M/S AVINASH HITECH CITY 2 SOCIETY & ORS. versus BODDU MANIKYA MALINI & ANR. ETC. on 6 September 2019

M/S AVINASH HITECH CITY 2 SOCIETY & ORS.

v.

BODDU MANIKYA MALINI & ANR. ETC.

(Civil Appeal Nos. 7047-7049 of 2019)

SEPTEMBER 06, 2019

[ARUN MISHRA AND M. R. SHAH, JJ.]

Arbitration and conciliation Act, 1996– s. 8 – The originalland-owners executed 17 development agreements cum power ofattorney in favour of one developer for developing an integratedcomplex – Subsequently, the owners constituted themselves into threesocieties which included appellant no.1-society – Thereafter, theparties to each of the Development Agreements executedsupplementary Development agreements to their respectiveDevelopment agreement – Accordingly, the developer was allotted11 commercial complexes and the owners were allotted 4 commercialcomplexes – Respondents-owners were allotted a share in a buildingH1B and they were also the members of the appellant no. 1 society– Respondents and appellants entered into an Addendum to thesupplementary Development agreement – Various spaces in buildingH1B were leased out to a company and rents were collected by theappellant no.1– Respondents sought sharing of the rent of the leasedspace – Pursuant thereto, respondents filed applications u/s. 23 ofSocieties Registration Act before the District Judge – Appellantsfiled applications u/s. 8 of the Arbitration Act and sought theappointment of Arbitrator in the light of the arbitration cl. 19 of theaddendum – District Judge held disputes between the parties werenot covered u/cl. 19 of the Addendum – Aggrieved, appellants filedappeals before the High Court, which were dismissed – On appeal,held: As per cl. 13 of the Addendum/Agreement, the societies werethe “sole authorities” to collect/receive the lease rents in respect ofthe extends leased out in a given building earmarked as the shareof the owners in the completion and pool the entire revenuegenerated from each of the buildings by way of lease rents anddistribute the same to the owners – Therefore, the dispute betweenthe respondents and the appellants with respect to the sharing ofthe rent with respect to the leased space can be said to be related to A

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Athe Addendum and /or in connection with or relating to the Addendum– Cl.19 was applicable in the event of any dispute and differencearising among the parties out of, in connection with or relating tothe agreement – Both the High Court and District Judge committederror in not referring the dispute between the appellants and therespondents to the arbitration – Parties referred to the ArbitrationB– Andhra Pradesh Societies Registration Act, 2001 – s. 23.

Allowing the appeals, the Court

Conclusion

HELD: 1. On reading Clause 19 of the Addendum as awhole, it appears that in the event of dispute or difference amongCthe parties out of, in connection with or relating to the agreement,the same shall be referred to arbitration. However, sub-clauses(c), (d) and (e) provide for different procedure in the event of anydisputes and differences between the owners; between two ormore societies or owners who are the members of two differentsocieties and between two or more owners of the space in theDsame building. Sub-clause (c) of Clause 19 provides that anydisputes or differences whatsoever arising between owners, whichcould not be resolved by the parties through negotiations, withina period of 30 days from the service of the notice of dispute, thesame shall be referred to and shall finally be settled by theEarbitration in accordance with the (Indian) Arbitration andConciliation Act, 1996. Sub-clause (d) of Clause 19 provides thatin the event of any dispute which involves two or more societiesor owners who are the members of two different societies, thearbitral tribunal shall comprise of three or more arbitrators. Itfurther provides, “who shall be appointed as a presidingFarbitrator; who shall be the Chairman of the arbitral tribunal andthe venue of the arbitration”. Sub-clause (e) of Clause 19 providesthat in the event of any dispute which involves two or moreowners of the space in the same building, the arbitral tribunalshall comprise of the sole arbitrator and, in such a situation, each Gparty to the dispute shall refer the matter to the office bearers oftheir respective Society which shall be the arbitral tribunal andthe venue of arbitration shall be in Hyderabad. [Para 7.1][104-H;105-A-E]

2. As observed hereinabove, Clause 19 shall be applicableHin the event of any dispute and difference arising among the parties out of, in connection with or relating to the agreement.As observed hereinabove, the developers, owners, societies andthe original owners and even subsequent societies formed areparties to the agreement and the Addendum. It is also requiredto be noted and, as observed hereinabove, the dispute is withrespect to sharing of the rent of the leased space and it can besaid that the respondents are also claiming the share relying uponthe Development Agreements; Supplementary DevelopmentAgreements and the Addendum. Therefore, the dispute can besaid to in connection with or relating to the Agreements also.[Para 7.2][105-F-G]

