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IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

Arbitration Petition (lodg) No.593 of 2019

Solaris Developers Pvt.Ltd. ...Petitioner
Versus
Eversmile Co­op.Housing Society Ltd. ...Respondent
­­­
Mr.Akshay Patil I/b. Mangesh Nalawade, for the Petitioner.

Mr.Rohaan Cama with Shanay Shah I/b. Rohit Shetty, for the Respondent.

­­­­­
CORAM : G.S. KULKARNI, J.

  DATE     :    7 June 2019
­­­
P.C.

1. Heard   the   learned   Counsel   for   the   petitioner   and   the   learned

Counsel for the respondent.

2. This   is   a   petition   filed   under   Section   37   of   the   Arbitration   and

Conciliation   Act,1996   (for   short   'the   Act')   whereby   the   petitioner­

developer is before the Court assailing an order dated 15 May 2019 passed

by   the   learned   Sole   Arbitrator   on   the   respondent's­society's   application

under Section 17 of the Act.

3. During the course of the hearing of this petition, a suggestion was

made,   so   that   the   petitioner   can   be   put   to   terms,   and   some   workable

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solution can be arrived. To enable the parties to discuss the issues, hearing

of this petition was passed over for the second session.  A discussion took

place not only between the parties but also between their learned Counsel.

However, it is informed by the learned Counsel for the respondent­society,

that  in  the  prevailing situation  the  parties  stand, this  discussion, in  no

manner inspires any confidence with the respondent­society, much less for

any settlement of the disputes, to be brought about. The parties hence

preferred that the petition be heard.

4. By   the   impugned   order   passed   by   the   learned   sole   arbitrator,

although mandatory directions in  respect of the project in  question are

issued, the respondent­society has contended that these directions would

be required to be held as justified.

5. It   clearly   appears   that   the   respondent's­society's   reconstruction

project is inordinately delayed.   The development agreement in question

was entered between the respondent­society and the petitioner­developer

on 15 September 2010. It is also not in dispute that the first construction­

commencement certificate was issued by the Municipal Corporation on 23

January 2013, thereafter a further commencement certificate was granted

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on   5   December   2013   upto   the   8th  floor   and   a   final   commencement

certificate   was   granted   on   18   October   2014   upto   the   10 th  floor.   The

development agreement clearly contemplated that the construction of the

building to rehouse the 59 members of the society would be completed

within thirty months. It was expected that at least after obtaining of the

first   commencement   certificate   i.e.   from   23   January   2013   or   from   the

second commencement certificate dated 5 December 2013 that the project

is expeditiously undertaken. The respondent­society contended before the

arbitral tribunal that the record clearly indicated that no fault could be

attributed to the society including on the issue raised in respect of fungible

FSI which was purportedly on the ground that there was a change in the

Development Control Regulations for Greater Mumbai (for short 'DCR')

and for which fresh plans were required to be submitted. It was contended

that   despite   this   change,   the   agreement   was   least   affected   and   the

obligations   of   the   petitioner   to   proceed   with   the   construction   and

complete   the   construction   for   all   the   reasons   remain   unchanged.   The

learned Arbitrator has held that in fact such reasons were no justification

for the petitioner to delay the construction.

6. Since 2012 the members of the respondent­society are out of their

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premises and they are awaiting completion of the construction. It is not in

dispute that substantial work is required to be undertaken to complete the

construction and in fact the construction is made upto two podium level

and is only partly constructed upto 8 th floors.  Mr.Cama would submit that

there is only shell upto 8th  floor.   This is the only progress done by the

petitioner for all these years.

7. On   being   confronted   with   the   serious   prejudice   being   caused   by

such gross delay on the part of the petitioner in undertaking  construction,

and   the   members   of   the   respondent­society   having   lost   faith   and

confidence   in   the   petitioner,   on   29   September   2015   the   respondent­

society terminated the development agreement as entered into with the

petitioner. It appears that thereafter on some ray of hope being shown by

the petitioner to the society,  the respondent­society was made to believe

that the petitioner would undertake the construction. However this was

far from reality. There was no progress. The petitioner also made defaults

in making payment of the monthly rent/compensation to the members for

the temporary alternate accommodation. Some members had approached

this   Court   in   petitions   filed   under   Section   9   of   the   Act.   So   also   the

respondent­society   had   also   approached   this   Court   in   a   petition   filed

