16 July 2024 Arbitration Law >> Business & Commercial Law  

In a recent judicial decision of Shankar Vithoba Desai & Others v/s Gauri Associates & Another, the Bombay High Court addressed a complex issue involving arbitration within a cooperative housing society. The case highlighted critical points about the scope of arbitration agreements and the rights of individual members versus the collective body of a society. This article delves into the details of the case, the Court's reasoning, and the broader implications for similar disputes.

Case Overview:

The case at hand involved an application filed by eleven members of the Dahisar Chunabhatti Panchratna Co-operative Housing Society Limited (the "Society"). These members sought to invoke arbitration under Section 11 of the Arbitration and Conciliation Act, 1996, in connection with disputes related to a Development Agreement with M/s Gauri Associates AOP (the "Developer"). The Development Agreement, dated 29th June 2018, was executed between the Society and the Developer for the redevelopment of the society's building.

The Dispute:

On 31st March 2023, a group of 13 members from the Society issued a notice to both the Society and the Developer, aiming to initiate arbitration. This move was contested by the Developer, who questioned the authority of these members to invoke arbitration on behalf of the Society. The central issue before the Court was whether these individual members could compel arbitration when they were not signatories to the original Development Agreement.

Court's Analysis:

The Bombay High Court, after reviewing the submissions and relevant documents, found that the arbitration clause in the Development Agreement was clearly intended to be bilateral, involving only the Society and the Developer. Clause 28 of the Development Agreement stipulates that disputes arising from the agreement are to be settled through arbitration by an arbitrator nominated by the parties. If the parties fail to agree on a sole arbitrator, an Arbitral Tribunal consisting of three arbitrators is to be constituted, with each party appointing one arbitrator.

The Court noted that the arbitration clause's language—using terms like "each other" and specifying a tribunal of three arbitrators—suggests that the agreement is between two parties only. The idea of extending this to include all members of the Society would conflict with the arbitration process outlined in the agreement. Such an interpretation would imply an impractical scenario involving multiple parties in arbitration, which was not supported by the agreement's terms.

Key Arguments and Court's Conclusion:

The applicants argued that the term "THE SOCIETY" in the Development Agreement should be understood to include all its members. However, the Court rejected this argument, emphasizing that the interpretation would contradict the clear bilateral nature of the arbitration agreement. The decision was consistent with the principles established in a similar case, Ketan Champaklal Divecha vs. DGS Township Pvt Ltd. and Another (2024 SCC OnLine Bom 1), where it was determined that individual members could not invoke arbitration under agreements they are not party to.

Implications:

The Court's ruling reinforces the principle that arbitration agreements must be respected as written and that only parties to the agreement can invoke arbitration. For cooperative housing societies and similar entities, this decision underscores the importance of clearly defining the scope of arbitration clauses and understanding the limits of individual members' rights in such agreements.

Conclusion:

In sum, the Bombay High Court's decision in this case clarifies the limitations on individual members' ability to invoke arbitration in disputes arising from collective agreements. The ruling serves as a reminder of the need for precision in drafting arbitration clauses and respecting the contractual agreements established between parties.

  Arbitration and Conciliation Act, 1996