Bombay High Court
Ssd Escatics Pvt Ltd vs Goregaon Pearl Co-Operative Housing ... on 14 December, 2018
Author: A. K. Menon
Bench: A. K. Menon
*1* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt
sbw
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
COMMERCIAL ARBITRATION PETITION(L) NO.1072 OF 2018
SSD Escatics Pvt. Ltd.
(earlier known as Sai Siddhi Developers)
having its address at 1,
Ramkrupa Building, Devji Bhimji Lane,
Mathuradas Road, Kandivali (West),
Mumbai-400 067. .. Petitioner
V/s.
Goregaon Pearl Co-operative Housing
Society Ltd., through its
Hon. Secretary Mr. T. G. K. Kartha,
having its address at behind Oshiwara
Weigh Bridge, Goregaon (West),
Mumbai-400 104. .. Respondent
............
Mr. Anuj Narula I/b. Jhangiani Narula & Associates for the petitioner.
Mr. Mayur Khandeparkar a/w Tushar Gujjar, Mitul Shah I/b. Solicis Lex for the
respondent.
...........
CORAM : A. K. MENON, J.
DATE : 14TH DECEMBER, 2018.
P.C.:
1. The challenge in this petition under Section 37 of the Arbitration and Conciliation Act to an order dated 17 th September, 2018 passed by the Sole Arbitrator under Section 17 of the Act. It is a statutory appeal that has been urged. Briefly stated the petitioners are developers who had entered into an agreement of redevelopment ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *2* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt dated 26th September, 2007 with the respondent society. The agreement contemplated re-development of the respondent society's building which was then stated to be a dilapidated condition. Since the cost of repairs and renovation was high, members of the society decided to redevelop the plot by demolishing of the existing building and constructing a new premises. Pursuant to a resolution of the society's general body dated 18th June, 2005 he appointed the petitioners as developers under the agreement for re-development. The society permitted developers to provide 60 flats to the existing members and thereafter dispose of the remaining flats as part of their free sale entitlements under the agreement. The agreement is a registered document and inter alia provides for reference of disputes to arbitration. Although the clause provided for reference to a tribunal of three members eventually reference was made to sole arbitrator. The application under Section 17 came about pursuant to a petition filed under Section 9 before this Court. In view of the constitution of the tribunal, the application under Section 9 was treated as an application under Section 17. In addition to the petition filed under Section 9 the respondent who are the claimants also filed an application under Section 17. On behalf of the respondent society only the following prayers were pressed:
"(b ) that pending the commencement hearing and final disposal of the arbitration proceedings, this Court by way of a permanent injunction be pleased to restrain the respondent and their directors, partners, servants, agents, contractors or any person claiming by through or under him, from intermeddling, interfering, obstructing in the redevelopment process, construction by appointment of a third party developer/contractor and/or any other acts done on the subject property by the petitioner and/or its assignees, nominees, agents, contractors, developers, including but not limited to construction etc. ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *3* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt
(c) That pending the commencement hearing and final disposal of the arbitration proceedings, this Court by way of a mandatory injunction be pleased to order and direct the respondent and their directors, partners, servants, agents, contractors or any person claiming by through or under him, to handover peaceful and vacant possession of the subject property and that piece and parcel of land situated lying and being at Survey no.7, CTS no.7 (part) situated lying and being at village Goregaon (West), Mumbai-400 104 along with building standing thereon to the petitioner society and thereby removing all the belongings, equipments, materials etc. and handover peaceful possession to the petitioners.
(d) That pending the hearing and final disposal, this Court by way of a mandatory injunction be pleased to order and direct the respondent and his servants, agents, contractors or any person claiming by through or under him to hand over all the Original Documents in custody and possession of all the respondent including but not limited to development agreements, MOU's, Power of Attorney, original copies of the sanctioned plans, copies of the approvals and/or any other writing executed between the petitioner and respondent or in relation to the said project "Goregaon Pearl".
(e) That pending the hearing and final disposal of the petition proceedings, this Court by way of a temporary injunction be pleased to restrain the respondent and their Directors, Partners, servants, agents, contractors or any person claiming by through or under him, from intermeddling, interfering, obstructing in the redevelopment process, construction by appointment of a third party developer/contractor and/or any other acts done on the subject property by the petitioner and/or its assignees, nominees, agents, contractors, developers, including but not limited to construction etc.
(f) That pending the hearing and final disposal of the petition, this Court be pleased to restrain the respondents by way of a temporary ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *4* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt injunction from handing over formal/actual possession of any flats in the project "Goregaon Pearl" in Wing A or Wing B to any third party/free sale component flat purchasers/investors and/or any other person and/or be pleased to pass a further order in the nature of temporary injunction restraining the respondents from executing any other documents, agreements, allotments in respect of all the flats in respect of Wing A and Wing B in the said project and/or creating any third party rights and/or encumbrances in respect of the said property/said project."
