Bombay High Court
Chitalia Builders vs Sandeep Yashvant Chavan And Ors on 13 September, 2022
Author: R.I. Chagla
Bench: R.I. Chagla
Digitally signed
by JITENDRA
JITENDRA SHANKAR
SHANKAR NIJASURE
NIJASURE Date:
2022.09.16
17:27:48 +0530
902-ial-8778-2022.doc
jsn
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INTERIM APPLICATION (L) NO.17828 OF 2022
IN
SUIT (L) NO.8774 OF 2022
M/s. Chitalia Builders ...Applicants /
Ori. Defendant
No.1.
Sandeep Yashvant Chavan & Ors. ...Plaintiffs
Versus
M/s. Chitalia Builders & Ors. ...Defendants
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Atul Damle, Senior Counsel with Hemangi D. Pathare and Nikhil
Jayakar for Applicants / Plaintffs.
Mayur Khandeparkar i/b. Mehul Shah with Abhishek Nikharge for
Defendant No.1.
S.R. Ganbavale i/b. Sangramsingh Yadav for Defendant No.6.
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CORAM : R.I. CHAGLA J
DATE : 13TH SEPTEMBER, 2022
ORDER :
1. Heard learned Counsel for parties.
2. By this Interim Application (L) No.17828 of 2022, the 1/17 902-ial-8778-2022.doc Applicant / Defendant No.1 is seeking a direction to refer their disputes and differences in the present Suit to Sole Arbitrator in terms of the Clause 8 of the second Supplementary Development Agreement dated 21st January, 2022 ("Supplementary Development Agreement") which reads thus:-
"8. If any dispute or differences arises between the parties hereto in respect of this Agreement, development agreement, addendum or supplementary agreement then the same shall be referred to the sole Arbitrator under The Arbitration and Conciliation Act, 1996 or any other modification in force. The Arbitration proceedings shall be held at Mumbai and the same shall be conducted in English language Courts in Mumbai shall have exclusive jurisdiction for all purposes. Laws of India shall be applicable.
3. The Applicant has further relied upon Clause 6 of the Supplementary Development Agreement, wherein the parties agree, declare and confirm that the terms and conditions of the present agreement shall be co-extensive and co-terminus and read in consonance with the terms and conditions of the Development Agreement, Addendum to the Development Agreement and 1st Supplementary Development Agreement. The parties to the Supplementary Development Agreement dated 21st January, 2022 2/17 902-ial-8778-2022.doc are the Defendant No.6 - The Bombay Municipal Corporation Employees Sheetal Co-Operative Housing Ltd. and Defendant No.1 - M/s. Chitalia Builders. It is to be noted from description of the parties to the Supplementary Development Agreement that the aforementioned Society is deemed to mean the Society and its member (s) from time to time and its successors and assigns. M/s. Chitalia Builders are the developers and at the foot of the description of the parties, it is stated that "The Developers", "the Member/s" and "the Society" are collectively referred to as "the Parties".
4. The Applicant has stated that the present Suit filed by the Plaintiffs challenges the Development Agreement dated 19th October, 2018 together with the first Supplementary Agreement dated 16th September, 2021 and the Supplementary Development Agreement 21st January, 2022 as being null and void, illegal and not valid and to be delivered to the Plaintiffs and cancelled, revoked and terminated. By these agreements, development rights had been given in respect of this Suit property in favour of the Applicant / Original Defendant No.1 by the Defendant No.6 Society. The Plaintiffs have shown reluctance to vacate their respective premises and / or handover their respective premises for the purpose of redevelopment. 3/17
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5. The Applicant has referred to certain correspondence addressed by the Applicant calling upon the Plaintiffs to vacate the respective premises as permissions were in place for commencing the redevelopment activities. An Arbitration Petition bearing (L) No.6832 of 2022 had been filed by the Applicant herein against the Defendant No.6 Society and the Plaintiffs for the reliefs set out therein. This Court had by an order dated 1st August, 2022, taken the Minutes of the Consent Order on record and passed order in terms of Minutes of the Consent Order. In the Minutes of the Consent Order, the Plaintiffs herein have agreed to vacate their premises along with the other members of the Society on or before eight weeks from the date of the said Order. All rights and contentions were kept open in respect of the Dispute No.342 of 2022 and Suit (L) No.8774 of 2022 pending before the Cooperative Court (Mumbai), in which proceedings, the Plaintiffs had challenged resolutions passed in the meetings of the Defendant No.6 - Society for redevelopment of the Suit property. These proceedings are to be decided on its own merits. Arbitration Petition was disposed of and the undertaking of the Plaintiffs herein to vacate their respective premises was subject to orders passed in dispute before the Cooperative Court.