3. Considering the above facts and circumstances, both theHigh Court and the District Judge have committed grave errorin not referring the dispute between the appellants and therespondents to the arbitration. This Court is of the opinion thatClause 19 of the Addendum to the Supplementary DevelopmentAgreement shall be squarely applicable and therefore the disputesbetween the respondents and the appellants for which therespondents initiated proceedings under the SocietiesRegistration Act, are required to be referred to the Arbitrationand/or to the Arbitral Tribunal. [Para 7.3][105-H; 106-A-B]

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 7047-7049 of 2019

From the Judgment and Order dated 22.11.2018 of the HighCourt of Judicature at Hyderabad in C.M.A. Nos. 1257, 1379 and 1380of 2017.

Jayant Bhushan, Sr. Adv., Yelamanchili Shiva Santosh Kumar,Tarun Gupta, Advs. for the Appellants.

Joy Basu, Sr. Adv., Ms. Pallavi Sharma, Adv. for the Respondents.

The Judgment of the Court was delivered by

M. R. SHAH, J.

1. Leave granted.

2. Feeling aggrieved and dissatisfied with the impugned commonjudgment and order dated 22.11.2018 passed by the High Court of A

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AJudicature at Hyderabad for the State of Telangana and the State ofAndhra Pradesh in C.M.A. Nos. 1257, 1379 and 1380 of 2017 by whichthe High Court has dismissed the said appeals and has confirmed theorder passed by the learned Principal District Judge, Ranga Reddyrejecting applications under Section 8 of the Arbitration and ConciliationBAct, 1996 filed by the appellants herein and has refused to refer thedispute between the parties to the Arbitrator, the original applicants havepreferred the present appeals.

3. The facts leading to the present appeals in nutshell are as under:

3.1 That the original land-owners of the land admeasuring 25 acresand 68 cents in aggregate forming part of Survey Nos. 30, 34, 35and 38 situated at Gachibowli Village, Serilingampally, RangareddyDistrict executed 17 development agreements cum power ofattorney in favour of one Phoenix Infocity Private Limited fordeveloping an integrated complex comprising of residential units,commercial and office spaces and service apartments on theproject land. Subsequently, the owners constituted themselvesinto three societies registered under the Andhra Pradesh SocietiesRegistration Act, 2001, namely Avinash Hitech City 2 Society(appellant no. 1), Ganga Hitech City 2 Society and Vignesh HitechCity 2 Society. That the said societies applied for and were grantedco-developer status in respect of the SEZ Project. It appears thatthereafter the parties to each of the Development Agreementsexecuted Supplementary Development Agreements to theirrespective Development Agreement. That, in terms of theDevelopment Agreements and the Supplementary DevelopmentAgreements, the constructed space in the proposed buildings wereto be shared in the ratio of 37.5 : 62.5 between the owners andthe developer. Accordingly, the developer was allotted 11commercial complexes and the owners were allotted 4 commercialcomplexes. It seems that the respondents are the owners whohave been allotted a share in building H1B and also are themembers of the appellant no. 1 Society. It appears that, thereafter,an Addendum to the Supplementary Development Agreement wasexecuted by inter alia the appellants and the respondents(excluding the lessee, HCL Technologies Limited) on 12.03.2010.Clause 19 of the Addendum provides for the mechanism to resolvethe dispute between the parties (which shall be dealt with C

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hereinbelow). Clause 13 of the Addendum is with respect to thecollection of lease rents in respect of the extends leased out in agiven building earmarked as the share of the owners till thecompletion. Clause 16 empowers the societies to determine andcollect monthly maintenance charges from the owners and Clause18 provides that the owners are liable to pay the proportionateshare of common expenses for upkeep and maintenance to thesocieties.

3.2 A cold shell of building H1B was completed by the developerand appellant no. 1 Society converted the same to warm shell bysetting up the air conditioning facilities, back-up generators andback-up power implementation, building management systemimplementation, electrical works and civil works and the fundsfor the same were raised by appellant no. 1 Society by way ofbank loans. Thereafter, various spaces in building H1B were leasedout to HCL Technologies Ltd. and the rents were collected byappellant no. 1 Society.

