Individual/Minority Members Of Housing Society Can't Invoke Arbitration Clause In Development Agreement: Bombay High Court
The Bombay High Court bench comprising Justice Manish Pitale held that individual and minority members of a society cannot invoke arbitration clauses in development agreements against the developer. The bench held that when a society and its members enter into a development agreement with the developer, the society speaks for its members and the members would lose their independent...
The Bombay High Court bench comprising Justice Manish Pitale held that individual and minority members of a society cannot invoke arbitration clauses in development agreements against the developer. The bench held that when a society and its members enter into a development agreement with the developer, the society speaks for its members and the members would lose their independent rights qua the society.
Brief Facts:
The development agreement, signed by the DGS Township Pvt. Ltd (“Respondent/Society”), its members, and the developer, stipulated the re-development of the property according to specific regulations. The development agreement contained a clause for reference to arbitration in case of any dispute. Subsequently, a supplemental development agreement was executed, introducing additional terms such as increased payment and restrictions on the new building's composition. However, disputes arose when Ketan Champaklal Divecha (“Petitioner”) and other members believed that benefits under the original agreement were unfairly relinquished by the society.
There were several attempts to resolve these disputes through communication, and eventually, arbitration was invoked by the Petitioner and other members. Thereafter, the Petitioner filed applications in the Bombay High Court (“High Court”) under Sections 9 and 11 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) for the appointment of an arbitrator.
Respondent contended that individual members cannot independently invoke arbitration under the agreement. It argued that the arbitration clause was intended for disputes between the society and the developer, and individual members must act through the society, not independently.
Observations by the High Court:
The High Court noted that the clause in the agreement stipulated that disputes between the 'parties' would be resolved through arbitration under the Arbitration Act. Notably, the clause also specified that the 'Society and the Members' collectively form one party, while the Developer constituted the other.
The High Court held that when a cooperative housing society enters into a development agreement, the majority members' decision would prevail, subsuming individual members' desires within the society's collective representation. The High Court referred to the decision of the Supreme Court in Daman Singh & Ors. vs. State of Punjab & Ors. [1985 AIR 973] and held that the society singularly acts and speaks for individual members. Thus, the High Court held that when the clause uses the plural term 'parties', it refers to the society and its members on one side and the developer on the other.
The High Court noted that the clause wasn't merely procedural; it governed the invocation of arbitration and the appointment of a sole arbitrator. Therefore, it held that for a valid invocation of arbitration, notice must be issued jointly by the society and its members or the developer. It noted that an individual member lacks the capacity to invoke arbitration under the clause. Consequently, the High Court interpreted the arbitration clause in the development agreement as an agreement for dispute resolution between the society with its members and the developer.
The High Court held that the development agreement must be understood in the context of the cooperative nature of the housing society, where the will of the majority members prevails. It noted that allowing individual members to initiate arbitration could lead to a proliferation of arbitration proceedings, contrary to the agreement's intent.
The High Court held that the invocation of arbitration by the Petitioner was defective as it went against the cooperative nature of the society and the collective decision-making process. Consequently, it dismissed the petition and application, affirming that the Petitioner and other minority members could not invoke arbitration under the given circumstances.
Case Title: Ketan Champaklal Divecha vs DGS Township Pvt. Ltd. & another
Case Number: ARBITRATION PETITION (L) NO.20483 OF 2023
Advocate for the Petitioner: Mr. Kunal Mehta a/w. Mr. Harsh L. Behany, Ms.Saloni Manjrekar, Ms.Prachi Sanghvi, and Ms.Sailee Rane i/b. HN Legal of Petitioner and Applicant.
Advocate for the Respondent: Mr. Mayur Khandeparkar a/w. Mr. Rohan Sawant, Mr. Santosh Pathak, Ms.Archana K. and Ms.Purva Naik i/b. Law Origin for Respondent No.1.
Mr. Karl Tamboly a/w. Mr. Nirav Marjadi, Mr. Ameet Mehta and Ms.Nikita Deora and Ms.Shweta Chopra i/b. M/s. Solicis Lex for Respondent No.2.