Ms Space Master Realtors vs Mulund Sandhyaprakash CHS Ltd
- Court
- Bombay High Court
- Case type
- Arbitration Application
- Decided on
- 06-03-2026
2026:BHC-OS:5802
Neeta Sawant ARBPL 35545 OF 2025
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION APPLICATION (L) NO.35545 OF 2025
M/s. Space Master Realtors …..APPLICANT
: VERSUS :
Mulund Sandhyaprakash CHS Ltd. & Anr. ….RESPONDENTS
Mr. Mayur Khandeparkar with Mr. Vikramjit Garewal, Mr. Vishwanath
Patil and Ms. Nidhi Chauhan i/b Mr. Akshay Naidu for the Applicant.
Mr. Karl Tamboly with Mr. Ryan D’souza, Mr. Meezan Patel and Ms.
Harshada Kamble for Respondent No.2.
Mr. Dhruvin J. Modi for Respondent No.1-Society.
CORAM : SANDEEP V. MARNE, J.
RESERVED ON : 03 FEBRUARY 2026.
PRONOUNCED ON : 06 MARCH 2026.
JUDGMENT:
I SSUE FOR C ONSIDERATION
1. This Application, filed under Section 11 of the Arbitration and
Conciliation Act, 1996, raises an issue of seminal importance about
permissibility to arbitrate the disputes between developer and a
dissenting member of cooperative society, who has not signed the
development agreement. In the present Application, the developer is
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seeking appointment of arbitrator for adjudication of disputes with a
non-signatory member to the development agreement. Developer’s right
to seek interim measures under Section 9 of the Arbitration and
Conciliation Act, 1996 against a non-signatory member is well settled.
Even though a dissenting member of a society has not signed the
development agreement, Court can make interim measures against him
as his individual rights remain subservient to the society’s obligations
under the development agreement. The issue here is entirely different.
Whether developer, who has executed development agreement with the
cooperative society, can seek appointment of an arbitrator by invoking
arbitration clause in the development agreement, for adjudication of
disputes with a member of such society, who is not a signatory to such
development agreement? Though in the present case, reference to
arbitration is sought by the developer, decision of the issue involved in
the present Application would also provide an answer to the converse
situation of right of individual member of a cooperative society to
arbitrate against the developer, even though such member has not
signed the development agreement. The Court is also tasked upon to
decide whether subsequent participation by the dissenting member in
redevelopment process by execution of Permanent Alternate
Accommodation Agreement with the developer, containing arbitration
clause, can enable the developer to arbitrate the disputes arising out of
the development agreement, not signed by such member.
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F ACTS
2. Mulund Sandhyaprakash Cooperative Housing Society
Limited ( Society ) is registered under the provisions of Maharashtra Co-
operative Societies Act, 1960. It is formed in respect of a single building
having 11 members at Mulund (West), Mumbai. Since the building of the
society had become old, it resolved to opt for redevelopment thereof and
adopted a resolution in special general body meeting held on 15 April
2017. The Society began scouting for developers to redevelop its
building. Applicant is a developer, who submitted a proposal dated 23
July 2019 which was deliberated upon and after negotiations, Applicant
tendered Offer Letter dated 5 October 2019. Memorandum of
Understanding dated 26 February 2020 was executed between the
Applicant and the Society. Thereafter, Redevelopment Agreement dated
2 July 2021 ( DA ) was executed by the Society in favour of the Applicant,
which was registered in the office of Sub-Registrar of Assurance, Kurla.
On the same day registered Power of Attorney was also executed in
favour of the Applicant-Developer.
3. Respondent No.2 is the owner and occupier of Flat No. 10 in
society’s building and a member of the society. According to the
Applicant, Respondent No. 2 has opposed to the redevelopment process
undertaken by the Society and has obstructed the process of
redevelopment right since the beginning. He filed complaints with local
police station and other authorities. Applicant was issued Intimation of
Disapproval (IOD) by Municipal Corporation of Greater Mumbai on 28
November 2023. Accordingly, the Applicant issued letters to the
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members to vacate flats in their occupation. According to the Applicant,
10 out of 11 members agreed to vacate possession of their respective flats
on or before 30 January 2024. However, Respondent No.2 refused to
vacate possession of his Flat No.10. Applicant addressed notices dated 9
January 2024 and 30 January 2024 to Respondent No.2, which were
responded to by him. Applicant served Rejoinder dated 13 February 2024.
4. In the above background, Applicant filed Arbitration
Petition No.491 of 2024 in this Court under Section 9 of the Arbitration
Act seeking interim measures against Respondent No.2 to vacate
possession of Flat No.10. This Court passed order dated 19 August 2024
th
recording that IOD for the 8 floor was not issued and directed the
Applicant to issue intimation to Respondent No.2 upon receipt of IOD
th
for the 8 floor with corresponding direction to Respondent No.2 to
vacate possession of Flat No.10 within 30 days. Court Receiver was
appointed to take possession of the flat in case Respondent No.2 failed to
vacate the possession thereof. Respondent No.2 filed Appeal (L)
No.28831 of 2024 before the Division Bench of this Court challenging
order dated 19 August 2024, which came to be disposed of by order dated
24 October 2024 granting liberty to Respondent No.2 to agitate the issue
sought to be raised by him before the appropriate forum.
5. Respondent No.2 has accordingly filed Long Cause Suit
No.19354 of 2024 before the City Civil Court at Bombay. He also sought
temporary injunction, which, according to the Applicant, was denied by
order dated 11 November 2024. It appears that possession of Flat No.10
was secured by the Applicant through Court Receiver on 15 November
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2024. Respondent No.2 has executed Permanent Alternate
Accommodation Agreement (PAAA) with the Applicant on 14 November
2024, which has been registered in the office of Sub-Registrar of
Assurances, Kurla-5. Under the PAAA, Applicant has agreed to grant to
th
Respondent No. 2 Flat No.8001 on 8 floor admeasuring 642.83 square
feet (MOFA carpet area) equivalent to 665 square feet (RERA carpet area)
in the proposed new building named Chandan Heights to be constructed
in place of the old building of the Society. It appears that the old building
has accordingly been demolished.
6. Applicant alleges that the acts of Respondent No.2 has led
to substantial monetary losses to it since the project is indefinitely
delayed. The Applicant accordingly issued notice dated 28 July 2025 to
the Respondent No.2 demanding a sum of Rs.13,13,46,245/- and
invoking Clause 38 of the Development Agreement dated 2 July 2021 and
nominated a mediator as well as an arbitrator. By Reply dated 6 August
2025, Respondent No.2 rejected the claim of the Applicant and also
denied existence of arbitration agreement. Respondent No.1-Society
however accepted arbitration through the proposed arbitrator. Since
Respondent No.2 has refused to submit to arbitration, the Applicant has
filed the present Application under Section 11(6) of the Arbitration and
Conciliation Act, 1996 (Arbitration Act) seeking appointment of
Arbitrator for adjudication of disputes that have arisen between
Applicant and Respondents under the Development Agreement dated 2
July 2021. Respondent No.2 has filed Affidavit-in-Reply opposing the
Application.
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S UBMISSIONS
7.
As the hearing of the Application progressed, this Court
noticed that there is no judgment directly dealing with the issue
involved. This Court also noticed that several applications for
constitution of arbitral tribunal at the instance of dissenting members,
who are non-signatories to the DA, keep getting filed. Considering the
importance of the issue involved in the Application, this Court requested
Mr. Mayur Khandeparkar and Mr. Karl Tamboly, the learned counsel to
assist the Court in answering the issue. Mr. Khandeparkar was requested
to present the case on behalf of the Applicant whereas Mr. Tamboly was
requested to present the case on behalf of Respondent No.2. Accordingly,
this Court has heard extensive submissions canvassed by Mr.
Khandeparkar on behalf of the Applicant and Mr. Tamboly on behalf of
Respondent No.2. It would be apt to record the gist of submissions
canvassed by them.
S UBMISSIONS ON B EHALF OF A PPLICANT
8. Mr. Khandeparkar, the learned counsel appearing for the
Applicant submits that there is arbitration agreement both in
Development Agreement dated 2 July 2021 as well as in the PAAA dated
14 November 2024. That the DA and PAAA are inextricably connected
and intertwined in relation to the subject matter and hence there ought
be a composite reference to arbitration in relation thereto. That though
the arbitration is invoked only in respect of Clause 38 of the DA, the
Apex Court has held in M/s Bhagheeratha Engineering Ltd. Versus.
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1
State of Kerala that failure to issue notice under Section 21 of the
Arbitration Act is not fatal to a party in arbitration if claim is otherwise
valid and dispute is arbitrable. That therefore, mere failure to invoke
Clause 32 of PAAA would not be fatal to a case involving multiple
documents which are inextricably connected and contours of dispute
which are to be arbitrated would unfold in the eventual arbitral
proceedings after the Tribunal is constituted.
9. Mr. Khandeparkar further submits that Respondent No.2, in
his capacity as member of the first Respondent-Society, is ultimately the
beneficiary under the DA. Various covenants agreed between the Society
and the Developer for their mutual benefits are actually beneficial to
Respondent No.2. Therefore, the DA ultimately provides for and/or
outlines rights and obligations pursuant to which the deal was struck
between the Society and the Developer. That arrangement in the DA
stipulates the terms on which consideration is agreed to be provided to
each member of the Society and that individual members are
beneficiaries of such terms. That it cannot be suggested by any individual
member that he/she would be entitled to reap benefits under the PAAA
without having to fulfil any obligations under the DA. That obligations
under the DA, such as vacating of flats, are required to be discharged by
the individual members. That therefore any obligation that arises against
the Society is enforceable against not just the society but also individual
member being its constitute. He invites attention of the Court to
introductory title of the DA in which the expression ‘society’ is defined
1
Civil Appeal No.39 of 2026, decided on 5 January 2026
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to mean and include not just the society, but also all its existing
members.
10. Mr. Khandeparkar would further submit that it is the case of
the Applicant that Respondent No.2 has caused losses to the Developer
on account of failure to vacate the flat and such loss is attributable only
to Respondent No.2 as a member of the Society. He relies on Section 35
of the Arbitration Act in support of his contention that an arbitral award
is final and binding on the parties and persons claiming under them and
that therefore every member of the Society would be bound by the
Award. That since Respondent No.2 is the affected person, it would not
be prudent to seek adjudication in his absence and that therefore his
presence to the arbitral proceedings would be material. He relies on
judgment of the Apex Court in M.C. Chacko vs. State Bank of
2
Travancore, Trivandrum in support of his contention that third-party
beneficiary under the terms of the contract is entitled to seek its
enforcement. That the case in hand involves a converse situation where
Developer is seeking to enforce an agreement against the third-party
beneficiary. That it cannot be countenanced that a beneficiary can
enforce a term of contract but cannot seek redressal of those grievances
under the adjudicatory mechanism available under the contract.
11. Mr. Khandeparkar would further submit that Respondent
No.2 is otherwise a veritable party to the contract which concept is
Cox and Kings Limited
evolved by the Apex Court in its judgment in
3
Versus. SAP India Private Limited and another . That by applying the
2
(
1969) 2 SCC 343
3
( 2024) 4 SCC 1
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principle of veritable party, a non-signatory can be subjected to
arbitration without prior consent on the basis of (i) mutual intent of
parties, (ii) relationship between non-signatory and signatory, (iii)
communality of subject matter, (iv) composite nature of transaction and
(v) performance of the contract. That Respondent No.2 is fully involved
in performance of DA, as PAAA is executed by him towards performance
of the DA. That therefore mere absence of signature of Respondent No.2
on the DA does not mean that arbitral proceedings cannot be conducted
between Petitioner and Respondent No.2. He relies on judgment of the
Apex Court in Ajay Madhusudan Patel and others vs. Jyotrindra S Patel
4
and others in support of his contention that courts should not adopt a
conservative approach to exclude all persons, who are intended to be
bound by underlying contract containing arbitration agreement and that
if conduct of non-signatory is in harmony with conduct of others, it may
lead the other party to believe that non-signatory becomes a veritable
party. He submits that DA and PAAA are executed in respect of subject
matter, which is common and overlapping. That DA and PAAA are
inextricably connected in the context of nature of transaction. That
PAAA has been executed in accordance with Clause 6C(ii) of DA. That
PAAA is executed to give effect to the terms of DA and performance of
PAAA is premised and predicated on the basis of DA and vice versa. That
DA and PAAA cannot be performed or enforced in isolation of one
another. He therefore submits that Respondent No.2 is a veritable party
to the DA and therefore arbitration agreement in the DA would bind
Respondent No.2 as well.
4
( 2025) 2 SCC 147
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12. Mr. Khandeparkar further submits that on account of
inextricable interconnection between DA and PAAA, there is otherwise
incorporation of arbitration clause by reference. That PAAA specifically
refers to DA and the same is executed towards performance of
obligations under the DA. That reference to the DA is not merely as and
by way of narration but has been made with a view to incorporate terms
thereof as a part and parcel of PAAA. That in any case, DA and PAAA are
multi-party documents, which are inextricably connected in the context
of subject matter. He relies on paragraph 132 of the judgment in Cox and
Kings Limited (supra) in support of his contention that Respondent No.2,
by virtue of his relationship with Society and active involvement in
performance of obligations, which are intricately linked to the subject
matter, is not a stranger to the disputes between the signatory parties.
That even otherwise arbitration clauses contained in DA and PAAA are
widely worded to include any and every dispute that may arise between
parties in relation thereto. He relies on judgment of the Apex Court in
5
Giriraj Garg Versus. Coal India Limited and Ors. in support of his
contention that the expression ‘ any dispute arising out of or in connection
with ’ needs to be given the widest amplitude and context. That the
peculiarity of Clause 38 of the DA would not include only disputes in
context of the developer and the society but would also extend to
individual disputes, which would arise on account of defaults committed
by the member in performance of obligations stipulated under the DA.
13. Mr. Khandeparkar distinguishes the judgments of this Court
in Ketan Champaklal Divecha Versus. DGS Township Private Limited
5
(2019) 5 SCC 192
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6 7
and another and Shankar Vithoba Desai Versus. Gauri Associates ,
contending that the arbitration agreement in the present case does not
stipulate that the reference to arbitration would only be in respect of
dispute between developer and society. That Clause 32 of the PAAA also
provides for resolution of disputes after making reference to DA dated 2
July 2021. That since PAAA is executed in pursuance of the DA,
Respondent No.2 cannot be heard to say that he would secure benefits
under the DA but would not be bound by terms and obligations
contained therein. That therefore adjudicatory mechanism contained in
PAAA would also extend to the disputes arising out of contractual
obligations under the DA with individual member of the Society.
14. Mr. Khandeparkar submits that DA and PAAA are multiple
documents arising out of same transaction. He relies upon judgment of
8
this Court in Adityaraj Builders Versus. State of Maharashtra in
support of his contention that PAAA is a part and parcel of DA and an
instrument executed to complete the transaction.
15. Mr. Khandeparkar would further submit that member of the
Society loses his individuality qua the Society and has no independent
right as held by the Apex Court in Daman Singh and Others. Versus.
9
State of Punjab and Others . Though this position would not obfuscate
any arbitration agreement which may arise between developer and
individual member relating to dispute involving breach of failure to
perform obligations arising out of DA. That the judgment in Daman
6
Arbitration Petition (L) No.20483 of 2023, decided on 2 January 2024
7
Commercial Arbitration Application (L) No.21070 of 2023, decided on 16 July 2024
8
2023 SCC OnLine Bom 540
9
(1985) 2 SCC 670
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Singh (supra) recognizes two exceptions in respect of rights which are
provided to an individual member under the statute or bye-laws. That
right of adjudication by arbitration is a statutory right which can be
availed even by a contract. That in Uday Dalal vs. Divisional Joint
10
Registrar Co-operative Societies this Court has recognized exceptions
to the otherwise applicable rules prescribed under the judgment of
Daman Singh . That the society is competent to execute agreement not
just on behalf of itself, being a juristic entity, but also on behalf of the
members individually especially where the agreement governs rights and
obligations of individual members as well. That individual members
therefore can avail of benefits under the arbitration agreement for
adjudication of their individual grievances. Conversely a Developer can
also invoke adjudicatory mechanism against individual member, who has
breached the obligations under the agreement executed on his behalf by
the Society. He relies on judgment of this Court in Harshad B. Shah and
11
another Versus. AVS Realtors and another in support of his
contention that reference is done at the behest of individual member
applying the doctrine of veritable party even in absence of an arbitration
clause contained in PAAA. He submits that judgment cited on behalf of
Respondent No.2 would not come in the way of making reference to
Arbitral Tribunal because the issues raised in the present application
were neither raised nor this Court had any occasion to decide the same.
16. Lastly, Mr. Khandeparkar would submit that once existence
of arbitration agreement is noticed both in the DA and PAAA, this Court
needs to adopt ‘hands off’ approach, since the scope of scrutiny while
10
Civil Writ Petition No.15089 of 2025 decided on 5 December 2025
11
Commercial Arbitration Application No. 372 of 2025 decided on 25 September 2025
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deciding application under Section 11 of the Arbitration Act is only
about prima facie existence of arbitration agreement. He relies on
judgment of the Apex Court in ASF Build-tech Private Ltd. Versus.
12
Shapoorji Pallonji & Co. Pvt. Limited in support of his contention
that Arbitral Tribunal is fully empowered to rule on existence of
arbitration agreement between veritable parties and this Court need not
finally adjudicate that issue in the light of remedy under Section 16 of
the Arbitration Act. He would therefore urge this Court to make a
reference to Arbitral Tribunal and leave the issue of existence of
arbitration agreement open to be decided under Section 16 of the
Arbitration Act.
17. Since the Society broadly supports the case of the Applicant, Mr.
Modi has not separately canvassed any submissions.