3.3 That, thereafter, the respondents filed a petition under Section23 of the Andhra Pradesh Societies Registration Act, 2001 (forshort ‘the Societies Registration Act’) before the Principal DistrictJudge, Ranga Reddy District making an allegation that theirpurported share in the rentals were not being paid to them andprayed for a direction to appellant no. 1 Society to produce theentire accounts for the rental amounts received by it from thetenants along with audit reports and minute books from 2011 to2015. The respondents also prayed that appellant no. 1 Society bedirected to pay amounts already due to the respondents, beingtheir purported share in the rental amounts. That, thereafter anotherpetition was filed by the respondents praying that the Court splitappellant no. 1 Society into two different societies claiming tohave “lost all faith and confidence on the integrity” of the executivecommittee of appellant no. 1 Society and claiming that their interestcould no longer be protected by appellant no. 1 Society. That,thereafter, third application was filed by the respondents beforethe learned District Judge under Section 23 of the SocietiesRegistration Act and prayed for a mandatory injunction againstthe appellants herein directing them to inter alia distribute therents purportedly received by appellant no. 1 Society.

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A3.4 In the light of the arbitration Clause 19 of the Addendum, theappellants filed petitions under Section 8 of the Arbitration andConciliation Act, 1996 seeking the appointment of an arbitrator inaccordance with Clause 19 of the Addendum. All the threeapplications came to be dismissed by the learned District Judgeon the ground that the disputes between the parties in the petitionBunder Section 23 of the Societies Registration Act are not coveredunder Clause 19 of the Addendum.

3.5 Aggrieved by the order of the learned District Judge dismissingthe application under Section 8 of the Arbitration and ConciliationAct, the appellants herein preferred three separate appeals beforethe High Court. By the impugned common judgment and orderdated 22.11.2018, the High Court has dismissed the said appeals.Hence, the present appeals.

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4. Shri Jayant Bhushan, learned Senior Advocate appearing onbehalf of the appellants has vehemently submitted that, in the facts andDcircumstances of the case, the High Court has materially erred indismissing the appeals and confirming the order passed by the learnedDistrict Judge dismissing the applications filed under Section 8 of theArbitration and Conciliation Act, 1996. It is vehemently submitted byShri Jayant Bhushan, learned Senior Advocate appearing on behalf ofEthe appellants that the High Court has failed to appreciate Clause 19 ofthe Addendum to the Supplementary Development Agreement dated12.03.2010 in proper perspective while dismissing the applications of theappellants under Section 8 of the Arbitration and Conciliation Act, 1996.

4.1 It is vehemently submitted by the learned Senior AdvocateFappearing on behalf of the appellants that the dispute between theappellants and the respondents is the quantum of the share claimedby the respondents in the lease rents collected by appellant no. 1Society. It is submitted that the respondents are claiming theirshare in the rent collected by appellant no.1 Society relying uponthe relevant provisions of the Development Agreements and theGSupplementary Development Agreements and the Addendum. Itis submitted that, therefore, the dispute can be said to be arisingout of the agreements executed between the parties and theAddendum. It is submitted that, therefore, Clause 19 of theAddendum shall be squarely applicable. It is further submittedHthat Clause 19 of the Addendum is very clear and, as per Clause

19, any dispute between the owners, including the dispute relatingto the Addendum and all questions relating to its interpretationshall be construed in accordance with the laws of India. It furtherprovides that, except as otherwise specifically provided in theAgreement, in the event of any dispute or difference arising amongthe parties out of, in connection with or relating to this agreement,shall be governed by Clause 19 of the Addendum and Sub-clauses(a) to (g) of Clause 19 shall be applicable. It is submitted thattherefore the dispute between the parties for which the respondentsfiled the application under Section 23 of the Societies RegistrationAct before the District Judge shall be squarely covered withinClause 19 and therefore the High Court ought to have allowedthe appeals and ought to have referred the dispute to Arbitratoras per Clause 19 of the Addendum.

4.2 It is further submitted by the learned Senior Advocate appearingon behalf of the appellants that the High Court has materiallyerred in observing and holding that in the event of any disputewhich involves two or more owners of the space in the samebuilding only, Clause 19 shall be applicable.

4.3 It is vehemently submitted by Shri Jayant Bhushan, learnedSenior Advocate for the appellants that appellant no.1 Society is aco-developer and has received the rent as per Clause 13 of theAgreement. It is submitted that in any case when the respondentsare claiming their share in the rent collected and received by theappellant and the dispute is sharing of the rent of the space rented,certainly Clause 19 of the Addendum shall be applicable.

4.4 It is further submitted by the learned Senior Advocate appearingon behalf of the appellants that the High Court has materiallyerred in considering Sub-clause (e) of Clause 19 of the Addendumonly and has materially erred in not considering the entire Clause19 of the Addendum and the intention of the parties to theAgreement/Addendum.

