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Mahesh S. Mehta v. Harini Co-Op. Hsg. Soc. Ltd. & Ors.
Structured Summary of the Opinion — Mohta Anoop V., J.
Factual and Procedural Background
The petitioner invoked section 9 of the Arbitration and Conciliation Act, 1996 seeking interim relief in aid of a substantive dispute pending before an arbitrator. The parties entered into a written agreement dated 7.5.2008 under which the developer (petitioner) agreed to demolish an old building and develop the plot in accordance with specified terms, including a time-bound construction schedule: obtain plinth commencement certificate within 3 months of vacating and complete construction within 18 months from receipt of the full commencement certificate, subject to specified exceptions. The agreement contained an arbitration clause and provided that arbitration shall be held in Mumbai.
Under the agreement the petitioner made significant financial outlays (purchase of TDR, payments towards development charges/premium, professional and out-of-pocket expenses, advance compensation, security deposit and brokerage; and ongoing monthly compensation for temporary accommodation). The society (respondent No.1) is said to be unable to hand over possession because two members (respondents No.2 and No.3) objected to the development and have challenged the general body resolution. A dispute is pending before the Arbitrator and respondents No.2 and No.3 have filed a proceeding under section 91 of the Maharashtra Co-operative Societies Act (MCS Act). The petitioner seeks interim relief under section 9 of the Arbitration Act — including appointment of a Court Receiver to take possession so the project can be completed.
Legal Issues Presented
- Whether interim relief under section 9 of the Arbitration and Conciliation Act, 1996 can be granted in aid of the main relief pending before the Arbitral Tribunal (given that the relief claimed cannot be granted under section 17).
- Whether relief under section 9 can be granted against respondent No.1 (the society) although two society members (respondents No.2 and No.3) object to the agreement and have challenged the general body resolution under the MCS Act.
- Whether the court can exercise powers under Order 40, Rule 1 of the Civil Procedure Code (by appointing a Receiver and taking possession of the premises) to secure completion of the development, despite objections by minority members.
Arguments of the Parties
Petitioner's Arguments
- The petitioner relied on the written agreement dated 7.5.2008, which contains an arbitration clause and a time-bound construction schedule to complete the project within 18 months from the full commencement certificate.
- The petitioner has incurred substantial expenditure: purchase of TDR for Rs. 72,76,464/- (excluding stamp duty of Rs. 2,18,300/-), payments of about Rs. 16 lakhs towards development charges/premium, approximately Rs. 10 lakhs towards professional and out-of-pocket expenses, Rs. 12 lakhs as non-refundable security deposit, about Rs. 2.5 lakhs towards brokerage, and ongoing monthly compensation of approximately Rs. 2,30,000/- for temporary accommodation for 10 members. The petitioner claims continuing expenditure and losses.
- The petitioner sought relief under section 9 (interim measures) because section 17 cannot grant the requested relief and because the society is unable to hand over possession only because two members are not cooperating.
- The petitioner requested appointment of a Court Receiver to take possession (by breaking lock, if necessary) to enable completion of the project and protect the petitioner's investment and the overall project interests.
Respondent No.1 (Society)'s Position
- The society did not oppose the grant of the relief as prayed by the petitioner (the opinion records that the society "has no objection if the relief as prayed is granted").
Respondents No.2 and No.3 (Minority Members)' Arguments
- They objected to the resolution in the Special General Body Meeting by endorsing "not agreeable" and later challenged the resolution under section 91 of the MCS Act.
- They submitted that they have a legal right to continue to occupy the premises and contended that they are not bound by the agreement between the petitioner and the society.
- On instructions, their learned counsel stated they are not in a position to secure the amount invested and future expenses and costs by the petitioner in case the project is halted.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Adhunik Steels Ltd. v. Orissa Manganese & Minerals (P) Ltd., (2007) 7 SCC 125 | Guidance on considerations when granting interim relief under section 9 of the Arbitration and Conciliation Act, 1996. | The court referred to the Apex Court's observation that while considering relief under section 9 the court must take note of basic elements; the opinion treats that authority as instructive in assessing whether the requirements for interim relief are made out. |
Court's Reasoning and Analysis
The court proceeded through the following reasoning, based strictly on the facts and submissions recorded in the opinion:
- The agreement between the petitioner and respondent No.1 is time-bound (complete within 18 months from the full commencement certificate) and contains an arbitration clause. The petitioner has acted on the agreement and made substantial investments and ongoing payments in reliance on it.