S UBMISSIONS O N B EHALF O F R ESPONDENT N O .2
18. Mr. Tamboly, the learned counsel appearing for Respondent
No. 2 opposes the Application submitting that the arbitration clause
contained in the development agreement does not bind Respondent
No.2. He takes me through the clauses of the DA in support of the
contention that the arbitration clause therein can never bind
Respondent No.2. That DA contains list of members in which name of
Respondent No.2 is conspicuously missing. Respondent No.2 is also not
a signatory to the DA. He submits that Clause 19 dealing with specific
performance of DA makes a conscious distinction between the default
12
(2025) 9 SCC 76
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committed by Society and default committed by individual members.
That under Clause 19(1), the developer is entitled to enforce agreement
and claim damages in the event of default committed by the societies.
That on the other hand, if the delay is caused by any individual member,
the developer is only entitled for extension of time for completion of
development. That therefore no dispute could ever arise between
developer and member qua damages or compensation against an
individual member. That Clause 20 provides for indemnity only on behalf
of developer and the society. That Clause 30 provides for addresses only
of developer and society for the purpose of correspondence and notices.
19. Mr. Tamboly further submits that Clause 38 of the
development agreement dealing with arbitration indicates that the same
is binary in nature as it refers to ‘both the parties’ in multiple cases. That
it also makes reference to senior representatives of both the parties
which expression cannot be applied to individual members. That the
clause makes it clear that there is no intention to arbitrate between the
developer and individual member. That therefore Respondent No.2 is not
bound by the arbitration clause in the DA. That there are no obligations
imposed on individual members de horse the Society and the arbitration
clause does not contemplate or cover any dispute between the developer
and individual member.
20.
Mr. Tamboly would further submit that it is otherwise
impermissible for a developer to invoke arbitration clause in the DA
against individual member of the society. He relies upon order of this
Court in Ketan Champaklal Divecha (supra) in which this Court, while
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dealing with the reverse situation, has ruled that the society can alone
act and speak for individual members as a member loses his/her
independent rights. That this Court has concluded that reference to
‘parties’ means society and its members as collective on one hand and
developer on the other. That the ratio of the order in Ketan Champaklal
Divecha squarely applies to the present case. That since Clause 38 of the
DA also refers to the expression ‘both the parties’ at multiple places. He
submits that in Shankar Vithoba Desai (supra) this Court has followed
the judgment in Ketan Champaklal Divecha holding that fundamental
requirement under Section 7 of the Arbitration Act is not fulfilled in a
case where individual member is not a signatory to the arbitration
agreement. He also relies upon Division Bench judgment in Avenues
13
Seasons Properties LLP Versus. Nissa Hoosain Nensey and others in
which it is held that the plaintiff. who opposed development and had not
signed the DA, was not bound by the arbitration clause. That this Court
has held that the ratio of the judgment in Adityaraj Builders (supra)
does not apply to the issue of existence of arbitration agreement as the
same dealt with the issue of levy of stamp duty under the provisions of
the Maharashtra Stamp Act,1958. He also relies on judgment of this
Court in Ningbo Aux Imp and Exp Co. Limited Versus Amstrad
14
Consumer India Pvt. Limited in which the judgment in Girish
15
Mulchand Mehta Versus. Mahesh S. Mehta and another and of Kerala
High Court in Shoney Sanil Versus. Coastal Foundation P. ltd. And
16
others
are followed holding that even for exercise of power under
13
Appeal No. 42 of 2024 decided on 22 October 2024
14
Comm. Arbitration Petition No. 983 of 2025 decided on 28 January 2026
15
2009 SCC Online Bom 1986
16
AIR 2006 Ker 206
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Section 9 of the Arbitration Act, twin conditions need to be satisfied viz.
(i) party must be claiming through or under the arbitration agreement
and (ii) the party is in possession of subject matter of arbitration. That
however such third party cannot be made a party to the main reference
to the arbitration. That in the present case, Respondent No.2 is a
member and non-signatory to the DA.
21. Mr. Tamboly submits that Respondent No.2 is not a
veritable party to the arbitration agreement merely because he happens
to be the beneficiary under the DA. That Respondent No.2 is in fact a
dissenting member and has filed the suit before the City Civil Court
challenging certain clauses of PAAA. He submits that in Cox and Kings
Limited. (supra) the Apex Court has held that the nature or standard of
involvement of non-signatory in performance of the contract should be
such that non-signatory has actively assumed obligations or
performance upon itself under the contract. That there needs to be
positive, direct or substantial involvement of non-signatory in the
negotiations, performance and termination of the contract. That mere
incidental involvement in the negotiations, performance or termination
of contract is not sufficient to infer consent of non-signatory to be bound
by the arbitration agreement in the contract. That Respondent No.2 has
not been a party to the DA since its very inception and therefore he
cannot be treated as a veritable party. He relies on judgment of Apex
Ajay Madhusudan Patel
Court in (supra) in support of his contention
that conduct of non-signatory needs to be in harmony with the conduct
of others. That in the present case, conduct of Respondent No. 2 has not
been in harmony with the conduct of the society. That in ASF Buildtech
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Private Ltd. (supra) the Apex Court has held that existence of arbitration
agreement qua non-signatory is in substance and issue of consent. That
by no stretch of imagination, any consent can be inferred on the part of
Respondent No.2 in the present case where he has deliberately and
intentionally not signed the DA. He relies on judgment of the Apex Court
17
in HPCL Versus. BCL Secure Premises Pvt. Ltd. in support of the
contention that referral courts need to record a prima facie finding as to
whether third party is a veritable party and that there exists arbitration
agreement.
22.
Mr. Tamboly further submits that there is a collusion
between the Applicant and the Society, and the Applicant is harassing
Respondent No.2 on account of raising of objections to the conduct of
development process. That the society has unfortunately colluded with
the developer. He submits that since there is no agreement to arbitrate
between the Applicant and Respondent No.2, the present Application
deserves to be dismissed.
R EASONS AND A NALYSIS
23. The Applicant-Developer has invoked Clause 38 of the DA
against Respondent No.2, who is a member of the first Respondent-
Society for reference of disputes relating to its claim for recovery of
amount of Rs.13,13,46,245/- against Respondent No.2. The claim is
sought to be raised by the developer against Respondent No.2, who was
the lone dissenting member of the society and was opposed to the
development process. Applicant believes that it has suffered losses on
17
C.A. 14647 OF 2025 decided on 9 December 2025
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account of delay on the part of Respondent No.2 in vacating the
possession of Flat No.10, which has delayed the process of
redevelopment of the society. As observed above, the Applicant was
required to file petition under Section 9 of the Arbitration Act for seeking
possession of Flat No.10 from Respondent No.2. This Court passed order
dated 19 August 2024 in Arbitration Petition (L.) No. 6559 of 2024
directing Respondent No.2 to vacate possession of Flat No.10 upon
receipt of intimation from the Applicant-Developer after issuance of IOD
and appointing Court Receiver to take possession in the event of failure
of Respondent No.2 to vacate the same. In the Appeal preferred by
Respondent No.2 against Section 9 order, the Division Bench refused to
interfere and relegated him to alternate remedy to air his grievances
relating to redevelopment prayers. It appears that Respondent No.2 has
accordingly filed Long Cause Suit No. 19354 of 2024 before the City Civil
Court. In the meantime, the Court Receiver took away possession of Flat
No.10 from Respondent No.2 and handed it over to the Applicant for
redevelopment. Respondent No.2 has executed PAAA with the Applicant
on 14 November 2024. Thus, there is some contractual relationship
between the Applicant and Respondent No.2 in the form of PAAA though
Respondent No.2 admittedly is not a signatory to the DA. The DA has
been executed not just between the Applicant and the Society, but 9
members of the Society are also parties thereto, who have signed the DA.
It appears that Respondent No.2 was also sought to be included in the
DA, but his name was ultimately scored off on account of his refusal to
sign the DA. Respondent No.2 has not signed the DA as he is opposed to
the redevelopment process. Though he has executed the PAAA, he has
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challenged the redevelopment process in a suit filed before the City Civil
Court.
24. There is no dispute about the position that the DA contains
arbitration Clause 38, which reads thus:
38. ARBITRATION:
(i) if any dispute arises out of or in connection with this Agreement
including its interpretation, application or performance or any alleged
breach of any provision of this Agreement the Parties shall in the first
instance attempt to resolve such dispute through mutual discussion
between senior representatives of each Party.
(ii) In the event that the Parties are unable to resolve the dispute or
difference by mutual discussion within thirty days of it being referred
to such senior representatives, then either Party may refer the dispute
for resolution to a sole arbitrator who shall be jointly appointed by both
Parties or, in the event that the Parties are unable to agree on the
person to act as the sole arbitrator within thirty days after any Party
has claimed for an arbitration in written form, by three arbitrators, one
to be appointed by each Party with power to the two arbitrators so
appointed, to appoint a third arbitrator.
(iii) The arbitration will be governed by the Arbitration and
Conciliation Act 1996 including any statutory amendments or re-
enactments there of for the time being in force and rules made there
under by the Bombay High Court.
(iv) The arbitration proceedings will be conducted in English language
at Mumbai.
(v) The costs of arbitration will be initially paid jointly by Parties hereto
in equal shares. The Arbitrator shall be entitled to determine by the
award as to who will finally bear the cost and in what proportion.
(vi) All issues those may be referred for arbitration shall be resolved in
maximum time period of 3 months.
(vii) The Award of the Arbitrator shall be binding on both Parties.
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25. Thus, Clause 38 provides for adjudication of disputes arising
out of or in connection with the DA between the ‘ parties’ through
arbitration and ‘ either party ’ can refer the dispute for resolution to a sole
arbitrator, which needs to be jointly appointed by ‘ both the parties ’. In
the event of failure to reach agreement on the person to act as sole
arbitrator, three arbitrators can be appointed, one to be appointed by
‘ each party ’ with power to the two arbitrators to appoint the third
arbitrator. The Award of the Arbitral Tribunal is agreed to be binding on
‘ both the parties ’. In the present case, Clause 38 uses various expressions
‘parties’, ‘either party’, ‘both the parties’, ‘any party’, etc.
26. It must however be observed here that use of the expression
‘ both parties ’ appears to be slightly inconsistent as there are three parties
to the DA viz.
(i) the Society as ‘party of first part’
(ii) Nine members of the Society as ‘party of the second part’ and
(iii) Applicant-Developer as ‘party of the third part’.
It is therefore difficult to accept the contention of Respondent No. 2 that
it is a binary contract. The DA does contemplate adjudication of disputes
between the developer and signatory members as well. The nine
members, who have signed the DA, have agreed to resolve their disputes
with the developer through the mechanism of private arbitration.
Ordinarily, therefore Clause 38 of the DA, which contains arbitration
agreement would bind only the three parties to the DA. Respondent No.
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2 is not a signatory to the DA and claims that he has not agreed for
resolution of disputes with the developer through arbitration.
27. In the present case, the developer wants to arbitrate against
individual non-signatory member. There are converse cases where the
members want to arbitrate against the developer. In my view, this
difference is immaterial and what needs to be decided is the broad
principle as to whether disputes relating to development process can be
agitated through private arbitration where one of the parties to the
dispute is not a signatory to the DA. Whether a member, who is opposed
to redevelopment process and has consciously not signed the DA, can
either initiate arbitration, or can be made party to the arbitral
proceedings, is the issue that arises for consideration. Here again, there
can be difference in fact situation in individual cases because every DA
need not include all members of the society as independent parties
thereto. This particularly happens where the society comprises of large
number of members, who are neither indicated separately as parties to
the DA nor are required to sign the same. In such a case, the act of non-
signing the DA is not voluntary act by the members, and it is more a
matter of convenience where the society acts on behalf of all members
and signs and executes the DA. On the other hand, there are cases, like
the present one, where individual members are also made parties to the
DA and are required to sign and execute the same. In such case, the act
of non-execution or non-signing of DA by a dissenting member is a
conscious choice made by him since he is opposed to the redevelopment
process. Thus, opposition or support to the redevelopment process
cannot be inferred only on the basis of the act of not signing the DA.
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What constitutes dissent by a member thus does not depend solely on
the act of failure to sign the DA. Thus, a non-signatory to the DA can
both be supporting, as well as dissenting member of the society. In the
present case, Respondent No.2 was required to sign the DA but has made
a conscious choice not to sign the same.
28. Faced with the difficulty that Respondent No. 2 is not a
signatory to the DA, the Applicant-Developer seeks to rope in
Respondent No.2 as a party to arbitration by invoking two principles of
(i) Respondent No.2, being a veritable party to the DA, is bound by
arbitration agreement and (ii) DA and PAAA constitute multiple
documents for giving shape to the same transaction and since there is
arbitration agreement in both the instruments, a common reference can
be made for adjudication of disputes arising out of both the instruments.
I propose to examine both the propositions sought to be advanced by the
Applicant. However, before I do so, it would be necessary to quickly deal
with another submission that the disputes between the Applicant and
Respondent No. 2 emanate out of DA and PAA and that since both
documents have arbitration clauses, arbitral tribunal can be constituted
in the present case.
W HETHER A NY A RBITRABLE D ISPUTES HAVE A RISEN OUT OF PAAA
29. As observed above, though Respondent No. 2 is not a
signatory to the DA, he has signed and executed the PAAA with the
Applicant-developer. PAAA essentially governs the contractual
relationship between the parties post vacation of the old flat and deals
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with aspects inter alia of payment of transit rent during construction
period, allotment of new flat on ownership basis, etc. upon demolition of
the old building, the identity of the old flat is lost. The new building
often is much larger than the old one. There is change in flat number,
size of flat, number of rooms, floor number etc. PAAA therefore becomes
the title documents and source of ownership of the new flat in the
reconstructed building. Therefore, once a dissenting member is required
by the Court to vacate the old flat, irrespective of his disputes with the
society and developer, many times, he /she executes the PAAA on a
without prejudice basis. This appears to be the reason why Respondent
No. 2 has executed PAAA with the Applicant even though he has
disputes with Applicant and the society and has filed a Suit before City
Civil Court.
30.
There is arbitration agreement in the PAAA executed by
Respondent No.2 with the Applicant-Developer. Clause 32 of PAAA
provides thus:
32. If Any disputes arise between the parties, then it shall be settled
amicably between the parties and if the parties fail to settle the dispute
amicably then it shall be referred to the Arbitrator appointed with the
consent of all the parties and it shall be governed by the arbitration and
conciliation act, 1996. Any difference or dispute regarding any matter,
things, deed or term of this Agreement shall be exclusively subject to
the Jurisdiction of the competent Courts in Mumbai.
31. There is thus no dispute to the position that there is
arbitration agreement between the Applicant, Society and Respondent
No.2 in the PAAA. However, in invocation notice dated 28 July 2025, the
Applicant has invoked Clause 38 of the DA. It has not invoked Clause 32
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of the PAAA. Relevant part of the invocation notice dated 28 July 2025
reads thus:
In view of all that is stated herein above my client calls upon you'll to
pay the total amount of Rs. 13,13,46,245/- (Rupees Thirteen Crore,
Thirteen Lakh, Forty Six Thousand, Two Hundred and Forty Five Only)
within the period of 7 days from the receipt of this notice failing which
my client will be compelled to take further legal recourse as available to
him as per the law. Should you not accept this claim, my client
invokes the clause 38 of the Development Agreement 02/07/2025
my client proposes to Appoint Mr. Ravi Punj of Mulund (E), Mumbai, as
the mediator and should you not accept mediation then my client
proposes to appoint Advocate Hitendra Gandhi - Advocate Bombay
High Court as the Arbitrator.
(emphasis added)
32. Faced with the difficulty that arbitration clause in the DA
(and not in the PAAA) is invoked by the Applicant, Mr. Khandeparkar has
attempted to salvage the situation by contending that the disputes
between the Applicant and Respondent No. 2 are inextricably
interconnected and that they arise both out of DA and PAAA and that
therefore separate invocation of Clause 32 of PAAA is not necessary. He
has relied upon judgment of the Apex Court in Bhagheeratha
Engineering Ltd. (supra) in support of the contention that failure to
issue notice under Section 21 of the Arbitration Act is not fatal to a party
in arbitration if the claim is otherwise valid and the dispute is arbitrable.
In my view reliance by Applicant on the judgment in Bhagheeratha
Engineering Ltd. is inapposite. The judgment is an authority on the
proposition that the arbitral award is not rendered invalid merely
because there was no invocation notice under Section 21 of the
Arbitration Act if the claim is otherwise valid and the dispute is
arbitrable. In the present case, the issue is whether the Applicant is
seeking to espouse any dispute arising out of PAAA, the arbitration
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clause of which is not invoked. The answer, to my mind, appears to be in
the emphatic negative. The case does not involve an eventuality of
Applicant raising disputes under the two agreements, containing
arbitration clauses, but inadvertently omits to mention the clause in one
of the agreements in the invocation notice. Here, no dispute has arisen
out of performance of PAAA. The Applicant knows this and has
consciously invoked Clause 38 of the DA and has therefore not invoked
Clause 32 of the PAAA.
33.
Perusal of PAAA would indicate that though it is executed in
pursuance of the DA and though the same contains repeated references
to the DA, the broad agreement between the parties in the PAAA is for
provision of alternate accommodation in the new reconstructed building.
PAAA provides for payment of transit rent from the date of vacation of
Flat No.10 and the date of handing over of alternate accommodation. It
also provides for security deposit, shifting charges etc. Thus, PAAA
essentially governs contractual obligations between the parties after
vacation of possession of Flat No.10. As against this, the invocation
notice dated 28 July 2025 raises grievance relating to the period when
Respondent No.2 had refused to hand over possession of Flat No.10.
According to the Applicant-Developer, the IOD was received on 30
November 2023, which was valid only for one year and was required to be
renewed and the renewed IOD was received on 21 January 2025.
Applicant-Developer has claimed that he has suffered losses since 1
February 2024 till securing of new IOD on 21 January 2025 and has raised
following claims against Respondent No.2:
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st st
8. My client states that, he has suffered since 1 February 2024 till 21 January
2025, as detailed herein:-
Sr. Particulars Amount in INR
No.
