Full Judgment Text
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 70477049 OF 2019
[Arising out of SLP (Civil) Nos. 42134215 of 2019]
M/s Avinash Hitech City 2 Society & Ors. .. Appellants
Versus
Boddu Manikya Malini & Anr. Etc. .. Respondents
J U D G M E N T
M. R. Shah, J.
1. Leave granted.
2. Feeling aggrieved and dissatisfied with the impugned
common judgment and order dated 22.11.2018 passed by the
High Court of Judicature at Hyderabad for the State of Telangana
and the State of Andhra Pradesh in C.M.A. Nos. 1257, 1379 and
Signature Not Verified
Digitally signed by
NARENDRA PRASAD
Date: 2019.09.06
17:10:04 IST
Reason:
1380 of 2017 by which the High Court has dismissed the said
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appeals and has confirmed the order passed by the learned
Principal District Judge, Ranga Reddy rejecting applications
under Section 8 of the Arbitration and Conciliation Act, 1996
filed by the appellants herein and has refused to refer the dispute
between the parties to the Arbitrator, the original applicants have
preferred the present appeals.
3. The facts leading to the present appeals in nutshell are as
under:
3.1 That the original landowners of the land admeasuring 25
acres and 68 cents in aggregate forming part of Survey Nos. 30,
34, 35 and 38 situated at Gachibowli Village, Serilingampally,
Rangareddy District executed 17 development agreements cum
power of attorney in favour of one Phoenix Infocity Private
Limited for developing an integrated complex comprising of
residential units, commercial and office spaces and service
apartments on the project land. Subsequently, the owners
constituted themselves into three societies registered under the
Andhra Pradesh Societies Registration Act, 2001, namely Avinash
Hitech City 2 Society (appellant no. 1), Ganga Hitech City 2
Society and Vignesh Hitech City 2 Society. That the said
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societies applied for and were granted codeveloper status in
respect of the SEZ Project. It appears that thereafter the parties
to each of the Development Agreements executed Supplementary
Development Agreements to their respective Development
Agreement. That, in terms of the Development Agreements and
the Supplementary Development Agreements, the constructed
space in the proposed buildings were to be shared in the ratio of
37.5 : 62.5 between the owners and the developer. Accordingly,
the developer was allotted 11 commercial complexes and the
owners were allotted 4 commercial complexes. It seems that the
respondents are the owners who have been allotted a share in
building H1B and also are the members of the appellant no. 1
Society. It appears that, thereafter, an Addendum to the
Supplementary Development Agreement was executed by inter
alia the appellants and the respondents (excluding the lessee,
HCL Technologies Limited) on 12.03.2010. Clause 19 of the
Addendum provides for the mechanism to resolve the dispute
between the parties (which shall be dealt with hereinbelow).
Clause 13 of the Addendum is with respect to the collection of
lease rents in respect of the extends leased out in a given
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building earmarked as the share of the owners till the
completion. Clause 16 empowers the societies to determine
and collect monthly maintenance charges from the owners and
Clause 18 provides that the owners are liable to pay the
proportionate share of common expenses for upkeep and
maintenance to the societies.
3.2 A cold shell of building H1B was completed by the developer
and appellant no. 1 Society converted the same to warm shell by
setting up the air conditioning facilities, backup generators and
backup power implementation, building management system
implementation, electrical works and civil works and the funds
for the same were raised by appellant no. 1 Society by way of
bank loans. Thereafter, various spaces in building H1B were
leased out to HCL Technologies Ltd. and the rents were collected
by appellant no. 1 Society.
3.3 That, thereafter, the respondents filed a petition under
Section 23 of the Andhra Pradesh Societies Registration Act,
2001 (for short ‘the Societies Registration Act’) before the
Principal District Judge, Ranga Reddy District making an
allegation that their purported share in the rentals were not
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being paid to them and prayed for a direction to appellant no. 1
Society to produce the entire accounts for the rental amounts
received by it from the tenants along with audit reports and
minute books from 2011 to 2015. The respondents also prayed
that appellant no. 1 Society be directed to pay amounts already
due to the respondents, being their purported share in the rental
amounts. That, thereafter another petition was filed by the
respondents praying that the Court split appellant no. 1 Society
into two different societies claiming to have “lost all faith and
confidence on the integrity” of the executive committee of
appellant no. 1 Society and claiming that their interest could no
longer be protected by appellant no. 1 Society. That,
thereafter, third application was filed by the respondents before
the learned District Judge under Section 23 of the Societies
Registration Act and prayed for a mandatory injunction against
the appellants herein directing them to inter alia distribute the
rents purportedly received by appellant no. 1 Society.
