Bombay High Court
Parth Developers vs Mahaveer Construction Company on 7 April, 2021
Author: G.S. Patel
Bench: G.S. Patel
13-CARBP7-2021.DOC
Atul
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMM ARBITRATION PETITION NO. 7 OF 2021
Parth Developers ...Petitioner
Versus
Mahaveer Constructions Co ...Respondent
Dr Birendra Saraf, Senior Advocate, with Apurva Gupte, for the Petitioner.
Mr Ravi Kadam, Senior Advocate, with Chetan Kapadia, Tanmayi Gadre, Dhiren Shah, Miloni Gala, i/b Dhiren Shah, for the Respondent.
CORAM: G.S. PATEL, J
(Through Video Conferencing)
DATED: 7th April 2021
PC:-
1. Heard through video conferencing.
2. This is a Petition under Section 9 of the Arbitration and Conciliation Act 1996. The contest is between two developers in regard to a Slum Rehabilitation Project under Letter of Intent No. SRA/ENG/934/RS/PL/LOI dated 22nd July 2020. The land in question is a 5,820.61 sq mtr plot, CTS Nos. 3 (part), 4 (part), 5 (part), 6 (part) and 7 (part) of Village Wadhvan, Taluka Borivali in Page 1 of 14 7th April 2021 ::: Uploaded on - 08/04/2021 ::: Downloaded on - 05/09/2021 17:00:37 ::: 13-CARBP7-2021.DOC Mumbai Suburban District. On this, there was a slum. It is being redeveloped ("the SRA Project").
3. The prayers in the Petition are to restrain the Respondent ('Mahaveer Constructions') from developing or implementing Phase-II of the SRA project or from developing or implementing Phase-II with any arrangement with any third party. The second prayer is for an injunction against Mahaveer Constructions from disposing of, alienating, encumbering, parting with possession or developing Phase-II of this SRA project.
4. The Petitioners ('Parth Developers') were not the original developers of the SRA project. Both parties are partnership frms. There was between them an agreement of 29th November 2005. There is also a supplementary agreement of 13th October 2011 but the principal arguments have been restricted to the main 2005 agreement. The slum society appointed Mahaveer Constructions as the developer under this SRA scheme and project under a development agreement of 1st August 2004 ("the 2004 DA").
5. This project, like almost all SRA projects, followed the usual three or four stage trajectory. First, all slum dwellers would have to be removed from their existing occupancies and put into transit accommodation. There would then be two phases or sets of constructions, which seem to have been described as sub-plot A and sub-plot B or Phase-I and Phase-II. Following the generally applicable procedure, the rehabilitation units/tenements would have to be constructed frst. The slum dwellers in transit would have to Page 2 of 14 7th April 2021 ::: Uploaded on - 08/04/2021 ::: Downloaded on - 05/09/2021 17:00:37 ::: 13-CARBP7-2021.DOC be moved into those. Phase-II contain the free sale component and this is where the developers stood to make their profts. The entire scheme contemplates incentive FSI. The developer or developers put their own money into the entire project, and then recoup their costs and make their profts from sale of the free sale units. This is the usual pattern. The additional factor in this case would be the advent of a new Development Control regime under DCPR 2034, possibly afording signifcantly higher benefts in relation to the free sale units.
6. That the free sale units were in fact the proft payback cannot seriously be disputed.
7. On 29th November 2005, the two parties to this Petition executed the joint development agreement in question.
8. For some reason that I am unable to understand, neither of these parties have thought it necessary in all this time to have the document in question stamped. This will not afect the order under Section 9 or even a reference to arbitration. It is just that it is inconceivable that after so many years of the agreement, parties are still unable to complete something that is fundamental. It is not as if they are entirely without access to quite excellent legal advice, as the note of appearances at the head of this order demonstrates.
9. I turn to some clauses of the 2005 Agreement immediately. Recital (ix) says that under the 2004 DA that Mahaveer Constructions had with the society, it was at liberty to appoint Page 3 of 14 7th April 2021 ::: Uploaded on - 08/04/2021 ::: Downloaded on - 05/09/2021 17:00:37 ::: 13-CARBP7-2021.DOC others as nominees or assignees for disposal of the free sale FSI. In the 2005 agreement, Parth Developers is described as the "Joint Developer" and Mahaveer Constructions is described as "the Developer". Clause 1 says that Mahaveer Constructions had agreed to bring the beneft of its development agreement with the society and to have the property developed jointly in the manner set out in the 2005 agreement. Clause 3 then says that the parties had joined together by forming a Joint Venture ('JV')-- although this had no distinct name -- to develop the property. The same clause went on to say that the JV was for the limited purpose of joint development of the property. It would end on completion of the Constructions of all buildings, including the rehab component, sale of any commercial units, car parking spaces, stilt parking spaces and other units in the free sale component, and on delivery of possession upon obtaining an occupation certifcate. Mahaveer Constructions' obligations are set out in clause 4. Among these, in clause 4(d), is the responsibility to get building plans sanctioned from the authority concerned and to obtain necessary commencement certifcates. Clause 4(j) then says that all expenses for the preceding clauses are to be borne by Mahaveer Constructions and paid for by Parth Developers and debited to the account of Mahaveer Constructions. There was in sub-clause (k) an initial amount of Rs. 5 lakhs.