1. Additional Rent
Rent: 2,21,580/- pm = 607/- per day (2,21,555) * 341
+ Interest on rent @ 18 % =
2,06,987/- +
37,258/-
2. Loss of interest on advance interest free corpus. 2,52,000/-
3. Cost of delay for renewal of IOD dated 21/01/2025 4,00,000/-
including lesioning IOD revision
4. Increased in cost of construction [36,000 sq. ft. * 300 1,08,00,000/-
= (2,350 – 2050 =300) revised construction cost]
5. Increased Excavation Cost from 10 lakh to 14 lakh 4,00,000/-
6. Loss of business opportunity (sale 10,00,00,000/-
component+parking)(1/3 of total estimate sales)
7. Loss of Interest @ 18 on loss of business 2,16,00,000/-
opportunity
8. Harassment 20,00,000/-
9. Litigation 10,00,000/-
Total 13,13,46,245/-
34. Thus, the claim sought to be agitated by the Petitioner
broadly arises out of failure on the part of Respondent No.2 to adhere to
the terms and conditions of the DA, under which the members were
supposed to vacate possession of their respective flats within 30 days of
receipt of notice by the Developer after obtaining the IOD. Clause 4(b) of
the DA provided thus:
b) On obtaining IOD, the Developers will serve 30 days, notice upon the
Society/Existing members to vacate their respective existing flats. The
Existing member s shall vacate their respective flats and hand over the
same to the Developers for demolition strictly within the said notice
period of 30 days.
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35. Since the Applicant-Developer has taken a position that the
alleged losses suffered by him emanate out of failure on the part of
Respondent No.2 to perform contractual obligations under the DA, it has
consciously invoked Clause 38 of the DA and has not invoked Clause 32
of the PAAA. Even in the present Application, it is not the pleaded case
of the Applicant that it is seeking a composite reference under the DA
and PAAA. On the contrary, the pleadings in the Application also refer
only to Clause 38 of the DA. Para-7(f) and paragraphs 8, 9, 10, 11 of the
Application reads thus :-
7.
F. That there is no dispute that exists an arbitration clause at clause 38
of the Development Agreement dated 2nd July 2025 and the said clause
has been duly invoked in view of the dispute.
8. Hence the current Petition is filed under Section 11 (6) of the
Arbitration and Conciliation Act, 1996 for appointment Arbitrator in
view of the forgoing facts and circumstances.
9. Clause 38 of the DA dated 2nd July 2021, referred to the arbitration
clause in case of any dispute rising out of the DA in accordance with the
provisions of Arbitration and Conciliation Act, 1996.
10. Clause 41 of the DA dated 2nd July 2021, referred to the Jurisdiction
is case of dispute being the courts in Mumbai. Hence, it is submitted
that this Hon'ble Court has the jurisdiction to entertain and dispose of
the present petition.
11. That the DA was executed in Mumbai for the subject matter
property situated Mumbai between the parties in Mumbai hence the
cause of action has a rising in Mumbai; therefore, this Hon'ble Court
has jurisdiction to entertain, try and dispose off this Petition.
36. Even the prayers in the Application make it explicitly clear
that the reference is sought for adjudication of disputes between
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Applicant and Respondents under the DA. The prayers in the
Application read thus:-
a) That this Hon'ble Court be pleased to allow this Application;
b) That this Hon'ble Court be pleased to invoke powers under Section
11 of the Arbitration & Conciliation Act, 1996 and appoint an
Arbitrator from the notified list of Advocates as the sole arbitrator and
to adjudicate the disputes that have arisen between the Petitioner and
the Respondents under the Development Agreement entered into
between them on 2nd July 2021.
c) This Hon'ble Court be pleased to pass such further orders that it may
deem fit in view of the circumstances of the case.
37.
It is therefore difficult to accept oral submission made on
behalf of the Applicant that reference is sought for adjudication of
disputes arising out of DA and PAAA and that contours of the dispute
which are sought to be arbitrated would unfold only after the Arbitral
Tribunal is duly constituted.
38. Thus, it is difficult to hold that any disputes have arisen
between Applicant and Respondent No. 2 out of PAAA, which can be
arbitrated by constitution of arbitral tribunal. All the disputes between
Petitioner and Respondent No. 2 emanate out of the DA, to which
Respondent No. 2 is not a signatory. Accordingly I proceed to examine
whether arbitration clause in the DA executed between the Applicant-
Developer and the Society would bind Respondent No. 2.
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V IEWS OF T HIS C OURT A BOUT A RBITRABILITY O F D ISPUTES B ETWEEN N ON -
S IGNATORY M EMBER A ND D EVELOPER
39. Before proceeding to decide the issue as to whether
Respondent No.2 is a party to arbitration agreement in the DA in his
capacity either as a third-party beneficiary or as a veritable party, it
would be necessary to first take note of the views expressed by this Court
on the issue.
40. In Ketan Champaklal Divecha (supra), the DA was
apparently signed by the society and all the 216 members, which
contained arbitration clause. The building was to be constructed as per
DCPR 33(7)(B) with provision for sharing of additional FSI beyond the
one permissible under the Regulation. The society however permitted
the developer therein to execute the project under DCPR 33(11) leading
to execution of supplemental DA. Petitioner and other members felt
aggrieved by such decision of the society and developer and invoked
arbitration clause in the DA. Appointment of arbitrator was opposed by
the developer and society contending that the arbitration clause in the
DA postulated resolution of only disputes between the society and
developer and not between an individual member and developer. It was
contended on behalf of the Applicants therein that the DA was executed
by the society on behalf of its 216 members and that therefore all
members were covered by the term ‘parties’ used in the DA. This Court
however upheld the objection raised by the society and the developer
and held that ‘society and the members’ represented one party and the
‘developer’ was the other party and that therefore there was no scope for
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individual member participating in appointment of arbitrator. This Court
also relied on judgment of the Apex Court in Daman Singh (supra) and
held that the society can alone speak on behalf of the members and that
member loses its individuality qua the society having no independent
rights. This Court held that for valid invocation of arbitration, notice
could be issued only by the Society and individual member did not have
capacity to invoke arbitration. This Court held in paragraphs 13 to 15, 20
and 21 as under:-
13. In the present case, since the petitioner has emphasized upon
individual members of the respondent - society being signatories
to the development agreement and hence, being entitled to
invoke arbitration , it would be appropriate to refer to the relevant
sections of the Arbitration Act. Section 2(1)(h) of the said Act defines
‘party’. Section 7 thereof defines an ‘arbitration agreement’, as an
agreement by parties to submit to arbitration all or certain disputes
which have arisen or which may arise between them in respect of a
defined legal relationship. The arbitration clause in the present case
has to be interpreted on the basis of the aforesaid definition of ‘party’
and ‘arbitration agreement’. The arbitration clause in the present case,
contained in the development agreement, reads as follows:
“35.1 All disputes, claims and questions whatsoever which may
arise with respect to this Agreement between the Parties hereto
touching or relating to or arising out of these presents or the
construction or application thereof or any clauses or thing
herein contained or in respect of the duties responsibilities and
obligations of either party hereunder or as to any act of
omission of any party or as to any other matter in anywise
relating to these presents or the rights, duties. and liabilities of
either party under these presents shall be referred to arbitration
under Arbitration and Conciliation Act, 1996 or any statutory
modification and/or re-enactment thereof in the following
manner:
35.2 The Society and the Members as one Party and the
Developer as the other Party may forward a panel of names to
facilitate the task of selection of the Sole Arbitrator, and a Sole
Arbitrator shall then be appointed jointly by the Society and the
Developer;”
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14. The above quoted arbitration clause does indicate that the disputes,
claims and questions arising with respect to the agreement between the
‘parties’, shall be referred to arbitration under the Arbitration Act. It is
relevant that in the aforesaid clause, the expression either ‘party’ is
used more than once. Clause 35.2 of the Development Agreement
specifically stipulates that the ‘Society and the members’ as one party
and the ‘developer’ as the other party, can forward a panel of names to
facilitate selection of a sole arbitrator. What is of significance is that
under the aforesaid clause 35.2, a sole arbitrator can be appointed
‘jointly by the Society and the developer’. The peculiar stipulation
under the said clause clearly indicates that an eventual appointment of
a sole arbitrator can take place only when the society on the one hand
and the developer on the other jointly agree for such an appointment.
15. The aforesaid clause has to be read in the backdrop of the settled
position of law that when a Co-operative Housing Society enters into a
development agreement with a developer, the will of the majority
members prevails. The individual desire or identity of the member is
subsumed within the will of the Co-operative Housing Society, which
collectively represents the aspirations and the cause of its members.
There is substance in the contention raised on behalf of the
respondents, by placing reliance on the judgment of the Supreme Court
in the case of Daman Singh & Ors. vs. State of Punjab & Ors. (supra),
wherein it is specifically laid down that the Society alone can act and
speak for an individual member and that the member loses his
individuality qua the Society, having no independent rights. Clause
35.2, quoted herein above, clearly encapsulates the said status of a
member of a co-operative housing society and thereby indicates that
even if clause 35.1 uses the plural ‘parties’, the same has to be
interpreted as referring to the society and members on the one hand
and the developer on the other. Clause 35.2 cannot be relegated to
being merely a mechanism because the very invocation of arbitration
and appointment of a sole arbitrator is governed by the said clause. For
a valid invocation of arbitration, in the facts and circumstances of
the present case, notice will have to be issued by the society along
with its member or members on the one hand or the developer on
the other. An individual member simply does not have the
capacity to invoke arbitration under clause 35.2 of the
development agreement. Once this conclusion is reached, it
becomes clear that the arbitration clause in the development
agreement signifies an arbitration agreement for resolution of
disputes between the society with its members on the one hand
and the developer on the other. The society espouses the cause of its
own members, which in turn, as per settled law, is based on the will of
the majority members of the Society.
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20. This Court is of the opinion that the petitioner may have a
grievance against the respondent No.1 - developer and even the
respondent No.2 - society, of which he is a member, but such a
grievance and the dispute arising therefrom, is not amenable to
arbitration under the peculiar arbitration clause contained in the
development agreement. There is substance in the contention raised
on behalf of the respondents that 216 arbitration proceedings may arise
if each individual member was to invoke arbitration for perceived
grievances in the context of the development agreement. Clauses 35.1
and 35.2 have to be read together and the only conclusion that this
Court can reach upon a conjoint reading of the two, is that an
individual member like the petitioner cannot invoke arbitration for
redressal of grievances. Arbitration can be resorted to only upon a
proper invocation of arbitration under clause 35.2 of the development
agreement for disputes that may arise between the society and its
members on the one hand, espousing the cause of its members on the
basis of the will of majority of its members, and the developer on the
other hand. In other words, the grievance of the petitioner as an
individual member, without the society joining in, cannot give rise to
an arbitrable dispute with the developer.
21. Therefore, this Court finds that the invocation of arbitration in
the present case itself is rendered defective . The arbitration
agreement is not for each individual member of the respondent -
society to raise a dispute and seek appointment of an arbitrator,
thereby indicating that neither the petition under Section 9 nor the
application under Section 11 of the Arbitration Act, can be entertained
by this Court. This goes to the very root of the matter. In this context,
the respondents are justified in relying upon the judgement of this
Court in the case of Arohi Infrastructure Private Ltd., & Ors. vs. Tata
Financial Services Limited, Mumbai (supra). The petitioner may
initiate such steps as available in law to seek redressal of his grievance,
but in the facts and circumstances of the present case, he or other
minority members of the Society cannot invoke arbitration.
(emphasis added)
41. Thus, in Ketan Champaklal Divecha, all 216 members of the
society were signatories to the DA. Thus, there was arbitration
agreement as such between developer and members. However, this Court
interpreted the arbitration clause therein to mean that the parties did
not agree for arbitration of disputes between individual member with the
developer. The invocation of arbitration clause was found to be faulty,
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and it has been held that one individual member did not have a right to
invoke the arbitration clause by separating himself from the society. It is
held that the arbitration agreement envisaged that only society could
have invoked the arbitration clause.
42. No doubt, the Applicant in Ketan Champaklal Divecha was
a signatory to the DA, however the judgment is rendered by taking into
account the peculiar language of the arbitration clause and it is held that
though individual member was signatory to the DA, he could not invoke
arbitration in his individual capacity and only society could do the same.
43. In Shankar Vithoba Desai (supra), an attempt was made by
11 members of the society to seek reference under Section 11 of the
Arbitration Act against the society and the developer. It appears that
those 11 members were not signatories to the DA, which is clear from the
following observation in Para 2 of the Order:
This is for the simple reason that individual members are not parties to
the arbitration agreement contained in the Development Agreement
44. In Shankar Vithoba Desai, this Court has taken into
consideration the twin factors of individual members not being parties to
the DA and also the peculiar language of the arbitration clause and held
that Applicants therein could not have invoked the arbitration clause.
This Court also note of the views expressed in Ketan Champaklal
Divecha . This Court held in paragraphs 4 to 12 of the order as under:
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4. The arbitration agreement contained in Clause 28 of the
Development Agreement, is reproduced below, for convenience:-
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.
[Emphasis Supplied]
5. Even a plain reading of the foregoing would show that the disputes
and differences arising out of the Development Agreement can be
referred to arbitration by a sole arbitrator to be appointed by consent of
the “parties”. If there is no consent among the parties, an Arbitral
Tribunal “of three Arbitrators” with “each party” appointing one
arbitrator and all the arbitrators “with each other’s consent”
appointing the presiding arbitrator.
6. The very usage of the phrase “each other” and the concept of “an
Arbitral Tribunal of three Arbitrators”, would point to the arbitration
agreement being a bilateral contract between two parties – the Society
and the Developer. The term “all Arbitrators” is a reference to two
arbitrators. The Development Agreement itself is between two parties –
the Society and the Developer. Indeed, the Development Agreement is
signed by only two parties. Every member of the Society is neither an
independent party nor an independent signatory to the Development
Agreement.
7. Faced with this situation, the Learned Counsel for the Applicants
submitted that the expression “THE SOCIETY” in the title clause of the
Development Agreement is deemed to mean and include, among
others, all its members.
8. This Court is unable to be persuaded by this novel argument. The
very same title clause also makes it clear that such deeming inclusion
of members within the meaning of the expression “THE SOCIETY”
would apply unless it is repugnant to the context and meaning of the
term. Indeed, if this phrase used in the title clause is to be interpreted
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in the manner canvassed, it would mean that the arbitration agreement
in Clause 28 would be among 42 parties, namely, the Society, the
Developer, and 40 members. Such a meaning would be belied by the
phrase “each other”, and the concept of the Arbitral Tribunal of three
arbitrators, as analysed above. The import of having 42 parties to the
arbitration agreement and the scheme of two parties envisaged in the
arbitration agreement, would lead to the inclusion of each of the
members into the import of the arbitration agreement, resulting in
such meaning of the term “THE SOCIETY” to be repugnant to its
context and meaning.
9. Therefore, the reference to the term “each Party” in the arbitration
agreement would never be able to partake the meaning of each of the
42 parties. The position obtaining from having 42 parties cannot co-
exist with the position of two arbitrators, (one of which is nominated by
each party), appointing the presiding arbitrator to form a three-
member Arbitral Tribunal.
10. It being an admitted position that the individual members are
not signatories to the arbitration agreement, the fundamental
requirement under Section 7 of the Arbitration Act, that the arbitration
agreement has to be in writing among the parties to the arbitration
proceedings, has also not been met.
11. In this view of the matter, to avoid prolix elaboration on a rather
short issue, no further discussion is warranted. A near-identical
situation emerged in the case of Ketan Champaklal Divecha vs. DGS
Township Pvt Ltd. and Another (“Divecha”) in which, a Learned Single
Judge of this Court (Manish Pitale J.) has declared the law on the
subject and articulated it threadbare, including facets of how individual
members give up their individual desires and identity by submitting to
the collective will of a housing society. This Court is in respectful
agreement with the position articulated in paragraphs 13, 15, 19 and 21
in Divecha.
12. Consequently, the Applicants would not be able to invoke the
jurisdiction of this Court under Section 11 of the Arbitration Act.
Therefore, the Application being incapable of being considered by this
Court, stands rejected and disposed of. No costs.
45. Thus, the Order in Shankar Vithoba Desai appears to be
closer to the controversy at hand since the members were not signatories
to the DA. However, here again the Order of this Court concentrates
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more on the aspect of language of the arbitration clause and holds that
individual member of society was not covered by the expression ‘each
party’ used in the arbitration clause. Though this Court has noted the
aspect of members not being signatories to the arbitration agreement
contained in the DA, there is no elaborate discussion on that point. Also,
the argument of non-signatory not being veritable party was not raised
for consideration before this Court in Shankar Vithoba Desai.
46. Thus, both the judgments in Ketan Champaklal Divecha
and Shankar Vithoba Desai turn on peculiarity of language in the
arbitration clauses. In both the cases, the members took positions
contrary to the one taken by the society and wanted to challenge the
redevelopment process by raising claims against the developer. One of
the issues before the Court was whether it was permissible for individual
members to have their grievances against the redevelopment process
arbitrated by taking a stand different than that of the society. The
principle of impermissibility for individual members to separate
themselves from the society by relying on judgment of the Apex Court in
Daman Singh was pressed into service in both the cases essentially to
find out whether the language of the arbitration clauses therein included
individual members in the expression ‘party’ used under Section 7 of the
Arbitration Act.
47. The Division Bench of this Court in Avenues Seasons
Properties LLP (supra) also had an occasion to decide whether an
individual member of a co-operative society, who is not a signatory to
the arbitration agreement, can be roped in the arbitral proceedings by
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invoking arbitration clause in the DA. In case before the Division Bench,
the members had filed suits seeking a declaration that their bungalows
were separate and independent and that resolution passed by the Society
for redevelopment was illegal. The developer filed application under
Section 8 of the Arbitration Act for seeking reference to arbitration by
relying on Clause 23 of the DA. The developer’s application was rejected,
which led to filing of Appeal by the developer before the Division Bench.
It was urged on behalf of the developer that there was mutual intention
between the parties to bind signatories as well as non-signatories to the
arbitration agreement and that member’s identity is lost to the society. It
was further urged that the term ‘existing members’ occurring in the
arbitration agreement included the society and all its members, and not
merely those who had signed the DA. This Court took note of the
decisions in Ketan Champaklal Divecha and Shankar Vithoba Desai .