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6. The Applicant has stated that the Plaintiffs should have referred their disputes in the present Suit to the Sole Arbitrator in view of the aforementioned Arbitration Agreement in the Supplementary Development Agreement. Accordingly, the present Interim Application is filed for referring the disputes to Arbitration in view of there being an Arbitration Agreement and the disputes in the Suit being covered under the Arbitration Agreement. The urgency for referring the disputes in the Suit to Arbitration is that the structural stability of the building is not in good condition and that minority members cannot hold up the redevelopment of the building in a ransom manner and accordingly the Section 8 application is pressed.
7. Mr. Khandeparkar has in support of the application relied upon aforementioned Arbitration Agreement contained in the Supplementary Development Agreement dated 21st January, 2022. He has submitted that the parties to the Supplementary Development Agreement are the Defendant No.6 - Society and Defendant No.1 Developer who as per the Arbitration Agreement referred not only the disputes and differences in the Supplementary Development Agreement but also Development Agreement, Addendum to the Development Agreement and first Supplementary Agreement to the 5/17 902-ial-8778-2022.doc sole Arbitrator under the Arbitration and Conciliation Act, 1996. He has submitted that in Clause 6 of the Supplementary Development Agreement, the parties have agreed, declared and confirmed that the terms and conditions of the Supplementary Development Agreement shall be co-extensive and co-terminus and read in consonance with the terms and conditions of the Development Agreement, Addendum to the Development Agreement and first Supplementary Development Agreement. Thus the Agreements which have been impugned in the present Suit are the subject matter of the Arbitration Agreement.
8. Mr. Khandeparkar has relied upon the decisions of the Supreme Court and this Court. He has relied upon Sundaram Finance Ltd and Anr. Vs. T. Thankam 1 in support of his contention that, that once the Application has been filed in due compliance with Section 8 of the Arbitration Act, the approach of the Civil Court should be not to see whether the Court has jurisdiction and it should be to see whether its jurisdiction has been ousted. Once it has been brought to the notice of the Court that its jurisdiction has been taken away in terms of the procedure prescribed under a special statute, 1 (2015) 14 Supreme Court Cases 444.
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902-ial-8778-2022.doc the Civil Court should first see whether there is ouster of jurisdiction in terms or compliance with the procedure under the special statute. He has submitted that here in the present case, the jurisdiction of this Court is ousted by the virtue of the Arbitration Agreement under the Supplementary Development Agreement. He has also relied upon decisions of this Court in Time Field Corporation Vs. Sankalp Co-Op. Housing Society Ltd. & Ors.2, and the decision of the Supreme Court in State of UP Vs. C.O.D. Chheoki Employees CHS Ltd. 3 in support of his submission that, the Plaintiffs who are members of the Society lose their right once they become members of the Society and have then no independent rights except those given by the statute and bye-laws. Those members can only speak through the Society and the Society is entitled to represent as the corporate aggregate. He has submitted that in the present case the Plaintiffs are admittedly members of the Society and have no independent rights. They are bound by the Supplementary Development Agreement and the Arbitration Agreement provided therein and the disputes with regard to the aforementioned Agreements are to be referred to the Arbitration.
2 2022 SCC Online Bom 1436.
3 (1997) 3 SCC 681.
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9. Mr. Khandeparkar has also relied upon the decisions of this Court in Ameet Lalchand Shah and Ors. Vs. Rishabh Enterprises and Anr.4, wherein the Supreme Court has considered a situation where one of the Agreements do not contain the arbitration clause. The Supreme Court had held that where these agreements are interconnected, they can be referred to arbitration as all parties can be covered by the arbitration clause in the main agreement. He has submitted that in the present case, though only the Supplementary Development Agreement contains the arbitration clause, the aforementioned Agreements are interconnected apart from the Agreements being incorporated in the Supplementary Development Agreement by reference and accordingly the disputes can be referred to the arbitration though there is no specific arbitration clause in the other Agreements.
10. Mr. Khandeparkar has also relied upon Pravin Electricals Pvt. Ltd. Vs. Galaxy Infra and Engineering Pvt. Ltd. 5 to contend that when a Section 8 application has been made to this Court to refer the disputes to arbitration then this Court should refer the disputes to arbitration. It is only when the Court is certain that no 4 (2018) 15 Supreme Court Cases 678.
