Bombay High Court
Solaris Developers Private Limited vs Eversmile Co-Operative Housing ... on 7 June, 2019
Author: G.S. Kulkarni
Bench: G.S. Kulkarni
pvr 1 arbpl593-19.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
Arbitration Petition (lodg) No.593 of 2019
Solaris Developers Pvt.Ltd. ...Petitioner
Versus
Eversmile Co-op.Housing Society Ltd. ...Respondent
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Mr.Akshay Patil I/b. Mangesh Nalawade, for the Petitioner.
Mr.Rohaan Cama with Shanay Shah I/b. Rohit Shetty, for the Respondent.
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CORAM : G.S. KULKARNI, J.
DATE : 7 June 2019
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P.C.
1. Heard the learned Counsel for the petitioner and the learned Counsel for the respondent.
2. This is a petition filed under Section 37 of the Arbitration and Conciliation Act,1996 (for short 'the Act') whereby the petitioner- developer is before the Court assailing an order dated 15 May 2019 passed by the learned Sole Arbitrator on the respondent's-society's application under Section 17 of the Act.
3. During the course of the hearing of this petition, a suggestion was made, so that the petitioner can be put to terms, and some workable ::: Uploaded on - 11/06/2019 ::: Downloaded on - 14/07/2019 17:02:19 ::: pvr 2 arbpl593-19.doc solution can be arrived. To enable the parties to discuss the issues, hearing of this petition was passed over for the second session. A discussion took place not only between the parties but also between their learned Counsel. However, it is informed by the learned Counsel for the respondent-society, that in the prevailing situation the parties stand, this discussion, in no manner inspires any confidence with the respondent-society, much less for any settlement of the disputes, to be brought about. The parties hence preferred that the petition be heard.
4. By the impugned order passed by the learned sole arbitrator, although mandatory directions in respect of the project in question are issued, the respondent-society has contended that these directions would be required to be held as justified.
5. It clearly appears that the respondent's-society's reconstruction project is inordinately delayed. The development agreement in question was entered between the respondent-society and the petitioner-developer on 15 September 2010. It is also not in dispute that the first construction- commencement certificate was issued by the Municipal Corporation on 23 January 2013, thereafter a further commencement certificate was granted ::: Uploaded on - 11/06/2019 ::: Downloaded on - 14/07/2019 17:02:19 ::: pvr 3 arbpl593-19.doc on 5 December 2013 upto the 8th floor and a final commencement certificate was granted on 18 October 2014 upto the 10 th floor. The development agreement clearly contemplated that the construction of the building to rehouse the 59 members of the society would be completed within thirty months. It was expected that at least after obtaining of the first commencement certificate i.e. from 23 January 2013 or from the second commencement certificate dated 5 December 2013 that the project is expeditiously undertaken. The respondent-society contended before the arbitral tribunal that the record clearly indicated that no fault could be attributed to the society including on the issue raised in respect of fungible FSI which was purportedly on the ground that there was a change in the Development Control Regulations for Greater Mumbai (for short 'DCR') and for which fresh plans were required to be submitted. It was contended that despite this change, the agreement was least affected and the obligations of the petitioner to proceed with the construction and complete the construction for all the reasons remain unchanged. The learned Arbitrator has held that in fact such reasons were no justification for the petitioner to delay the construction.
6. Since 2012 the members of the respondent-society are out of their ::: Uploaded on - 11/06/2019 ::: Downloaded on - 14/07/2019 17:02:19 ::: pvr 4 arbpl593-19.doc premises and they are awaiting completion of the construction. It is not in dispute that substantial work is required to be undertaken to complete the construction and in fact the construction is made upto two podium level and is only partly constructed upto 8 th floors. Mr.Cama would submit that there is only shell upto 8th floor. This is the only progress done by the petitioner for all these years.