2. After the pleadings in the applications were completed, the parties were heard and the arbitrator has passed a detailed order holding that the respondent society had prima facie lost faith, trust and confidence in the developer. The balance of convenience was held to be in favour of the society since 60 of its members had been waiting for about 11 years for permanent housing. The tribunal restrained the petitioners by a temporary injunction from intermeddling, interfering or obstructing the redevelopment process by appointment of a third party developer or contractor. Two Advocates were appointed jointly as receivers of the property subject matter of the dispute is redevelopment of flat bearing survey no.7, CTS-27 (pt.) of Village Goregaon at Siddharth Nagar, Goregaon (W), Mumbai-400104 (the said plot). The tribunal also directed the petitioners, its directors, servants and agents and other persons claiming by, through them to hand over peaceful and vacant possession of the plot after removal of their belongings, equipments and employees, failing which the receivers appointed to take possession of the property with structures thereof. The petitioners were also directed to handover to the society all original documents in their custody and possession including development agreement, MOU's, Powers of ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *5* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt Attorney, sanctioned plans. In the meantime, the petitioners were restrained from handing over the formal or actual possession of any flats in the project comprising the free sale component to any investor or purchaser. The petitioners were also restrained from acting in furtherance of the development agreement and power of attorney dated 26th September, 2007 and consent terms dated 16 th May, 2017 filed in Arbitration Petition no.160 of 2017. In the meanwhile, the society was permitted to appoint independent architects and pending conclusion of the proceedings, a statement of the society was recorded to the effect that they would not proceed with construction of one of the wings proposed to be constructed which was intended to house the free sale component.
3. On behalf of the petitioners Mr. Narula submitted that the impugned order should not be sustained. He submitted that the petitioners were and are as all times ready and willing to carry out the development work but it is due to the respondents non co-operative attitude that the project has now been stalled. He submitted that the society was required to convey their no objection to utilization of additional FSI which they had deliberately not done and as a result of which the project has come to stand still. He submitted that if some time is given the work in one of the towers will be completed since only lifts had to be installed in Wing B and once the lifts were installed the petitioners would apply and obtain an occupation certificate. As far as the second wing B was concerned, it was yet to be fully constructed. In the meanwhile, the petitioners had entered into numerous agreements with the developer, 7 shops and 19 flats had been agreed to be sold. In some cases allotment letters had ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *6* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt been issued and in others agreements for sale had been entered into. Substantial amounts had been collected from these persons. As far as B wing was concerned, out of the numerous flats on 21 floors, about 40 flats had been agreed to be sold thus according to Mr. Narula resale flats were situated in both the buildings. The impugned order effectively results in rendering the petitioners in breach of contract with their flat purchasers.
4. In support of his contentions, Mr. Narula relied upon documents in a convenience compilation consisting of copies of the development agreement, consent terms, Arbitration Petition no.655 of 2018, affidavit in reply to the said petition and copies of correspondence i.e. letter dated 31 st May, 2018 addressed by the petitioners to the respondent society, letter dated 16 th April, 2018 addressed by the respondent society to MHADA, an email dated 20th June, 2018 exchanged between Advocates and letter dated 27th April, 2016 issued by MHADA to the Municipal Corporation. He submitted that under the development agreement the petitioners were entitled to construct resale flats and once these flats were sold the respondent society was obliged to sell flats to all the purchasers as members of the new building. He submitted that in the course of litigation, the society had filed Writ Petition no.160 of 2017 in this Court in which consent terms dated 16 th May, 2017 came to be filed. He invited my attention to clause 9, 39, 40 and 41 of the consent terms and submitted that the respondents were in breach of their obligations under the consent terms and therefore the petitioners were unable to comply with their own obligations thereunder. For ease of reference, it is appropriate that the relevant clauses of consent terms be ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *7* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt reproduced:-
"9. It is further agreed that the balance sum of Rs.2,50,00,000/- out of Rs.5,00,00,000/- (Rupees Five Crores Only) received from Union Bank of India on encashment of bank guarantee, shall be adjusted against petitioners' part share of profit receivable from the accrued benefits receivable by the respondents from the additional FSI under any nomenclature made available in the said project. Hence, it is agreed by both parties that, immediately on filing these consent terms in the High Court an as a precondition to granting their NOC for applying to MHADA/MCGM for further FSI, the respondents shall hand over to the petitioner an unconditional allotment letter to the petitioner for unencumbered flat no.1802 admeasuring minimum 865 sq. ft. minimum 1006/1010 sq. ft. carpet area which is intended to be increased to 1006 sq. ft. (carpet area) in building "A" which shall not be a part of refuge area, along with one parking, towards agreed balance share of profit to the society in respect of additional FSI made available by MHADA/MCGM under any nomenclature in respect of the subject property mentioned in the title of these presents. The petitioner shall be at liberty to sell this allotted flat at any time thereafter and appropriate the consideration thereof. The petitioner shall not require any No Objection from the respondents for sale of this flat.