3.4 In the light of the arbitration Clause 19 of the Addendum,
the appellants filed petitions under Section 8 of the Arbitration
and Conciliation Act, 1996 seeking the appointment of an
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arbitrator in accordance with Clause 19 of the Addendum. All
the three applications came to be dismissed by the learned
District Judge on the ground that the disputes between the
parties in the petition under Section 23 of the Societies
Registration Act are not covered under Clause 19 of the
Addendum.
3.5 Aggrieved by the order of the learned District Judge
dismissing the application under Section 8 of the Arbitration and
Conciliation Act, the appellants herein preferred three separate
appeals before the High Court. By the impugned common
judgment and order dated 22.11.2018, the High Court has
dismissed the said appeals. Hence, the present appeals.
4. Shri Jayant Bhushan, learned Senior Advocate appearing
on behalf of the appellants has vehemently submitted that, in the
facts and circumstances of the case, the High Court has
materially erred in dismissing the appeals and confirming the
order passed by the learned District Judge dismissing the
applications filed under Section 8 of the Arbitration and
Conciliation Act, 1996. It is vehemently submitted by Shri
Jayant Bhushan, learned Senior Advocate appearing on behalf of
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the appellants that the High Court has failed to appreciate
Clause 19 of the Addendum to the Supplementary Development
Agreement dated 12.03.2010 in proper perspective while
dismissing the applications of the appellants under Section 8 of
the Arbitration and Conciliation Act, 1996.
4.1 It is vehemently submitted by the learned Senior Advocate
appearing on behalf of the appellants that the dispute between
the appellants and the respondents is the quantum of the share
claimed by the respondents in the lease rents collected by
appellant no. 1 Society. It is submitted that the respondents are
claiming their share in the rent collected by appellant no. 1
Society relying upon the relevant provisions of the Development
Agreements and the Supplementary Development Agreements
and the Addendum. It is submitted that, therefore, the dispute
can be said to be arising out of the agreements executed between
the parties and the Addendum. It is submitted that, therefore,
Clause 19 of the Addendum shall be squarely applicable. It is
further submitted that Clause 19 of the Addendum is very clear
and, as per Clause 19, any dispute between the owners,
including the dispute relating to the Addendum and all questions
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relating to its interpretation shall be construed in accordance
with the laws of India. It further provides that, except as
otherwise specifically provided in the Agreement, in the event of
any dispute or difference arising among the parties out of, in
connection with or relating to this agreement, shall be governed
by Clause 19 of the Addendum and Subclauses (a) to (g) of
Clause 19 shall be applicable. It is submitted that therefore the
dispute between the parties for which the respondents filed the
application under Section 23 of the Societies Registration Act
before the District Judge shall be squarely covered within Clause
19 and therefore the High Court ought to have allowed the
appeals and ought to have referred the dispute to Arbitrator as
per Clause 19 of the Addendum.
4.2 It is further submitted by the learned Senior Advocate
appearing on behalf of the appellants that the High Court has
materially erred in observing and holding that in the event of any
dispute which involves two or more owners of the space in the
same building only, Clause 19 shall be applicable.
4.3 It is vehemently submitted by Shri Jayant Bhushan, learned
Senior Advocate for the appellants that appellant no.1 Society is
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a codeveloper and has received the rent as per Clause 13 of the
Agreement. It is submitted that in any case when the
respondents are claiming their share in the rent collected and
received by the appellant and the dispute is sharing of the rent of
the space rented, certainly Clause 19 of the Addendum shall be
applicable.
4.4 It is further submitted by the learned Senior Advocate
appearing on behalf of the appellants that the High Court has
materially erred in considering Subclause (e) of Clause 19 of the
Addendum only and has materially erred in not considering the
entire Clause 19 of the Addendum and the intention of the
parties to the Agreement/Addendum.
4.5 Making the above submissions, it is prayed to allow the
present appeals and quash and set aside the impugned common
judgment and order passed by the High Court and consequently
allow the three applications filed under Section 8 of the
Arbitration and Conciliation Act and refer the dispute between
the parties for which the respondents filed an application under
Section 23 of the Societies Registration Act to Arbitration.