The Division Bench has concluded that the plaintiffs in the suit had not
signed the DA and were therefore not bound by the arbitration
agreement. The Division Bench held in paras-14, 16, 21, 25 and 26 as
under :-
14. We have gone through the Development Agreement. In the
Preamble of the Development Agreement, the party of the First Part is
the society and thereafter, a list of the members have been mentioned
who are described as party of Second Part. The developer is described
as party of Third Part. The names of the plaintiffs in both the suits are
not mentioned in the Development Agreement. So also, the
Development Agreement, apart from the society has been signed by all
other members and admittedly, there is no signatures of both the
plaintiffs. All the members have also inserted their initial on each and
every page of the Development Agreement. Whereas the plaintiffs have
admittedly not signed on each and every page of the Development
Agreement neither their names are mentioned in the Development
Agreement. In this background, it has to be seen whether the plaintiffs
would be bound by the clauses of the Development Agreement.
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16. Section 7(4) (a) of the Arbitration Act mentions that the
Development Agreement must be signed by the parties. Section 8 of the
Arbitration Act has been amended in the year 2016, by which Section 8
has been further clarified. In our view, it would have been a total
different case if any of the member who has signed the Development
Agreement, or society who has signed the Development Agreement
would have filed the suits against the developer, and in such a suit the
developer could have preferred an application under Section 8 of the
Arbitration Act, for referring the dispute to arbitration.
21. The citation referred by the appellant of Girish Mehta (supra) lays
down preposition of law that interim measures of protection may be
granted against the Third Parties who are not parties to the Arbitration
Agreement in a Petition under Section 9. However, it does not extend
its ratio to hold that arbitration proceedings can be commenced
against Third Parties who are not parties to the Arbitration
Agreement. Adityaraj Builders (supra) reaffirms the said preposition
Girish Mehta Adityaraj Builders
of law laid down in (supra). Even in
(supra), the Court was not dealing with an application filed under
Section 8 of the Arbitration Act and it instead dealing with Writ
Petition raising question of law with respect to stamping under
Maharashtra Stamp Act. Hence, according to us, the ratio laid down in
these two judgments does not in any event help the appellant.
25. Therefore, sum and substance of all these judgments is that either
developer or the society, who has signed Development Agreement can
invoke the arbitration agreement in case of dispute.
26. In the background of these facts, we are of the view that at this
stage where a party who is not mentioned in the Development
Agreement and who has not signed the contract, can not be referred to
arbitration.
[
48. Thus, after the judgment of the Single Judge in Shankar
Vithoba Desai , the Division Bench judgment in Avenues Seasons
Properties LLP is directly on the point that a non-signatory to the DA
cannot be made to arbitrate based on arbitration agreement contained in
the DA. However again the propositions of ‘third-party beneficiary’ and
‘veritable party’ were not canvassed before the Division Bench in
Avenues Seasons Properties LLP .
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49. Also to be noted is the aspect that in Ketan Champaklal
Divecha and Shankar Vithoba Desai , a converse situation was involved
where individual members sought reference to arbitration against the
society and the developer. However, in Avenues Seasons Properties LLP
the reference was sought, albeit in Section 8 proceedings, by the
developer.
50. There is one more judgment of Single Judge of this Court in
Harshad B. Shah (supra) in which the members had invoked arbitration
and had sought appointment of arbitrator under Section 11 for
adjudication of disputes and differences arising in connection with
redevelopment of the two flats owned by them. They were aggrieved by
shortfall in payment of transit rent, shortfall in the area handed over to
them and non-provision of amenities. It appears that the Applicants
therein had not executed the DA while all other members of the society
were apparently signatories thereto. However, the act of Applicants not
signing the DA was not voluntary or conscious but the same was owing
to practical difficulties since they were residents of USA and were not
physically present to sign the DA. But they executed PAAA, which did
not contain arbitration clause. This Court held that though they did not
sign the DA, they had signed PAAA which contained incorporation of
arbitration clause by reference. In the light of the peculiar facts, this
Court held that it could not be discerned that the Developer and the
society intended to arbitrate with every other member, save and except
those members who were not physically present and could not sign the
DA. This Court held that commitment to arbitration was writ large. It is
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in the light of the above peculiar facts that this Court proceeded to
appoint arbitrator. The relevant findings in Harshad B. Shah are
extracted below for facility of reference:
5. On the face of it, these Applicants have not executed the
Development Agreement while all other members of the Society have.
This is sought to be explained by stating that the Applicants are
residents (not nationals) of the United States of America, and therefore,
they were not physically present to sign the PAAA, but they have bound
themselves and conducted themselves in accordance with the
Development Agreement.
6. In the peculiar factual matrix of this case, both the agreements being
tripartite in the manner they were envisaged, although the Applicants
are not physically signatories to the development agreement, they have
indeed signed the PAAA which contains an incorporation by reference.
Not only are the two agreements interlinked and complementary to
each other, but also the privity of the parties is identical. Therefore,
this is not a case that rests solely on the existence of the arbitration
agreement in terms of incorporation by reference, the original
Development Agreement containing the arbitration clause is the
instrument that entails flow of specific benefits to the Applicant and
that is firmed up further in the PAAA.
8. In the peculiar facts and circumstances of the case, since the
intended execution of both the agreements were meant to be by
the same parties, it cannot be discerned that the Developer and
the Society intended to arbitrate with every other member save
and except for those who were physically unavailable and could
not sign. That they had a commitment to arbitrate is writ large on the
record. Hypothetically even if the Applicants were to affix their
signatures on the Development Agreement today, in the placeholders
where their signatures are missing, it would complete execution of that
agreement on their part and merely being a non-signatory ought not to
stand in the way in the specific factual matrix of this case.
10. For the aforesaid reasons, I am satisfied that a case has been made
out to refer the parties to arbitration in the specific and peculiar facts of
this case without the need to be bogged down by whether the non-
incorporation of the arbitration agreement in the PAAA has any
adverse consequence for the Applicants. The non-incorporation of the
explicit clause in the PAAA is also attributable to the fact that although
all the members were in any case meant to be signatories to the
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Development Agreement, these Applicants could not affix their
signature merely because of their physical absence from the country.
11. Merely being a non-signatory despite being bound by the
Development Agreement and conducting themselves in
accordance with the Development Agreement, in my opinion, it
cannot be said, applying the principles in Cox and Kings to hold
that there was never an intention to arbitrate with any member.
(emphasis added)
51. Thus, in Harshad B. Shah this Court applied the principles
in Cox and Kings and has held that a non-signatory who is bound by the
Development Agreement and who conducted himself in accordance with
the Development Agreement, it could not be said that there was never an
intention to arbitrate with any member. Thus, the judgment in Harshad
B. Shah , to some extent, recognizes the principle that intention to
arbitrate can be inferred from conduct of members in consonance with
the terms of DA. Ofcourse the judgment itself makes it clear that the
appointment of arbitrator is done therein because of periciliary of facts
of that case where failure to sign the DA was owing to non-presence of
the Applicants in India and was not a conscious act.
52. Having considered the views expressed in various judgments
of this Court on the issue of permissibility to adjudicate the disputes
between signatory and non-signatory members to DA and the developer
by invocation of arbitration clause in the DA, I now proceed to examine
the various propositions canvassed on behalf of the Applicant including
capacity of Respondent No.2 as a third party beneficiary under the DA
and that Respondent No. 2 is otherwise a veritable party to the DA.
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T HIRD P ARTY B ENEFICIARY
53. The Applicant has sought to rope in Respondent No.2 in the
arbitration on the ground that though Respondent No.2 is not a
signatory to the DA, he is a beneficiary thereunder. It is contended that
though the DA is signed and executed by the society, the members also
stand benefited by execution and performance thereof. It is therefore
contended that Respondent No. 2 cannot selectively seek to take benefits
under the DA, but conveniently avoid the arbitration clause thereunder.
54. In the present case, the DA imposes a contractual obligation
on the Applicant-Developer to demolish society’s building, reconstruct
new building and to provide to the members flats in the new building
with 25% additional carpet area free of costs. The Applicant-Developer
has also undertaken the obligation to pay transit rent and other benefits
such as security deposit, shifting charges, etc. Though the society has
executed the DA, the benefit of securing permanent alternate
accommodation with 25% additional carpet area free of cost, transit rent,
security deposit, shifting charges, etc. would ultimately be availed by the
individual members. Respondent No.2, though has opposed the
redevelopment process, would also stand benefited through the DA.
Issue for consideration is whether a third party, who receives benefits
under an agreement, which he has not signed, or has refused to sign,
would be bound by all contractual stipulations in that Agreement,
particularly the arbitration agreement contained therein ?
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55. It is well settled position that an arbitration agreement is a
separate and distinct agreement within an agreement. Thus, the
arbitration agreement under Clause 38 of the DA constitutes a separate
agreement than the DA itself. Merely because arbitration agreement
finds itself incorporated in the form of a clause in the DA, it does not lose
its existence as a separate and distinct agreement. Following this
principle, it is difficult to accept the proposition that merely because an
individual member may be a beneficiary of the DA executed on his behalf
by the society, the same would automatically result in creation of
arbitration agreement between such member and the Developer. Being
bound by obligations under the DA in the capacity as a member of the
society is a different and distinct concept than being party to the
arbitration agreement.
56. In Cox & Kings (supra), the Constitution Bench has
reiterated settled law that an arbitration agreement is a distinct and
separate agreement from substantive commercial contract. It is held that
to join a non-signatory to arbitration it must be answered whether non-
signatory consented to the arbitration agreement as distinct from
underlying contract containing arbitration agreement. It is held in
paragraph 128 as under:-
128. An arbitration agreement is a distinct and separate
agreement from the substantive commercial contract which
contains the arbitration agreement. An arbitration agreement is
independent of the other terms of the contract, to the extent that
nullification of the contract will not lead to invalidation of the
arbitration agreement. The concept of separability of the arbitration
agreement from the underlying contract ensures that the intention of
the parties to resolve the disputes through arbitration does not vanish
merely because of a challenge to the legal validity of the underlying
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contract.[Enercom (India) Ltd. v. Enercom GmbH,(2014)5 SCC1]. To
join a non-signatory to arbitration, the decisive question that has
to be answered is whether a non-signatory consented to the
arbitration agreement, as distinct from the underlying contract
containing the arbitration agreement [Gary Bom. International
rd
Arbitration Law and Practice (3 Edn.2021) at p.1545.]
( Emphasis added)
57.
Therefore, merely because Respondent No.2 happens to be a
beneficiary under the DA or that he is bound to act in terms with the
principal agreement in the DA, the same would not create arbitration
agreement between him and developer.
58. Reliance by Mr. Khandeparkar on judgment of the Apex
Court in M.C. Chacko (supra) does not cut any ice. In that judgment, the
Apex Court has held that there are well recognised exceptions to
principle that a person not party to a contract cannot enforce the terms
of contract. One of the recognised exceptions is where there are
beneficiaries under the terms of contract. The Apex Court has held in
paragraph 9 of the judgment as under:
9. Kottayam Bank not being a party to the deed was not bound by the
covenants in the deed, nor could it enforce the covenants. It is settled
law that a person not a party to a contract cannot subject to
certain well recognised exceptions, cannot enforce the terms of
the contract: the recognised exceptions are that beneficiaries
under the terms of the contract or where the contract is a part of
the family arrangement may enforce the covenant. In Krishna Lal
Sadhu v. Pramila Bala Dasi 2 Rankin, C.J. observed:
"Clause (d) of Section 2 of the Contract Act widens the
definition of 'consideration' so as to enable a party to a contract
to enforce the same in India in certain cases in which the
English law would regard the party as the recipient of a purely
voluntary promise and would refuse to him a right of action on
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the ground of nudum pactum. Not only, however, is there
nothing in Section 2 to encourage the idea that contracts can be
enforced by a person who is not a party to the contract, but this
notion is rightly excluded by the definition of 'promisor' and
'promisee'."
Under the English common law only a person who is a party to a
contract can sue on it and that the law knows nothing of a right gained
by a third party arising out of a contract: Dunlop Pneumatic Tyre Co. v.
Selfridge and Co. It has however been recognised that where a
trust is created by a contract, a beneficiary may enforce the rights
which the trust so created has given him. The basis of that rule is
that though he is not a party to the contract his rights are
equitable and not contractual . The Judicial Committee applied that
rule to an Indian case Khwaja Muhammad Khan v. Husaini Begam 4 In a
later case Jamna Das v. Ram Autar the Judicial Committee pointed out
that the purchaser's contract to pay off a mortgage debt could not be
enforced by the mortgagee who was not a party to the contract. It must
therefore be taken as well settled that except in the case of a
beneficiary under a trust created by a contract or in the case of a
family arrangement, no right may be enforced by a person who is
not a party to the contract.
(emphasis added)
59. Thus, in M.C. Chacko, the exception to the rule of
impermissibility to enforce contract by non-party is recognised only
where a trust is created under the contract and there are beneficiaries
under the trust. Therefore, the judgment cannot be read to mean that in
every case, a beneficiary under the contract can sue for enforcement of
that contract, though not party thereto. However even if the judgment in
M.C. Chacko is read the way Mr. Khandeparkar wants me to read, still it
does not assist his case. The principle of beneficiary’s right to enforce
contract in relation to the DA can be applied, at the highest, for the
purpose of enforcing contractual obligations arising out of the DA
against Respondent No.2 on the basis of the recognised exception that
he is beneficiary under the DA. However, as observed above, making the
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contractual obligations applicable to a beneficiary is a concept different
than extending arbitration agreement to such beneficiary.
60. Arbitration agreement creates an exception to common law
remedies where parties agree to resolve disputes and differences through
mechanism of private arbitration. However, this private dispute
resolution mechanism cannot be enforced in absence of express
agreement to arbitrate. Arbitration after all is founded on principle of
party autonomy. A person, who has not expressly agreed for resolution
of disputes through arbitration, cannot be forced to arbitrate. Therefore,
existence of express arbitration agreement between the Applicant and
Respondent No.2 for resolution of disputes is necessary and merely
because Respondent No.2 can be forced to perform contractual
obligations undertaken by the Society under the DA in his capacity as
beneficiary, it would not mean that he has agreed to arbitrate with the
Applicant or with the Society. Therefore, a member of a cooperative
society, purely in his/her capacity as beneficiary of the DA, cannot avail
the adjudicatory mechanism available under the DA. Conversely, such a
beneficiary member cannot be forced to undertake the adjudicatory
mechanism agreed under the DA, which he has not signed.
61. The Applicant has conflated the issue of enforcement of
contractual obligations under the DA with the concept of availability of
adjudicatory mechanism of private arbitration. If a member of
cooperative society is denied any benefit flowing out of the DA, he/she
may file a Suit for enforcement of obligations under DA. Similarly, if a
beneficiary member of a society acts in conflict with contractual
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obligations under the DA, the developer can sue the member for
damages or for performance of contractual obligations. Both these
actions initiated by the member or the developer are for enforcement of
contractual obligations flowing out of the DA and mere factum of the
member being non-signatory to the DA may not come in the way of
enforcement of such contractual obligations. The issue however is about
the forum before which such enforcement can be sought either by the
member or by the developer. No doubt, ordinary remedy of Civil Court
would be available both to member as well as to the developer, but for
exercise of remedy of arbitration, there needs to be an express
agreement to arbitrate. Therefore, the issue of entitlement to enforce
contractual obligations by or against the beneficiary member to a DA
cannot be conflated with the issue of forum before which such
enforcement can be sought.
62. In my view, therefore, the capacity of a member of
cooperative society as a beneficiary under the DA, though may create
rights or obligations in his favour or against him, such capacity would
not be sufficient to assume that such rights or obligations can be
adjudicated through private arbitration.
ERITABLE ARTY
V P
63. It is Applicant’s contention that Respondent No. 2 is
otherwise a veritable party to the DA and therefore the arbitration
agreement contained therein would apply to him as well. The role as
veritable party to the DA is sought to be attached to Respondent No. 2 on
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the basis of his participation in performance of DA, composite nature of
transaction in DA and PAAA, relationship between society (signatory)
and Respondent No. 2 (non-signatory), mutual intent of parties and
commonality of subject matter.
64. Section 2(1)(h) of the Arbitration Act defines the term
‘party’ to mean a party to arbitration agreement. Section 7 of the Act
deals with ‘arbitration agreement’ and provides thus:
7. Arbitration agreement
(1) In this Part, “arbitration agreement” means an agreement by the parties to
submit to arbitration all or certain disputes which have arisen or which may
arise between them in respect of a defined legal relationship, whether contrac-
tual or not.
(2) An arbitration agreement may be in the form of an arbitration clause in a
contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in—
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of telecommunica-
tion including communication through electronic means] which provide a
record of the agreement; or
(c) an exchange of statements of claim and defence in which the existence of
the agreement is alleged by one party and not denied by the other.
(5) The reference in a contract to a document containing an arbitration clause
constitutes an arbitration agreement if the contract is in writing and the refer-
ence is such as to make that arbitration clause part of the contract.
Thus, even Section 7 of the Arbitration Act provides that arbitration
agreement means an agreement by the ‘parties’ to submit to arbitration
all or certain disputes in respect of defined legal relationship. The
combined effect of provisions of Section 2(1)(h) and Section 7 of the
Arbitration Act is that ‘parties’ must agree to submit the disputes to
arbitration. Therefore ordinarily, if there is no agreement with an entity
who is not a ‘party’ to the arbitration agreement, the dispute cannot be
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resolved by private arbitration. However, can it be contended that only
an entity, who puts its signature on the document containing arbitration
agreement would alone be a ‘party’ to arbitration agreement ? Section 7
of the Arbitration Act uses the term ‘parties’ and not ‘signatories’. The
law has evolved over the period of time and in certain cases even a non-
signatory can be treated as veritable party to the arbitration agreement.