5 (2021) 5 Supreme Court Cases 671.
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902-ial-8778-2022.doc valid arbitration agreement exists or the disputes /subject-matter are not arbitrable, the application under Section 8 would be rejected. This is by drawing reference to the decision of the Supreme Court in Vidya Drolia Vs. Durga Trading Corporation, 6. This Court should not get lost in thickets and decide debatable questions of facts. A mini trial is not contemplated to be held. Mr. Khandeparkar has submitted that since there is a valid Arbitration Agreement which covers the disputes in the present Suit, the parties which include Plaintiffs who are the members of the Society are bound by the Supplementary Development Agreement to be referred to arbitration.
11. Mr. Damle, learned Senior Counsel for the Plaintiffs has submitted that though there is no dispute with the decisions cited by Mr. Khandeparkar, the issue which arises here is concerning the validity of the Arbitration Agreement. He has submitted that under Section 8 of the Arbitration Act, it is for the Court to consider prima facie whether there is a valid Arbitration Agreement existing. This exercise is required to be gone through by the Court prior to referring the parties to arbitration. He has submitted that Section 16(2) does not come to the assistance of the 6 (2021) 2 SCC 1.
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902-ial-8778-2022.doc Plaintiffs as that provides for, a plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because he has appointed, or participated in the appointment of, an arbitrator. Here the Plaintiffs will be claimants and thus the Section 16(2) would not come into assistance.
12. Mr. Damle has referred to the resolutions passed by the Defendant No.6 - Society and he has submitted that there was no resolution in so far as incorporation of the arbitration clause in the Supplementary Development Agreement which was ratified by the Defendant No.6 - Society at its meeting. He has referred to the correspondence addressed pursuant to the Special General Meeting dated 18th December, 2021 i.e. on 22nd December, 2021 when Defendant No.6 - Society addressed a letter to the Applicant informing the Applicant about resolutions passed in the meeting held on 18th December, 2021. This letter makes no mention of incorporation of the arbitration clause. He has submitted that a fabricated letter bearing the same date is sought to be relied upon by the Applicant attached to the Supplementary Agreement wherein a 10/17 902-ial-8778-2022.doc new paragraph is added which talks about the Arbitration clause. He has submitted that this letter is nothing but a blatant fabrication of original letter and that there is collusion between the Applicant and Defendant No.6 - Society. In view of the deliberate fabrication of the subject letter, this Court is being misled.
13. Mr. Damle has submitted that a bare perusal of the minutes of the Special General Meeting dated 18th December, 2021 reveals that there was no discussion with regard to insertion of the Arbitration Agreement into the Supplementary Development Agreement and there was only informal discussion about proceeding under the Arbitration and Conciliation Act, 1996, that to only after two dissenting members had already left the said meeting. No draft of the Supplementary Development Agreement was ever circulated in the Special General Meeting and accordingly there is no ratification of the Arbitration Agreement by the Defendant No.6 - Society.
14. Mr. Damle has submitted that in view of there being no valid arbitration clause, the disputes cannot be referred to Arbitration and accordingly the present Application be rejected.
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15. Mr. Damle has relied upon the decision of the Supreme Court in Vidya Drolia & Ors. Vs. Durga Trading Corporation7 and in particular paragraph 139 to 141 thereof in support of his contention that the Courts whilst considering Section 8 Application is required to prima facie examine whether there is a valid Arbitration Agreement. The legal order needs a right balance between avoiding arbitration obstructing tactics at referral stage and protecting parties from being forced to arbitrate when the matter is clearly non-arbitrable. Mr. Damle has also relied upon the decision in the case of N.N. Global Mercantile Pvt. Ltd. Vs. Indo Unique Flame Ltd and Ors.8 and in particular Paragraph 45 thereof in support of his contention that where the Arbitration Agreement is vitiated by fraud or fraudulent inducement, or the fraud goes to the validity of the underlying contract, and impeaches the arbitration clause itself, it will not be arbitrable in contemporary arbitration jurisprudence. He has submitted that since a case of fabrication of the aforementioned letter addressed by the Defendant No.6 - Society to the Applicant has been contended, this necessarily would have to be considered as non arbitrable as it goes to the route of the validity of the arbitration clause. He has accordingly submitted that relief sought for in the 7 (2021) 2 Supreme Court Cases 1.