39.On execution of these presents the petitioner shall issue their NOC to MHADA/MCGM for specifically granting further FSI and also withdraw the revocation of the power of attorney dated 26- 9-2007 and duly intimate MHADA and the MCGM of the same.
40.The petitioner society agrees and undertakes to withdraw their notice dated 18th August, 2016 addressed by the petitioner and notice dated 10th October, 2016 addressed by Advocate Mr. Himanshu Kode on their behalf and partially withdrawing the POA dated 26th September, 2007. The petitioners shall also ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *8* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt withdraw their objections raised to the MHADA as regards the MHADA offer letter dated 14th March,2014 and grant their unconditional NOC for obtaining additional FSI from MHADA/MCGM under any nomenclature.
41.The petitioner society agrees to grant their prior NOC to respondents for obtaining finance against each specific flat, except the 4 flats specifically reserved for the petitioner as mentioned hereinabove on condition that, the finance amount is directly deposited in the Escrow Account out of the sale component, and further that, the petitioner's NOC shall not be construed as being a guarantor NOR shall the petitioner be held responsible for repayment of such finance or interest due thereon or any penalty which shall be the sole responsibility of the respondents to clear the finance raised by them by creating security of the saleable component."
5. Mr. Narula submitted that pursuant to clause 9, the bank guarantee had been submitted and which had since been encashed and appropriated. According to Mr. Narula it was not as if the respondents were totally denied their entitlement. According to him, it was crucial for the purposes of complying with their obligations under the consent terms for the petitioners to issue the NOC to MHADA and the municipal corporation for specifically granting further FSI and to withdraw the revocation of the power of attorney dated 26 th September, 2007 under intimation to MHADA and the Municipal Corporation. He submitted that the withdrawal of revocation of the power of attorney and the objections raised by the society were critical for performance of the obligations under the agreement and as provided in the consent terms. Clause 40 he submitted contains an express provision that the respondent society would withdraw objections lodged with MHADA so that the ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *9* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt additional FSI could be obtained. Laying stress on the words in the second portion of clause 40, Mr. Narula submitted that the NOC to be issued by the respondent society was to be "unconditional NOC for obtaining additional FSI from MHADA/MCGM under any nomenclature". The use of additional FSI to be claimed was entirely for the petitioners to decide which he submitted was evident from the use of the words "under any nomenclature". He further submitted that the respondent society had also agreed to grant prior NOC to the petitioners for obtaining finance against the flats with sufficient protection to the society to ensure that the society NOC is need to be constituted as a guarantee and that the society will not be held responsible for repayment of any such borrowings or interest or penalty which was entirely due the liability of the petitioners herein. Mr. Narula submitted that despite such a clear provision no NOC was issued. As a result, the petitioners' attempt to perform the agreement was directly affected since the NOC would have entitled them to raise finance. He submitted that this is the main cause for delay in construction.
6. Mr. Narula further submitted that the Tribunal had failed to appreciate the difficulties faced by the petitioners and had by the impugned order effectively stalled performance of the agreement and the consent terms, he contended that the society could not unilaterally terminate the agreement since the petitioners had already created third party rights by selling the free sale component as set out above. Furthermore, it is Mr. Narula's case and as canvassed before me that the benefits received by the society would have to be restored. He submitted that unilateral termination does not mean that the society is now entitled on its own and retain all the ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *10* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt benefits such as rent paid over the years. According to him, the petitioners ought to be compensated by the respondents to the extent of all the benefits which the respondents have received thus far. Perusal of consent terms reveal that it contains a provision for termination of the consent terms. This is to be seen from clause 48 contents of which are reproduced below for ease of reference:
"48 - Without prejudice to the clause 44 and 46, in the event of respondent committing any default of the terms contained herein, then the petitioner shall be entitled to a written notice of 60 days calling upon the respondent to comply with the terms and rectify the breach, failing which the petitioner shall be entitled to terminate these consent terms."
The respondents were therefore entitled to terminate the consent terms as well. Making reference to letter dated 31 st May, 2018 addressed by the petitioners to the respondent Mr. Narula relied upon the fact that the petitioners had already made an application to MHADA seeking transfer of unutilized FSI to the respondent society from one Siddharth Nagar Kapil Vastu Co-operative Housing society Ltd. to the extent of built up area of 2410.75 sq. mtrs. The letter states that the application made for transfer of FSI has been accepted by MHADA and upon the society issuing their no objection certificate, the balance unutilized FSI will get transferred to the respondent thereby benefiting both petitioners and respondents and to enable the performance of the petitioners obligations and redevelopment. He submitted that the attention of the society was drawn to the fact that it is mandatory to procure the NOC from the society to "catalyze" the transfer of FSI. Reference was made to letter dated 16 th April, 2014 addressed by MHADA to Siddharth Nagar Pearl Co-operative Housing Society Ltd. whereby the MHADA had called upon the said society to make payments towards ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *11* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt additional FSI. According to Mr. Narula if the respondent had issued the NOC they would have been obtained permission for transfer of the additional FSI available from the other society to the respondent society but only due to the non co-operation of the respondent, the FSI could not be so transferred.
