Bombay High Court
Estonia Co-Operative Housing Society ... vs Hiranandani Heritage Residents ... on 31 March, 2023
Author: Bharati Dangre
Bench: Bharati Dangre
2023:BHC-OS:3307
(J)Arbap-16523-arbp-19533.doc
rajshree
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION APPLICATION (L) NO.16523 OF 2022
AND
ARBITRATION PETITION (L) NO.19533 OF 2022
Estonia Cooperative Housing ]
Society Limited ] .. Applicant/Petitioner
vs.
Hiranandani Heritage Residents ]
Welfare Association & Ors. ] .. Respondents
Mr.Karl Tamboly a/w Mehul Rathod, Laxminarayan Shukla, Dhruvika
Bhayani, Pragya i/b M/s.Legal Vision for Petitioner/Applicant.
Mr.Vivek Shukla for Respondent No.1.
Ms.Vaibhavi Parchake a/w Prachi Shah for Respondent No.2.
Ms.Shilpa Shinagare for Respondent No.3.
CORAM : BHARATI DANGRE, J
RESERVED ON : 6th January, 2023
PRONOUNCED ON : 31st March, 2023.
JUDGMENT :
1] Arbitration Petition under Section 9 and an Arbitration Application filed under Section 11 of the Arbitration and Conciliation Act, 1996, is filed by Estonia Co-Operative Housing Society Ltd., registered under the provisions of Maharashtra Cooperative Societies Act, 1960, who, by relying upon a clause in the Memorandum of Association (for short 'MOA') of the Respondent No.1-Hiranandani Heritage Residents Welfare Association (for short 'HHRWA'), seek appointment of a sole Arbitrator, in the wake of the disputes that are alleged to have arisen 1/11 ::: Uploaded on - 24/04/2023 ::: Downloaded on - 13/06/2023 10:58:02 ::: (J)Arbap-16523-arbp-19533.doc amongst the parties to the Petition/Application.
2] Respondent No.1-HHRWA is a welfare association also registered under the provisions of Act of 1960, alongwith Petitioner- Society, Respondent No.2-Rivona Cooperative Housing Society Limited and Respondent No.3-Pristina Cooperative Housing Society Limited, who are responsible for maintaining the common areas in the lay out and club house belonging to them. Respondent Nos.2 and 3 are also housing Societies, situated in Hiranandani complex alongwith the Petitioner/ Applicant, and jointly own and possess the common area and amenities.
It is the claim of the Petitioner that, Respondent No.1-HHRWA was registered by the Petitioner and Respondent Nos.2 and 3 as its members and their relationship inter se, is explicitly governed by the MOA of the Respondent No.1 which highlight its objectives and also determine the relationship between them through the rules and regulations.
3] As per the Petitioner, the MOA provide for functioning of the HHRWA with its object being highlighted, of managing, maintaining and administering the facilities and amenities in the Hiranandani complex for its residents and members. It aim to provide a common forum for conducting welfare activities for the benefit of the members and the general public. This very MOA also provide for sharing of expenses and according to the Petitioner, Clause 12(c) specified that all expenses over and above the income generated from all types of incomings of the HHRWA, were agreed to be shared with the societies, in the ratio of Prestina 15%, Estonia 33% and Rivona 55%.
According to the Petitioner, in the wake of the variation in the 2/11 ::: Uploaded on - 24/04/2023 ::: Downloaded on - 13/06/2023 10:58:02 ::: (J)Arbap-16523-arbp-19533.doc aforesaid ratio, a dispute arose, which in terms of clause 9(vii) of the MOA deserve a reference to a sole Arbitrator.
The Applicant invoked arbitration vide its notice dated 11.04.2022, by specifically highlighting that HHRWA is managing the common amenities and club house belonging to the Petitioner alongwith noticee Nos.2 and 3 and for undertaking the said exercise, the maintenance/share money is being collected from the Petitioner as well as noticee Nos.2 and 3 in fix proportion, but recently, Pristina CHSL-Respondent No.3 has proposed to change the said maintenance from existing proportion and this is not acceptable to it. As such a dispute has arisen between the parties and therefore arbitration came to be invoked seeking consent for appointment of sole Arbitrator to adjudicate the disputes and differences and the name of the proposed Arbitrator was also suggested.