10. Parth Developers' reciprocal obligations are set out in clause 5 and this includes making the necessary Constructions and development arrangements. Clause (j) requires Parth Developers to provide accommodation in transit, and clause (l) says that all expenses or payments to be made to carry out all the obligations in Page 4 of 14 7th April 2021 ::: Uploaded on - 08/04/2021 ::: Downloaded on - 05/09/2021 17:00:37 ::: 13-CARBP7-2021.DOC clause (a) to (l) are entirely to the account of Parth Developers and to be borne by them alone.
11. Then clauses 6 and 8 provide for a sharing of the free sale components. This was described as the 'total constructed saleable area on account of balance FSI available under the Slum Act'. I understand this to mean the entire constructed area after providing for the rehab component, i.e. the balance free sale component. Of this, 30% was the entitlement of Mahaveer Constructions under clause 6 and, correspondingly, in clause 8, 70% of this was the entitlement of Parth Developers.
12. Clause 8, however, seems prima facie to peg this entitlement to Parth Developers carrying out the Constructions at their own costs and discharging their obligations as referred to in sub-clauses
(a) to (l) (of what appears to be a typographical error and should read clause 5 instead of clause 3).
13. Clause 15 said that neither of the parties would under any circumstances deal with or dispose of or encumber the other party's built up area, it being agreed and confrmed that this right (meaning obviously the 30%-70% split) was exclusively with the party to which each share was allotted. Clause 16 provide for standard draft ownership agreements on ownership basis and required the approval of the other party in efecting these.
14. Clause 25 of the 2005 agreement clearly said that the agreement did not constitute a partnership. Each party was to pay Page 5 of 14 7th April 2021 ::: Uploaded on - 08/04/2021 ::: Downloaded on - 05/09/2021 17:00:37 ::: 13-CARBP7-2021.DOC and discharge its respective liabilities and keep the other indemnifed. Finally, clause 28 provided for a reference to arbitration of all disputes. If the parties agreed, the disputes were to be sent to a Sole Arbitrator, and if not, each party was to appoint one Arbitrator, the two Arbitrators then appointing a third or presiding Arbitrator or umpire.
15. Dr Saraf's frst submission on this agreement is that the 30%- 70% division is clear and it is unalterable. Whatever be the wording of clause 25, he submits, this is in sum and substance nothing but a partnership.
16. I am straight away rejecting that submission at this prima facie stage. The reasons are many. I do not see how a party that has consciously signed a document with a specifc and unambiguous term such as the one we fnd in clause 25 can then simply say that it is meaningless and am empty formality or nothing else. The contracting party is bound by it and cannot resile from that position. If any part of the case today is, thus, founded on a notion of the 2005 agreement being in the nature of a partnership, it will necessarily have to be rejected in view of the explicit language of clause 25.
17. The other problem is that the argument is self-defeating because the partnership, assuming there is one, is unregistered and the law in that regard is not only wholly settled but is entirely against Dr Saraf.
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18. Dr Saraf clarifes his submission to mean that though it may not be a partnership it has all the ingredients of partnership. To my mind, this is a distinction without a diference when it comes to interpreting the clause. One cannot possibly say it is not a partnership but ask a Court to treat as if it is indeed a partnership.
19. Dr Saraf then submits that the fats in the free sale component were in fact distributed. There was a previous arbitration that resulted in Consent Terms. Mahaveer Constructions paid compensation of Rs. 3.5 crores to Parth Developers. A copy of the Consent Terms is at Exhibit 'J' at page 101. Those Consent Terms are dated 13th January 2015.
20. On 29th March 2016, the occupation certifcate for the rehab units was received. But for a few, according to Dr Saraf, the slum dwellers were all re-accommodated in the rehab component. The remainder were to be re-housed in some of the free sale buildings. According to him, the project completion was indeed delayed. There were issues with the Government of India in its Defence Department and this pushed back the receipt of the necessary permissions. He states that it was not until 31st March 2018 that a Letter of Intent approving the commencement of Phase-II of the free sale component was received.