65. As per the dictionary, the word ‘veritable’ means ‘real’ or
‘being in fact the thing named and not false, unreal or imaginary’. The
word is often used to stress the aptness of a metaphor. Like garden
becoming a veritable jungle in absence of the owner. In the context of
‘party’ under Section 2(1)(h) and Section 7 of the Arbitration Act,
‘veritable’ means a party which is the true and real party to the
arbitration agreement, though he/she has not put the pen to paper.
66. The doctrine of veritable party has been evolved by the
Supreme Court over the period of time though various judgments. The
Constitution Bench judgment in Cox and Kings expounds the principle.
The doctrine of veritable party seeks to include non-signatory parties to
the arbitration agreement within the definition of the term ‘parties’
under Section 2(1)(h) r/w Section 7 of the Arbitration Act. The Apex
Court has applied ‘Group of Companies’ doctrine to rope in non-
signatories to the arbitration agreement to the arbitral proceedings. The
judgment is rendered in a reference made to the larger Bench on account
of doubt expressed in three Bench decision about the view in judgment
in Chloro Controls India (P) Limited versus. Severn Trent Water
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18
Purification Inc and others in which the phrase ‘claiming through or
under’ appearing in Section 45 of the Arbitration Act was relied upon to
adopt ‘Group of Companies’ doctrine. In the three Judge Bench referral
judgment, following issues were formulated for determination by the
Constitution Bench in the two concurring judgments:
4.1 (a)Whether the phrase ‘claiming through or under’ in Sections 8
and 116 could be interpreted to include the ‘Group of Companies’
doctrine; and
4.2 (b) Whether the ‘Group of Companies’ doctrine as expounded by
Chloro Controls Case (supra) and subsequent judgments is valid in
law.
5.1 (a) Whether the Group of Companies Doctrine should be read
into Section 8 of the Act or whether it can exist in Indian
jurisprudence independent of any statutory provision;
5.2 (b) Whether the Group of Companies Doctrine should continue to
be invoked on the basis of the principle of ‘single economic reality’;
5.3 (c) Whether the Group of Companies Doctrine should be
construed as a means of interpreting implied consent or intent to
arbitrate between the parties; and
5.4 (d) Whether the principles of alter ego and/or piercing the
corporate veil can alone justify pressing the Group of Companies
Doctrine into operation even in the absence of implied consent.
67. The Apex Court answered the issues by holding that a non-
signatory to the agreement could be subjected to arbitration without
his/her prior consent on the basis of (i) mutual intent of parties (ii)
relationship of a non-signatory to a party, which is a signatory to the
agreement (iii) commonality of subject matter (iv) composite nature of
transaction and (v) performance of contract. In paragraph 70 of the
judgment in Cox and Kings , Apex Court has dealt with the concept of
‘non-signatory’ to an agreement and has held as under:-
18
(2013) 1 SCC 641
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70. The general method to figure out the parties to an arbitration
agreement is to look for the entities who are named in the recitals
and have signed the agreement. The signature of a party on the
agreement is the most profound expression of the consent of a
person or entity to submit to the jurisdiction of an arbitral tribunal.
However, the corollary that persons or entities who have not
signed the agreement are not bound by it may not always be
correct. A written contract does not necessarily require that parties
put their signatures to the document embodying the terms of the
agreement [Pollock and Mulla, The Indian Contract and Specific
Reliefs Act (14 th edn, 2016) 235]. Therefore, the term “non-
signatories”, instead of the traditional “third parties”, seems the
most suitable to describe situations where consent to arbitration is
expressed through means other than signature. A non-signatory is
a person or entity that is implicated in a dispute which is the
subject matter of an arbitration, although it has not formally
entered into an arbitration agreement [Stavros Brekoulakis,
‘Rethinking Consent in International Commercial Arbitration: A
General Theory for Non-signatories’ (2017) 8 Journal of
International Dispute Settlement 610]. The important
determination is whether such a non-signatory intended to
effect legal relations with the signatory parties and be bound by
the arbitration agreement . There may arise situations where
persons or entities who have not formally signed the arbitration
agreement or the underlying contract containing the arbitration
agreement may intend to be bound by the terms of the agreement. In
other words, the issue of who is a “party” to an arbitration
agreement is primarily an issue of consent.
( Emphasis added )
68. Adopting a pragmatic approach to the concept of ‘consent’
and emphasizing need to interpret contracts in a manner that would give
business efficacy, the Apex Court in Cox and Kings held that emphasis
on formal consent would lead to exclusion of non-signatory from the
ambit of arbitration agreement leading to impossibility of proceedings
and fragmentation of disputes. The Court further held in paragraph 100
that the Courts and Tribunals cannot adopt a rigid approach to exclude
all persons and entities, who through their conduct and relationship with
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the signatory parties, intended to be bound by the underlying contract
containing the arbitration Agreement. The Apex Court, in paragraph 101
of the judgment, applied the test of level of the non-signatory party’s
involvement to the extent of making the other party believe that it was a
veritable party to the contract and to the arbitration agreement
contained under it. It is held in paragraphs 100 and 101 as under:
100. Arbitration law is an autonomous legal field. While the main
purpose of corporate law and contract law is imputation of
substantive legal liability, the main purpose behind the law of
arbitration is to determine whether an arbitral tribunal has
jurisdiction over the dispute arising between parties to an arbitration
agreement. On the one hand, the courts and tribunals cannot lightly
brush aside the decision of the parties to not make a person or entity
a party to the arbitration agreement. The fact that the non-
signatory did not put pen to paper may be an indicator of its
intention to not assume any rights or responsibilities under the
arbitration agreement. On the other hand, courts and tribunals
cannot adopt a rigid approach to exclude all persons or entities
who, through their conduct and relationship with the signatory
parties, intended to be bound by the underlying contract
containing the arbitration agreement. The area of arbitration law
not only concerns domestic law, but it also encompasses the
international law, particularly when it pertains to the enforcement
of international arbitral awards. Therefore, this Court ought to adopt
a balanced approach without comprising on the basic principles of
arbitration law, contract law, and company law to ensure that the
resultant legal framework is consistent with internationally accepted
practices and principles.
101. A formalistic construction of an arbitration agreement would
suggest that the decision of a party to not sign an arbitration
agreement should be construed to mean that the mutual intention of
the parties was to exclude that party from the ambit of the
arbitration agreement. Indeed, corporate entities have the
commercial and contractual freedom to structure their businesses in
a manner to limit their liability. However, there have been situations
where a corporate entity deliberately made an effort to be not bound
by the underlying contract containing the arbitration agreement but
was actively involved in the negotiation and performance of the
contract. The level of the non-signatory party’s involvement was
to the extent of making the other party believe that it was a
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veritable party to the contract, and the arbitration agreement
contained under it. Therefore, the group of companies doctrine
is applied to ascertain the intentions of the parties by analysing
the factual circumstances surrounding the contractual
arrangements [Gary Born (n 44) 1568].
Emphasis and underlining added
( )
69. The Apex Court thereafter applied the test of non-signatory
party assuming the obligations to be bound by the actions of signatory
and held in paragraph 108 of the judgment as under:-
108. In Chloro Control (supra), this Court rightly observed that a
non-signatory could be subjected to arbitration provided the
underlying transactions were with a group of companies and there
was a clear intention of the parties to bind both the signatory as well
as non-signatory parties to the arbitration agreement. This legal
proposition has been reiterated in a series of subsequent decisions of
this Court including Canara Bank (supra) and Discovery Enterprises
(supra). Further, this Court in Cheran Properties (supra) held
that the group of companies doctrine helps in decoding the
layered structure of commercial arrangements to unravel the
true intention of the parties to bind someone who is not
formally a signatory to the contract, but has “assumed” the
obligation to be bound by the actions of a signatory. This court
explained the purport of the doctrine to discern the “true” party in
interest:
“25. […] The group of companies doctrine has been applied
to pierce the corporate veil to locate the “true” party in
interest, and more significantly, to target the creditworthy
member of a group of companies. Through the extension of
this doctrine is met with resistance on the basis of the legal
imputation of corporate personality, the application of the
doctrine turns on a construction of the arbitration
agreement and the circumstances relating to the entry into
and performance of the underlying contract.”
( Emphasis added )
70. In Cox and Kings , the Apex Court then dealt with situation
involving multi-party agreements and held that role of non-signatory
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party in the conclusion, performance and termination of underlying
contract containing arbitration agreement would make it ‘true party’ to
the arbitration agreement. It is held in paragraph 111 as under:
111.The group of companies doctrine requires the courts and
tribunals to consider the commercial circumstances and the conduct
of the parties to evince the common intention of the parties to
arbitrate. It is important to note that the group of companies
doctrine concerns only the parties to the arbitration agreement and
not the underlying commercial contract. Consequently, a non-
signatory could be held to be a party to the arbitration
agreement without becoming a formal party to the underlying
contract. The existence of a group companies is one of the
essential factors to determine whether the conduct amounts to
consent but membership of a group is not sufficient in itself.
This has been the consistent position of law, starting from the Dow
Chemicals (supra) award, where it was observed that the common
intention of the parties to bind the non-signatory party to the
arbitration can be inferred from the ”circumstances that surround
the conclusion and characterize the performance and later the
termination of the contracts.” In other words, it was held that a non-
signatory party could be considered as a “true party” to the
arbitration agreement on the basis of their role in the conclusion,
performance, or termination of the underlying contract containing
the arbitration agreement.
( Emphasis added)
71. The Apex Court thereafter discussed factors such as
commonality of subject matter, composite nature of transaction and
performance of contract and held that those factors need to be
cumulatively considered and analysed by Courts and Tribunals to
identify intention of the parties to bind the non-signatory party. It is
held in paragraph 116 as under:-
116. Since the group of companies doctrine is a consent based
theory, its application depends upon the consideration of a variety of
factual elements to establish the mutual intention of all the parties
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involved. In other words, the group of companies doctrine is a means
to infer the mutual intentions of both the signatory and non-
signatory parties to be bound by the arbitration agreement. The
relationship between and among the legal entities within the
corporate group structure and the involvement of the parties in the
performance of the underlying contractual obligations are indicators
to determine the mutual intentions of the parties. The other factors
such as the commonality of the subject matter, composite
nature of the transactions, and the performance of the contract
ought to be cumulatively considered and analysed by courts and
tribunals to identify the intention of the parties to bind the
non-signatory party to the arbitration agreement. The party
seeking joinder of a non-signatory bears the burden of proof of
satisfying the above factors to the satisfaction of the court or
tribunal, as the case may be.
Emphasis added
( )
72. Referring to Sections 6 and 7 of the Arbitration Act, dealing
with Agreement by parties in respect of defined legal relationship, the
Apex Court held that the legal relationship must be analysed in the
context of underlying contract containing the arbitration agreement and
that mere presence of commercial relationship between signatory and
non-signatory party is not sufficient to infer ‘legal relationship’. It is
held that in case of multiple parties, necessity of a common subject
matter and composite transaction is an important factual indicator for
inferring definite legal relationship between the parties. It is held in
paragraphs 117 and 120 as under:-
117. Section 7 of the Arbitration Act broadly talks about an
agreement by the parties in respect of a defined legal relationship,
whether contractual or not. Such a legal relationship must give rise
to legal obligations and duties. In a corporate group, a company may
have various related companies. The legal relationship must be
analysed in the context of the underlying contract containing
the arbitration agreement. The nature of the contractual
relationship can either be formally encrusted in the underlying
contract, or it can also be inferred from the conduct of the
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signatory and non-signatory parties with respect to such
contract. However, we clarify that mere presence of a
commercial relationship between the signatory and non-
signatory parties is not sufficient to infer “legal relationship”
between and among the parties . If this factor is applied solely, any
related entity or company may be impleaded even when it does not
have any rights or obligations under the underlying contract and did
not take part in the performance of the contract. The group of
companies doctrine cannot be applied to abrogate party consent and
autonomy. The doctrine, properly conceptualised and applied, gives
effect to mutual intent and autonomy.
Xxx
120. In case of multiple parties , the necessity of a common
subject-matter and composite transaction is an important
factual indicator. An arbitration agreement arises out of a defined
legal relationship between the parties with respect to a particular
subject matter. Commonality of the subject matter indicates that the
conduct of the non-signatory party must be related to the subject
matter of the arbitration agreement. For instance, if the subject
matter of the contract underlying the arbitration agreement pertains
to distribution of healthcare goods, the conduct of the non-signatory
party should also be connected or in pursuance of the contractual
duties and obligations, that is, pertaining to the distribution of
healthcare goods. The determination of this factor is important to
demonstrate that the non-signatory party consented to arbitrate
with respect to the particular subject matter.
( Emphasis added)
73. Dealing with composite transaction involving multiple
agreements the Apex Court held in Cox and Kings that Courts and
Tribunals must assess whether agreements are ‘consequential’ or in the
nature of ‘follow-up’ to the principal agreement. It has held that parties
can be referred to arbitration under the principal agreement if there is a
situation where there are disputes and differences ‘in connection with’
the main agreement and also disputes ‘connected with’ subject matter of
the principal agreement. It is held in paragraphs 121 and 122 as under:-
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121 . In case of a composite transaction involving multiple
agreements, it would be incumbent for the Courts and tribunals
to assess whether the agreements are consequential or in the
nature of a follow-up to the principal agreement. This Court
in Canara Bank [MTNL v. Canara Bank, (2020) 12 SCC 767] observed
that a composite transaction refers to a situation where the
transaction is interlinked in nature or where the performance of the
principal agreement may not be feasible without the aid, execution,
and performance of the supplementary or ancillary agreements.
122 The general position of law is that parties will be referred to
arbitration under the principal agreement if there is a situation
where there are disputes and differences “in connection with” the
main agreement and also disputes “connected with” the subject-
matter of the principal agreement [Olympus Superstructures (P) Ltd
v. Meena Vijay Khetan, (1999) 5 SCC 65]. In Chloro Controls (supra),
this Court clarified that the principle of “composite performance”
would have to be gathered from the conjoint reading of the principal
and supplementary agreements on the one hand, and the explicit
intention of the parties and attendant circumstances on the other.
The common participation in the commercial project by the
signatory and non-signatory parties for the purposes of
achieving a common purpose could be an indicator of the fact
that all the parties intended the non-signatory party to be
bound by the arbitration agreement. Thus, the application of the
group of companies doctrine in case of composite transactions
ensures accountability of all parties who have materially participated
in the negotiation and performance of the transaction and by doing
so have evinced a mutual intent to be bound by the agreement to
arbitrate.
(emphasis added)
74.
In paragraph 126 of the judgment, the Apex Court held that
involvement of non-signatory party in negotiation, performance or
termination of contract is an important factor and that (i) active
involvement in performance of contract (ii) conduct of non-signatory in
harmony with the conduct of other members of the group (iii)
appearance created by non-signatory party towards the other party
would make a non-signatory a veritable party. It is held in paragraph 126
thus:
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126. Evaluating the involvement of the non-signatory party in
the negotiation, performance, or termination of a contract is an
important factor for a number of reasons. First, by being actively
involved in the performance of a contract, a non-signatory may
create an appearance that it is a veritable party to the contract
containing the arbitration agreement; second, the conduct of the
non- signatory may be in harmony with the conduct of the other
members of the group, leading the other party to legitimately believe
that the non-signatory was a veritable party to the contract; and
third, the other party has legitimate reasons to rely on the
appearance created by the non-signatory party so as to bind it to the
arbitration agreement.
( emphasis and underlining added)
75. Delving deeper into the subject of involvement of non-
signatory in performance of contract, the Apex Court held in paragraph
127 of the judgment in Cox and Kings that there needs to be positive,
direct and substantial involvement in the negotiations, performance or
termination of the contract and mere incidental involvement is not
sufficient to infer consent of non-signatory to be bound by the
underlying contract or its arbitration agreement. It is held in paragraph
127 thus:
v. Threshold standard
127. In Cox and Kings (supra), Justice Surya Kant observed that
Reckitt Benckiser (supra) fixed a higher threshold of evidence for the
application of the group of companies doctrine as compared to earlier
decisions of this Court. This Court’s approach is Reckitt Benckiser
(supra) is indicative of the fact that the mere presence of a group of
companies is not the sole or determinative factor to bind a non-
signatory to an arbitration agreement. Rather, the courts or tribunals
should closely evaluate the overall conduct and involvement of the
non-signatory party in the performance of the contract. The nature
or standard of involvement of the non-signatory in the
performance of the contract should be such that the non-
signatory has actively assumed obligations or performance upon
itself under the contract. In other words, the test is to determine
whether the non-signatory has a positive, direct, and
substantial involvement in the negotiation, performance, or
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termination of the contract. Mere incidental involvement in the
negotiation or performance of the contract is not sufficient to
infer the consent of the non-signatory to be bound by the
underlying contract or its arbitration agreement. The burden is
on the party seeking joinder of the non-signatory to the arbitration
agreement to prove a conscious and deliberate conduct of
involvement of the non-signatory based on objective evidence.
( Emphasis added)
76. The findings in para 128 of the judgment in Cox and Kings are of
utmost relevance to the present case where the distinction between the
arbitration agreement and substantive commercial contract is
highlighted and it is held that to join a non-signatory to arbitration, the
decisive question that has to be answered is whether a non-signatory
consented to the arbitration agreement, as distinct from the underlying
contract containing the arbitration agreement. It is held in Para 128
thus:
128. An arbitration agreement is a distinct and separate agreement from
the substantive commercial contract which contains the arbitration
agreement . An arbitration agreement is independent of the other terms of the
contract, to the extent that nullification of the contract will not lead to
invalidation of the arbitration agreement. [Reliance Industries Ltd. v. Union of
India, (2014) 7 SCC 603 : (2014) 3 SCC (Civ) 737] The concept of separability of
the arbitration agreement from the underlying contract ensures that the
intention of the parties to resolve the disputes through arbitration does not
vanish merely because of a challenge to the legal validity of the underlying
contract. [Enercon (India) Ltd. v. Enercon GmbH, (2014) 5 SCC 1 : (2014) 3 SCC
(Civ) 59] To join a non-signatory to arbitration, the decisive question that
has to be answered is whether a non-signatory consented to the
arbitration agreement, as distinct from the underlying contract
containing the arbitration agreement. [Gary Born, International Arbitration
Law and Practice, (3rd Edn., 2021) at p. 1545.]
