In recent legal proceedings of Ketan Champaklal Divecha v/s DGS Township Pvt. Ltd. & Another, an important issue was raised regarding the maintainability of a petition and application filed by a petitioner under Sections 9 and 11 of the Arbitration and Conciliation Act, 1996 (the ‘Arbitration Act’) in relation to a development agreement executed between a Co-operative Housing Society, its members, and a developer. The crux of the dispute centered on whether an individual member of the Society could invoke arbitration for resolving grievances arising out of the development agreement.
Facts of the Case:
The development agreement in question, executed on March 25, 2021, aimed at the redevelopment of the property belonging to a Co-operative Housing Society. This agreement was signed by 216 members of the Society, the developer, and the Society itself. Along with the development agreement, a Power of Attorney was granted to the developer, enabling them to carry out the development as stipulated.
The development was meant to proceed according to the applicable regulations, specifically Regulation 33(7)(B) of the Development Control and Promotion Regulations for Greater Mumbai, 2034 (DCPR 2034). An important clause in the agreement was that any additional development potential exceeding the permissible Floor Space Index (FSI) would be shared equally between the developer and the Society.
However, complications arose when it was discovered that the actual plot size was smaller than anticipated, which prompted a review of the redevelopment scheme. A unanimous resolution passed by the Society’s managing committee on June 12, 2022, allowed the developer to amend the development scheme, thereby signing a supplemental development agreement with the developer.
The petitioner, a member of the Society, and some other members believed that the revised terms of the supplemental agreement were disadvantageous to the individual members. Consequently, the petitioner sought to invoke the arbitration clause under the development agreement to resolve the dispute.
The Arbitration Clause in Dispute:
The arbitration clause under Section 35 of the development agreement was central to the dispute. According to the clause:
Clause 35.1 stipulated that any disputes, claims, or questions arising from the agreement would be resolved through arbitration under the Arbitration Act.
Clause 35.2 provided the mechanism for invoking arbitration, specifying that the Society and its members, as a single party, could forward a panel of names for the appointment of a sole arbitrator, to be jointly agreed upon by the Society and the developer.
Despite the petitioner’s invocation of the arbitration clause, the respondents, including the developer and the Society, argued that the petition was not maintainable because the arbitration clause could only be invoked by the Society as a whole, not by individual members.
Legal Objections Raised:
The respondents contended that the development agreement and the arbitration clause, when read together, made it clear that arbitration was meant for disputes between the Society (as a collective entity) and the developer, not between individual members and the developer. This was in line with the established legal principle that a Co-operative Society acts as a representative body for its members, and individual members lose their independent rights when they become part of the Society.
Additionally, the respondents argued that the arbitration clause was structured to prevent multiple arbitration proceedings for each individual member, which would have been a logistical and legal nightmare. Instead, the dispute resolution mechanism was designed to involve the Society as a whole, which could collectively espouse the interests of its members.
Court’s Ruling:
The court, after considering the arguments, sided with the respondents, concluding that the petitioner’s invocation of the arbitration clause was flawed. The judgment reinforced the interpretation that the arbitration agreement was not meant for individual members but for the Society as a collective body. The court emphasized that the Society, acting through its majority members, had the authority to invoke arbitration on behalf of its members.
Furthermore, the court referred to the principle that once a person becomes a member of a Co-operative Society, they lose their individuality in relation to the Society. The Society, as a legal entity, must represent its members in such disputes, and any arbitration can only occur if the Society, along with its members, collectively takes up the dispute.
The court also cited previous judgments, including the case of Daman Singh & Ors. vs. State of Punjab & Ors., which held that a Co-operative Society must act on behalf of its members in such matters. The court also referenced another judgment that clarified that a defective invocation of arbitration would render proceedings under Sections 9 and 11 of the Arbitration Act inadmissible.
Conclusion:
The case highlights an important distinction in how arbitration clauses in agreements involving Co-operative Housing Societies are interpreted. It establishes that individual members cannot invoke arbitration under such agreements unless the Society, representing the majority of its members, collectively initiates the process. The judgment underscores the collective nature of Co-operative Societies, reinforcing the notion that a dispute resolution mechanism is designed to resolve grievances of the members through the collective will of the Society, not through individual arbitration proceedings.
In this particular case, the petition filed by the individual petitioner was dismissed on the grounds that the arbitration clause was not meant for individual disputes but for those involving the Society as a collective entity. The ruling serves as a reminder of the importance of adhering to the stipulated procedures in agreements involving multiple parties, especially in the context of Co-operative Societies, where the collective decision-making process is paramount.
Section 9, Arbitration and Conciliation Act - 1996
Arbitration and Conciliation Act, 1996