7. On being confronted with the serious prejudice being caused by such gross delay on the part of the petitioner in undertaking construction, and the members of the respondent-society having lost faith and confidence in the petitioner, on 29 September 2015 the respondent- society terminated the development agreement as entered into with the petitioner. It appears that thereafter on some ray of hope being shown by the petitioner to the society, the respondent-society was made to believe that the petitioner would undertake the construction. However this was far from reality. There was no progress. The petitioner also made defaults in making payment of the monthly rent/compensation to the members for the temporary alternate accommodation. Some members had approached this Court in petitions filed under Section 9 of the Act. So also the respondent-society had also approached this Court in a petition filed ::: Uploaded on - 11/06/2019 ::: Downloaded on - 14/07/2019 17:02:19 ::: pvr 5 arbpl593-19.doc under Section 9 of the Act, bearing Commercial Arbitration Petition (lodg) no.480 of 2017 and Commercial Arbitration Petition (lodg) no.481 of 2017 respectively. This Court (S.J.Kathawalla, J.) had passed the following order on 18 January 2018:-
1. Apart from the disclosures made by the Director of the Respondent Company, they shall also file income tax returns of the Respondent Company of the last five years.
2. The Executive Engineer, K/West Ward, Andheri (West), Mumbai shall visit the Suit project and file his Affidavit before this Court on 2nd February, 2018 at 03.00 p.m. setting out the amounts, which the Respondent / Eversmile CHSL will be required to pay till date to enable the Corporation to issue the final Commencement Certificate / Occupation Certificate in respect of the said project.
3. The Respondent Company shall in the first week of every month pay the rent / compensation for the current month plus arrears of one month rent / compensation until the entire arrears is cleared by the Respondent.
4. Stand over to 2nd February, 2018 at 03.00 p.m."
8. Despite the clear directions of the Court as directed in paragraph (3) of the said order, the petitioner did not comply with the said directions and the arrears of rent have now exceeded to more than Rs.3 crores. Further this Court (S.J.Kathawalla, J.) passed an order on Arbitration petition no.400 of 2018 filed by the respondent-society whereby a statement as made on behalf of the respondent-society, that the society has passed a resolution that the society does not intend to proceed with the present developer to undertake the redevelopment work, was ::: Uploaded on - 11/06/2019 ::: Downloaded on - 14/07/2019 17:02:19 ::: pvr 6 arbpl593-19.doc recorded. It was also recorded that the developer had breached the undertaking given to this Court and the order dated 18 January 2018 was also not complied with by the developer-petitioner. The order dated 3 May 2018 reads thus:-
"1. The learned Advocate for the Petitioner Society states that the Society has passed a Resolution stating that they do not intend to proceed with the present developer for redevelopment work. The developer has breached the undertaking given to this Court and the order dated 18th January, 2018 is also not complied with by the developer. Stand over to 11th June, 2018."
These petitions were ultimately disposed of by directing that the reliefs in the said petition be agitated in the application under Section 17 of the Act to be decided by the learned Arbitrator.
9. As none of the assurances of the petitioner to undertake the construction, much less to complete the same were true and in fact stated to be false assurances, the respondent-Society ultimately by another notice dated 16 May 2018 terminated the development agreement entered with the petitioner. It is important to note that the petitioner has not adopted any proceedings to challenge the termination.
10. In these circumstances, the respondent-society was before the learned sole arbitrator seeking reliefs by an interim application, in the ::: Uploaded on - 11/06/2019 ::: Downloaded on - 14/07/2019 17:02:19 ::: pvr 7 arbpl593-19.doc interest of the 59 members of the society, so that the project can be completed at the earliest and the members of the society shall be rehabilitated in their newly constructed tenements.
11. Learned Counsel for the petitioner in assailing the impugned order, has limited submissions. In contending that by an ad-interim order, this Court ought to stay the impugned order passed by the learned sole Arbitrator, it is submitted that there is a serious error in the learned Arbitrator granting an interim mandatory injunction. It is submitted that such reliefs could not have been granted at the interim stage of the arbitral proceedings, and it would in fact amount to passing a final award at the ad-interim stage. The second submission is that the learned Arbitrator has overlooked that a prima facie case for grant of such reliefs ought to have been made out by the society coupled with a case of balance of convenience and injustice being caused to the society. It is his submission that none of these essential factors were considered by the learned Arbitrator while granting such mandatory reliefs. Learned Counsel for the petitioner would next submit that certain directions as contained in the impugned order namely that the documents of HDFC bank be handed over cannot be complied and would be of no consequence as the HDFC ::: Uploaded on - 11/06/2019 ::: Downloaded on - 14/07/2019 17:02:19 ::: pvr 8 arbpl593-19.doc bank is in possession of these documents. It is next submitted that the learned Arbitrator has also ignored that breaches which are committed by the society, and thus such an interim order could not have been passed.