(emphasis and underlining added)
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77. Holding that the factors laid down in judgment in ONGC Limited
19
Versus. Discovery Enterprises (P) Limited must be applied holistically,
the Apex Court held in paragraphs 132 and 133 of the judgment in Cox
& Kings as under:
132. We are of the opinion that there is a need to seek a balance
between the consensual nature of arbitration and the modern
commercial reality where a non-signatory becomes implicated in a
commercial transaction in a number of different ways. Such a balance
can be adequately achieved if the factors laid down under Discovery
Enterprises (supra) are applied holistically. For instance, the
involvement of the non-signatory in the performance of the
underlying contract in a manner that suggests that it intended to
be bound by the contract containing the arbitration agreement is
an important aspect. Other factors such as the composite nature
of transaction and commonality of subject matter would suggest
that the claims against the non-signatory were strongly inter-linked
with the subject matter of the tribunal’s jurisdiction. Looking at the
factors holistically, it could be inferred that the non-signatories,
by virtue of their relationship with the signatory parties and
active involvement in the performance of commercial
obligations which are intricately linked to the subject matter,
are not actually strangers to the dispute between the signatory
parties.
133. We hold that all the cumulative factors laid down in Discovery
Enterprises (supra) must be considered while determining the
applicability of the group of companies doctrine. However, the
application of the above factors has to be fact-specific, and this Court
cannot tie the hands of the courts or tribunals by laying down how
much weightage they ought to give to the above factors. This
approach ensures that a dogmatic emphasis on express consent is
eschewed in favour of a modern approach to consent which focuses on
the factual analysis, complexity of commercial projects, and thereby
increases the relevance of arbitration in multi-party disputes.
Moreover, it is also keeping in line with the objectives of the
Arbitration Act which aims to make the Indian arbitration law more
responsive to the contemporary requirements.
( emphasis added )
19
(2022) 8 SCC 42
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78. Both the sides have relied on the ratio of Constitution Bench
judgment in Cox and Kings. Mr. Khandeparkar has contended that a
non-signatory can be subjected to arbitration if any of the following
eventualities exist:
(i)
intention by non-signatory to effect legal relations with
signatory party and be bound by arbitration agreement
(para-70) ,
(ii)
conduct and relationship between signatory and non-
signatory party exhibiting intention to be bound by
underlying contract and arbitration agreement (para-100),
(iii) level of involvement of non-signatory party in performance
of contract to the extent of making other party believe that
it is a veritable party (para-101) ,
(iv) true intention of a party to bind someone who is not
formally a signatory to the contract but has assumed the
obligation to be bound by the actions of the signatory
(para-108) .
(v) Role of non-signatory party in negotiation and
performance of underlying contract contained in
arbitration agreement making it ‘a true party’ to the
arbitration agreement (para-111)
(vi)
conduct of non-signatory party relating to subject matter,
contractual duties and obligations under the contract
(para-120)
containing arbitration agreement
(vii) participation of non-signatory in performance of
underlying contract (para-123) .
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(viii) involvement of non-signatory party in negotiation,
performance or termination of contract (para-126)
79. On the other hand, Mr. Tamboly has strenuously relied on
findings in the judgment of Cox and Kings in para-127 of the judgment
in which it is held that the ‘ The nature or standard of involvement of non-
signatory in performance of the contract must be such that it has actively
assumed obligations or performance upon itself under the contract. In other
words, the test is to determine whether the non-signatory has a positive,
direct, and substantial involvement in the negotiation, performance, or
termination of the contract. Mere incidental involvement in the negotiation
or performance of the contract is not sufficient to infer the consent of the
non-signatory to be bound by the underlying contract or its arbitration
agreement .’
80. The judgment of Constitution Bench in Cox and Kings
essentially deals with application of ‘group of companies’ doctrine for
inferring consent or intent to arbitrate on the part of non-signatory
party. The present case does not involve application of Group of
Companies doctrine, in strict sense. However, arbitration agreement
with Respondent No.2 member is sought to be inferred on the basis of
assumption of contractual obligations of DA by him and active
participation in its performance. However, if the tests laid down in
Cox and Kings
paragraph 127 of the judgment in are strictly applied, it is
difficult to hold that Respondent No.2 would be a veritable party to the
arbitration agreement. He has not voluntarily undertaken contractual
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obligations arising out of the underlying contract, which in the present
case is the DA. He has in fact opposed to the very execution of the DA.
The case does not involve a scenario where Respondent No.2 has actively
participated in the negotiations and execution of the DA, but has stood
aside and not put his signature thereon. He was always opposed to
execution of the DA. His conduct is not in harmony with the signatory
i.e. the society. Therefore, it is difficult to believe that the nature or
standard of his involvement in performance of the contract is such that
he has actively assumed obligations or performance upon himself under
the DA.
81. The acts of Respondent No.2 in receiving the of benefits
under the redevelopment process and execution of PAAA are sought to
be relied on for drawl of an inference of active participation in
performance of the DA. In the present case, however, Respondent No.2,
always opposed to execution of the DA, and was forced to execute the
PAAA after possession of Flat No.10 was taken away from him by the
Court Receiver towards implementation of Section 9 order passed by this
Court. A member of a Society is paid transit rent only after he executes
the PAAA with the developer. Therefore, once a member loses its shelter
and is required to scout for alternate premises, he is bound to feel
pressurized to execute PAAA upon execution of which, he becomes
entitled to be paid rent/license fees in respect of the transit
accommodation. Redevelopment process results in suspension of
occupation rights in respect of the flats owned by the members till they
are put back in possession of permanent alternate accommodations. To
compensate the members/occupants of flats in a building going for
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redevelopment, transit rent is paid by the developer. In the present case,
the transit rent payable in respect of Flat No.10 of Respondent No.2 is
Rs.60/- per sq.ft for first 12 months, Rs.65/- per sq.ft for further 12
months and Rs.70/- per sq.ft thereafter. The monthly transit rent is in
the range of approximately Rs.40,000/-. Therefore, if Respondent No.2
was not to execute PAAA with the Applicant-Developer after losing his
shelter, he would have been required to spend monthly amount of
Rs.40,000/- towards rent in respect of transit accommodation. These
factors usually force the members to execute PAAA with the developer.
82. Therefore, execution of PAAA by a dissenting member
cannot always be inferred as a voluntary act towards performance of the
DA. In my view, it cannot be inferred that Respondent No.2 has actively
participated in performance of the DA or has voluntarily undertaken
obligations arising therefrom. As held by the Apex Court in Cox and
Kings , mere incidental involvement in performance of contract is not
sufficient to infer the consent of non-signatory party to be bound either
by underlying contract or by its arbitration agreement. Therefore,
applying the ratio of the judgment in Cox and Kings, it is difficult to
conclude that a dissenting member, who is not a signatory to the DA,
would be a veritable party to the DA and in any case, to the arbitration
agreement contained in the DA.
83.
Mr. Khandeparkar has relied on judgment of the Apex Court
in Ajay Madhusudan Patel (supra) on which reliance is also placed by
Mr. Tamboly. In Ajay Madhusudan Patel, the Apex Court has broadly
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followed and reiterated the principles of Constitution Bench judgment in
Cox and Kings . Referring to the ratio of the Constitution Bench
judgment the Apex Court has held that the referral Court is required to
prima-facie rule on the existence of arbitration agreement and whether
the non-signatory party is a veritable party. It has further been held that
considering the complexity of such determination, the Arbitral Tribunal
is considered as a proper forum since it can decide whether a non-
signatory party is a party to the arbitration agreement on the basis of
factual evidence and application of legal doctrine. The Apex Court has
further held that requirement of a written agreement under Section 7 of
the Arbitration Act does not exclude the possibility of binding a non-
signatory party if there is a defined legal relationship between the
signatory and non-signatory parties. It has further held that Courts and
Tribunals should not adopt a conservative approach to exclude all
persons or entities who are intended to be bound by the underlying
contract contained in the arbitration agreement. It has further held that
intention of parties to be bound by the arbitration agreement needs to be
gauged from circumstances that surround participation of non-signatory
party in the negotiation, performance and termination of underlying
contract. It is further held that the Arbitral Tribunal is the correct forum
to rule on the issue of non-signatory’s role as party to the arbitration
agreement. The Apex Court held in paragraphs 64, 68, 69 and 71 as
under:
64.Therefore, on the pivotal issue whether the non-signatories can be
referred to arbitration, this Court took the view that the referral court is
required to prima facie rule on the existence of the arbitration
agreement and whether the non-signatory party is a veritable party to
the arbitration agreement. However, recognising the complexity of
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such a determination, the arbitral tribunal was considered the proper
forum since it can decide whether the non-signatory is a party to the
arbitration agreement on the basis of factual evidence and application
of legal doctrine. In this process, the nonsignatory must also be given
an opportunity to raise objections regarding the jurisdiction of the
arbitral tribunal in accordance with the principles of natural justice.
68.This Court in Cox and Kings (supra) held that the definition of
“parties” under Section 2(1)(h) read with Section 7 of the Act, 1996
includes both the signatory as well as non-signatory parties. Persons or
entities who have not formally signed the arbitration agreement or the
underlying contract containing the arbitration agreement may also
intend to be bound by the terms of the agreement. Further, the
requirement of a written agreement under Section 7 of the Act, 1996
does not exclude the possibility of binding non-signatory parties if
there is a defined legal relationship between the signatory and non-
signatory parties. Therefore, the issue as to who is a “party” to an
arbitration agreement is primarily an issue of consent. Actions or
conduct could be an indicator of the consent of a party to be bound by
the arbitration agreement. This aspect is also evident from a reading of
Section 7(4)(b) which emphasises on the manifestation of the consent
of persons or entities through actions of exchanging documents.
69.The fact that a non-signatory did not put pen to paper may be an
indicator of its intention to not assume any rights, responsibilities or
obligations under the arbitration agreement. However, the courts and
tribunals should not adopt a conservative approach to exclude all
persons or entities who intended to be bound by the underlying
contract containing the arbitration agreement through their conduct
and their relationship with the signatory parties. The mutual intent of
the parties, relationship of a non-signatory with a signatory,
commonality of the subject matter, composite nature of the
transactions and performance of the contract are all factors that signify
the intention of the non-signatory to be bound by the arbitration
agreement.
71.It is evident that the intention of the parties to be bound by an
arbitration agreement can be gauged from the circumstances that
surround the participation of the non-signatory party in the
negotiation, performance, and termination of the underlying contract
containing such an agreement. Further, when the conduct of the non-
signatory is in harmony with the conduct of the others, it might lead
the other party or parties to legitimately believe that the non-signatory
was a veritable party to the contract containing the arbitration
agreement. However, in order to infer consent of the non-signatory
party, their involvement in the negotiation or performance of the
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contract must be positive, direct and substantial and not be merely
incidental. Thus, the conduct of the non-signatory party along with the
other attending circumstances may lead the referral court to draw a
legitimate inference that it is a veritable party to the arbitration
agreement.
84. ASF Buildtech (supra) further builds on the principles enunciated
in judgments of Cox & Kings and Ajay Madhusudan Patel. But for the
present case, the judgment in ASF Buildtech is relied upon mainly in
support of contention that the High Court must adopt hands-off
approach and leave the issue of non-signatory’s role as party to
arbitration agreement to the Arbitral Tribunal. That issue is discussed
separately in latter part of the judgment.
85. In Mukesh Patel (supra), a Single Judge of this Court has discussed
the issue of applicability of principle of veritable party in relation to DA
in the light of ratio of the judgments in Cox and Kings and ASF Build-
tech Private Ltd. (supra). However, in Mukesh Patel the issue for
consideration was slightly different. The case did not involve the issue of
non-signatory member of a cooperative society being treated as a
veritable party to the DA. The case before this Court involved disputes
and differences between the two developers. The society had executed
DA with the Applicant therein, which was terminated, and a new
developer was appointed by the Society. The earlier developer invoked
arbitration clause in the DA and sought to implead the new developer as
a veritable party to the DA. This Court rejected the contention that the
new developer could be a veritable party to the DA. Distinguishing the
judgments in Cox and Kings and ASF Build-tech Private Ltd. (supra),
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this Court held that for roping in a non-signatory to the arbitration
agreement into arbitral proceedings, the elements such as ‘Group of
Company’, ‘alter ego’ or ‘composite transactions’ need to be discernible.
This Court held in paragraphs 17 to 24 of the judgment as under:
17. The reliance upon an isolated strand and sentence in ASF Buildtech
is disingenuous inasmuch that judgement only builds further on the
law declared in Cox and Kings, which in turn, declared the law on
invoking the “group of companies” doctrine. First and foremost, it
would be appropriate to examine the plain meaning of the term
“veritable party” for purposes of examining the application of the law
in Cox and Kings and in ASF Buildtech.
18. When the law allows a non-signatory to an arbitration agreement to
be regarded as a “veritable party”, it essentially permits a non-
signatory to be treated as a signatory to the arbitration agreement.
Towards this end i.e. to ascertain if a party is a de facto signatory to an
arbitration agreement even when such party is de jure not a signatory
to the arbitration agreement, various factors and surrounding factual
circumstances may be taken into account. The term “veritable” in the
context of “party” means a party that is truly, genuinely, authentically
to be regarded as a party to the agreement that such party has not
signed.
19. When the Supreme Court declared the law in Cox and Kings, the
Supreme Court did so in the context of whether a party that is part of
the same “group of companies” to which a signatory belongs, could be
regarded as a veritable party. The declaration of the law has to be seen
in this context. Two or more companies forming part of a group of
companies are evidently “related parties” – related by such degree of
common ownership, management or control that would lead to their
being treated as members of the same group.
20. This is precisely why even in accounting standards as universally
applied all over the globe, dealings between two distinct and separate
enterprises or entities but forming part of the same group, are treated
with distrust, with the presumption being that such dealings are not
informed by genuine arms-length rigorously negotiated contracts,
unless specific stipulations for treating them as such are complied with.
This is the foundational principle on which the “group of companies”
doctrine is based – that in a contract between two parties, a third party
that is related to a party to the contract regarded de facto as a party to
the contract despite being a third party.
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21. The law declared in Cox and Kings and elaborated in ASF Buildtech
must be read in this light. The very opening paragraphs of Cox and
Kings makes this abundantly clear. Therefore, when these judgements
throw light on how third parties who may not fall within the scope of
“group of companies” but are placed in the same position, the law
declared must be appreciated in context. It is most inappropriate to
pick and choose individual sentences from concluding summaries in
the judgements ignoring the rest of the detailed articulation of what led
to such summaries.
22. It is trite law on what a precedent is. To quote from Ravi Ranjan,
which puts it succinctly:
41. It is well settled that a judgment is a precedent for the issue
of law that is raised and decided. The judgment has to be
construed in the backdrop of the facts and circumstances in
which the judgment has been rendered. Words, phrases and
sentences in a judgment, cannot be read out of context. Nor is a
judgment to be read and interpreted in the manner of a statute.
It is only the law as interpreted by in an earlier judgment, which
constitutes a binding precedent, and not everything that the
Judges say.
[Emphasis Supplied]
23. Therefore, when ASF Buildtech builds further on Cox and Kings, it
expands the reasoning on discerning the veritable nature of a party but
without losing sight of the need to establish that the third party to a
contract is in a factual position that would for all practical purposes i.e.
de facto, render him to be a party to that very contract. This is a vital
and important threshold to be met. For a party to be regarded as a
veritable party, one has to bring to bear circumstances that would show
that such non-signatory is for all practical purposes to be regarded as a
signatory. In fact, Paragraph 109 of ASF Buildtech is instructive and is
reproduced below:-
“109. From the above exposition of law, it can be seen that there
is nothing within the scheme of the Act, 1996, which prohibits
or restrains an arbitral tribunal from, impleading a non-
signatory to the arbitration proceedings on its own accord. So
long as such impleadment is undertaken upon a consideration
of the applicable legal principles — including, but not limited
to, the doctrines of ‘group of companies’, ‘alter ego’, ‘composite
transaction’, and the like —the arbitral tribunal is fully
empowered to summon the non-signatory to participate in the
arbitration. This autonomy stems from the broad jurisdiction
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conferred upon arbitral tribunals under the Act, 1996 to rule
upon their own jurisdiction, including any objections with
respect to the existence or validity of the arbitration agreement,
as enshrined under Section 16. The impleadment of a non-
signatory, being fundamentally a question of jurisdiction and
consent, Special Leave Petition (C) No. 21286 of 2024 Page 142
of 190 falls squarely within the province of the tribunal's
powers, free from any statutory prohibition.”
24. Therefore, a judgement has to be read for it truly stands for and
declares and not ignoring the very premise on which a non-signatory
may be attempted to be roped in as a veritable party. To rope a non-
signatory to an arbitration agreement into arbitration
proceedings, elements such as the “group of companies” or “alter
ego” or “a composite transaction” or facts of that nature would
need to be discernible. A historical and long-terminated contract
cannot be allowed to rope in a party to a completely different
contract executed years later, merely because the subject matter
of the contract executed years later, had been the subject matter
of the earlier contract.
25.If the non-signatory is not a related party, not a group company or
enterprise, has no commonality of ownership, management or control,
is not alter ego of a party, and is not undertaking a transaction that is
contingent upon or subservient to or a contact not forming part of a
wider, integral and composite transaction, it would not be possible to
invoke principles of making such person a veritable party.
(emphasis added)
86. The judgment of this Court in Mukesh Patel , though
rendered in the context of redevelopment contract executed by the
society, it involved a different issue of permissibility to rope in the new
developer to arbitration proceedings initiated against the society by the
earlier developer.