- The immediate cause of delay in obtaining the commencement certificate and handing over possession is the non-cooperation of respondents No.2 and No.3, who objected to the resolution and have initiated proceedings under section 91 of the MCS Act. The majority resolution in the General Body (nine versus two) remained unchallenged until the petition was filed.
- The court regarded the majority special resolution and resultant agreement as binding on the society and its members under the MCS Act and relevant bye-laws; therefore, the objection that minority members are not bound by the agreement was rejected in the present circumstances. The court observed that mere objection by two members cannot halt the project when the majority has validly entered into the agreement.
- The court accepted that section 9 of the Arbitration Act is available to grant interim measures in aid of the main claim pending before the Arbitral Tribunal, particularly where relief cannot be obtained under section 17. The court noted that respondents No.2 and No.3 are not parties to the arbitration agreement and that the relief under section 9 can be granted against the consenting society (respondent No.1).
- The court considered whether relief could be denied because the order might affect third persons (the two objecting members). It held that potential consequential effects on third persons do not preclude granting interim relief against the main contesting party when the substantive prerequisites under law and procedural rules (CPC Order 40 Rule 1; Order 39 Rule 1; Specific Relief Act, 1963) are satisfied.
- The court found that it had power under Order 40, Rule 1, to appoint a Receiver and take possession (including breaking locks if necessary) to secure the subject premises, since the society was under an obligation to hand over vacant premises for development and the petitioner was obliged to complete the project within the stipulated time. The availability of this remedial mechanism weighed in favour of granting interim relief.
- The court weighed the prejudice to the petitioner (substantial investment and continuing expenditure) against the objections of the minority members and found that halting the project at the instance of two dissenting members would unjustly prejudice the petitioner and the majority of society members. The minority's inability to secure the petitioner's investments if the project were halted was noted as a relevant consideration.
- Applying these considerations, and with reference to the Apex Court's guidance in Adhunik Steels, the court concluded that the requirements for interim relief under section 9 were satisfied in the present circumstances and that the petitioner was entitled to the relief prayed against the society.
Holding and Implications
HOLDING: The petition was allowed in terms of prayer (a). No order as to costs. The court refused to stay the order sought by the respondents No.2 and No.3, but granted them four weeks' time to vacate the premises. Liberty was given to the parties to settle the matter between themselves.
Implications:
- Direct effect on the parties: The court granted interim relief under section 9 of the Arbitration and Conciliation Act, 1996 in favour of the petitioner against respondent No.1 (the society), enabling steps (including appointment of a Receiver if necessary) to secure possession for completion of the development project. Respondents No.2 and No.3 were not permitted to stay the order and were given four weeks to vacate.
- On precedent and broader law: The opinion applied existing legal principles (including guidance from the Apex Court in Adhunik Steels) to the facts; the judgment does not purport to create a new legal precedent beyond applying those principles to the circumstances of this case.
No additional information beyond what is contained in the provided opinion has been added. Sections reflect only the statements and holdings recorded by the judge in the opinion.
Mohta Anoop V., J.:— The petitioner has invoked section 9 of the Arbitration and Conciliation Act, 1996 (for short the Act) and prayed as under:
2. Admittedly, there is an agreement between the petitioner and respondent No. 1-Society dated 7.5.2008 to demolish existing old building and to develop the plot/property as agreed. The basic clauses are as under, which also include Arbitration clause:—
24. The Developer agree to obtain Plinth Commencement Certificate in respect of the proposed buildings within 3 months of vacating and handing over possession of the premises of the society and to complete the entire construction within eighteen months time period from the date of receipt of full commencement certificate and also obtain occupation certificate and Building Completion certificate provided that the Developer are not prevented from doing the construction for any of the reasons such as:—
i) War, Civil, Commotion or act of God or any unforeseen circumstances beyond the control of developer
ii) Any notice, Order, Rule, notification or the Government or other public body judicial or Competent Authority including MHADA & BMC in respect of this development,
However, except stated herein above, it is also agreed that the time is essence of contract.
