Individual Members' Suit Does Not Abandon Society's Arbitration Clause With Developer: Bombay High Court

The Bombay High Court has held that a civil suit filed by individual members of a housing society against a developer does not amount to abandonment of the arbitration clause in a redevelopment agreement. The Court said such a decision can be taken only by the society acting as a collective body.

A Single-Judge Bench of Justice Somasekhar Sundaresan said that once a co-operative housing society is formed, individual members give up their separate will to the collective will of the society. Courts cannot infer the society's intent from the conduct of its members.

“Pursuit or abandonment of the arbitration agreement is solely the Society's prerogative. Actions of the individual members of the Society are not actions of the Managing Committee of the Society,” the court held.

The case arose from the stalled redevelopment of Phalke Niketan Co-operative Housing Society Ltd., a 20-tenement housing society in suburban Mumbai, built in 1974. The land on which the building stands is leased from the Maharashtra Housing and Area Development Authority (MHADA).

The society had entered into a Development Agreement with Adit Enterprises for redevelopment. The building was demolished in 2009. No construction followed. Under the agreement and a later supplemental agreement, members were promised larger flats, a corpus of Rs 1 lakh, enhanced transit rent with escalation, and penalties for delay. The developer defaulted on transit rent and other dues. Arrears piled up over the years. The society terminated the agreement in 2016.

In 2018, MHADA appointed an administrator to take charge of the society. During this period, four members filed a civil suit against the developer on behalf of all members. The society came out of administration in 2023, elected a new managing committee, and appointed a fresh developer.

When the new developer attempted to access the site, it was allegedly obstructed by the original developer. The society then approached the High Court under Section 9 of the Arbitration and Conciliation Act seeking interim protection.

The developer argued that the arbitration clause had been waived. It relied on the filing of the suit and a court-ordered poll showing support from other members. The Court rejected this. It said individual members had no privity with the arbitration agreement and could not have initiated arbitration. With the society under administration, filing a suit was the only remedy available to them. The poll was not a statutory meeting and could not reflect the society's will.

The court drew a clear distinction between the actions of individual members and those of the managing committee, whose decisions alone bind the society.

“The members give up their individual will to the collective will of the Society and it is not for a Court to infer from conduct what the statutorily-exercised will of the Society is and compare it with the individual positions of its members,” the judgment said.

The court held that support for the members' suit did not make it a suit by the society. Nor did it prevent the society from terminating the agreement and appointing a new developer. There was no basis to conclude that the arbitration agreement had been abandoned.

On interim relief, the court found a strong prima facie case. Members had been displaced since 2009 and No redevelopment had taken place.

The developer was in admitted default. The balance of convenience lay in favour of the society. The petition was allowed, restraining the developer from interfering with the redevelopment.