Individual Flat Owners Forming Cooperative Society Are Bound By Arbitration Clause Contained In Sale Agreement: Bombay High Court

The Bombay High Court bench of Justice N.J. Jamadar has observed that when individual flat owners form a cooperative society to enforce rights created in favour of the individual members under the Agreements for Sale, the society cannot claim that it is not bound by the arbitration clause contained in those Agreements. The argument that it is not a signatory to the Agreements for Sale is untenable and such society is not a third party to the arbitral proceedings. Facts Respondent Nos. 2 to 8 granted development rights in respect of a piece land in favour of the Respondent No. 1 – firm. Pursuant to that, the Respondent No.1 constructed five buildings and sold them to various purchasers by executing Agreements for Sale. Since Respondent No.1 failed to discharge its obligations under Maharashtra Ownership of Flats Act, 1963 (“MOFA”) in as much as an association of flat purchasers was not formed, the purchasers of the said buildings formed the Petitioner-society. Since the Respondent No.1 did not execute the conveyance, the Competent Authority ordered to issue a certificate for grant of unilateral deemed conveyance in favour of the flat purchasers. Thereafter, Respondent No.1 issued a notice to the Petitioner by invoking arbitration, as provided under Clause 38 of the Agreement for Sale executed in favour of the individual purchasers. In the arbitral proceedings, the Petitioner filed an application under Section 16, ACA asserting inter alia that there was no arbitration agreement between Respondent No.1 and the Petitioner. Respondent No.1 resisted this application by contending that since indisputably the individual agreement holders had formed the Petitioner-society, all rights and responsibilities of the individual agreement holders stood vested in the Petitioner society. The arbitrator disallowed the application and the present writ petition is a challenge to this order of the arbitrator dated 14.05.2025. Contentions The Counsel for the Petitioner submitted that the Petitioner-society has an independent juristic existence, apart from its individual members. It was contended that the challenge was to the conveyance under the Deed of Deemed Conveyance which did not contain any arbitration clause. Further, the initiation of arbitral proceedings against the Petitioner who is a non-signatory to the previous Agreement to Sale between the Respondent No.1 and individual flat owners is legally untenable. The Counsel for Petitioner also submitted that once a conveyance is executed, the object and purpose of the Agreement for Sale comes to an end and thus the arbitration clause in such Agreement for Sale comes to an end. The Counsel for Respondent No.1 argued that since the individual agreement holders had formed the Petitioner-society, all rights and responsibilities of the individual agreement holders stood vested in the Petitioner society. Observations The Court observed that the main question before it was whether the Petitioner-society was bound by the Arbitration Clause contained in the individual Agreements to Sale. The Court held that the submission by Petitioner's Counsel that Deed of Deemed Conveyance did not contain an arbitration clause and thus arbitration proceedings could not be initiated against it, lacked merit. The Court explained that an arbitration agreement was a creature of contract, however the unilateral Deed of Deemed Conveyance by its very nature was not an instrument inter-vivos. Such a deed would not incorporate an arbitration clause which is an expression of the consensual decision to resolve the dispute by a forum of choice. Regarding the issue that the Petitioner society was not a signatory to the Agreement for Sale, the Court held that it could not have been a signatory as it was yet to be formed and so the issue could not be determined only on the premise that the Petitioner was not a signatory to the Agreement for Sale which contained the Arbitration Clause. Based on the statutory provisions contained in the Maharashtra Co-operative Society Act, 1960 and judicial precedents, the Court observed that the registration of a society shall render it a body corporate with power inter alia to sue and be sued in its name. The Court observed that applying this aforesaid position of law to the facts of the present case, it was clear that the rights and obligations of the parties had their genesis in the Agreements for Sale executed by Respondent No.1 in favour of individual flat purchasers. By executing those Agreements, the Respondent No.1 had subjected himself to the regime of MOFA. The Court acknowledged that Respondent No.1 could have instituted a suit to adjudicate its disputes with the Petitioner. The Counsel for the Petitioner had submitted that the Petitioner would not be prejudiced if the Respondent No.1 instituted a suit as the avenues against an adverse determination...

Individual Flat Owners Forming Cooperative Society Are Bound By Arbitration Clause Contained In Sale Agreement: Bombay High Court

Arpita Pande

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