7. In support of his submission Mr. Narula relied upon the following judgments:
(1) Hindustan Petroleum Corporation Limited & Ors. V/s. Super Highway Services & Anr.1 (2) Muralidhar Chatterji v/s. International Film Company Ltd.2 (3) Tarsem Singh v/s. Sukhminder Singh3 (4) Seth Loon Karan Sethiya v/s. Ivan E. John and others4 (5) Classic Motors Ltd. V/s. Maruti Udyog Ltd. & Ors.5 And (6) T. Krishnaswamy Chetty v/s. Thangavelu Chetty and Ors.6
8. In Hindustan Petroleum Corporation Limited (supra), the Supreme Court had occasion to consider cancellation of termination of oil dealership agreement on account of alleged non-adherence to procedure leading to allegations of contamination of the fuel. The SLP involves the question whether the dealership had been validly terminated in accordance with clause of the agreement. The clause provided that dealership could be terminated upon any breach enlisted therein. The Court observed that the cancellation of dealership of a parties is a serious business 1 (2010) 3 SCC 321 2 (1916) L.R. 43 I.A. 256 3 (1998) 3 SCC 471 4 (1969) 1 SCR 122 5 1995 SCC Online Del 94 6 1954 SCC online Mad 374 ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *12* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt and to justify the action of termination, the authority had to act fairly and in complete adherence to the rules and guidelines. Non-service of notice upon the aggrieved person before termination violated the well established principle that no person should be condemned unheard and therefore it was the duty of the HPCL to give prior notice of the test proposed to be conducted so that the representative can be present when the test is conducted. The requirement is in accordance with the principles of natural justice. Notice was to be given to the dealer sufficiently early so as to give him adequate time to arrange for his presence that such an opportunity was essential to be given in advance.
9. In Muralidhar Chatterji (supra), the Calcutta High Court held that a party who had put to an end of contract under Section 39 of the Indian Contract Act was liable to restore to the other party whatever was received by him irrespective of costs and damages sustained by him under the contract. Relying upon the provisions of Section 55, 64, and 65 of the Contract Act , Mr. Narula contended that in the present case termination of the contract was unilateral and the respondent society cannot retain the benefit that it had received.
10. Mr. Narula also relied upon the observations in paragraph 30 of the decision in Tarsem Singh (supra), the Supreme Court found that obligation of person who has received advantage under a void agreement or a contract becomes void, must be restored to the other party and that Section 65 of the Contract Act was based on an equitable doctrine requiring restitution of benefit received under a void agreement. ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 :::
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11. I do not see how these judgments can be of any assistance to Mr. Narula inasmuch as the agreement between the parties provide for termination upon breach. Moreover, the observation in paragraph 111 of the impugned order is that the petitioner had not formally challenged the termination of the agreement. The tribunal found that the petitioner was in breach of the agreement it had the consent from the respondent society only to utilize upto 2.4 FSI. The petitioner had utilized higher FSI and agreed to sale flats beyond the 14 th floor for which there was no construction permission. In this view of the matter it was found that the petitioner was clearly in breach. A further finding is to the fact that the petitioners have forged the official record of the MCGM and a commencement certificate, while registering one of the agreements, to show a increased height of the building. Furthermore, in consent terms filed in the arbitration petition before this Court, the petitioner had acknowledged its liability to pay arrears of rent, other penal charges etc. and was required to complete wing A & B by 30th June, 2017 and 31st December, 2017. The payment obligations had not been met.
12. The development agreement included the power to act on behalf of the society and therefore it could not be terminated in the manner sought to be done. Reliance upon the observation of the Supreme Court in Seth Loon Karan Sethiya (supra), he submitted that when the power of attorney is executed coupled with interest the same could not be revoked. He relied upon Section 202 of the Contract Act in this respect and that the Supreme Court clearly held that when power is granted by the appellant in favour of the bank, in that case it is a power coupled with interest. The agent had ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *14* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt an interest in the property which forms the subject matter of the agency and it was stated that the agency created for valuable consideration and the authority cannot be revoked. On this basis it has sought to be submitted that the development agreement could not be terminated.
13. Although Mr. Narula relied upon the decisions in Classic Motors Ltd. where the Delhi High Court had held that a party must be guilty of failure to perform the contract in its entirety and only then it give rise to termination of the agreement and that the expression "in its entirety" would mean that the breach would be such that it goes to the root of the contract. In the present case, I have no doubt that the arbitrator has considered the pros and cons and has passed the interim orders in the face of repeated breaches and it is not possible for this Court to hold that the breach was in one that they did not strike at the very root of the bargain between the parties in view of the fact that the dispute does not contemplate the petitioners seeking specific performance and there being no provision in the agreement which should justify a plea for specific performance, it would not be appropriate to hold that the order of the arbitrator was in any manner bad for having prejudged the issue.