4] This notice was responded by HHRWA, by stating that the alleged dead log which is sought to be projected, do not factually exist and it is specifically stated that the management committee of the HHRWA having overall superintendence and control over, is always open for discussion and deliberations to resolve the matter amicably and, therefore, the Management Committee of Association (MCA) has called a meeting on 17.04.2022, with sole agenda to discuss and deliberate on the issue and it will be its endeavor to resolve the disputes or differences, if any. It is also clarified that the MCA had conducted four formal and five informal meetings till date, to deliberate on the issue and concern expressed, by the Petitioner.
It is, therefore, specifically reiterated that the issues can be resolved amicably rather than litigating, which would be nothing but waste of money and funds of the members of the Association, thereby 3/11 ::: Uploaded on - 24/04/2023 ::: Downloaded on - 13/06/2023 10:58:02 ::: (J)Arbap-16523-arbp-19533.doc reducing the common pool of funds available with the HHRWA.
This response constrained the Petitioner to approach this Court seeking appointment of sole Arbitrator.
5] I have heard Mr. Karl Tamboly for the Petitioner/Applicant. It is pertinent to note that the Petitioner has filed Petition under Section 9, seeking a direction to stay the effect, implementation and operation of the alleged minutes of meeting dated 12.06.2022, recording the resolution passed by the members of Respondent No.1, in regard to the expense sharing ratio and in the said Petition, apart from HHRWA, two other cooperative housing societies i.e. Rivona and Prisina are impleaded as Respondents.
Mr.Karl Tamboly would advance his arguments in favour of appointment of a sole Arbitrator, by submitting that since the decision was taken to vary the ratio of expense sharing, which was provided in the MOA, which is not acceptable to the Petitioner and its protest being specifically informed to the Respondent No.1-HHRWA, a dispute has arisen and which in terms of the arbitration clause contained in the MOA between the parties, deserve a reference to a sole Arbitrator.
I have also heard Mr.Vivek Shukla for Respondent No.1, Ms.Vaibhavi Parchake a/w Prachi Shah for Respondent No.2 and Ms.Shilpa Shinagare for Respondent No.3.
6] Respondent No.3-Pristina CHSL strongly contest the aforesaid Petition/Application and and the learned counsel Ms.Shilpa Shinagare would place reliance upon the reply filed on behalf of the said Society, on 24.06.2022. The Petition/Application is also opposed by Respondent No.2-Rivona CHSL by filing an Affidavit-in-Reply.
4/11 ::: Uploaded on - 24/04/2023 ::: Downloaded on - 13/06/2023 10:58:02 :::(J)Arbap-16523-arbp-19533.doc The learned counsels specifically assert that HHRWA is an Association registered under the Societies Registration Act with three participating housing societies i.e. Pristina-Respondent No.3, Rivona- Respondent No.2 and Estonia-Petitioner/Applicant. The basic and prime purpose of forming HHRWA which comprised of three formal participating societies, is stated to have an apex association/body/legal entity, which shall take care of the common area maintenance of Hiranandani complex. It is specifically submitted that the move to form an Association was the need of the hour, for getting back the corpus money from the Developer as a part of handover process, subsequent, to the formation of the three participating societies, but as under the Real Estate (Regulation and Development) Act, 2016, the absolute obligation is cast on the Developer to form the Association of allottees for the maintenance of common area, once the handover takes place and when the project is physically handed over to the respective societies and that is how, it is stated that HHRWA came into existence with collaboration of the three participating societies.
It is specifically argued that the regulating and monitoring authority of HHRWA is the Charity Commissioner of Mumbai, whereas the regulating and monitoring authority of the three participating societies, is Registrar of Cooperative Societies.
It is urged that the participating societies have surrendered themselves to the MOA and the rules and regulations therein specifically provide for various clauses like object/composition of general body/managing committing, their rights and duties, meetings etc. The invocation of arbitration is strongly opposed on the ground that the authority to refer the matter to arbitration lies with the management committee of the HHRWA and it is not permissible for the 5/11 ::: Uploaded on - 24/04/2023 ::: Downloaded on - 13/06/2023 10:58:02 ::: (J)Arbap-16523-arbp-19533.doc Petitioner to invoke it unilaterally.
Apart from this, the invocation is also strongly opposed on the ground that the Petitioner has failed to pinpoint conflict of interests, for which appointment of Arbitrator is sought for.
Another ground of opposition is, the conflict of interests should be between the participating societies or between the different set of members, but this being not so and since Respondent No.2 never raise any issue and as far as letter for modification of expenses sharing ratio, by Respondent No.3 is concerned, there is no conflict of interests between the participating societies, which is a pre-condition for invoking arbitration. Furthermore, there is also no illegal dead lock as contemplated in the clause which should justify invocation of arbitration, is the submission of Respondents.