87. I have already taken note of judgment of this Court in
Harshad B. Shah where this Court has appointed arbitrator for
adjudication of disputes between the developer and non-signatory
members to the DA. Those members had executed PAAA with the
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developer, wherein there was no arbitration clause. The disputes
pertained to shortfall in payment of transit rent, shortfall in area allotted
towards permanent alternate accommodation and non-provision of
agreed amenities. Even though there was no arbitration clause in the
PAAA and though the Applicants had not signed the DA, thus Court
proceeded to appoint arbitrator taking note of peculiar facts of that case
where non-signing of DA was not a conscious act by the Applicants, and
the act of non-signing was attributable to their physical non-presence in
India at the relevant time. No doubt, this Court has made few
observations in Para 11 of the judgment about existence of intent to
arbitrate on account of non-signatories being bound by the DA and on
account of their conduct in accordance with DA, the judgment is
ultimately rendered considering the fact that absence of signatures by
those members was a fortuitous circumstance and there always existed
intention to arbitrate. The judgment itself makes it clear that the same is
rendered in the peculiar facts of that case. It is well settled that
judgment is an authority for what it decides and not what can be
logically deduced therefrom. Therefore, the judgment in Harshad B.
Shah cannot be read in support of an abstract proposition that in every
case non-signatory member of cooperative society would become a party
to arbitration agreement contained in the DA.
88. Thus, a member who dissents from the decision taken by the
society and refuses to sign the DA, but is forced to act in terms of DA by
application of principle of loss of individuality vis-à-vis society, cannot
be treated as a veritable party to the DA and particularly to the
arbitration agreement contained therein.
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89. In the present case, Respondent No.2 never intended to act
towards performance of the DA. He was opposed to execution thereof.
Through his actions or conduct, he did not create an impression on the
developer that he is also party to the DA. He was forced to execute the
PAAA after he was evicted from the old flat. His participation in the
redevelopment process is not voluntary. Therefore, there is absence of
intent to arbitrate on the part of Respondent No. 2. In the PAAA, he has
agreed for resolution of only the disputes arising out of PAAA through
arbitration. Therefore, if there were disputes between parties relating to
transit rent, area of alternate accommodation, etc, the same can be
resolved through arbitration. However the disputes between Applicant
and Respondent No. 2 do not emanate from PAAA and relate exclusively
to the stipulations under the DA, which is not signed by Respondent No.
2. Therefore, it is difficult to accept the position that Respondent No. 2,
who is a dissenting member and who has consciously not signed the DA,
would be a veritable party to the arbitration agreement.
I NEXTRICABLE C ONNECTION B ETWEEN DA A ND PAAA
90. It is contended on behalf of the Applicant that DA and PAAA
constitute multiple documents for effecting a common transaction and
that therefore a common reference to arbitration needs to be made for
adjudication of disputes and differences arising between the parties from
both the instruments. In the present case, though the DA contains
arbitration agreement, to which Respondent No.2 is not a signatory. He
has however signed and executed PAAA with the Applicant-Developer,
which contains arbitration agreement. There is no opposition on the part
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of Respondent No.2 for conduct of arbitral proceedings in respect of the
disputes arising out of PAAA. However, as observed above, both in
invocation notice, as well as in the Application, the Applicant has
specifically restricted the reference to arbitration only for adjudicating
the disputes arising out of DA. As of now, there appears to be no dispute
arising out of PAAA. However, since PAAA contains arbitration
agreement , Applicant is seeking to interlink PAAA with DA and urges
this Court to hold that both the documents are ultimately executed for
completion of same transaction.
91. Reliance is placed on Division Bench judgment in Adityaraj
Builders (supra) which involved the issue of payment of separate stamp
duty on PAAA even after the same duty is paid on DA. The Division
Bench of this Court held that an agreement with individual member is a
part and parcel of, included in or covered by or subordinate to principal
DA between the society and the developer. This Court recognized the
principle of permissibility to execute several documents used to
complete the transaction and held that all instruments can be treated as
one. Applying the principle in Girish Mulchand Mehta (supra) this Court
held that the juristic entity of Society cannot exist without members and
that in executing the DA, the society acts for all its members even on
behalf of those who may disagree. The Division Bench held in paragraphs
29 to 35 as under:
29. In the context of redevelopment and the rights of individual
members of a cooperative society, the law itself has been well settled in
different dimensions. There used to be an argument that individual
society members have rights independent of the society in dealing with
third parties. A Single Judge of this Court negatived that contention:
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Aditya Developers v. Nirmal Anand CHSL 3. This decision has been
followed consistently. A Division Bench of this Court, speaking through
AM Khanwilkar J, as he then was, in Girish Mulchand Mehta v. Mahesh
S Mehta 4 specifically dealt with this argument where there were two
sets of agreements or dealings, one with the society and the other with
members, the members would have rights independent of the society.
That judgment was specifically in the context of a development
agreement with a society and separate agreements with members, and
a situation where members had not signed the DA. The Court held that
members were nonetheless bound by the terms of the DA (albeit for the
purposes of the arbitration act). There is a long line of authority in this
vein. We need not revisit it.
30. Whether in the context of arbitration and commercial law or in
cases of transactions between a developer and a society has now
evolved such that an agreement between an outsider and a society
binds members of the society. Conversely, an agreement with an
individual member is part and parcel of, included in, covered by or
subordinate to the principal DA between the society and the developer.
The situation is highlighted perhaps most dramatically when it comes
to arbitration clauses. These are to be found in DA between the society
and the developer. This was the case in Girish Mulchand Mehta when
the Court was told that the arbitration clause bound only the society.
Other provisions of the DA bound only the society. Because individual
members had not signed the DA, therefore they were not bound by the
arbitration agreement or certain other provisions of the DA. The Court
had not the slightest hesitation in repelling this argument.
31. Lest it be brought into question again, we take the opportunity of
now once again reaffirming Girish Mulchand Mehta in every single
aspect. We most respectfully are in accord with the entirety of its
findings.
32. This assessment of the law as pronounced by the Courts, fit exactly
with the statutory contemplation under Section 4(1) of the Stamp Act,
extracted above. The statute itself makes no distinction between
several instruments being used to "complete the transaction". All
instruments are treated as one. The Section may not use the words
'Master Agreement' but the statutory intent is plain and unmistakable.
33. Is there a meaningful distinction to be made between the society
and its members in the context of a re-development by an outsider (a
developer)? What precisely is the relationship between a DA by a
developer with the society and PAAAs by the developer with the
members?
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34. The distinction that there exists a juristic entity known as the
society even without its members is a submission that has only to be
stated to be rejected. A cooperative society without members is a
creature unknown to law.
35. This guides our approach to the needlessly nice distinction sought
to be made between a DA and a PAAA. In executing a DA, the society
acts for all its members - even those who may disagree, because a
society sometimes is run by majority. The PAAA may provide for
other matters such as bespoke questions of the amount of transit rent,
individual flat numbers, distinct flat sizes, and so on. But a PAAA is
only a particularisation per member of the redevelopment
contemplated by the DA itself. To view it differently, it is the
society that goes into re-development. This is governed by the DA.
There can, conceivably, be a DA without a single PAAA - for
example by adding pages and pages of annexures, one per
member - but there can never be society re-development only by
PAAAs without a DA with the society. It is, therefore, a distinction
without a difference. The segregation is merely one of convenience. It
is done thus for simplicity, clearer understanding. and ease of reference
of all concerned.
92.
Thus, in the context of liability to pay separate set of stamp
Adityaraj Builders
duty on PAAA, the Division Bench of this Court in has
held that PAAA is executed only to particularize the details of alternate
accommodation allotted to a member, which can also be incorporated in
the DA. It is held that the redevelopment is contemplated and executed
only by DA. It is also held that redevelopment process can be carried out
only through DA, but it can never be carried out only through PAAA. Mr.
Khandeparkar relies on these observations made by the Division Bench
in support of his contention of inextricable interconnection between DA
and PAAA.
93. There can be no doubt that the PAAA are executed only to
give shape to and to particularize the details of allotment of alternate
accommodation to society members. In that sense, PAAA cannot exist
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without a DA. Therefore, the connection between the two documents is
inevitable. However, the issue for consideration is whether the
inextricable interconnection between DA and PAAA would mean that the
parties who executed PAAA, also intended to agree for arbitration. And
whether the principles discussed in the judgment about interconnection
between the DA and PAAA can be extended to arbitration agreement
under Section 7 of the Arbitration Act.
94. In my view, the above observations of the Division Bench in
Adityaraj Builders are made in the context of provisions of Section 4(1)
of the Maharashtra Stamp Act, 1958, which provides for payment of
single stamp duty in respect of multiple documents executed to
complete the transaction. To illustrate, if Agreement for Sale is executed
and full stamp duty is paid under the Stamp Act thereon, another set of
stamp duty is not required to be paid on Deed of Assignment, Sale Deed
or Deed of Conveyance after completion of transaction of purchase of
the property. Applying the provisions of Section 4 of the Stamp Act, this
Court held that DA and PAAA are executed to complete the common
transaction of demolition of old flat and allotment of new flat and that
therefore once stamp duty is paid on DA, it is not necessary to once
again pay separate stamp duty on PAAA. The judgment however cannot
be read to mean that a member executing the PAAA would automatically
become party to arbitration agreement contained in the DA, which he
has not signed. Here again the well established position would apply
that a judgment is an authority for what it decides and not what could be
logically deduced therefrom. In my view, therefore the ratio of the
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judgment of the Division Bench in Adityaraj Builders cannot be read to
mean that execution of PAAA by a dissenting member would make him a
veritable party to the arbitration agreement contained in the DA.
95. Mr. Khandeparkar has also relied upon the findings recorded
by the Constitution Bench in paragraph 132 of the judgment in Cox and
Kings wherein the Apex Court has considered the factor of ‘composite
nature of transaction’ and ‘commonality of subject matter’ for the
purpose of inferring involvement of non-signatory in performance of the
underlying contract. Mr. Khandeparkar contends that DA and PAAA are
multi-party documents, which are inextricably connected in the context
of the same subject matter and the same are executed for completion of
composite nature of transaction. However, what Mr. Khandeparkar
misses is the point that all factors must be cumulatively applied as held
by the Apex Court in paragraph 133 of the judgment in Cox and Kings.
Therefore, mere commonality of subject matter of DA and PAAA and
mere composite nature of transaction cannot be considered in isolation
by ignoring the position that a dissenting member does not participate in
negotiations or performance of the DA. Such dissenting member is
opposed to execution of performance of the DA and this factor cannot be
segregated and ignored by giving weightage to the factors of
commonality of subject matter and composite nature of transaction. In
fact, the factors of ‘active participation in performance’ and ‘creation of
impression on opposite party of taking over contractual obligations’
would weigh more for deciding whether a non-signatory is a veritable
party than the factors of composite nature of transaction and
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commonality of subject matter. In my view, therefore merely because the
subject matter of DA and PAAA is common and merely because the two
instruments may ultimately effect composite nature of transaction, the
same cannot be enough for inferring that dissenting member becomes
either a veritable party to the DA or that the arbitration agreement in the
PAAA would bind him to arbitration agreement in the DA.
NCORPORATION F RBITRATION GREEMENT OF IN
‘I ’ O A A DA PAAA
96. It is contended by the Applicant that PAAA has been
executed for giving effect to the terms contained in the DA and that
Respondent No.2 has confirmed contractual stipulations in the DA while
executing the PAAA. It is contended that reference to the DA in PAAA is
not merely as and by way of narration but has been made with a view to
incorporate terms thereof as a part and parcel of the said PAAA.
97. No doubt, PAAA is executed in furtherance of the DA
executed between the Applicant and the Society. Clause 10(xvi) of the
DA provides for Society being confirming party to the individual
agreements to be signed between the developer and members of the
society. Clause-10(xvi) of the DA reads thus:
xvi) The Society shall be confirming party to the individual agreement
to be signed between the developer and the individual members of the
society in respect of allotment of their new flat premises in the new
building to be. constructed by the developer. The said agreement shall
be executed by the developer within 30 days of obtaining Intimation of
Disapproval.
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98. PAAA also refers to the DA executed between the Applicant
and the Society at multiple places in the recitals. In paragraph 1 of the
PAAA, Respondent No.2 has confirmed that the DA is valid, subsisting
and binding on the parties even to the PAAA.
1. The parties hereto confirm that the Re-Development Agreement
dated 02/07/2021, Power of Attorney dated 02/07/2021 and Irrevocable
Consent given by the member to the Party of the first part is valid,
subsisting and binding on the parties hereto.
99. However, confirmation of the DA by Respondent No. 2 and
agreement to be bound by its terms and conditions by Respondent No.2,
would at the highest, make the terms and conditions of the DA
applicable to him. However, this reference to the DA in the PAAA would
not mean incorporation of arbitration agreement in Clause 38 of the DA
in the PAAA. The PAAA provides for arbitration in Clause 32 and parties
have agreed to resolve only those disputes which arise out of PAAA by
arbitration. If parties intended that disputes arising out of DA between
the Developer and member should also be resolved by arbitration,
arbitration Clause-38 in the DA ought to have been specifically
incorporated in the PAAA. Following the ratio of the judgment of the
Apex Court in M.R. Engineers and Contractors Pvt. Ltd. vs. Som Datt
20
Builders Ltd. and NBCC (India) Ltd. V/s. Zillion Infraprojects Pvt.
21
Ltd . , it is difficult to hold that arbitration agreement in Clause 38 of the
DA has been incorporated in any manner in the PAAA.
20
(2009) 7 SCC 696
21
SLP (CIVIL)NO. 7573 OF 2021 DECIDED ON 19/03/2024
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W IDE W ORDING O F A RBITRATION C LAUSES I N T HE DA A ND PAAA
100. It is sought to be contended that Clause 38 of the DA uses
the expression ‘any dispute arising out of or in connection with’ and that
the said expression needs to be given the widest amplitude and context.
It is further contended that Clause 38 provides that the disputes can be
in the context of ‘performance or any alleged breach of any provisions of
this agreement’. It is further contended that the peculiarity of Clause 38
of the DA would include not just the disputes in the context of developer
on one hand and society on the other, but would also extend to
individual disputes which would have arisen on account of any defaults
committed by any member in performance of any obligations stipulated
under the DA. Reliance is placed on the judgment of the Apex Court in
Giriraj Garg (supra) in support of the contention of giving widest
amplitude and context to the expression ‘any dispute arising out or in
connection with’. Similarly, it is contended that Clause 32 of the PAAA
would also provide for adjudication of disputes regarding ‘any matter,
thing, deed or term of this agreement’ and that since DA is confirmed in
paragraph 1 of the PAAA by Respondent No.2, the adjudicatory
mechanism contained in Clause 32 of the PAAA would also extend to
contractual obligations under taken by Respondent No. 2 under the DA.
101. In my view, none of the above submissions deserve
acceptance in view of express intention of the parties to the two
instruments. In the DA, the arbitration agreement is only between the
Developer and the Society and Respondent No.2 has refused to sign the
same. The intention of Respondent No. 2 not to be bound by arbitration
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agreement is made clear by him by refusing to sign the DA. The
contention that Respondent No.2 is a veritable party is already rejected.
The contention of Respondent No.2 being party to arbitration agreement
on account of his capacity as third-party beneficiary is also rejected.
Therefore, it is too far-fetched to hold that the language employed in
arbitration clauses in DA or PAAA is so wide that the same contemplates
adjudication of disputes arising out of DA through arbitration
mechanism agreed in PAAA. The intention of the parties is clear and
manifest that if any dispute arises out of DA, the same would not be
arbitrable and would go before Civil Court. Recognizing this position,
Respondent No. 2 has filed Civil Suit in respect of his disputes with the
developer. In my view, therefore even the language employed in
arbitration clauses in DA and PAAA is not sufficient to infer any
arbitration agreement between the Applicant and Respondent No.2 in
respect of the disputes arising out of the DA.
M EMBER I S A C ONSTITUENT O F T HE S OCIETY
102. It is sought to be contended on behalf of the Applicant that
even though the member loses his individuality qua the society and has
no independent rights as held by the Apex Court in Daman Singh
(supra), the position in law does not obfuscate the arbitration agreement
that may arise in relation to dispute between the developer and the
Daman Singh
member. It is contended that recognizes an exception in
respect of statutory rights. Reliance in this regard is placed on judgment
of this Court in Uday Dalal (supra). The case involved objection by
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individual members to the decision of General Body of the society to
grant membership to new members. Relying on judgment in Daman
Singh , it was sought to be contended that once General Body has taken a
decision to grant membership, no individual member has a right to
challenge it. This Court held that the Petitioners therein were not
asserting any individual rights outside the statute and that they were
merely asserting a right under the statute. This Court upheld the right of
a member to challenge the decision of the society which violates a
statutory provision. This Court has explained the ratio of the judgment
in Daman Singh in para-45 of the judgment as under :-
45. The correct reading of Daman Singh, when applied to the present
facts, is as follows (i) A member cannot challenge decisions which are
otherwise lawful and taken within statutory limits. (ii) But a member
can always challenge a decision that violates the Act, especially when
the violation affects the democratic structure of the society. Since the
petitioners allege violation of mandatory statutory provisions regarding
the number of flats in the sanctioned plan, thereby tilting majority,
their challenge is fully maintainable. Therefore, the judgment in
Daman Singh does not bar the petitioners’ locus. Instead, it reinforces
that cooperative societies must act strictly within the four corners of
statute. When they do not, members affected by the illegality have
every right to seek judicial review.
103. The reliance on judgment in Uday Dalal (supra) far from
assisting the case of the Applicant, can militate against it. In Uday Dalal
this Court has recognized exceptions where a member can take a
position different than the Society and the doctrine of ‘loss of
individuality’ qua Society does not get attracted in such situation.
However, reliance on Daman Singh and Uday Dalal is placed by the
Applicant in support of the contention that right to arbitrate is a
statutory right recognized under the Arbitration Act and that the same
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can be availed of by contract. However, exercise of statutory right may be
a reason for individual member to segregate himself from the society and
in a given case, one may take a position that individual member can
enter into agreement to arbitrate by separating himself from the society.