14. T. Krishnaswamy Chetty (supra) held that order appointing a receiver will not be made where it has the effect of depriving of a defendant of 'de facto' possession since it made against irreparable wrong but what has been lost sight of is that the Madras High Court has also observed that if the property is exposed to danger and loss, the Court will interpose the receiver for the security of the property. In the facts ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *15* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt of the present case, I do not see how the petitioners can gain from this observation in the judgment of the Madras High Court.
15. Mr. Narula had submitted that the society's building has already been demolished and that there is neglect on the part of the society to issue the NOC and therefore resulted delay in MHADA sanctioning the additional FSI. He submitted that the reliefs sought and granted is beyond the scope of section 17. He submitted that the receiver may take possession of the property and then irreparable prejudice would be caused to the petitioner. He submitted that consent terms filed and the respondents were in breach of the consent terms in particular clause 39 and clause 40 thereof and therefore the order passed by the tribunal was not sustainable. Making reference to the impugned order, the learned counsel for the petitioner submitted that termination ought to have been resorted to in accordance with provisions of the agreement. The mode of termination provided must be followed. 60 days notice was required to be issued under clause 48 of the consent terms and in the instant case such notice had not been issued and by that reason the termination was bad. The arbitrator had thus gone beyond the scope of the reference in directing the petitioners to vacate the premises appointing the receiver and allowing sale of some of the floors.
16. On behalf of the respondent society, Mr. Khandeparkar submitted that the members of the society had been deprived of their flats. The 60 members of the society are awaiting redevelopment of the property and the petitioners were duty bound to complete the project within the agreed time failing which penalty was ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *16* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt payable at the rate of 1 lakh per month. Contractual provisions also included liability to pay Rs.20,000/- for 25 months with an increase of 10% every year till possession was handed over. Two towers were to be constructed and the agreement in clause 9(k) clearly provided that the society had no liability to any person in the free sale category. In other words only the petitioner would be liable to any of the purchasers of the saleable premises in the free sale category and the possession in October/ November 2007 and in January 2008 bank guarantee of Rs.5 crores had been provided as of August 2011 the Municipal Corporation issued a stop work notice since the work being done was without approvals and sanctions.
17. The society had addressed letters to the petitioners calling upon them to pay outstanding rents failing which the society would consider termination of the agreement. In March 2015, breaches were brought to the notice of the petitioners and in August 2015 the bank guarantee was invoked. The petitioners had then filed a suit seeking to restrain the payment under the bank guarantee but to no avail. The guarantee was encashed and some of Rs.5 crores was collected of which Rs.2.5 crores was appropriated towards arrears of rent while Rs.2.5 crores was appropriated towards share of profit for utilization of additional FSI. In my view, these are aspects which need to be gone into by the tribunal at the hearing of the arbitral reference and while considering any relief that the petitioner has sought in the arbitration. Mr. Khandeparkar submitted that in October 2016 the respondent society was forced to file an arbitration petition seeking completion of the project and appointment of the receiver because the petitioners had failed to handover the possession by the due date ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *17* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt which was September 2010 and they were liable to pay Rs.72 lakhs as penalty. Although 2 buildings(towers) were to be constructed with an identical number of floors, the petitioner constructed additional floors in the building without permission of the society and plans were also changed. Two additional floors were constructed by the appellants and stop work notice were issued by the BMC.
18. Mr. Khandeparkar pointed out that vide order dated 7 th December, 2016 this Court had called for the records of the Executive Engineer, Municipal Corporation, in view of complaints that the commencement certificate was forged and fabricated and at that stage the petitioners came around to settle the disputes and entered into consent terms which were made an order of the Court. Under these consent terms the petitioners agreed to pay some of Rs.7.62 crores a sum of Rs.2.5 crores was adjusted from the amount received from the encashment of the bank guarantee Rs.5,12,20,000/- was over due. As per clause 8 of the consent terms, it is also agreed that Wing A was to be completed on or before 31 st December, 2017 with a grace period of three months and Wing B was to be completed on or before 30 th June, 2018. Post dated cheques were provided but were dishonored. This is resulted in notices under Section 138 being issued. In view of the undertaking given by the petitioners and breach thereof, Contempt Petition (L)no.24 of 2018 was filed and the petitioners were directed to pay 5,42,16,436/- in four installments of which only Rs.1,72,72,145/- has been paid the remaining amounts have not been paid various other aspects of contempt have also been highlighted by Mr. Khandeparkar. Eventually by on 9th June, 2018 the development agreement and power of attorney ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *18* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt were terminated on account of breaches including breach of undertakings. C[One of the issues that arises is whether the power of attorney could be terminated in view of the breaches.