4.5 Making the above submissions, it is prayed to allow the presentappeals and quash and set aside the impugned common judgmentand order passed by the High Court and consequently allow thethree applications filed under Section 8 of the Arbitration andConciliation Act and refer the dispute between the parties for AB

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Awhich the respondents filed an application under Section 23 of theSocieties Registration Act to Arbitration.

5. Shri Joy Basu, learned Senior Advocate appearing on behalf ofthe contesting respondents has opposed the present appeals and hassupported the impugned common judgment and order passed by the HighCourt.

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5.1 It is vehemently submitted by the learned Senior Advocateappearing on behalf of the respondents that, in the facts andcircumstances of the case and considering the relevant sub-clausesof Clause 19 of the Addendum, the High Court has rightly notinterfered with the order passed by the learned District Judgewhile not referring the dispute to Arbitration and not appointingthe Arbitrator.

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5.2 It is vehemently submitted by learned Senior Advocateappearing on behalf of the respondents that on fair reading ofClause 19 of the Addendum, only the disputes and differencesarising between the Owners [Sub-clause (c) of Clause 19]; thedispute which involves two or more societies or owners who arethe members of the different societies [Sub-clause (d) of Clause19]; or the dispute which involves two or more owners of thespace in the same building [Sub-clause (e) of Clause 19], arerequired to be referred to Arbitration and to the Arbitral Tribunalcomprising of the sole arbitrator. It is submitted that, in the presentcase, the dispute between the respondents and the appellantscannot be said to be between the owners or between the two ormore societies. It is submitted that even the opening part of Clause19 specifically refers to any dispute between the owners. It issubmitted that therefore the High Court has rightly observed andheld that the dispute between the respondents and the appellantsshall not fall in any of the Sub-clauses of Clause 19. It is submittedthat no error has been committed by the High Court and the learnedDistrict Judge.

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5.3 Making the above submissions, it is prayed to dismiss thepresent appeals.

6. We have heard the learned counsel appearing on behalf of therespective parties at length. At the outset, it is required to be noted thatthe dispute between the parties for which the respondents have initiatedHproceedings under Section 23 of the Societies Registration Act is with respect to sharing of the rent of the leased space. It is required to benoted that appellant no. 1 Society claims to be the co-developer. It cannotbe disputed and it is not in dispute that owners, societies and developersare the parties to the Development Agreements, SupplementaryDevelopment Agreements and the Addendum. According to appellantno. 1-co-developer, after execution of the Development Agreements,Supplementary Development Agreements and the Addendum, a coldshell in building H1B was completed by the developer and appellant no.1 Society (as co-developer), converted the same to warm shall by settingup the air conditioning facilities, back-up generators and back-up powerimplementation, building management system implementation, electricalworks and civil works and the funds for the same were raised by appellantno. 1 Society by way of bank loans. That, thereafter, various spaces inbuilding H1B were leased out to HCL Technologies Limited and oneother and they recovered the rent from the lessee. As per Clause 13 ofthe Addendum/Agreement which sets out that the societies would bethe “sole authorities” to collect/receive the lease rentsin respect of theextends leased out in a given building earmarked as the share of theowners in the completion and pool the entire revenue generated fromeach of the buildings by way of lease rents and distribute the same to theowners, pro-rata to their respective shares in the build-up space in theproject after addressing the liabilities towards loans. Therefore, the disputebetween the respondents and the appellants with respect to the sharingof the rent with respect to the leased space can be said to be related tothe Addendum and/or in connection with or relating to the Addendum.

7. Clause 19 of the Addendum, which is the arbitration clause andprovides how to settle the dispute between the parties, reads as under:

“The owners agree that any dispute between the Owners,including the dispute relating to this Addendum and all questionsrelating to its interpretation shall be construed in accordancewith the laws of India, without reference to its principles ofconflicts of law. Except as otherwise specifically provided inthis Agreement, the following provisions apply in the event ofany dispute or difference arising among the Parties out of, inconnection with or relating to the Agreement (The ‘Dispute’).

(a) The Dispute shall be deemed to have occurred, when oneParty serves on the other Party/ies a notice stating the natureof the Dispute (‘Notice of Dispute’).

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(b) The Parties hereto agree that they will use all reasonable effortsto resolve among themselves, any Dispute between them throughnegotiations.