12. On the other hand Mr.Cama, learned Counsel for the respondent- society would submit that the contentions as urged on behalf of the petitioner are not tenable. It is submitted that more than a prima facie case was made out on behalf of the society, inasmuch as for last eight years the 59 members of the society have waited to see a permanent roof over their heads. It is submitted that hardly any progress in the construction was made, much less as agreed between the parties, under the development agreement in question. Mr.Cama would submit that the balance of convenience was overwhelmingly in favour of the society and its members. It is submitted that the learned Arbitrator has dealt in depth with each of the issues and having considered the clear facts and circumstances on record, has reached to a conclusion that the prayers as made by the respondent-society were legitimate and were required to be granted failing which irreparable prejudice would be caused to the respondent-society. It is submitted that there is a clear finding as recorded by the arbitral tribunal that breaches were not attributable to the society ::: Uploaded on - 11/06/2019 ::: Downloaded on - 14/07/2019 17:02:19 ::: pvr 9 arbpl593-19.doc and the terms and conditions of the development agreement, as set out in detail in the impugned order, clearly mandated obligations to be complied in a time bound manner. It is submitted that on every critical occasion the petitioner in some manner created an impression that the petitioner would complete the project, however, on every such occasion it was seen that the petitioner had no intention to make any substantial effort to effectively commence construction and complete the project. It is further submitted that the petitioner also lacks financial ability to complete the project inasmuch as the petitioner is already declared as an NPA and proceedings are pending before the Debt Recovery Tribunal as instituted by HDFC Bank and ICICI bank against the petitioner.
13. Mr.Cama, learned Counsel for the respondent would submit that now an attempt of the petitioner is to 'sell the project' to a third party developer, as the petitioner is in serious financial problems and has no financial capacity to complete the project. It is submitted that by foisting a third party on the respondent, the petitioner wants the respondent-society to believe that the project would be completed. It is submitted that such approach ought not be accepted, inasmuch as the respondent society would not have any privity with such third party. It is submitted that in ::: Uploaded on - 11/06/2019 ::: Downloaded on - 14/07/2019 17:02:19 ::: pvr 10 arbpl593-19.doc any case the third party which is now sought to be inducted by the petitioner is one 'Rite Developers' who had also submitted a bid for the very project to the respondent-society, in the tender under which the contract was awarded by the society to the petitioner and the bid submitted by Rite Developers was rejected by the Society. Thus, Mr.Cama would submit that no interference ought to be granted either ad-interim or interim in the present proceedings.
14. Having heard the learned Counsel for the parties and having perused the record and the impugned order, I am not persuaded to accept the submissions as made on behalf of the petitioner to grant any ad- interim stay to the impugned order passed by the learned Arbitrator. Such a relief if granted in my opinion would cause serious prejudice to the respondent-society and its members and in fact would worsen the situation qua the re-development project of the respondent-society, adding to the pain and agony of the 59 members of the respondent-society. These members of the respondent-society are rendered in a miserable condition and are awaiting a roof over their head for a substantial period and who are also not paid rent by the petitioner for the alternative accommodation. ::: Uploaded on - 11/06/2019 ::: Downloaded on - 14/07/2019 17:02:19 :::
pvr 11 arbpl593-19.doc
15. The learned Arbitrator has extensively dealt with the binding terms and conditions as agreed in the contract. The project was to be completed within thirty months from the date of the contract. In any case, it was expected to be completed within thirty months from the date the Commencement Certificate and more particularly the last commencement certificate was granted on 15 October 2014. It is not in dispute that despite innumerable assurances, the construction could not substantially progress much less completed as per the terms and conditions of the agreement. As to what would be the plight of these members who have vacated the premises and waiting for completion of the construction can only be imagined.