19. Mr. Khandeparkar submitted that even the FSI plot which had not been consumed by the petitioner and in the circumstances the grievance sought to be made as to non-issuance of NOC to MHADA has no substance. 38 agreements that had been entered in respect of flats which had no sanction for construction since even the basic FSI of the plot had not been consumed. There was no question of the petitioners consuming additional FSI and hence the reason of delay in progress of the project being attributed to the respondents has no substance. As to the requirement of 60 days notice, it was submitted that there was no prescribed format for issuance of notice and several occasions had arisen when the petitioners have notified of their breach and the consequences likely to follow including upon issuance of notices under Section 138 of the Negotiable Instrument Act for non-payment of the cheques issued, filing of the Section 9 petition, filing of the contempt petition and the response to the 138 notice. Furthermore, more than six months time was given to them and termination took effect only in June 2018. He further denied that any benefit had been received by the members which had to be returned in the event of termination. No perversity is seen from the order and therefore the order called for no interference.
20. Mr. Khandeparkar relied upon the following judgments:-
(1) Vaidehi Akash Housing Pvt. Ltd. V/s. New D. N. Nagar Co-operative Housing ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *19* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt Society Ltd. & Ors.7 (2) The Jal Ratan Deed Co-operative Housing Society Limited v/s. Kumar Builders Mumbai Realty Pvt. Ltd.8 (3) Heritage Lifestyle and Developers Ltd. V/s. Cool Breeze Co-operative Housing Society Ltd. & Ors.9 (4) Chaurangi Builders & Developers Pvt. Ltd. V/s. Maharashtra Airport Development Company Ltd.10 (5) His Holiness Acharya Swami Ganesh Dassji v/s. Sita Ram Thapar11 (6) Cox and Kings India Limited v/s. Indian Railways Catering and Tourism Corporation Limited and another12 (7) Gopi Gorwani v/s. Ideal Co-operative Housing Society Ltd. & Ors. 13 (8) Goregaon Sukhnivas Co-operative Housing Society Limited v/s. M/s. Sukushal Builders & Developers & Ors.14 And (9) The New Aarti Co-operative Housing Society Limited v/s. Kabra Estate & Investment Consultants15
21. In Vaidehi Akash (supra), this Court has held that the members cannot indefinitely waiting for getting their entitlements and the society in question was not liable to third parties. The Court considered the balance of convenience and 7 Notice of Motion no.961 of 2013 in Suit no.262 of 2012 8 2015 SCC online Bom 5928 9 2014(3) Mh. L.J. 376 10 2013 SCC Online Bom 1530 11 (1996) 4 SCC 526 12 (2012) 7 SCC 587 13 2013 SCC Online Bom 1967 14 2016 SCC Online Bom 3366 15 2015 SCC Online Bom 5929 ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *20* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt irreparable injury to the members of the society and no relief was granted to the developer whose contract was terminated. In Jal Ratan Deed Co-operative Housing Society Limited(supra), this Court held that the gross delay and breaches by the developer resulted in loss of confidence and that the society could not be forced to continue with the same developer. A similar was of the view of this Court in Heritage Lifestyle and Developers Ltd. (supra).
22. In Chaurangi Builders (supra), this Court in an appeal under Section 37 (2)(b), like the present appeal, the authorities and the developer were not in a position to fund the project and termination was found legal since the developer was not ready and willing to perform his part of the contract due to financial difficulties. Merely because the developer had invested funds in the project could not be reason to stay the termination on the ground of readiness and willingness. In Cox and Kings India Limited (supra), the Supreme Court has held that merely because large sums of money were invested is not a ground for party to seek relief against termination and operate the project once terminating and that the remedy in such cases would be on award of damages. In Gopi Gorwani (supra) also this Court had held that once loss of confidence on account of deviation and violations is seen, the society cannot be forced to continue with the defaulting developer.
23. In Goregaon Sukhnivas (supra) also the Court restrained the developer from interfering with the possession of the society's constructed redevelopment. In New Aarti Co-operative Housing Society (supra), the developer had failed to complete ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *21* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt construction and the arbitrator had restrained the society from carrying out the construction through the third party developer. This order was set aside by this Court in appeal under Section 37.
24. Mr. Narula had contended in rejoinder that while it is true that stay of termination had not been sought specifically, it was not necessary to seek such stay since the petitioners were holding a registered agreement of redevelopment. Apropos the contention that no benefit was received by the respondents, he submitted that the rent paid from time to time is certainly a benefit. In Chaurangi Builders and Developers (supra), no progress at all was made in the project and in the instant case clause 40 of the consent terms is a complete answer, from the petitioner's point of view inasmuch as the respondent society had agreed to grant their prior NOC to the petitioners for obtaining finance against each specific flat and further to the effect that the society would not be deemed to be a guarantor or be held responsible for repayment of such finance. Mr. Narula further submitted that the decision in Gopi Gorwani (supra) contemplated loss of faith and the decision in Sita Ram Thapar did not apply to the facts in the present case since the petitioner was always ready and willing. He submitted that the judgments cited by Mr. Khandeparkar were not applicable to the facts of the present case.