8 (2021) 4 Supreme Court Cases 379.
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902-ial-8778-2022.doc present Interim Application be rejected and the disputes in the present Suit should not be referred to the arbitration.
16. Having considered the submissions, in my view, there is an Arbitration Agreement in the Supplementary Development Agreement dated 21st January, 2022 which encompasses the disputes and differences between the parties in the present Suit. The parties to the Supplementary Development Agreement include the Defendant No.6 - Society and its members and the Defendant No.1 - Builder. There is incorporation of the Development Agreement, Addendum to the Development Agreement and 1st Supplementary Development Agreement by reference in the Supplementary Development Agreement. Thus, disputes under these Agreements are referable to arbitration under the Arbitration and Conciliation Act, 1996. It is clear from Clause 6 of the Supplementary Development Agreement that the parties have agreed, declared and confirmed that the terms and conditions of the Supplementary Development Agreements shall be co-extensive and co-terminus and read in consonance with the terms and conditions of the Development Agreement, Addendum to the Development Agreement and 1st Supplementary Development Agreement. Thus the disputes 13/17 902-ial-8778-2022.doc under the aforementioned agreements are clearly referrable to the arbitration.
17. Mr. Damle has not contested the legal position that once a person is a member of the Society, he loses his individual identity and the Society represents the members. However, he has stated that in the present case the members have not been fully apprised of the arbitration clause in the Supplementary Development Agreement. It has been contended that by fabrication of the original letter by including reference to arbitration which otherwise does not find mention in the minutes of the Special General Meeting dated 18th December, 2022 goes to the validity of the arbitration clause. However, having given a preliminary finding that there is a valid Arbitration Agreement in the Supplementary Development Agreement which in my view would cover the disputes in the present Suit and the Plaintiffs being members of the Society would necessarily be bound by the Supplementary Development Agreement, the parties and their disputes in the Suit are required to be referred to arbitration. The aforementioned contentions of Mr. Damle are kept open to be determined by the Arbitrator. 14/17
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18. It is clear from the decision in the case of Praveen (Supra) which has also referred to decision of the Supreme Court in Vidya Drolia (Supra) that, the Court in considering an application under Section 8 of the Arbitration and Conciliation Act, 1996 should not get lost in thickets and decide debatable questions of facts. Reference proceedings are preliminary and not a mini trial. The subject matter cannot be decided at the stage of Section 8 or 11 unless it is clear case of deadwood. The Court should refer the disputes in the Suit to arbitration where there is a valid arbitration clause.
19. Accordingly, the relief sought for in the present Interim Application requires to be granted by referring the disputes and differences in the present Suit to Sole Arbitrator in terms of Clause 8 of the Supplementary Development Agreement dated 21st January, 2022.
20. In view thereof, the following order is passed:-
(i) The disputes and differences in the captioned Suit are 15/17 902-ial-8778-2022.doc referred to the arbitration under Section 8 of the Arbitration and Conciliation Act, 1996.
(ii) By consent of the parties, the Advocate Phiroze Bharucha is appointed as a Sole Arbitrator to adjudicate the disputes between the parties in the Suit which is referred to arbitration and the Interim Application filed therein shall be treated as Application under Section 17 of the Arbitration and Conciliation Act, 1996 and Replies shall be considered as Replies to the Section 17 Application as well as Rejoinder thereto.
(iii) The venue of arbitration shall be in Mumbai.
(iv) The Sole Arbitrator shall endeavour to decide Section 17 Application within a period of two weeks from the date of uploading of this order.
(v) The Advocates shall inform the Sole Arbitrator of his appointment and immediately file the papers and proceedings with the appointed Sole Arbitrator.
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(vi) The Sole Arbitrator is requested to file his Disclosure Affidavit of Arbitration under Section 11(8)(i) of the Arbitration and Conciliation Act, 1996 within a period of one week from the date of notice issued by the Advocates and provide copies to the parties.
(vii) Parties to appear before the Sole Arbitrator on the date fixed.
(viii) Fees of the Sole Arbitrator will be payable in accordance with the Bombay High Court (O.S.) Rules, 2018.
21. The present Suit is accordingly disposed of in the above terms. The Interim Application filed therein is already considered to be a Section 17 Applications and referred to the arbitration and accordingly does not survive in this Court and is disposed of.
22. The parties shall act on authenticated copy of this Order.
[R.I. CHAGLA J.] 17/17