Individual Members Of Society Can't Be Considered Signatories To The Arbitration Agreement: Bombay High Court
Rajesh Kumar
20 July 2024 9:30 AM GMT
The Bombay High Court bench of Justice Somasekhar Sundaresan has held that individual members of the Society cannot be considered signatories to the arbitration agreement under Section 7 of the Arbitration Act, as they do not individually participate in its formation or execution of arbitration clause.
Brief Facts:
Eleven members of a cooperative housing society approached the High Court and filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), concerning disputes arising from a Development Agreement (“Development Agreement”) between Dahisar Chunabhatti Panchratna Co-operative Housing Society Limited (“Society”) and M/s Gauri Associates AOP (“Developer”).
The Developer challenged the legitimacy of the individuals issuing the notice on behalf of the Society.
The arbitration clause is reproduced below:
“All disputes, differences and/or claims, arising out of this Agreement whether during its subsistence or thereafter shall be settled by arbitration in accordance with the provision of Arbitration and Conciliation Act, 1996 or any other statutory amendments or re-enactment thereof as applicable and shall be referred to the arbitration of arbitrator or arbitrators nominated by the parties herein. In the event of disarrangement in nomination of Sole Arbitrator each party shall appoint one Arbitrator and then all the Arbitrators with each other's consent appoint presiding Arbitrator meaning that there shall be an Arbitral Tribunal of three Arbitrators. The venue of the arbitration proceedings shall be exclusively at Mumbai as agreed by and between both the parties.”
Observations by the High Court:
The High Court noted that the agreement clearly provided for arbitration by either a sole arbitrator appointed by mutual consent of the parties or, in the absence of such consent, by an Arbitral Tribunal consisting of three arbitrators, with each party appointing one arbitrator and these arbitrators mutually selecting a presiding arbitrator.
The High Court held that the language used, the phrase "each other" and the reference to an Arbitral Tribunal of three arbitrators, indicated that the arbitration agreement was intended as a bilateral contract between two parties: the Society and the Developer.
The High Court rejected the argument put forth by the Applicants that the term "the society" should be construed to encompass all its members, including 40 additional individuals besides the Society and the Developer. Such an interpretation, according to the High Court, would distort the intended bilateral nature of the arbitration agreement.
Therefore, the High Court held that individual members of the Society cannot be considered signatories to the arbitration agreement under Section 7 of the Arbitration Act, as they do not individually participate in its formation or execution.
Consequently, the High Court dismissed the application.
Case Title: Shankar Vithoba Desai And Ors Vs Gauri Associates And Anr
Case Number: COMM. ARBITRATION APPLICATION (L.) NO. 21070 OF 2023
Advocate for the Applicants: Mr. Aadil Parsurampuria a/w. Ms. Pragya, Mr.Sumeet Tirthani i/b M/s. Legal Vision
Advocate for the Respondent: Mr. Rubin Vakil, a/w. Dimple Vora i/b Markand Gandhi & Co., Advocates for Respondent No.1.
Date of Judgment: July 16, 2024