25. Although Mr. Narula relied upon the decisions in Classic Motors Ltd. where the Delhi High Court had held that a party must be guilty of failure to perform the contract in its entirety and only then it give rise to termination of the agreement and ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *22* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt that the expression "in its entirety" would mean that the breach would be such that it goes to the root of the contract. In the present case, I have no doubt that the arbitrator has considered the pros and cons and has passed the interim orders in the face of repeated breaches and it is not possible for this Court to hold that the breach was in one that they did not strike at the very root of the bargain between the parties in view of the fact that the dispute does not contemplate the petitioners seeking specific performance and there being no provision in the agreement which should justify a plea for specific performance, it would not be appropriate to hold that the order of the arbitrator was in any manner bad for having prejudged the issue.
26. It was contended on behalf of the respondents that the argument under clause 27(2) of the Specific Relief Act had not been pressed into service before the arbitral tribunal. Mr. Khandeparkar submitted that the agreement between the parties was a terminable one and the arguments based on clause 41 also were not pressed before the arbitral. Several floors had no sanction and only wing B consumes plot of the FSI. Arrears of rent amounted to Rs.3.81 crores and the cheques issued had bounced and that no rent had been paid from the year 2016.
27. In my view, this submission of Mr. Narula overlooks the fact that the respondent members had agreed to redevelopment in the hope of better prospects and payment was made only in inducement for the members of the society who agreed to redevelop and vacating their homes rather than continue in the premises during repairs that would have to be undertaken. Payment of rent cannot be in any manner considered to be a "benefit". It only facilitated the members to be housed in different ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *23* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt premises. There is substantial collateral hardship that is associated shifting from one own home to rented premises and during the period that is to be taken for the new and permanent home to be constructed. The respondents are out of their homes for about 11 years. When they vacated their premises they were expecting to be back in their new homes within a reasonable period of time. Although shifting to rented premises may appear to be a formality to facilitate redevelopment, in fact it is a commitment made in anticipation of performance of the petitioners promises to rehouse them in permanent accommodation. While resolving to enter into such agreement, the members of the society , for that matter no home owner, would expect or tolerate delay of this nature. The contention that the order passed by the tribunal is a final order must be repelled. In the facts and circumstances of the case and in my view it is a just order. Sufficient opportunities have been given to the petitioners to remedy their breaches. The submissions made at the bar in support of the challenge as to the need to return alleged benefit, hardship that may be caused to third party purchasers, failure to issue NOC resulting in starvation of funds etc. are not reason enough to keep the project in limbo.
28. Clause 9K of the agreement specifically provided that the society and its member shall not be liable to any of the purchasers of the saleable premises and under the circumstances, it is not possible to accept the contention of the petitioners that the impugned order is bad in law by virtue of the obligations incurred by the petitioner developer to third parties. In this view of the matter, it is appropriate that the impugned order ought not to be disturbed. The Arbitrator has come to the ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *24* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt conclusion that it is unlikely that the petitioners would comply with their obligations and therefore specific performance may not be solution.
29. On perusal of the contents of the power of attorney and the development agreement I do not find any impediment in the agreement being terminated, If the termination of the agreement is not legal or valid an appropriate remedy would be available in the arbitration proceedings. The interim order under Section 17 was in my view passed after due consideration of the facts and circumstances as obtaining from the record. The arbitrator has taken into consideration the submissions on behalf of the parties and the fact that of two buildings were to be constructed. As far as wing A is concerned, only a outer shell has been made with three podium plus four floors although the building is to consist of about 20 floors. As far as wing B is concerned, the building is largely complete and the occupation certificate was now to be obtained. The order considers the fact that all 60 members of the society be housed in Wing B and the tribunal has recorded a statement on behalf of the respondent society that if the tribunal was inclined to pass an order permitting the respondent society to appoint a fresh developer, the society would stay its hands and not construct wing A till the conclusion of the proceedings and that no third party rights would be created in respect of wing A. I find that even if the petitioners succeed in their claim for specific performance they could still complete the wing A and accommodate the third party purchasers and in this manner the interest of the members of the society would also be protected.
30. As far as the alternative remedy of damages, in lieu of specific performance is ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *25* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt concerned, it is always open for the petitioners to pursue this claim and the society has already offered not to deal with the rights in respect of Wing A. In fact the arbitrator has concluded that the respondent is not ready and willing to perform its obligations. The tribunal has relied upon the decision of the Supreme Court in Chaurangi Builders (supra). Although originally the agreement contemplated providing accommodating the 60 members of the society in both the buildings proposed to be constructed namely wing A & B, there is no dispute on this aspect and in the circumstances, given the statement on behalf of the respondent, rights of wing A would not be dealt with. The tribunal has recorded a statement that pending conclusion of the arbitral proceeding the society will not proceed with construction of wing A and will not create third party rights by selling any flats to other new purchaser in wing A. This has been accepted as an undertaking. In view of the fact that an order passed under Section 17 is now deemed to be an order of that Court the statement of the society shall act as a restraint pending disposal of the Arbitration proceedings.