21. In the meantime, there seems to have been a considerable amount of correspondence with Mahaveer Constructions calling upon Parth Developers to make payment of transit rent and to meet its other fnancial obligations. I do not propose to conduct any sort Page 7 of 14 7th April 2021 ::: Uploaded on - 08/04/2021 ::: Downloaded on - 05/09/2021 17:00:37 ::: 13-CARBP7-2021.DOC of a mini-trial in assessing those documents. Dr Saraf has taken me through some of them, in an endeavour to show that, even if there were delays, whenever called upon by Mahaveer Constructions, Parth Developers "ultimately" made payment.
22. One such document is of 7th August 2018 at page 255. It is from Mahaveer Constructions to Parth Developers. It is in reply to an email dated 2nd August 2018 from Parth Developers which is at page 254. Now this email from Parth Developers says that the commencement certifcate of the rehab building had not been obtained and that there was a delay on the part of Mahaveer Constructions, thus increasing Parth Developers' fnancial obligations. The response of 7th August 2018, Exhibit 'C' at page 255, from Mahaveer Constructions says in paragraph 3 that all the plans and requisitions to obtain the necessary approvals had already been done. In fact, Mahaveer Constructions had paid an amount of Rs. 50 lakhs that was actually payable by Parth Developers. Mahaveer Constructions claims to have obtained the Intimation of Approval, and a commencement certifcate for sale building No. 2 and another Intimation of Approval for the rehab building No. 3. A few compliances were remained pending to obtain commencement certifcates and the demolition of some existing toilets at site after vacating some balance slum dwellers.
23. Then in paragraph 5 Mahaveer Constructions stated that there were repeated delays on the part of Parth Developers in fulflling its fnancial obligations towards the rent payable to occupants and tenants. This had resulted in Mahaveer Constructions facing many difculties on site. The slum society had Page 8 of 14 7th April 2021 ::: Uploaded on - 08/04/2021 ::: Downloaded on - 05/09/2021 17:00:37 ::: 13-CARBP7-2021.DOC begun to express apprehensions regarding the capabilities of Mahaveer Constructions itself. There was a demand for enhanced rent. In paragraph 6 Mahaveer Constructions said that it had been informed that Parth Developers was in fnancial difculties. Mahaveer Constructions went on to ask Parth Developers for a confrmation whether it was in a position to make immediate payments towards all outstanding dues. It went on to demand evidence of fnancial capabilities by demonstrating that it had at least Rs. 10 crores readily available for use from the project and, alternatively, demanded a bank guarantee in this amount.
24. At page 258 at Exhibit 'D' of the Afdavit in Reply, there is a long list of at least 46 items from 16th June 2018 until as recently as 17th February 2020 showing the number of reminders that Mahaveer Constructions has had to send to Parth Developers for overdue rent, bank guarantees not furnished and so on.
25. On 12th December 2018, according to Dr Saraf, Parth Developers paid Mahaveer Constructions Rs. 50 lakhs. I do not think this this advances Parth Developers' case much further, because the previous correspondence seems to indicate that it is Mahaveer Constructions that paid this amount on behalf of Parth Developers. A further amount of Rs. 35 lakhs was supposed to have been paid in March 2019. But these facts, even if undisputed, do not answer the question of delay on the part of the Parth Developers itself.
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26. On 16th March 2019, an application was made afresh under the newly introduced DCPR 2034. Apparently this makes available a signifcantly more benefts in schemes such as these. Further documents were provided on 23rd April 2019. Dr Saraf would have it that there was no averment of delay by Mahaveer Constructions against Parth Developers after this. But there remains, as we have just seen, this long litany of complaints by Mahaveer Constructions about Parth Developers not fulflling its obligations on time.
27. This brings us to the termination notice by the Mahaveer Constructions. That was in its Advocate's letter dated 11th March 2020. A copy is at Exhibit 'N' to the Petition from page 107 onwards. The relevant portion is in paragraph 6 where Mahaveer Constructions alleges the delay. Then there is a reference in paragraph 7 to Mahaveer Constructions' letter of 7th August 2018 (which I have just referenced). This is followed in paragraph 8 by the assertion that despite the letter of 7th August 2018, Parth Developers had not only failed to reply but had also failed to comply with its requisitions. In addition, it continued to be in default of payment of rent compensation in a timely manner to the slum dwellers and occupants.
28. There are further allegations in the rest of this letter including that Parth Developers had unlawfully mortgaged a fat on the 20th foor of the 'A' wing of sale building, although this had been sold to a third party. This fat was attached by the State Bank of India under the SARFAESI Act, and it was only after considerable difculty that the Bank debt was fnally discharged. Mahaveer Constructions specifcally asserted that it had complied with its obligation and Page 10 of 14 7th April 2021 ::: Uploaded on - 08/04/2021 ::: Downloaded on - 05/09/2021 17:00:37 ::: 13-CARBP7-2021.DOC obtained necessary permissions for the Phase-II. In doing so, it had spent monies that were actually properly payable by Parth Developers. Consequently, in paragraph 12, Mahaveer Constructions terminated the 29th November 2005 agreement (read with the supplementary agreement dated 13th October 2011 to the extent applicable).