16. The respondent-Society considering the gross failure of the petitioner to comply with the obligation under the contract, and after granting substantial opportunities to the petitioner, finally took a decision to terminate the development agreement as entered with the petitioner, which was initially terminated by the respondent's-society's letter dated 29 September 2015 and thereafter by a termination dated 17 May 2018. It is significant that the termination is not assailed by the petitioner. In this situation and that the project was required to progress with utmost ::: Uploaded on - 11/06/2019 ::: Downloaded on - 14/07/2019 17:02:19 ::: pvr 12 arbpl593-19.doc priority, after the termination of the development agreement entered with the petitioner, the respondent-society invoked arbitration and prayed for the interim reliefs, as the circumstances mandated, to enable the respondent-society to take further steps in the interest of 59 members of the society. The case of the respondent-society is that the society has clearly lost confidence and faith in the petitioner and on the assurances of the petitioner.
17. It is vital and needs to be borne in mind that as far as the respondent-society is concerned, the question is of the very shelter for its members and what is imperative is the early completion of the project.
18. As far as the petitioner is concerned, in accepting the respondent's- society's project, it was a properly calculated business decision. It cannot be said that it was not within the means of the petitioner to diligently and in a manner recognized by the development agreement and on the terms and conditions stipulated therein to complete the construction. Even if the petitioner has liabilities towards the third parties like any financial institution or any prospective flat purchaser, it is none of the concern of the society in taking a decision to terminate the agreement. It become a ::: Uploaded on - 11/06/2019 ::: Downloaded on - 14/07/2019 17:02:19 ::: pvr 13 arbpl593-19.doc liability/ obligation of the petitioner with such third parties. Such equitable plea is of no consequence and would not in any manner affect the unassailed termination of the agreement by the respondent-society.
19. It clearly appears that the situation has now aggravated. The members of the society are left in a state of absolute limbo. A situation prior to termination was perilous and precarious for the respondent- society and its members and the society and its members were totally in darkness as to when the construction would be completed by the petitioner. To add to the woes of the society and its members, it is also absolutely clear, and fairly conceded by the learned Counsel for the petitioner, that the petitioner is now negotiating to induct one 'Rite Developers' in the respondent's project, as the petitioner has no financial wherewithal to undertake the construction in question. Thus admittedly, the petitioner has now taken recourse to find out a third party investor/developer who would undertake the project under whatever arrangement between the petitioner and the third party. The third party's participation would be not only in respect of the financial aspects but also in respect of the construction, being foisted upon the respondent-society. In my opinion such an approach on the part of the petitioner has been ::: Uploaded on - 11/06/2019 ::: Downloaded on - 14/07/2019 17:02:19 ::: pvr 14 arbpl593-19.doc rightly deprecated by the learned sole Arbitrator in the impugned order. It is not in dispute, and as argued at the bar that the petitioner's accounts are not only declared as an NPA and proceedings are initiated against the petitioner under SARFAESI Act by the ICICI and HDFC banks, but the assets of the directors of the petitioner are also stated to be attached.
20. Another aspect which in any case would go to the root of the matter is that since last about two years and till date, the petitioner is in arrears of outstanding rent amount exceeding Rs.3 crores. Mr.Cama would submit that the amount in fact is due and payable for such rent is about Rs.5 crores. Learned Counsel for the petitioner submits that it is more than Rs.3 crores. The fact remains that the petitioner has become a defaulter on this count and is in clear financial difficulties to undertake the project. As to when the members of the respondent society would see the light of the day and that the construction would be completed, fell under a shadow of uncertainty. Such uncertainty, annoyance and stress was never contemplated by the 59 members of the respondent-society who have families, when confidence was reposed in the petitioner to hand over their premises for demolition and reconstruction. The families of these members are eagerly awaiting to be rehoused in their permanent accommodation, but for the inability of the petitioner to complete the ::: Uploaded on - 11/06/2019 ::: Downloaded on - 14/07/2019 17:02:19 ::: pvr 15 arbpl593-19.doc construction as agreed under the development agreement entered with the society.
