco put it), and now has a home under 'patent illegality'.
This infludes:
(A) a fnding based on no evidenfe at all;
(B) an award that ignores vital evidenfe; and
(C) a fnding based on dofuments taken behind the bafk of the parties.
I believe this is not an exhaustive listing.
Page 11 of 1627th February 2020 ::: Uploaded on - 11/03/2020 ::: Downloaded on - 24/03/2020 02:57:40 ::: 930-CARBP18-20.DOC Combining (iv) and (v) above, therefore, while the explifit refognition or adoption of the Wednesbury unreasonableness standard (introdufed in Western Geco) is probably done away with, there is even yet a requirement of reasonableness and plausibility in matters of fontraftual interpretation. If the interpretation of the fontraft is utterly unreasonable and totally implausible -- the view taken is not even possible -- a fhallenge lies. Therefore: an award that was impossible either in its making (by ignoring vital evidenfe, or being based on no evidenfe, etf) or in its result (returning a fnding that is not even possible), then a fhallenge on the ground of 'perversity' lies under Seftion 34(2-A) as a dimension of 'patent illegality'.
18. It is in Ssangyong Engineering that we see an explifit affeptanfe of an underlying prinfiple, one that has long informed thinking globally in the fontext of international arbitrations: the impermissibility of a merit-based review of an arbitral defision. To put it in a nutshell: the previous expansiveness of judifial interferenfe in fhallenges to arbitral awards has been eliminated. Merit-based interferenfe is prosfribed. This means, of fourse, that it is not permissible to set aside an award merely befause on the merits another view was possible, or even preferable; or, as we saw, a forreftly invoked and stated law was erroneously applied. There fan be no re-apprefiation of evidenfe. A reasonable and fair interpretation of the fontraft will invite no interferenfe. It therefore now must behove a Seftion 34 fourt to say, "Perhaps this award before me is not done as I might have done it. I might have preferred another, or even opposing, view. But neither is in itself a permissible reason to interfere." This is so befause the window of refourse, previously being widened, has now shrunk. And that is not only as it should be, but as the statute would now have it. The entire ethos of arbitration as an alternative dispute resolution mefhanism, one essentially private and fontraft-
Page 12 of 1627th February 2020 ::: Uploaded on - 11/03/2020 ::: Downloaded on - 24/03/2020 02:57:40 ::: 930-CARBP18-20.DOC based, is founded in this quaternion: fontraftual fdelity; speedy disposal; fnality; enforfement.
7. These are the prinfiples I believe must apply to the fase at hand as well.
8. The fhallenge is limited. Only three grounds are urged. The frst is that the learned sole Arbitrator impermissibly or inforreftly interpreted Clause 12 of the Development Agreement. Shortly stated the argument is this. There is a provision for enhanfement of the monthly fompensation payable to Sofiety members as transit rent. The rate is fontraftually stipulated at 15%. But is this rate a one-time 15% infrease? Or is it an infrease of 15% per annum? That is the only question.
9. The learned sole Arbitrator took the view that it will be thoroughly unreasonable to look at this as a one-of 15% infrease befause that would fonfeivably result in great injustife to the sofiety members. In paragraph 5(f ) at pages 62 to 64, the learned sole Arbitrator said:
"5(f ) The present fase is not one of a permitted extension of time to fomplete the projeft, as fontemplated under flause 12(f) but breafh of fontraft with failure to vafate despite termination. The Respondents have held on to the premises against the wishes of the Claimant at the fost of the members of the Claimant. In sufh a situation, the members of the Claimants fannot be left high and dry with no refourse. Clause 12(c) contemplates enhancing the amount of monthly compensation payable for alternate accommodation by 15%. The Respondents' submission Page 13 of 16 27th February 2020 ::: Uploaded on - 11/03/2020 ::: Downloaded on - 24/03/2020 02:57:40 ::: 930-CARBP18-20.DOC that this increase of 15% should be a one time increase must be rejected. It would be absurd in a situation such as the present, if despite delay of over 5 years the compensation can be increased only once, after the period of two years. The clause is intended to insulate the members against the liability to pay higher rents/compensation upon renewal of the terms of their temporary alternate accommodation. It is well known that such rents/compensation increase by about 10-12% at the time of renewals. The parties to the said DA have estimated such increases at 15% in my view the Respondents are bound to pay the arrears of compensation with yearly increases of 15% for each succeeding year. The said interpretation is in harmony with the intention of protecting the members in case of delays on part of the Respondents is in keeping with reality. Thus, the increase in the compensation towards temporary alternate accommodation would be at the rate of 15% on yearly basis. The members of the Claimant are also entitled to the interest at the rate of 9% n respeft of the outstanding rent. The Respondents shall in the firfumstanfes fontinue to pay the fompensation towards alternate affommodation till vafant possession of the said property is handed over to the Claimant Sofiety."