7] In the wake of the rival contentions, it has therefore become necessary to consider the relevant clauses in the MOA.
Though a strong objection is raised about MOA being a contract between the parties, I am in agreement with the submission of Mr.Karl Tamboly, who would submit that MOA is nothing but a contract as legally, the MOA represents the charter of the Company and it is a legal document highlighting the salient features of the Company formed and it defines the Companies relationship with its shareholders, apart from specifying the objectives for which the Company is formed. It is, thus, a manual that includes all of Companies rules and regulations for its interaction with outside world. It establishes the Companies authority and acts as a foundation of the Company and specifies its operational activities, legal issues, objectives, capital etc. It also assist an outsider who intend to enter into contractual relationship with the Company as it offers insight into its working. The MOA of a Company, in a sense 6/11 ::: Uploaded on - 24/04/2023 ::: Downloaded on - 13/06/2023 10:58:02 ::: (J)Arbap-16523-arbp-19533.doc form a statutory contract which binds the Company and its members and the binding effect becoming operational, once the Company is registered with the Registrar of Companies.
The MOA , thus, is a legally binding document and in any case, if the parties have mutually decided to give this document a binding effect, whether it amounts to contract or not, it shall bind the parties.
This document in form of MOA provide for the constitution of managing committee of Association, to whom the management is entrusted and it comprise of 15 members. It formulated the rules and regulations to define the MCA comprising of 15 members. As per rules, the managing committee of the three registered cooperative housing societies, were admitted as members of the HHRWA.
The duties of the office bearers of the managing committee as well as other office holders is also specifically provided in the MOA.
8] Clause 9 of MOA enumerate the powers and duties of managing committee of the Association, except those reserved fro general body. This amongst the other powers, include the power to consider and decide any other matters provided under the Act, rules and regulations of the Association, but not expressly enumerated in clause 9. Under this head, there exist clause(vii), which reads thus :
vii. In the event of any dead lock or the conflict of interests between the participating Societies or between different set of members, Management Committee of the Association can refer the matter to a suitable Arbitrator with due consultations with the involved personnel ."
The aforesaid clause, which is the basis for invocation of arbitration, is thus comprised in from of the duties of the managing committee of the Association and that is the precise reason, it contemplate that it is the MCA, which can refer the matter to a suitable Arbitrator, with due consultation, with the involved personnel, in case of 7/11 ::: Uploaded on - 24/04/2023 ::: Downloaded on - 13/06/2023 10:58:02 ::: (J)Arbap-16523-arbp-19533.doc any dead lock or the conflict of interests between the participant societies or between a set of members.
9] It is a settled position of law that an arbitration agreement contemplated under Section 7 of the Act, means an Agreement by the parties to submit to arbitration, all or certain disputes, which are arising or which may arise, between them in respect of a defined relationship, whether contractual or not.
Whatever may be the form of arbitration clause, whether it is comprised in a Contract or in the form of a separate Agreement, it must manifestly express intention of the parties to refer the dispute between them to an Arbitrator. The unequivocal intention of the parties, can only lead to a mandatory reference for arbitration.
The use of word "can" which necessarily indicate an option, denude clause(vii) in the MOA of its binding commitment, for a dispute being referred to Arbitration. The essential element or attribute of an Arbitration Agreement being the consensus, to refer the disputes or differences arising between the parties to Arbitration and in absence of such indication, being reflected from the clause, it would not create a binding agreement, between the parties for being referred to arbitration. It only spell out a possibility of referring the matter to a suitable Arbitrator.
In the case of Wellington Associates Ltd. vs. Kirit Mehta1, where the arbitration clause used a word "may" giving option to the parties to refer to arbitration, the Hon'ble Apex Court recorded as under:-
"21. Does clause 5 amount to an arbitration clause as defined in Section 2(b) read with Section 7? I may here state that in 1 (2000) 4 SCC 272 8/11 ::: Uploaded on - 24/04/2023 ::: Downloaded on - 13/06/2023 10:58:02 ::: (J)Arbap-16523-arbp-19533.doc most arbitration clauses, the words normally used are that "disputes shall be referred to arbitration". But in the case before me, the words used are "may be referred".