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under Section 9 of the Act, bearing Commercial Arbitration Petition (lodg)

no.480  of   2017  and     Commercial   Arbitration  Petition   (lodg)  no.481   of

2017   respectively.   This   Court   (S.J.Kathawalla,   J.)   had   passed   the

following order on 18 January 2018:­

1. Apart   from   the   disclosures   made   by   the   Director   of   the

Respondent Company, they shall also file income tax returns of the
Respondent Company of the last five years.
2. The   Executive   Engineer,   K/West   Ward,   Andheri   (West),
Mumbai shall visit the Suit project and file his Affidavit before this
Court on 2nd February, 2018 at 03.00 p.m. setting out the amounts,
which the Respondent / Eversmile CHSL will be required to pay till
date to enable the Corporation to issue the final Commencement
Certificate / Occupation Certificate in respect of the said project.
3. The Respondent Company shall in the first week of every
month   pay   the   rent   /   compensation   for   the   current   month   plus
arrears of one month rent / compensation until the entire arrears is
cleared by the Respondent.
4. Stand over to 2nd February, 2018 at 03.00 p.m.”

8. Despite the clear directions of the Court as directed in paragraph

(3) of the said order, the petitioner did not comply with the said directions

and   the   arrears   of   rent   have   now   exceeded   to   more   than   Rs.3   crores.

Further   this   Court   (S.J.Kathawalla,   J.)   passed   an   order   on   Arbitration

petition   no.400   of   2018   filed   by   the   respondent­society   whereby   a

statement as made on behalf of the respondent­society, that the society

has passed a resolution that the society does not intend to proceed with

the   present   developer   to   undertake   the   redevelopment   work,   was

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recorded.   It   was   also   recorded   that   the   developer   had   breached   the

undertaking given to this Court and the order dated 18 January 2018 was

also not complied with by the developer­petitioner. The order dated 3 May

2018 reads thus:­

“1. The learned Advocate for the Petitioner Society states that
the Society has passed a Resolution stating that they do not intend
to proceed with the present developer for redevelopment work.  The
developer has breached the undertaking given to this Court and the
order  dated  18th  January,  2018  is  also  not  complied  with by the
developer.  Stand over to 11th June, 2018.”

These   petitions  were   ultimately  disposed  of   by  directing  that  the

reliefs in the said petition be agitated in the application under Section 17

of the Act to be decided by the learned Arbitrator.

9. As   none   of   the   assurances   of   the   petitioner   to   undertake   the

construction, much less to complete the same were true and in fact stated

to be false assurances, the respondent­Society ultimately by another notice

dated 16 May 2018 terminated the development agreement entered with

the petitioner.  It is important to note that the petitioner has not adopted

any proceedings to challenge the termination.

10. In   these   circumstances,   the   respondent­society   was   before   the

learned  sole   arbitrator   seeking  reliefs  by   an   interim   application,   in  the

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interest   of   the   59   members   of   the   society,   so   that   the   project   can   be

completed   at   the   earliest   and   the   members   of   the   society   shall   be

rehabilitated in their newly constructed tenements.

11. Learned Counsel for the petitioner in assailing the impugned order,

has limited submissions.   In contending that by an ad­interim order, this

Court   ought   to   stay   the   impugned   order   passed   by   the   learned   sole

Arbitrator,   it   is   submitted   that   there   is   a   serious   error   in   the   learned

Arbitrator granting an interim mandatory injunction. It is submitted that

such   reliefs   could   not   have   been   granted   at   the   interim   stage   of   the

arbitral proceedings,  and it would in fact amount to passing a final award

at   the   ad­interim   stage.   The   second   submission   is   that   the   learned

Arbitrator has overlooked that a prima facie case for grant of such reliefs

ought to have been made out by the society coupled with a case of balance

of   convenience   and   injustice   being   caused   to   the   society.   It   is   his

submission   that   none   of  these  essential   factors  were   considered  by  the

learned Arbitrator while granting such mandatory reliefs. Learned Counsel

for the petitioner would next submit that certain directions as contained in

the impugned order namely that the documents of HDFC bank be handed

over cannot be complied and would be of no consequence as the HDFC

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bank is in possession of these  documents. It is next submitted that the

learned Arbitrator has also ignored that breaches which are committed by

the society, and thus such an interim order could not have been passed.