35. It is expressly agreed between the parties that in the developer completes the virtual construction of new structures for existing members on or before 18 months from the date of receipt of full commencement certificate from BMC and the flats are made ready for possession in all respect and with all agreed amenities, then the Developer shall intimate in writing to the society and its members to occupy their respective flats, upon which the members of the society shall on receipts of such written intimation from developer, cause to occupy the flats in new structure within one month period, failing which the compensation as payable by virtue of Clause No. 25 herein before to the society and its members shall not be liable to be paid by the developer from thereafter.
49. All disputes and differences between the parties hereto in connection with carrying out of this agreement including the interpretation of any term of condition hereof either during the subsistence of this agreement or subsequent thereto, shall be referred to arbitration and which shall be governed by the provisions of the Arbitration and Conciliation Act, 1996 or its statutory modifications shall have summary powers. The arbitration shall always be held in Mumbai and the courts of Mumbai shall alone have jurisdiction in the matter.
3. There is no dispute that this agreement provides time bound schedule to complete the project within 18 months from the date of receipt of the full commencement certificate from NCGM. It also provides that pending construction the petitioner provides alternate suitable residential accommodation to the respective members. Admittedly, parties have proceeded accordingly. Out of the 12 members 10 members have already shifted in the premises provided by respondent No. 1.
4. The petitioner has incurred based upon this Agreement huge amount as averred in paragraph 18:
“18. The petitioner says that the petitioner has already paid purchase price of TDR amounting to Rs. 72,76,464/- (excluding stamp duty of Rs. 2,18,300/-) and purchased the same in the name of society. Moreover, the petitioner also put his efforts and also money to get the plan approved and sanctioned by paying sum of Rs. 16 lakhs and more towards the Development Charges, Premium etc., Apart from payment of such premium, the petitioner has incurred expenditure of Rs. 10 lakhs or more towards professional and out of pocket expenses from preparing and sanctioning of plan for construction of the new building. Apart from this, the petitioner has already paid advance rent compensation to respondent No. 1's members through respondent No. 1 by way of post dated cheques and also given the respondent No. 1 an aggregate sum of Rs. 12 lakhs by way of non refundable Security Deposit and approximately Rs. 2.5 lakhs towards brokerage. The petitioner has been incurring continuing expenses of monthly compensation for the temporary accommodation for 10 members which comes to approximately Rs. 2,30,000/- per month. The petitioner submits that he has been incurring expenditure and/or losses of Rs. 7 lakhs and more towards monthly compensation, interest on investment, security etc. excluding loss of profit. Thus it is submitted that the petitioner has acted upon and also is action upon the said agreement to his prejudice and having no point of return due to the heavy investment as stated above.”
5. The dispute is pending before the Arbitrator as the society is unable to handover the possession to the petitioner. As the relief claimed in the present petition cannot be granted under section 17 of the Act, the petitioner have invoke section 9 of the Act in this background.
6. Respondents No. 2 and 3 are the members who objected even in the Special General Body Meeting dated 2.3.2009 by endorsing “not agreeable”. However, the resolution was passed by a majority that is nine versus two. This resolution remained unchallenged till the filing of the present petition.
7. However, now it is stated that only respondents No. 2 and 3 have filed dispute under section 91 of the Maharashtra Co-operative Societies Act (for short MCS Act) against respondent No. 1 and the same is pending. They facet of majority decision by any society as contemplated and available under section 77 of the mcs act arid rules just cannot be overlooked while considering the grant of reliefs as prayed. Admittedly, respondents No. 2 and 3 have full knowledge about this development, in fact participated also though objected as stated above. Therefore, the submissions as they are not agreeing to this resolution and, therefore, they are not bound by the agreement between the petitioner and respondent No. 1 is unacceptable.
8. The purpose of the society which governed and run pursuance to the MCS Act is to have cooperation from all its members to fulfill the aims and objects as per the Bye-laws of the society. Therefore, merely because two members are objecting and now have challenged the said resolution that itself, in my view, no way affects the special resolution passed by majority and the agreement entered into between the parties accordingly. The parties are bound by the same.
9. Section 9 of the Act as invoked is basically against respondent No. 1 society. Respondent No. 1 society is unable to hand over the premises resultantly the commencement certificate could not be obtained to proceed and complete the construction within 18 months only because respondents No. 2 and 3 are not cooperating. Any delay is not in the interest of the parties, as well as, all the society members.
