As held in the case of Sukanya Holdings P. Ltd. Vs.
Jayesh H. Pandya & Anr., (2003) 5 Supreme Court Cases 531 in
paragraph 13 of the judgment that there was no provision for splitting
case of parties and refer the subject matter of the suit to the
arbitrators and hence it held that unlike U/s.24 of the Arbitration Act,
1940 the matter not between all the parties to the arbitration
agreement could not be referred to arbitration because the entire
subject matter of the suit should be subject to the arbitration
agreement. All the parties to the action were required to be parties to
the agreement upon which alone the matter in dispute would be
referred to the arbitration. Hence despite the primacy of the
arbitration as a forum for alternative resolution for disputes, if all the
parties to the suit were not parties to the arbitration the matter could
not be referred to arbitration U/s.8 of the Arbitration and Conciliation
Act, 1996 (Arbitration Act, 1996) because the matter of reference
could not be bifurcated under that provisions of Section 8 of the
Arbitration Act, 1996.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
APPELLATE SIDE JURISDICTION
Shah & Mody Developers
V/s.
Alka Ketan Shah & Ors.
CORAM : MRS. ROSHAN DALVI, J.
Date of Pronouncing the Judgment
: 5th August, 2013
Citation;2013(5) ALLMR 817,2013(5) Bom CR3,2013(6) MHLJ 684
The Petitioner was the Defendant in the original suit who
1.
had made an application for reference of the dispute between the
parties to arbitration U/s.8 of the Arbitration Act. The learned Judge,
City Civil Court, Dindoshi, Mumbai rejected the said application on 4 th
January, 2013 which order has been challenged in this Writ Petition.
2.
The parties entered in to an agreement for flat purchase.
The Respondent herein / the Plaintiffs in the suit (Plaintiffs) entered
into an agreement on 12th June, 2008 for purchase of certain
commercial premises for the consideration mentioned thereunder.
The agreement was executed under provisions of Maharashtra
Ownership of Flat Act, 1963 (MOFA). The Plaintiffs as the purchaser
of the commercial premises also would be a flat purchaser in view of
the definition of flat U/s.2(a1) of MOFA. The agreement provided
interalia a clause relating to the reference of the disputes between
the parties being the flat purchaser and the developer to arbitration
Consequently when the Plaintiffs sued to enforce the
3.
under clause 61 thereof.
agreement and the various provisions of MOFA as flat purchasers, the
Petitioner, who was Defendant No.1 in the suit, took out its
application for referring the dispute to arbitration.
4.
Defendant No.1 relied upon the judgment in the case of
P. Anand Gajapathi Raju & Ors. Vs. PVG Raju & Ors., AIR 2000
Supreme Court 1886, that Section 8 is peremptory and therefore it is
obligatory upon the Court to refer the parties to arbitration in terms of
the arbitration agreement, which has been upheld in the case of
Hindustan Petroleum Corpn. Ltd. Vs. M/s. Pinkcity Midway
Petroleums, AIR 2003 Supreme Court 2881, that it is mandatory for
the Court to refer the dispute for arbitration once the arbitration
5.
clause is accepted by the parties.
However, the suit was filed not between the parties to the
arbitration agreement only. The Plaintiffs indeed sued the developer
for orders and direction to comply with the statutory obligations
under the MOFA set out in the plaint and for injunction restraining
development, construction and other activities by the developer,
Defendant No.1 but also sued the Mumbai Municipal Corporation
(MMC) to issue stop work notice and stop of development activities
and revoke and cancel the amended plans for further development
and construction of the building.
6.
All the parties to the suit were, therefore, not the parties to
the arbitration agreement. Defendant Nos.2 and 3 were outside the
agreement.
7.
As held in the case of Sukanya Holdings P. Ltd. Vs.
Jayesh H. Pandya & Anr., (2003) 5 Supreme Court Cases 531 in
paragraph 13 of the judgment that there was no provision for splitting
case of parties and refer the subject matter of the suit to the
arbitrators and hence it held that unlike U/s.24 of the Arbitration Act,
1940 the matter not between all the parties to the arbitration
agreement could not be referred to arbitration because the entire
subject matter of the suit should be subject to the arbitration
agreement. All the parties to the action were required to be parties to
the agreement upon which alone the matter in dispute would be
referred to the arbitration. Hence despite the primacy of the
arbitration as a forum for alternative resolution for disputes, if all the
parties to the suit were not parties to the arbitration the matter could
not be referred to arbitration U/s.8 of the Arbitration and Conciliation
Act, 1996 (Arbitration Act, 1996) because the matter of reference
could not be bifurcated under that provisions of Section 8 of the
Arbitration Act, 1996. The case of Sukanya (Supra) has been
considered in the Chloro Controls India P. Ltd. Vs. Severn Trent
Water Purification INC & Ors., (2013) 1 Supreme Court Cases 641
but left unaltered, whilst holding that that case referred to Section 45
of the Arbitration Act which fell under Part II thereof unlike the case
of Sukanya (Supra) which fall under Part I and therefore did not
apply to it, it was also observed in Paragraph 95 of the judgment that
unlike Section 24 of the Arbitration Act, 1940 which allowed
reference to arbitration by some of the parties, Section 8 was not
framed so and hence the judgment in the case of Sukanya (Supra)
was left at that.