29. Dr Saraf says that equity demands that his clients' rights be protected. His clients have spent Rs. 74 crores on the project. Various fats have been sold.
30. He also submits that neither party has the right to efect a unilateral termination. He disputes Mahaveer Constructions' case that there was any delay on the part of Parth Developers. If there was any delay amounting to a breach, then Mahaveer Constructions must be deemed to have accepted that breach and extended time for performance. It has never made time the essence of the contract.
31. Finally, he submits, on account of the 30%-70% division, Parth Developers has a right in the immovable property comprised in the said buildings.
32. For the purposes of a Section 9 Petition, the parameters and considerations for which are well established, I fnd these submissions by Dr Saraf most unpersuasive. It will not do for Parth Developers to attempt to whitewash its delays that Mahaveer Constructions alleges. I am not assessing those delays but Parth Developers cannot simply say that even if there was delay this Page 11 of 14 7th April 2021 ::: Uploaded on - 08/04/2021 ::: Downloaded on - 05/09/2021 17:00:37 ::: 13-CARBP7-2021.DOC counts for nothing. It is bound by a contract and it must show that it has, not substantially, but completely fulflled its contractual obligations in the manner and on the schedule the contract contemplates.
33. As to the question of a right in immovable property, the argument is simply misconceived in the context of a public-purpose SRA project. That branch of the law is also equally well settled. There is no such right. This would amount to placing a limitation on the rights of the slum society, its right to get the slum project advanced and the re-development brought to fruition.
34. Returning to the reliefs, what Parth Developers essentially claims is an order of complete stoppage of the project. This comes not only at the fnancial costs of Mahaveer Constructions but conceivably at a far greater costs to the slum dwellers, SRA and the public purpose being pursued. Dr Saraf accepts that not all slum dwellers have been rehabilitated. Some are yet to be re- accommodated in the free sale units. His argument that all of this done after the advent of DCPR 2034 to leverage greater benefts does not appeal either. If those benefts exists, then they exist for all concerned, i.e. both parties, though perhaps in the 30%-70% ratio.
35. Clearly, Mahaveer Constructions has its own liability to the society under the 2004 DA. The termination is because -- and there is no other way to see the correspondence shown to me -- Parth Developers had become a constant liability rather than a performing co-developer. This was imperilling the 2004 DA Page 12 of 14 7th April 2021 ::: Uploaded on - 08/04/2021 ::: Downloaded on - 05/09/2021 17:00:37 ::: 13-CARBP7-2021.DOC between Mahaveer Constructions and the Society. Parth Developers cannot insist that its past defaults be forgotten or eclipsed and that it be allowed to choke up the entire re-development -- even at the cost of the slum society -- only because it is in pursuit of its profts. Seeking and making profts is no sin; no one expects a developer to do charity. But the making of those profts is predicated upon the developer adhering to its obligations, including the fnancial ones, and not being constantly in default of those.
36. Further, it is not as if Mahaveer Constructions is simply going to bank all the so-called benefts of DCPR 2034 straightaway without completely fulflling its obligations under its 2004 DA with the society. The termination is very probably the last straw. To this day, there is nothing substantial to show that Parth Developers has the requisite fnancial ability to complete the project. This was precisely Mahaveer Constructions' demand in its 7th August 2018. Parth Developers never responded.
37. I do not see any substance in the Arbitration Petition. It is dismissed.
38. There will need to be an order of costs in view of the provisions of Section 35 of the Code of Civil Procedure 1908 as amended by the Commercial Courts Act 2015. Mr Kapadia submits that the costs incurred by the Respondent, Mahaveer Constructions up to this stage are Rs. 12 lakhs, including all legal expenses and fees. I think the fgure is reasonable. There will be an order of costs against the Petitioner and in favour of the Respondent in the amount Page 13 of 14 7th April 2021 ::: Uploaded on - 08/04/2021 ::: Downloaded on - 05/09/2021 17:00:37 ::: 13-CARBP7-2021.DOC of Rs. 12 lakhs. This is to be paid within two weeks from today. If not, it will carry interest at the rate of 6% per annum. Amended Section 35 permits interest on an award of costs, if unpaid. The order of costs is executable as an order of this Court. Drawn up order dispensed with.
39. All concerned will act on production of an ordinary copy of this order.
(G. S. PATEL, J) Page 14 of 14 7th April 2021 ::: Uploaded on - 08/04/2021 ::: Downloaded on - 05/09/2021 17:00:37 :::