10. The society has no objection if the relief as prayed is granted. Respondents No. 2 and 3 have objection on additional submission that they have a legal right to continue to occupy the premises. It cannot be overlooked at this stage that they are occupying the premises as members of the society. The majority of the members of the said society have agreed and in fact entered into an Agreement with the petitioner. The objections raised by respondents No. 2 and 3 (two members) are, in no way sufficient to halt the whole project. Therefore, the disputes raised and it is pending before the Arbitral Tribunal and the society is expressing inability to hand over the possession only because two members are objecting. The Arbitral tribunal in a given case, considering the undisputed position on record including the majority, resolution, agreement and the investment already made by the petitioner, has no choice but to grant the main relief as prayed, as respondent No. 1 society is also not opposing the same.
11. It is clear that section 9 can be invoked in aid to the main relief/claim which is pending before the Arbitral Tribunal. Respondents No. 2 and 3 are not parties to the agreement in question. The society has entered into this agreement, where there is a clause of Arbitration. At this stage all the members are bound by the same. The relief under section 9 of the act, therefore, can be granted against the consenting society/respondent No. 1.
12. Even if we take note of the objection raised by respondents No. 2 and 3, still in the present fact and circumstances, and basically at this stage of proceedings, I am declined to accept the submissions raised by the learned Counsel appearing for respondents No. 2 and 3 the minority members, that no relief can be granted against the members who are not a party to the Arbitration Agreement: In the present case the majority decision/resolution followed by the agreement binds the society and its members under the law.
13. There is agreement between the par ties the petitioner seeking basic relief against respondent No. 1 who is main contesting party. Merely because some other members like respondents No. 2 and 3 will be affected by only order, if passed, that itself cannot be the reason not to grant any relief Under section 9 of the Act. Any consequential order in a given case if affects the third person but basically the order is against main contesting party, in my view that in no way sufficient to overlook and to deny the relief as prayed in favour of the deserving party, basically when all the averments as required under the provisions of law and the Civil Procedure Code (C.P.C) Order 40, Rule 1 and Order 39, Rule 1 and Specific Relief Act, 1963, are made out. The Apex Court in the matter of (Adhunik Steels Ltd. v. Orissa Manganese & Minerals (P) Ltd.)1, 2007 DGLS (soft) 742 : (2007) 7 SCC 125 has observed while considering to grant any relief under section 9 of the Act, that the Court must take note of these basic element.
14. The submission that there is no case made out under Order 40, Rule 1 in the present facts and circumstances is also unacceptable. This Court has power to appoint a Receiver to take possession of the premises, if necessary, by breaking lock. Respondent No. 1 is under obligation to handover the vacant premises/plot for development. The petitioner/builder is under obligation to complete the project within stipulated period.
15. If respondents No. 2 and 3 in the present case do not want to co-operate that will halt the whole project. The petitioner and respondent No. 1 have already entered into the Agreement in accordance with law and that remained in tact till this date. I am of the view that such project cannot be halted at the instance of respondents No. 2 and 3 because of their non-cooperation and the objections as recorded above. When asked the Learned Counsel appearing for respondents No. 2 and 3 on instructions made statement that they are not in a position to secure the amount invested and incurred including the future expenses and costs, by the petitioner in case the project is halted like this. This facet is also relevant to consider to grant or not to grant such relief as prayed under section 9 of the Act.
16. The petitioner in this case by the prayer clause asking the Court to order directing the Court Receiver to take possession and hand over to the petitioner to complete the project as the petitioner and respondent No. 1 are bound to provide newly constructed accommodation/premises to all members including respondents No. 2 and 3 with prescribed time. As agreed it is in the interest of all the members to shift for the time being to get the project/building completed so that they will be provided with the new flats. This in my view in no way can be stated to be deprived them of their right to occupy the premises as contended. The parties need to comply with the agreed terms considering the scheme and object of entering into such agreement. It is just a temporary displacement with specific purpose to complete the project in time.
17. Resultantly the petition is allowed in terms of prayer (a). No order as to cost. The learned Counsel appearing for the respondents No. 2 and 3 seeks stay of this order. In view of the reasons already given no case is made out to stay the order. However, time is granted for 4 weeks to vacate the premises. Liberty is also granted to parties to settle the matter, if they want.
18. Petition allowed.
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