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5. Shri Joy Basu, learned Senior Advocate appearing on behalf
of the contesting respondents has opposed the present appeals
and has supported the impugned common judgment and order
passed by the High Court.
5.1 It is vehemently submitted by the learned Senior Advocate
appearing on behalf of the respondents that, in the facts and
circumstances of the case and considering the relevant sub
clauses of Clause 19 of the Addendum, the High Court has
rightly not interfered with the order passed by the learned
District Judge while not referring the dispute to Arbitration and
not appointing the Arbitrator.
5.2 It is vehemently submitted by learned Senior Advocate
appearing on behalf of the respondents that on fair reading of
Clause 19 of the Addendum, only the disputes and differences
arising between the Owners [Subclause (c) of Clause 19]; the
dispute which involves two or more societies or owners who are
the members of the different societies [Subclause (d) of Clause
19]; or the dispute which involves two or more owners of the
space in the same building [Subclause (e) of Clause 19], are
required to be referred to Arbitration and to the Arbitral Tribunal
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comprising of the sole arbitrator. It is submitted that, in the
present case, the dispute between the respondents and the
appellants cannot be said to be between the owners or between
the two or more societies. It is submitted that even the opening
part of Clause 19 specifically refers to any dispute between the
owners. It is submitted that therefore the High Court has rightly
observed and held that the dispute between the respondents and
the appellants shall not fall in any of the Subclauses of Clause
19. It is submitted that no error has been committed by the High
Court and the learned District Judge.
5.3 Making the above submissions, it is prayed to dismiss the
present appeals.
6. We have heard the learned counsel appearing on behalf of
the respective parties at length. At the outset, it is required to
be noted that the dispute between the parties for which the
respondents have initiated proceedings under Section 23 of the
Societies Registration Act is with respect to sharing of the rent of
the leased space. It is required to be noted that appellant no. 1
Society claims to be the codeveloper. It cannot be disputed and
it is not in dispute that owners, societies and developers are the
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parties to the Development Agreements, Supplementary
Development Agreements and the Addendum. According to
appellant no. 1codeveloper, after execution of the Development
Agreements, Supplementary Development Agreements and the
Addendum, a cold shell in building H1B was completed by the
developer and appellant no. 1 Society (as codeveloper), converted
the same to warm shall by setting up the air conditioning
facilities, backup generators and backup power
implementation, building management system implementation,
electrical works and civil works and the funds for the same were
raised by appellant no. 1 Society by way of bank loans. That,
thereafter, various spaces in building H1B were leased out to
HCL Technologies Limited and one other and they recovered the
rent from the lessee. As per Clause 13 of the
Addendum/Agreement which sets out that the societies would be
the “sole authorities” to collect/receive the lease rents in respect
of the extends leased out in a given building earmarked as the
share of the owners in the completion and pool the entire revenue
generated from each of the buildings by way of lease rents and
distribute the same to the owners, prorata to their respective
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shares in the buildup space in the project after addressing the
liabilities towards loans. Therefore, the dispute between the
respondents and the appellants with respect to the sharing of the
rent with respect to the leased space can be said to be related to
the Addendum and/or in connection with or relating to the
Addendum.
7. Clause 19 of the Addendum, which is the arbitration clause
and provides how to settle the dispute between the parties, reads
as under:
“The owners agree that any dispute between the
Owners, including the dispute relating to this
Addendum and all questions relating to its
interpretation shall be construed in accordance with
the laws of India, without reference to its principles
of conflicts of law. Except as otherwise specifically
provided in this Agreement, the following provisions
apply in the event of any dispute or difference arising
among the Parties out of, in connection with or
relating to the Agreement (The ‘Dispute’).
(a) The Dispute shall be deemed to have
occurred, when one Party serves on the other
Party/ies a notice stating the nature of the Dispute
(‘Notice of Dispute’).
(b) The Parties hereto agree that they will use all
reasonable efforts to resolve among themselves, any
Dispute between them through negotiations.
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(c) Any Dispute and differences whatsoever
arising between the Owners which could not be
resolved by Parties through negotiations, within a
period of thirty (30) days from the service of the
Notice of Dispute, the same shall be referred to and
shall finally be settled by arbitration in accordance
with the (Indian) Arbitration and Conciliation Act,
1996, and all the proceedings shall be conducted in
English and a daily transcript in English shall be
prepared.