31. The impugned order has considered the various breaches and has taken into consideration the consent terms, conduct of the parties and has come to the conclusion that termination was justified. It has considered the submissions on behalf of Mr. Narula that since consent terms of 2017 had been executed the conduct and events prior to consent terms should not be taken into consideration and the respondent is deemed to have waived objections of prior conduct. The tribunal took note of Mr. Narula's submission on the several clauses in the consent terms inter alia ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *26* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt the contention that the society had collected sum of Rs.2.5 crores even when actual profits had not been realized the society was bound to grant the NOC but did not. Apparently the members of the society had withheld NOC on a social media platform which is claimed was defamatory of the petitioners. All these were sought to be used in support of opposition to the Section 17 application. The impugned orders also considers the very same judgments that have been cited before me. The reasons and conclusions in the impugned order are set out in paragraph 43 and onwards. The order has considered, broadly, the question whether the society had made out a case for injunction on the basis that there was a breach of the agreement and the consent terms and undertakings given by the petitioners and whether such breach had resulted in loss of faith and trust and confidence in the petition. Finally whether the petitioners herein would suffer irreparable harm and prejudice if the reliefs are granted to the society and the questions of balance of convenience.
32. On all these aspects, the arbitral tribunal has concluded that the society would be entitled to relief. It has concluded that the petitioner developer had not satisfactorily dealt with queries about sanctioned plans and the society had lost faith in the petitioners. It records in paragraph 57 that attempts to resale itself entail certain options proposed by the petitioners all of which include amalgamation of the plot forming subject matter of the arbitration with a neighbouring plot. The tribunal has concluded , albeit prima facie, that the society has been put in a disadvantageous position and thereafter the petitioners have sought to retrieve themselves. It has considered the fact that the petitioners had no answer to the society's contentions ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *27* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt about utilization of FSI beyond what is permitted. Although a specific issue was raised that MHADA had not asked for increase in the number of floors or change the size of the flats, it has not been disputed that the society had not agreed to increase the number of floors or the change design of the flats.
33. Paragraph 61 of the impugned order deals with the societies' offer that all members could be accommodated in Wing B itself and that after completion of wing A some members could thereafter shift to Wing A. This would have saved the petitioners developer expenses in terms of rent as well. However, the petitioner was not agreeable to this. The tribunal has considered the implications of the failure to comply with the consent terms, failure to pay amounts agreed to be paid repeated assurances to make payments and repeated failures to meet these premises. The tribunal has in my considered threadbare, the various aspects urged before him and come to the conclusion that reliefs required to be granted. The order in my view cannot be faulted. It has considered the fact that the petitioners were not in breach of agreement resulting in loss of faith, trust and confidence. The termination was prima facie legal and valid and the society has good chances of succeeding in the arbitration. In any event, if the petitioners succeeds in the arbitration they would be entitled to award of damages which would be adequate remedy. The tribunal considered the fact that Wing A has been protected to take care of the interest of the petitioners.
34. In the instant case, apart from considering whether the breaches were ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *28* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt material and serious enough to warrant termination one has also to consider whether the balance of convenience and the predicament of 60 members have been out of their homes for the past 11 years which leads me to consider whether the reasons given by the petitioners are good enough to continue to deprive the respondents society and its members or their self owned flats which they enjoyed prior to redevelopment work being undertaken but since the arbitration is still underway it would not be appropriate to make further observations on merits. I am of the view that the society is certainly entitled to attempt completion of the project on their own by appointing another developer. The interests of the petitioners is well protected in view of the statement made on behalf of the society and the order of the tribunal. In this behalf, the interests of the petitioners are essentially commercial in nature, the members of the society have for more at stake. It is their new homes that require to be safeguarded.
35. In these circumstances, I am of the view that the order is well reasoned and fully justified and for the aforesaid reasons I am not inclined to interfere with the impugned order. In the circumstances, the following order is passed;
(i) Arbitration petition is dismissed.
(ii) No orders as to costs.
After the order was pronounced the counsel for the petitioner sought protection for a limited period. The application is opposed on behalf of the ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 ::: *29* carbp(l)-1072.18 (Goregaon Pearl CHSL)(14-12).odt respondents. In view of the fact that vide operative portion in paragraph 115(b) and
(c) the petitioners have been directed to hand over possession of the property failing which the receivers appointed vide the impugned order would take possession, I direct that for a period of four weeks from today, the order directing the petitioners to hand over possession and the Receivers to take possession in default, shall not be enforced.
(A. K. MENON, J.) wadhwa ::: Uploaded on - 14/12/2018 ::: Downloaded on - 27/12/2018 07:42:07 :::