8.
Consequently though the judgment in the case of P. Anand
(Supra) laid down four parameters for reference to arbitration U/s.8,
the later judgment in the case of Booz Allen & Hamilton Inc. Vs. SBI
Home Finance Ltd. & Ors., AIR 2011 Supreme Court 2507 laid
down five such parameters including that all the parties to the suit are
the parties to the arbitration agreement. Consequently since the
Defendant Nos.2 and 3 the MMC and its officer were not parties to the
arbitration agreement, the learned Judge rightly rejected the
application.
9.
It has been contended on behalf of the Appellant herein
(the Defendant / Developer) that joining the Municipality was
malafide act. It was made to prevent the matter being sent to
arbitration. MMC was not a necessary party. The required statutory
notice U/s.527 of the MMC Act was not given. In paragraph 20 of the
plaint, the Plaintiff averred that the notice was not necessary as the
cause pleaded did not arise from any action of Defendant No.2. It
was, therefore, argued that additional Defendant Nos.2 and 3 as party
Defendants lack bonafides and the plaint filed against the MMC had
itself to be rejected as held in the case of Sadu Vithal Joshi Vs. The
Municipal Corporation and Anr., 1986 (3) Bom.C.R. 628 and the
dispute should have been referred to arbitration.
10.
Though it may be stated that a Court should not
countenance any act indirectly done which could not have been done
directly and which would constitute malafides or frivolity, it would
require the plaint to be first rejected against the parties who were
needlessly added upon holding that they indeed were so added and
then alone the reference of all the dispute to arbitration could have
been made in view of the Judgment in the case of Sukanya (Supra)
r/w. the Judgment in the case of Chloro Controls (Supra).
11. To this extent the rejection of the application is correct.
12. However, it has been held by the learned Judge in the
impugned order that a suit filed for enforcing the provisions of MOFA
U/s.4,20,11,12 etc. gave it exclusive jurisdiction. Though the
jurisdiction of Court remained under MOFA, the observation that it
would exclude any matter being referred to arbitration therein may
not be correct. The observation of the learned Judge in paragraph 15
of the order that because specific proforma of the agreement has been
provided under MOFA, which does not contemplate an arbitration
clause and the duty of the Court is to follow the mandate under the
Act, there is nothing for arbitrator to do in the matter and hence no
matter under MOFA could be referred to arbitration is seen to be
Section 4(1) of MOFA requires an agreement to be entered
13.
incorrect.
into by developer / promoter with the flat purchaser upon receiving
20% of the sale price. Section 4(1A) of MOFA enjoins that the
agreement prescribed under sub section 1 shall contain interalia the
particulars specified in clause 'a' of that section along with the copies
of documents specified in clause 'b' of the section. They would mean
that whatever are the particulars to be specified by way of the
legislative provision are mandatory. These are interalia the
particulars to be specified. Hence other particulars may be specified
in the agreement. That would be the contract between the parties.
The parties would be free to enter in to any such additional contract
by way of such additional clauses, of course, provided they are not
against the provision of MOFA or otherwise against the provisions of
any other law. In this case the parties entered in to an agreement
having arbitration clause. That agreement is not an illegality. In fact
it is a welcome measure. It would bring to an end of the dispute by
the alternative method of resolution for disputes more expeditiously
than by adjudication in a Court of law. The parties are, therefore, free
to and have the liberty to enter in to any agreement inconsonance
with the Arbitration Act, 1996 to have been resolved thereunder. If
any suit is by and between parties to such agreement alone it would
have to be mandatorly referred to arbitration as agreed by them upon
a reference being made under the statutory mandate contained in
Section 8 of the Arbitration Act, 1996 and the law laid down with
regard to its application upon court in the case of P. Anand (Supra)
and HPC (Supra).
14.
Mr. Naidu was right in referring to judgment in the case of
Jayantilal Investments Vs. Madhuvihar CoOp. HSG Soc. & Ors.
(2007) 9 Supreme Court Cases 220 holding in paragraph 17 thereof
that the agreement between promoterflat purchaser must comply
with form 5 which includes a form of agreement which could be
modified and adapted in each case depending upon the facts and
circumstances of each case so far as it includes the mandatory clauses.
15.
However, in this case the suit is not filed by and between
only the parties to the arbitration agreement. It is correctly filed
against other parties also as well be seen from another order of this
Court in AO No.514 of 2013 passed today. Consequently all the five
mandates in the case of Booz Allen (Supra) for reference of the Court
would not be satisfied in this case.
16.
Consequently the impugned order, so far as it considers the
aforesaid judgments including the judgment in the case of HPC
(Supra) and P Anand (Supra), cannot be faulted, the view of the
learned Judge in paragraph 15 notwithstanding. Hence the rejection
is proper. The dispute cannot be referred to arbitration upon the suit
being filed since the Suit is justifiably filed against Defendant Nos.2
and 3 also for reliefs which have come to be correctly granted and
upheld in AO No.514 of 2013.
17.
Consequently the impugned order of rejection of the
Petitioner's application is confirmed.
( ROSHAN DALVI, J. )
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