(d) In the event of any dispute which involves two
or more Societies or Owners who are the members of
two different Societies, the arbitral tribunal shall
comprise of three or more arbitrators. In such a
situation, each party to the dispute shall appoint one
arbitrator, who shall be from the office bearers of
their respective Societies and the two or more
arbitrators so appointed shall appoint a presiding
arbitrator, who shall be one of the office bearers of
the Hitech City2 Owners Welfare Association
(HOWA) and the Chairman of the arbitral tribunal;
and the venue of arbitration shall be in Hyderabad,
India.
(e) In the event of any dispute which involves two
or more Owners of the space in the same building,
the arbitral tribunal shall comprise of the sold
arbitrator. In such a situation, each party to the
dispute shall refer the matter to the office bearers of
their respective Society which shall be the arbitral
tribunal; and the venue of arbitration shall be in
Hyderabad, India.
(f) The Parties are debarred from exercising any
right or filing any application to any court or tribunal
having jurisdiction in connection with matters
involving substantial questions of law arising during
any arbitration.
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(g) The Parties here by submit to the Arbitrator’s
award and the award shall be enforceable in any
competent court of law.”
7.1 On reading Clause 19 of the Addendum as a whole, it
appears that in the event of dispute or difference among the
parties out of, in connection with or relating to the agreement,
the same shall be referred to arbitration. However, subclauses
(c), (d) and (e) provide for different procedure in the event of any
disputes and differences between the owners; between two or
more societies or owners who are the members of two different
societies and between two or more owners of the space in the
same building. Subclause (c) of Clause 19 provides that any
disputes or differences whatsoever arising between owners, which
could not be resolved by the parties through negotiations, within
a period of 30 days from the service of the notice of dispute, the
same shall be referred to and shall finally be settled by the
arbitration in accordance with the (Indian) Arbitration and
Conciliation Act, 1996. Subclause (d) of Clause 19 provides that
in the event of any dispute which involves two or more societies
or owners who are the members of two different societies, the
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arbitral tribunal shall comprise of three or more arbitrators. It
further provides, “who shall be appointed as a presiding
arbitrator; who shall be the Chairman of the arbitral tribunal and
the venue of the arbitration”. Subclause (e) of Clause 19
provides that in the event of any dispute which involves two or
more owners of the space in the same building, the arbitral
tribunal shall comprise of the sole arbitrator and, in such a
situation, each party to the dispute shall refer the matter to the
office bearers of their respective Society which shall be the
arbitral tribunal and the venue of arbitration shall be in
Hyderabad.
7.2 As observed hereinabove, Clause 19 shall be applicable in
the event of any dispute and difference arising among the parties
out of, in connection with or relating to the agreement. As
observed hereinabove, the developers, owners, societies and the
original owners and even subsequent societies formed are parties
to the agreement and the Addendum. It is also required to be
noted and, as observed hereinabove, the dispute is with respect
to sharing of the rent of the leased space and it can be said that
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the respondents are also claiming the share relying upon the
Development Agreements; Supplementary Development
Agreements and the Addendum. Therefore, the dispute can be
said to in connection with or relating to the Agreements also.
7.3 Considering the above facts and circumstances, both the
High Court and the learned District Judge have committed grave
error in not referring the dispute between the appellants and the
respondents to the arbitration. We are of the opinion that Clause
19 of the Addendum to the Supplementary Development
Agreement shall be squarely applicable and therefore the
disputes between the respondents and the appellants for which
the respondents initiated proceedings under the Societies
Registration Act, are required to be referred to the Arbitration
and/or to the Arbitral Tribunal.
8. In view of the above and for the reasons stated above, all
these appeals are allowed. The impugned common judgment and
order dated 22.11.2018 passed by the High Court in C.M.A. Nos.
1257, 1379 and 1380 of 2017 is hereby quashed and set aside.
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The order passed by the learned District Judge rejecting the
applications submitted by the appellants under Section 8 of the
Arbitration and Conciliation Act, 1996 are also hereby quashed
and set aside. Consequently, the applications submitted by the
appellants under Section 8 of the Arbitration and Conciliation
Act, 1996 are hereby allowed and the disputes between the
respondents and the appellants are hereby directed to be referred
to the Arbitration. No costs.
..................................J.
(ARUN MISHRA)
New Delhi ...................................J.
September 6, 2019 (M. R. SHAH)