(c) Any Dispute and differences whatsoever arising between theOwners which could not be resolved by Parties throughnegotiations, within a period of thirty (30) days from the serviceof the Notice of Dispute, the same shall be referred to and shallfinally be settled by arbitration in accordance with the (Indian)Arbitration and Conciliation Act, 1996, and all the proceedingsshall be conducted in English and a daily transcript in English shallbe prepared.

(d) In the event of any dispute which involves two or more Societiesor Owners who are the members of two different Societies, thearbitral tribunal shall comprise of three or more arbitrators. Insuch a situation, each party to the dispute shall appoint onearbitrator, who shall be from the office bearers of their respectiveSocieties and the two or more arbitrators so appointed shall appointa presiding arbitrator, who shall be one of the office bearers ofthe Hitech City-2 Owners Welfare Association (HOWA) and theChairman of the arbitral tribunal; and the venue of arbitration shallbe in Hyderabad, India.

(e) In the event of any dispute which involves two or more Ownersof the space in the same building, the arbitral tribunal shall compriseof the sold arbitrator. In such a situation, each party to the disputeshall refer the matter to the office bearers of their respectiveSociety which shall be the arbitral tribunal; and the venue ofarbitration shall be in Hyderabad, India.

(f) The Parties are debarred from exercising any right or filingany application to any court or tribunal having jurisdiction inconnection with matters involving substantial questions of lawarising during any arbitration.

(g) The Parties here by submit to the Arbitrator’s award and theaward shall be enforceable in any competent court of law.”

7.1 On reading Clause 19 of the Addendum as a whole, it appearsthat in the event of dispute or difference among the parties out of,in connection with or relating to the agreement, the same shall be

referred to arbitration. However, sub-clauses (c), (d) and (e)provide for different procedure in the event of any disputes anddifferences between the owners; between two or more societiesor owners who are the members of two different societies andbetween two or more owners of the space in the same building.Sub-clause (c) of Clause 19 provides that any disputes ordifferences whatsoever arising between owners, which could notbe resolved by the parties through negotiations, within a period of30 days from the service of the notice of dispute, the same shallbe referred to and shall finally be settled by the arbitration inaccordance with the (Indian) Arbitration and Conciliation Act,1996. Sub-clause (d) of Clause 19 provides that in the event ofany dispute which involves two or more societies or owners whoare the members of two different societies, the arbitral tribunalshall comprise of three or more arbitrators. It further provides,“who shall be appointed as a presiding arbitrator; who shall be theChairman of the arbitral tribunal and the venue of the arbitration”.Sub-clause (e) of Clause 19 provides that in the event of anydispute which involves two or more owners of the space in thesame building, the arbitral tribunal shall comprise of the solearbitrator and, in such a situation, each party to the dispute shallrefer the matter to the office bearers of their respective Societywhich shall be the arbitral tribunal and the venue of arbitrationshall be in Hyderabad.

7.2 As observed hereinabove, Clause 19 shall be applicable in theevent of any dispute and difference arising among the parties outof, in connection with or relating to the agreement. As observedhereinabove, the developers, owners, societies and the originalowners and even subsequent societies formed are parties to theagreement and the Addendum. It is also required to be noted and,as observed hereinabove, the dispute is with respect to sharing ofthe rent of the leased space and it can be said that the respondentsare also claiming the share relying upon the DevelopmentAgreements; Supplementary Development Agreements and theAddendum. Therefore, the dispute can be said to in connectionwith or relating to the Agreements also.

7.3 Considering the above facts and circumstances, both the HighCourt and the learned District Judge have committed grave error ABC

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[2019] 12 S.C.R.

Ain not referring the dispute between the appellants and therespondents to the arbitration. We are of the opinion that Clause19 of the Addendum to the Supplementary DevelopmentAgreement shall be squarely applicable and therefore the disputesbetween the respondents and the appellants for which therespondents initiated proceedings under the Societies RegistrationBAct, are required to be referred to the Arbitration and/or to theArbitral Tribunal.

8. In view of the above and for the reasons stated above, all theseappeals are allowed. The impugned common judgment and order dated22.11.2018 passed by the High Court in C.M.A. Nos. 1257, 1379 andC1380 of 2017 is hereby quashed and set aside. The order passed by thelearned District Judge rejecting the applications submitted by theappellants under Section 8 of the Arbitration and Conciliation Act, 1996are also hereby quashed and set aside. Consequently, the applicationssubmitted by the appellants under Section 8 of the Arbitration and DConciliation Act, 1996 are hereby allowed and the disputes between therespondents and the appellants are hereby directed to be referred to theArbitration. No costs.

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Ankit Gyan

Appeals allowed.

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