Flat Member’s Rent And Terrace Claims Go To Arbitration As Bombay HC Finds Substituted Developer Prima Facie Bound By PAAA

The Applicant was a member of Respondent No. 1 Society and had executed a registered Agreement for Permanent Alternate Accommodation (PAAA) with the original developer, Prakrit Developers Pvt. Ltd.

The PAAA included an arbitration clause (Clause 46) and incorporated the Society’s Development Agreement.

Under a later Supplementary Development Agreement (SDA), Respondent No. 2 became the substituted developer and undertook obligations under the redevelopment agreement and members’ PAAAs.

The Applicant alleged non-payment of transit rent and disputed entitlement to an open terrace; he invoked arbitration, but received no response.

Respondent Nos. 2 to 4 objected that they had not signed the PAAA, relied on the SDA’s Mumbai-courts jurisdiction clause, and raised the pendency of a MahaRERA complaint.

The Applicant sought appointment of a sole arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996.

1. Whether Respondent No. 2, which did not sign the PAAA, was bound by its arbitration clause by virtue of its substitution under the SDA and assumption of the PAAA obligations.

2. Whether Clause 69 of the SDA, conferring jurisdiction on Mumbai courts, excluded arbitration under Clause 46 of the PAAA.

3. Whether the disputes concerning transit rent and terrace entitlement, or the pending MahaRERA complaint, precluded appointment of an arbitrator.

4. Whether Respondent Nos. 3 and 4 were individually bound by the arbitration agreement.

Section 7(5) of the Arbitration and Conciliation Act, 1996 permits an arbitration clause in another document to be incorporated into a contract where the reference shows an intention to make that document’s terms part of the contract; a mere general reference is insufficient (M.R. Engineers and Contractors (P) Ltd. v. Som Datt Builders Ltd. and NBCC (India) Ltd. v. Zillion Infraprojects (P) Ltd.).

Hirani Developers v. Nehru Nagar Samruddhi CHS Ltd. confirms that an arbitration clause is incorporated where the later agreement makes the earlier agreement’s terms and clauses binding.

Under Cox and Kings Ltd. v. SAP India (P) Ltd., a non-signatory’s connection to a contracting party is insufficient; its conscious, direct and substantial involvement or acceptance of contractual obligations must be assessed, and the Arbitral Tribunal may determine whether a non-signatory is bound.

Connected agreements intended to operate as parts of one commercial arrangement should be read together, as explained in National Skill Development Corporation v. Surya Wires (P) Ltd.

The Court also applied the Section 11 approach of referring disputes for arbitral determination without deciding the underlying merits.

The SDA expressly substituted Respondent No. 2 as developer under the redevelopment agreement and the individual PAAAs, required it to perform their obligations, and made the PAAAs’ fundamental terms integral to the SDA.

Read with Clause 46 of the PAAA, these provisions supplied a prima facie basis to hold Respondent No. 2 bound by the arbitration agreement; the fact that the SDA itself lacked a separate arbitration clause did not displace the incorporated clause.

Clause 69 applied to disputes between the SDA’s parties and did not expressly exclude arbitration of the Applicant’s claims under the PAAA.

The competing claims about the terrace, rent, payments and calculations required interpretation of the agreements and examination of evidence, and therefore went to the merits rather than the existence of an arbitrable dispute.

The pending MahaRERA complaint was not, on the material before the Court, an absolute bar; questions of overlap, statutory bar or double recovery remained open.

The record did not establish whether Respondent Nos. 3 and 4 had individually accepted obligations, so their status was left for the Tribunal to determine under Cox and Kings.

It held that Respondent No. 2 was prima facie bound by the arbitration clause, while leaving open whether Respondent Nos. 3 and 4 were individually bound.

The Tribunal was to decide the merits, including terrace entitlement and transit-rent liability; the parties were to bear arbitral costs equally in the first instance, subject to the final award.