12. On the other hand Mr.Cama, learned Counsel for the respondent­

society   would   submit   that   the   contentions   as   urged   on   behalf   of   the

petitioner are not tenable. It is submitted that more than a prima facie

case was made out on behalf of the society, inasmuch as for last eight

years the 59 members of the society have waited to see a permanent roof

over   their   heads.   It   is   submitted   that   hardly   any   progress   in   the

construction was made, much less as agreed between the parties, under

the development agreement in question. Mr.Cama would submit that the

balance of convenience was overwhelmingly in favour of the society and

its members. It is submitted that the learned Arbitrator has dealt in depth

with   each   of   the   issues   and   having   considered   the   clear   facts   and

circumstances on record, has reached to a conclusion that the prayers as

made by the respondent­society were legitimate and were required to be

granted   failing   which   irreparable   prejudice   would   be   caused   to   the

respondent­society. It is submitted that there is a clear finding as recorded

by the arbitral tribunal that breaches were not attributable to the society

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and the terms and conditions of the development agreement, as set out in

detail in the impugned order, clearly mandated obligations to be complied

in a time bound manner.  It is submitted that on every critical occasion the

petitioner in some manner created an impression that the petitioner would

complete the project, however, on every such occasion it was seen that the

petitioner had no intention to make any substantial effort to effectively

commence construction and complete the project. It is further submitted

that   the   petitioner   also   lacks   financial   ability   to   complete   the   project

inasmuch as the petitioner is already declared as an NPA and proceedings

are   pending   before   the   Debt   Recovery   Tribunal   as   instituted   by   HDFC

Bank and ICICI bank against the petitioner.

13. Mr.Cama,  learned  Counsel  for   the   respondent  would   submit   that

now an attempt of the petitioner is to 'sell the project' to a third party

developer, as the petitioner is in serious financial problems and has no

financial capacity to complete the project. It is submitted that by foisting a

third party on the respondent, the petitioner wants the respondent­society

to believe that the project would be completed. It is submitted that such

approach   ought   not   be   accepted,   inasmuch   as   the   respondent   society

would not have any privity with such third party. It is submitted that in

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any   case   the   third   party   which   is   now   sought   to   be   inducted   by   the

petitioner is one 'Rite Developers' who had also submitted a bid for the

very   project   to   the   respondent­society,   in   the   tender   under   which   the

contract   was   awarded   by   the   society   to   the   petitioner   and   the   bid

submitted by Rite Developers was rejected by the Society. Thus, Mr.Cama

would submit that no interference ought to be granted either ad­interim

or interim in the present proceedings.

14. Having   heard   the   learned   Counsel   for   the   parties   and   having

perused the record and the impugned order, I am not persuaded to accept

the   submissions   as   made   on   behalf   of   the   petitioner   to   grant   any   ad­

interim stay to the impugned order passed by the learned Arbitrator. Such

a   relief   if   granted   in   my   opinion   would   cause   serious   prejudice   to   the

respondent­society   and   its   members   and   in   fact   would   worsen   the

situation qua the re­development project of the respondent­society, adding

to the pain and agony of the 59 members of the respondent­society. These

members of the respondent­society are rendered in a miserable condition

and are awaiting a roof over their head for a substantial period and  who

are also not paid rent by the petitioner for the alternative accommodation.

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15. The learned Arbitrator has extensively dealt with the binding terms

and conditions as agreed in the contract. The project was to be completed

within thirty months from the date of the contract. In any case, it was

expected   to   be   completed   within   thirty   months   from   the   date   the

Commencement Certificate and more particularly the last commencement

certificate   was   granted   on   15   October   2014.   It   is   not   in   dispute   that

despite innumerable assurances, the construction could not substantially

progress   much   less   completed   as   per   the   terms   and   conditions   of   the

agreement.   As to what would be the plight of these members who have

vacated the premises and waiting for completion of the construction can

only be imagined.

16. The   respondent­Society   considering   the   gross   failure   of   the

petitioner   to   comply   with   the   obligation   under   the   contract,   and   after

granting substantial opportunities to the petitioner, finally took a decision

to terminate the development agreement as entered with the petitioner,

which was initially terminated by the respondent's­society's letter dated 29

September 2015 and thereafter by a termination  dated 17 May 2018. It is

significant that the termination is not assailed by the petitioner.   In this

situation   and   that   the   project   was   required   to   progress   with   utmost

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priority, after the termination of the development agreement entered with

the petitioner, the respondent­society invoked arbitration and prayed for

the   interim   reliefs,   as   the   circumstances   mandated,   to   enable   the

respondent­society to take further steps in the interest of 59 members of

the society.   The case of the respondent­society   is that the society has

clearly lost confidence and faith in the petitioner and on the assurances of

the petitioner.

