Interpreting Property's 'Built-Up Area Wall-To-Wall' As Carpet Area Is Commercially Sound: Bombay High Court

The Bombay High Court has dismissed a petition under section 34 Arbitration and Conciliation Act, 1996 (Arbitration Act) filed by the Developer-partners of Lukhi Associates challenging a 2020 arbitral award arising out of disputes under a 2010 Development Agreement with the Saini family. Justice Somasekhar Sundaresan upheld the award, holding that “what the Learned Arbitral Tribunal has found would draw sustenance from the principle of giving commercial contracts a commercial commonsensical interpretation. The usage of the term “built up” which covers the area covered on all floors alongside the phrase “wall to wall” has necessitated the Learned Arbitral Tribunal to examine what would be the commercially commonsensical approach to interpreting this term of the Development Agreement.” The dispute arose out of a development agreement executed between the petitioners (Developers) and landowners relating to redevelopment of property in Mumbai. Under clause 5 of the Agreement, the landowners were entitled to flats aggregating 5,000 sq ft of “built-up area wall-to-wall”. While construction was completed and possession was delivered, the landowners alleged that the flats delivered were deficient in area. Opposing the plea, the Developer had contended that the development potential reduced to a shortfall of 61.01 sq m between the physical area (880.31 sq m) and area recorded in the property card (819.30 sq m). The Arbitral Tribunal had rejected the Developer's contentions and awarded compensation for the shortfall, determining that “built-up area wall-to-wall” effectively corresponded to carpet area. The Developer before the High Court argued that the Tribunal erred in interpreting “built-up area wall-to-wall” as carpet area. It was further submitted that the landowners were only entitled to proportional reduced area due to reduced development potential. The award granted compensation for 1,310.34 sq ft, exceeding the landowners' claim of 1,212 sq ft. Lastly, it was submitted that the award was vitiated over non-joinder of necessary parties, namely all heirs and confirming parties. Per contra, the Landowners' submitted that the Agreement recorded the discrepancy between actual area and property card area, the Developer could not claim ignorance. It was further submitted that the interpretation adopted by the tribunal was commercially reasonable. Lastly, it was submitted that all necessary parties had participated, confirming parties were not required for the adjudication of flat delivery disputes. The court noted that the Agreement expressly recorded both the physical measurement and the property card area. The Developer conducted the survey but did not produce the survey plan. “The Learned Arbitral Tribunal is correct in its findings that the bargain in the Development Agreement was executed with eyes open and there was no scope of being taken by surprise. Therefore, in my opinion, the premise of development potential being truncated because of a shortfall of 61.01 square metres in the property card is devoid of merit ", the court observed. The court further observed that the tribunal's interpretation of the phrase “Built-Up Area Wall-to-Wall” as carpet area was supported by commercial common sense and statutory definitions under Development Control Regulations and RERA. It held that “By making reference to the contemporaneously applicable statutory definitions, the Learned Arbitral Tribunal has found that it is reasonable to conclude that what the parties meant by “built up area wall to wall” is that they meant the usable area, which is the carpet area.” It added that “the determination of the area of shortfall at 1,310.34 square feet is a product of application of the declaratory determination by the Learned Arbitral Tribunal to the facts of the case. This is a corollary and a logical extension of the finding on how to interpret the term “built up area wall to wall”. Such a finding cannot be simplistically regarded as being outside the scope of the contract or the claim, but instead it is a logical extension and consequence of a declaratory finding in the Impugned Award, that is well within the jurisdiction of the Learned Arbitral Tribunal.” On non-joinder of confirming parties, the court held that the confirming parties were not necessary parties for adjudicating delivery of flats under clause 5. The court reiterated the principle that an arbitral award cannot be interfered with merely because another view was possible. Quoting Dyna Technologies, the Court observed that “arbitral awards should not be interfered with in a casual and cavalier manner, unless the court comes to a conclusion that the perversity of the award goes to the root of the matter without there being a possibility of alternative interpretation which may sustain the arbitral award.” The court concluded that the arbitral award...

Interpreting Property's 'Built-Up Area Wall-To-Wall' As Carpet Area Is Commercially Sound: Bombay High Court

Mohd Malik Chauhan

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