The converse however cannot be true. A society entering into DA may
bind individual member in respect of contractual obligations under the
DA. However, the society cannot bind individual member to arbitration
agreement. In my view, therefore the very argument sought to be raised
on behalf of the Applicant, apart from being confusing, is misplaced.
Merely because individual members can exercise statutory right to agree
for arbitration, the same would not mean that Society can force a
member to arbitrate with the developer.
H ANDS O FF A PPROACH BY R EFERRAL C OURT
104. It is urged on behalf of the Applicant that in the limited
scope of inquiry under Section 11 of the Arbitration Act, this Court is
supposed to determine only the prima facie existence of arbitration
agreement and that whether Respondent No.2 can be treated as a
veritable party to arbitration agreement in the DA must be left to be
decided by the Arbitral Tribunal. It is contended that existence of
arbitration agreement in PAAA is prima facie demonstrated and whether
there is composite transaction and whether there can be adjudication of
disputes arising out of DA and PAAA in a common reference is
something which the Arbitral Tribunal would decide under Section 16 of
the Arbitration act. Reliance is placed on judgment of the Apex Court in
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ASF Build-tech Private Ltd. (supra) in support of the contention that
Arbitral Tribunal be constituted and the issue as regard to capacity of
Respondent No. 2 as veritable party be kept open for adjudication before
the Tribunal.
105. In ASF Build-tech Private Ltd. (supra) the Apex Court
referred to its judgment in Ajay Madhusudan Patel (supra) and held that
existence of arbitration agreement qua non-signatory is in substance an
issue of ‘consent’ and not one of ‘existence of arbitration agreement’
simplicitor. The Court further held that inquiry into non-signatory being
bound by arbitration agreement is not an inquiry into formal or juridical
existence of arbitration agreement itself and it is an exercise of
determining fundamental concept of ‘consent’ within the existing
arbitration agreement rather than existence of arbitration agreement
itself. The Apex Court drew distinction between inquiry into existence
of arbitration agreement and determining its existence qua the non-
signatory. The Apex Court held that latter is an independent and
substantive determination that falls outside narrow and circumscribed
domain of referral Court’s powers under Section 11 of the Arbitration
Act. The Apex Court held in paragraphs-106, 107, 108, 109 and 110 of the
judgment as under:
106. In Ajay Madhusudan Patel v. Jyotrindra S. Patel , this Court
comprising one of us, (J.B. Pardiwala, J.) further brought this
distinction into perspective by observing that the issue concerning the
"existence of the arbitration agreement qua the non-signatory" is, in
substance an issue of "consent", as it involves determining the
manifestation of consent of parties or entities through their actions
and conduct of exchange of documents (sic or otherwise) in terms of
Section 7 sub-section (4) of the 1996 Act, and not one of "existence of
arbitration agreement" simpliciter, as such an issue inter alia requires
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examination and thorough consideration of the underlying contract in
addition to the arbitration agreement.
107. Thus, what has been conveyed in so many words by Ajay
Madhusudan Patel is that the inquiry into whether a non-signatory
is bound by an arbitration agreement is not, in its essence, an
inquiry into the formal or juridical existence of the arbitration
agreement itself. It is an exercise of determining the functional
concept of consent within the existing arbitration agreement
rather than the existence of the arbitration agreement itself. It is
to cull out and discern the intention of various parties-whether
signatories or otherwise-in relation to their willingness to be bound by
the arbitration mechanism embedded in the contract.
108. Put differently, although notionally the exercise of determining
"existence of the arbitration agreement qua the non-signatory", may,
on the surface appear to be concerned with the arbitration agreement
or clause in question, yet one must be mindful that the actual focus of
such exercise lies in determining the existence of consent of the parties
through fact patterns to such arbitration agreement or clause and not
vice-versa. It is the existence of mutual consent to arbitrate-not the
formal existence of the arbitration agreement-that is the heart of this
inquiry.
109. There runs no umbilical cord between the exercise of determining
the "existence of the arbitration agreement" and determining its
"existence qua the non-signatory". The latter is an independent and
substantive determination that falls outside the narrow and
circumscribed domain of the Referral Court's singular obligation under
Section 11 sub-section (6-A) of the 1996 Act and as such cannot be
conflated to be one pertaining to or attacking the "existence" of an
arbitration.
110. Even if it is assumed for a moment that the Referral Court in its
jurisdiction under Section 11 of the 1996 Act has the discretion to
determine whether a non-signatory is a veritable party to the
arbitration agreement or not, by virtue of Cox & Kings, the Referral
Court should only refrain but rather loathe the exercise of such
discretion. Any discretion which is conferred upon any authority, be it
Referral Courts must be exercised reasonably and in a fair manner.
Fairness in this context does not just extend to a non-signatory's rights
and its apprehension of prejudice, fairness also demands that the
arbitration proceedings is given due time to gestate so that the entire
dispute is holistically decided. Any determination even if prima
facie by a Referral Court on such aspects would entail an inherent
risk of frustrating the very purpose of resolution of dispute, if the
Referral Courts opine that a non-signatory in question is not a
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veritable party . On the other hand, the apprehensions of prejudice can
be properly mitigated by leaving such question for the Arbitral Tribunal
to decide, as such party can always take recourse to Section 16 of the
1996 Act and thereafter in appeal under Section 37, and where it is
found that such party was put through the rigmarole of arbitration
proceedings vexatiously, both the Tribunal and the courts, as the case
may be, should not only require that all costs of arbitration insofar as
such non-signatory is concerned be borne by the party who vexatiously
impleaded it, but the Arbitral Tribunal would be well within its powers
to also impose costs.
106. The Apex Court in ASF Build-tech Private Ltd. (supra) has
further held that Arbitral Tribunal can always permit impleadment of
non-signatory to arbitral proceedings on its own accord and that
impleadment of a non-signatory is fundamentally a question of
jurisdiction and consent and the same falls squarely within the province
of Tribunal’s power. It has held in para-125 of the judgment as under:
125. From the above exposition of law, it can be seen that there is
nothing within the scheme of the 1996 Act, which prohibits or restrains
an Arbitral Tribunal from, impleading a non-signatory to the
arbitration proceedings on its own accord. So long as such
impleadment is undertaken upon a consideration of the applicable legal
principles-including, but not limited to, the doctrines of "group of
companies", "alter ego", "composite transaction", and the like-the
Arbitral Tribunal is fully empowered to summon the non-signatory to
participate in the arbitration. This autonomy stems from the broad
jurisdiction conferred upon the Arbitral Tribunals under the 1996 Act
to rule upon their own jurisdiction, including any objections with
respect to the existence or validity of the arbitration agreement, as
enshrined under Section 16. The impleadment of a non-signatory,
being fundamentally a question of jurisdiction and consent, falls
squarely within the province of the Tribunal's powers, free from any
statutory prohibition.
107. However, what is decided by the Apex Court in ASF Build-
tech Private Ltd. is the principle that Arbitral Tribunal can also decide
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the issue of impleadment of non-signatory in capacity as veritable party
and that the prima facie determination by the referral court would not
prevent the Tribunal from deciding the said issue as it is better equipped
to do so. This is clarified in the subsequent judgment in HPCL Vs. BCL
Secure Premises Pvt. Ltd. (supra). The Apex Court has clarified that the
referral Court should be prima facie satisfied that there exists an
arbitration agreement and as to whether non-signatory is a veritable
party. It is further held that under Section 11 of the Arbitration Act, the
referral Court is not deprived of its jurisdiction for examining whether
non-signatory is in real sense a party to the arbitration agreement. The
Apex Court has held in paragraph 25 and 26 of the judgment as under:
25. A careful reading of the above passage reveals that the referral
court should be prima facie satisfied that there exists an
arbitration agreement and as to whether the non-signatory is a
veritable party. It further holds that even if the referral court prima
facie arrives at the satisfaction that the non-signatory is a veritable
party, the Arbitral Tribunal is not denuded of its jurisdiction to decide
whether the non-signatory is indeed a party to the arbitration
agreement on the basis of factual evidence and application of legal
doctrine. The Court further reinforces this proposition by holding that
as to whether the non-signatory is bound would be for the Arbitral
Tribunal to decide.
26. But what is primordial is that it should be demonstrated prima
facie before the referral court that the non-signatory is a veritable
party. According to the “Illustrated Oxford Dictionary (Revised Edition
2003)” the word:
“veritable” means “real; rightly so called (a veritable feast)”, In
substance, it means truly, genuinely or for all intended
purposes. The referral court under Section 11 is not deprived of
its jurisdiction from examining whether the non-signatory is in
the real sense a party to the arbitration agreement. The answer
thereof will depend on the facts and circumstances of each case
after examining the documents pertaining thereto.
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108. It must be noted that the judgment in HPCL Versus. BCL
Secure Premises Pvt. Ltd. is rendered subsequent to the judgment in
ASF Build-tech Private Ltd. and that one of the Judges (His Lordship
Justice J.V. Pardiwala) is common to both the judgments. In fact, in
para-33 of the judgment in HPCL Versus. BCL Secure Premises Pvt. Ltd.
the Apex court took note of submission that ASF Build-tech Private Ltd.
directs referral Court to leave the issue of non-signatory being a
veritable party to the Arbitral Tribunal. After examination of the
judgment in ASF Build-tech Private Ltd. , the Apex Court held that the
said judgment is in harmony with the judgments in RE: Interplay
between Arbitration Agreements under the Arbitration and
22
Conciliation Act, 1996 and Stamp Act 1899 , SBI General Insurance
23
Co. Ltd. Versus. Krish Spinning and Cox and Kings Limited (supra)
and that the judgment in ASF Build-tech Private Ltd. (supra) does not
sing any discordant note. It has held in paragraphs 33 , 34 and 35 as
under:
33. Mr. Nalin Kohli, learned Senior Advocate, made a strenuous effort
to sustain the impugned judgment by relying on the judgment of this
Court in ASF Buildtech Private Limited vs. Shapoorji Pallonji and
Company Private Limited5, to contend that the Referral Court should
leave the matter to the Arbitral Tribunal to decide the issue. We have
carefully examined the judgment of this Court in ASF Buildtech
(Supra), authored by one of us J.B. Pardiwala J. We hold that the
judgment of this Court in ASF Buildtech (Supra) is in harmony
with the judgments of this Court in Interplay (Supra), Krish
Spinning (Supra), Cox & Kings (Supra), Ajay Madhusudan Patel
(Supra) and ASF Buildtech (Supra) does not sing any discordant
note.
22
(2024) 6 SCC 1
23
(2024) 12 SCC 1
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34. In fact, ASF Buildtech (Supra) expressly notices the holding in Para
169 of Cox & Kings (Supra) to conclude that the Referral Court was
required to prima facie rule on the existence of the arbitration
agreement and whether the nonsignatory was a veritable party. All that
it holds further in reiteration of the earlier line of judgments is that
even if the Court holds that prima facie a party is a veritable party that
will not foreclose the Arbitral Tribunal from concluding to the contrary
after an intensive inquiry.
35. This does not mean that where the Referral Court finds prima
facie a party is not a veritable party still the matter is left to the
Arbitral Tribunal. To hold so, would relegate the Referral Court to
the status of a monotonous automation . Further, to countenance
such an extreme proposition would lead to disastrous consequences,
where absolute strangers could walk into the Referral Court and
contend that the matter has to perforce go to the Arbitral Tribunal for a
decision on the veritable nature of the party. We are not prepared to
accept such an extreme proposition.
(emphasis added)
109. Thus, if the Referral Court, prima-facie , finds that a party is
not a veritable party, reference can be denied and the dispute relating to
status of non-signatory as a veritable party need not always be left to be
decided only by the Arbitral Tribunal.
110. In my view, therefore this Court need not adopt hands-off
approach and leave the matter of arbitrability between the Applicant and
Respondent No.2 to be decided by the Arbitral Tribunal when it is prima-
facie satisfied that Respondent No.2 is not a veritable party to the DA.
S UMMATION AND C ONCLUSIONS
111. A reference to arbitration cannot be made in absence of
existence of arbitration agreement between parties. Ordinarily, ‘parties’
to arbitration agreement are those who have ‘signed’ the same. However,
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Section 7 of the Arbitration Act uses the expression ‘parties’ and not
‘signatories’. Therefore, in a given case, even a non-signatory can be
treated as veritable party to arbitration. This principle applies when the
doctrines of ‘group of companies’ or ‘alter ego’ or ‘composite
transaction’, etc. can be invoked to gather intention of non-signatory to
be bound by the obligations of the contract. As held by the Constitution
Bench in Cox and Kings , a non-signatory can be subjected to arbitration
by applying the tests of mutual intent, relationship, commonality of
subject matter, composite nature of transaction, participation in
performance of contract etc. However, participation in performance of
contract by a non-signatory must be positive, direct and substantial so
that the same must create an impression of assumption of obligations
upon itself under the contract. To join a non-signatory to arbitration,
court must satisfy itself that the non-signatory consented to the
arbitration agreement as contradistinct from the underlying contract
containing arbitration agreement. This is the decisive test for
determining whether a non-signatory is a veritable party to the
arbitration agreement.
112. In relation to development agreements executed for
redevelopment of society’s building however, a member, who dissents
and who has no intention of signing the DA and opposes its execution,
cannot become veritable party to the DA. His participation in the
redevelopment process becomes an involuntary act, as he is forced to
vacate the old flat and execute PAAA with the developer on account of
imposition of will of majority. In such a case, his participation in the
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redevelopment process cannot be a factor for inferring that he is a
veritable party to the DA. He becomes beneficiary of DA, not by choice,
but because of imposition of majority will on him. Therefore, his
capacity as third-party beneficiary would not make him a variable party
to the arbitration agreement contained in the DA. Far from any intention
to arbitrate, the dissenting member actually does not want to act as per
the DA, but is forced to do so by applying the principle of loss of
individuality and by forcing the majority decision on him. Thus, the
mutual intention to arbitrate cannot be inferred in case of a dissenting
member.
113. Ultimate participation by a dissenting member in the
redevelopment process, reaping of benefits by him under the DA and
execution of PAAA, etc. may, at the highest, give rise to a presumption
that he has finally consented to the underlying contract (DA), but as held
in para 128 of the judgment in Cox and Kings, this would not necessarily
mean his consent for arbitration agreement.
114. Thus, in redevelopment agreements, the key is to find out
whether the non-signatory member has consented for arbitration. The
consent or otherwise to arbitration can be determined by finding out as
to whether the individual member is a participating member or
dissenting member to the redevelopment process. In case of
participating member signing the DA containing the arbitration clause,
reference to arbitration may be permissible depending on the language
of the arbitration clause and permissibility to take stand different than
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the one taken by the society ( Ketan Champaklal Divecha and Shankar
Vithoba Desai ). Where a participating member is not a signatory in
individual capacity, either because the DA is signed in representative
capacity by the society or because the participating member was not
physically available for signature, reference to arbitration can still be
made ( Harshad B. Shah ). This is because, in both eventualities, the
participating members have intention to arbitrate. However, in case of a
dissenting member, he never intends to act in terms of DA nor expresses
any intention to arbitrate. He acts contrary to the DA. Therefore, no
reference can be made for adjudication of disputes arising out of DA
between non-signatory dissenting member and developer.
115. So far as the aspect of presence of arbitration agreement in
the PAAA is concerned, the dissenting member agrees to resolve through
arbitration only the disputes arising out of PAAA. His agreement for
arbitration in PAAA cannot be inferred to mean that he has also agreed
to resolve the disputes arising out of DA, which he has consciously not
signed and executed. Therefore, if the disputes pertain purely to the DA,
which the dissenting member has consciously not signed, presence of
arbitration clause in the PAAA would not be a reason for making
reference to arbitration. Composite nature of transaction effected vide
twin documents of DA and PAAA may be a reason for foisting the
contractual obligations arising out of DA on the dissenting member who
has executed the PAAA, but the same cannot be a reason enough for
making him bound by the arbitration agreement contained in the DA,
which he has refused to sign.
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116. While examining the issue of prima facie existence of
arbitration agreement under Section 11 of the Arbitration Act, the
Referral Court also needs to examine and hold as to whether the non-
signatory is a veritable party. The Referral Court need not adopt hands-
off approach in relation to the inquiry into the status of non-signatory as
veritable party. However such inquiry can also be conducted by the
arbitral tribunal under Section 16 of the Arbitration Act. ( ASF Buildtech
and HPCL V/s. BCL Secure Premises Pvt. Ltd. )
117. The conspectus of the above discussion is that Respondent
No.2 is not a veritable party to the DA. Mere capacity of Respondent
No.2 as beneficiary o the DA would not make him automatically a party
to arbitration agreement contained in the DA. Applicability of
contractual obligations in the principal contract (DA) to an individual
member is a different and distinct concept than the concept of being
governed by arbitration agreement contained in the principal contract.
Therefore, even if any contractual stipulations provided for in the DA are
held to be applicable to a dissenting member, the same would not ipso-
facto make him party to arbitration agreement. To paraphrase,
enforceability of DA against dissenting member is a different concept
than applicability of arbitration agreement contained in the DA.
Therefore, mere availing of benefits flowing out of DA would not make a
non-signatory member party to arbitration agreement. Execution of
PAAA by a member who has not signed the DA would again not make
him a party to arbitration agreement contained in the DA. Composite
nature of transaction or commonality of subject matter of DA and PAAA
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would again not make non-signatory member party to the arbitration
agreement in the DA. Arbitration agreement between developer and
society does not get incorporated in PAAA executed between the
developer and members. Thus, there is no agreement to arbitrate
between the Applicant and Respondent No.2 and this Court is unable to
make reference to arbitration. Consequently, the application deserves to
be dismissed.
118. Before parting, this Court places on record appreciation for
valuable assistance rendered by Mr. Tamboly and Mr. Khandeparkar, who
have appeared in the Application at the request of the Court.
O RDER
119. Arbitration Application is accordingly dismissed. There shall
be no order as to costs.
[SANDEEP V. MARNE, J.]
Digitally
signed by
NEETA
SHAILESH
SAWANT
Date:
2026.03.06
20:06:30
+0530
NEETA
SHAILESH
SAWANT
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