21. The parties had taken a position as agreed under the terms and conditions of the contract. There are breaches on the part of the petitioner and which are apparent, which surely entitled the respondent-society to terminate the agreement which was initially terminated by the society on 29 September 2015 and thereafter terminated on 16 May 2018.
22. The termination has been accepted by the petitioner and no proceedings are initiated to assail the same. It appears to be a well advised step as once the petitioner assails termination then there is a duty cast upon the petitioner to show that it was willing to comply with the terms and conditions of the agreement, and also show that the petitioner was ready and willing to perform its obligations under the agreement.
23. In any case if the petitioner is of the opinion that the action of the respondent-society terminating the contract has caused losses to the petitioner to undertake this commercial venture, it is always open to the petitioner to claim appropriate damages against the society in the pending arbitral proceedings. The question is as to whether at this stage of the proceedings as contended on behalf of the petitioner, the respondent ::: Uploaded on - 11/06/2019 ::: Downloaded on - 14/07/2019 17:02:19 ::: pvr 16 arbpl593-19.doc Society should be foisted with the services of the petitioner or its agents, when the petitioner's agreement stands terminated by the society and un- assailed. The answer in the facts and circumstances would be certainly in the negative. If such a course of action is adopted it would cause serious prejudice to the members of the society and further delay the completion of the project.
24. In the above circumstances, I am not inclined to accept the contentions as urged on behalf of the petitioner. Certainly a prima facie case was made out by the petitioner for grant of interim mandatory reliefs and more particularly when the contract stood terminated as far as back on 16 May 2018. It cannot be countenanced that the project of the respondent-society is required to be rendered to a 'dead stop' and/or the project should not progress any further till the litigation comes to an end. Whatever is necessary for the redevelopment project to progress, so that the rehabilitation of the members of the society would happen at an early date, which is imminently in the interest of the members of the society, is what is considered by the learned arbitrator, in passing the impugned order. Certainly the law would not preclude the society to seek such appropriate reliefs in this direction, which the impugned order has enabled the respondent-society to achieve. The learned Arbitrator was ::: Uploaded on - 11/06/2019 ::: Downloaded on - 14/07/2019 17:02:19 ::: pvr 17 arbpl593-19.doc justified in passing the interim order when clearly the petitioner is unable to perform its obligations under the contract and fulfill the contractual obligations by itself. The learned Arbitrator has taken an appropriate commercial view of the fact situation in passing the impugned order.
25. In so far as the principles which would enable the Court to pass an order of mandatory injunction are well settled. The courts so also the arbitral tribunals would not lack authority and jurisdiction to consider the facts and circumstances and pass such interim mandatory orders, as the circumstances of the case so desire.
26. In the light of the above discussion, prima facie, I do not find that there is anything illegal in the approach of the learned arbitrator to such interim directions as contained in the impugned order. The circumstances in fact warrant grant of such reliefs, in favour of the respondent-society.
27. A perusal of the impugned order passed by the learned Arbitrator even indicates that the learned Arbitrator has in depth considered all the issues and for the reasons which are completely borne out by the record has felt it appropriate to grant interim mandatory relief by appointing ::: Uploaded on - 11/06/2019 ::: Downloaded on - 14/07/2019 17:02:19 ::: pvr 18 arbpl593-19.doc private receivers and interalia directing the petitioner to hand over the documents in respect of the project to the society, so that society can take further steps to complete the project.
28. For all the above reasons I am of the clear opinion that in the facts and circumstances of the case, no case for an ad-interim stay of the impugned order has been made out. The prayer for ad-interim relief stands rejected.
29. Let the petition be listed for hearing on 11 July 2019. In the meantime, the parties are directed to complete the pleadings.
30. At this stage, the learned Counsel for the petitioner submits that the learned Arbitrator has directed that the petitioner should remove its material by 10 June 2019, he submits that more time be granted. Time to comply with the directions is extended by two weeks.
[G.S. KULKARNI, J.) ::: Uploaded on - 11/06/2019 ::: Downloaded on - 14/07/2019 17:02:19 :::