22. It is contended for the petitioner that the word "may" in clause 5 has to be construed as "shall". According to the petitioner's counsel, that is the true intention of the parties. The question then is as to what is the intention of the parties. The parties, in my view, used the words "may" not without reason. If one looks at the fact that clause 4 precedes clause 5, one can see that under clause 4 parties desired that in case of disputes, the civil courts at Bombay are to be approached by way of a suit. Then follows clause 5 with the words "it is also agreed"
that the dispute "may" be referred to arbitration implying that parties need not necessarily go to the civil court by way of suit but can also go before an arbitrator. Thus, clause 5 is merely an enabling provision as contended by the respondents. I may also state that in cases where there is a sole arbitration clause couched in mandatory language, it is not preceded by a clause like clause 4 which discloses a general intention of the parties to go before a civil court by way of suit. Thus, reading clause 4 and clause 5 together, I am of the view that it is not the intention of the parties that arbitration is to be the sole remedy. It appears that the parties agreed that they can "also" go to arbitration in case the aggrieved party does not wish to go to a civil court by way of a suit. But in that event, obviously, fresh consent to go to arbitration is necessary. Further, in the present case, the same clause 5, so far as the venue of arbitration is concerned, uses the word "shall". The parties, in my view, must be deemed to have used the words "may" and "shall"
at different places, after due deliberation."
10] The use of word "can" definitely is not indicative of a conclusive and mandatory affirmation between the parties to be ascertained, to refer the disputes to arbitration and it only contemplated a possibility, which would encompass a choice or discretion available to a party. Being an option, whether the dispute can be referred to Arbitration or not, the element of compulsion is taken away. It is settled law that where there is a possibility of the parties agreeing to arbitration, in future, as stipulated in a contract, there can be no valid and binding arbitration agreement. It is only when there is a special and direct expression of intent, to have the disputes settled by arbitration, it may not be necessary to set out the attributes of an Arbitration Agreement to make it so, but where clause relating to settlement of disputes contain 9/11 ::: Uploaded on - 24/04/2023 ::: Downloaded on - 13/06/2023 10:58:02 ::: (J)Arbap-16523-arbp-19533.doc the words which specifically exclude any of the attributes of a mandatory reference to arbitration, the clause would not amount to a valid arbitration clause.
11] Apart from this, from the perusal of clause, in the form in which it is contained would also clearly indicate that it is prerogative of the managing committee of the Association to refer the disputes to a suitable Arbitrator. This power can also be exercised only with further caveat that is upon, due consultation with the involved personnel. Necessarily, it is not open to the Petitioner, as one of the member of managing committee of Association, equally placed as Respondent Nos.2 and 3, to invoke arbitration, as this power is conferred only upon the managing committee of Association and if it deems fit, it can refer the matter to Arbitrator upon due consultation with the involved personnel.
12] In any case, the reply filed on record clearly reveal that attempts were made to resolve the disputes and minutes of Special General Body meeting of HHRWA held on 12.06.2022, in presence of the members of Rivona CHSL and Pristina CHSL, 19 in number out of 30 members of general body, rejected the demand of Estonia CHSL - the Petitioner about their current share of common maintenance to be brought to unit-wise base, on the number of flats their building occupy, whereas the request of Pristina CHSL to bring down rationalise their current sharing ratio of common maintenance as per area occupied by the three societies came to be approved.
Resultantly, the general body approved the changes in the MOA and rules to rationalise the sharing ratio of common expenses of three buildings/societies proportionately to the total area of flats in each of 10/11 ::: Uploaded on - 24/04/2023 ::: Downloaded on - 13/06/2023 10:58:02 ::: (J)Arbap-16523-arbp-19533.doc the three buildings. Conclusively, the square feet wise new ratio of Pristina has been decided to be 9.5% and as far as Estonia is concerned, it is enhanced to 39.30 % from the existing ratio of 33%.
Apart from this, in the very same meeting a categorical decision is taken that HHRWA does not want to invoke provision of arbitration mentioned in MOA nor does it want to go for arbitration.
The Special General Body Meeting was validly held as per the Rules for holding a meeting with due notice being served upon the members and on the quorum of the meeting being complete, the decision taken in the said meeting would bind all the members of Association.
13] In the wake of above, since there is no binding arbitration agreement between the parties, which would have justified its invocation by the Petitioner, the Arbitration Application filed under Section 11 deserve rejection and is accordingly rejected.
Since it is held that there is no valid and binding arbitration agreement between the parties, with no possibility of the parties being referred to arbitration in the wake of the clause comprised in the MOA, no relief under Section 9 can be granted in favour of the Petitioner.
Hence, Petition filed under Section 9 is also rejected.
[BHARATI DANGRE, J] 11/11 ::: Uploaded on - 24/04/2023 ::: Downloaded on - 13/06/2023 10:58:02 :::