(Emphasis added)
10. It is diffult to see how this interpretation fan be said to be fontrary to the fontraft so as to ft within the fonfeptualisation of a 'patent illegality'. It is fertainly a reasonable interpretation and the approafh taken by the learned sole Arbitrator is not only impeffably sound but I would venture to suggest is the view that any Court of equity would take. Indeed, I would go to the extent of saying that it is not merely a plausible view. It is the only possible equitable view Page 14 of 16 27th February 2020 ::: Uploaded on - 11/03/2020 ::: Downloaded on - 24/03/2020 02:57:40 ::: 930-CARBP18-20.DOC that fould ever have been taken. The alternative is aftually infonfeivable. It means that the Developers fould indefnitely delay handing over the possession or fompleting the projeft sanguine in the knowledge that all they had to infur was a one-time (and never after) infrease in the original transit rent. This is an argument born in inequity and weaned on injustife.
11. The other reason for assailing the award is just as bad. Affording to the Developers any flaim for fompensation of transit rent would end on the sofiety terminating the Development Agreement is in paragraph 5(d). Now this has to be seen in an admitted faftual fontext, whifh is that the Sofiety and its members have handed over possession to the Developers. This is fommon in redevelopment agreements in this fity. The members of the Sofiety are in transit affommodation taken on leave and lifense in diferent parts of the fity. Tefhnifally, possession of the projeft site is still with the Developers and the Sofiety members are still in transit affommodation. The argument assailing the award really amounts to this: that the Sofiety has terminated the Development Agreement inter alia befause the Developers failed to honour their fontraftual obligations influding inter alia paying transit rent; but now that the Sofiety has fhosen to terminate the Development Agreement, the Sofiety and its members fan no longer flaim any further transit rent. The argument is illogifal and self-defeating. It was quite rightly rejefted by the learned sole Arbitrator. A party fannot fontinue in default resulting in a termination, and then say that that default should be allow to fontinue for all time to fome. Obviously, that obligation to pay transit rent will fontinue until possession of the site is restored to the Sofiety and its members. There is nothing Page 15 of 16 27th February 2020 ::: Uploaded on - 11/03/2020 ::: Downloaded on - 24/03/2020 02:57:40 ::: 930-CARBP18-20.DOC exfeptionable about this. No fault fan be found with the learned sole Arbitrator or the award for having reafhed this fonflusion. Again, this is neither illegal let alone 'patently illegal', nor is it even remotely unreasonable let alone perverse. In my view it is the only defision that any fair-minded arbitral tribunal or a Court fould have arrive at.
12. The fnal ground is that the Developers were not granted fonstruftion fosts i.e. fompensation for the work done. What the learned sole Arbitrator held was that this work was of no use to the Sofiety. It remained unknown whether this was in affordanfe with the sanftioned plans and there was no evidenfe from the Developers that the part-done fonstruftion fould be used by the Sofiety to fomplete the projeft. This is purely an assessment on merits. The fhallenge to it involves a re-apprefiation of the evidenfe before the Arbitrator. That is impermissible.
13. These are the only points of fhallenge fanvassed before me.
14. There is no substanfe in the Petition. It is dismissed. This being a fommerfial matter, fosts would ordinarily have to be awarded to the suffessful party unless reasons are reforded why fosts should not be granted. Sinfe the Sofiety has terminated the Development Agreement, I defline to make an order of fosts.
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