17. It   is   vital   and   needs   to   be   borne   in   mind   that   as   far   as   the

respondent­society is concerned, the question is of the very shelter for its

members and what is imperative is the early completion of the project.

18. As far as the petitioner is concerned, in accepting the respondent's­

society's project, it was a properly calculated business decision. It cannot

be said that it was not within the means of the petitioner to diligently and

in a manner recognized by the development agreement and on the terms

and conditions stipulated therein to complete the construction. Even if the

petitioner   has   liabilities   towards   the   third   parties   like   any   financial

institution or any prospective flat purchaser, it is none of the concern of

the society in taking a decision to terminate the agreement. It become a

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liability/   obligation   of   the   petitioner   with   such   third   parties.     Such

equitable plea is of no consequence and would not in any manner affect

the unassailed termination of the agreement by the respondent­society.

19. It   clearly   appears   that   the   situation   has   now   aggravated.   The

members of the society are left in a state of absolute limbo. A situation

prior   to   termination   was   perilous   and   precarious   for   the   respondent­

society and its members and the society and its members were  totally in

darkness   as   to   when   the   construction   would   be   completed   by   the

petitioner. To add to the woes of the society and its members, it is also

absolutely   clear,   and   fairly   conceded   by   the   learned   Counsel   for   the

petitioner,   that   the   petitioner   is   now   negotiating   to   induct   one   'Rite

Developers' in the respondent's project, as the petitioner has no financial

wherewithal to undertake the construction in question. Thus admittedly,

the   petitioner   has   now   taken   recourse   to   find   out   a   third   party

investor/developer   who   would   undertake   the   project   under   whatever

arrangement between the petitioner and the third party. The third party's

participation would be not only in respect of the financial aspects but also

in respect of the construction, being foisted upon the respondent­society.

In my opinion such an approach on the part of the petitioner has been

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rightly deprecated by the learned sole Arbitrator in the impugned order. It

is not in dispute, and  as argued at the bar that the petitioner's accounts

are not only declared as an NPA and proceedings are initiated against the

petitioner under SARFAESI Act by the ICICI and HDFC banks, but   the

assets of the directors of the petitioner are also stated to be attached.

20. Another aspect which in any case would go to the root of the matter

is that since last about two years and till date, the petitioner is in arrears

of outstanding rent amount exceeding Rs.3 crores. Mr.Cama would submit

that the amount in fact is due and payable for such rent is about Rs.5

crores. Learned Counsel for the petitioner submits that it is more than Rs.3

crores.  The fact remains that the petitioner has become a defaulter on this

count and is in clear financial difficulties to undertake the project. As to

when the members of the respondent society would see the light of the

day and that the construction would be completed, fell under a shadow of

uncertainty.   Such   uncertainty,   annoyance   and   stress   was   never

contemplated   by   the   59   members   of   the   respondent­society   who   have

families, when confidence was reposed in the petitioner to hand over their

premises   for   demolition   and   reconstruction.   The   families   of   these

members   are   eagerly   awaiting   to   be   rehoused   in   their   permanent

accommodation,   but   for   the   inability   of   the   petitioner   to   complete   the

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construction   as  agreed   under   the  development   agreement   entered   with

the society.

21. The  parties  had  taken   a   position  as  agreed  under   the   terms  and

conditions of the contract. There are breaches on the part of the petitioner

and which are apparent, which surely entitled the respondent­society to

terminate the agreement which was initially terminated by the society on

29 September 2015 and thereafter terminated on 16 May 2018.

22. The   termination   has   been   accepted   by   the   petitioner   and   no

proceedings are initiated to assail the same. It appears to be a well advised

step as once the petitioner assails termination then there is a duty cast

upon the petitioner to show that it was willing to comply with the terms

and conditions of the agreement, and also show that the petitioner was

ready and willing to perform its obligations under the agreement.

23. In any case if the petitioner is of the opinion that the action of the

respondent­society   terminating   the   contract   has   caused   losses   to   the

petitioner to undertake this commercial venture, it is always open to the

petitioner to claim appropriate damages against the society in the pending

arbitral proceedings. The question  is as to whether at this stage of the

proceedings   as   contended   on   behalf   of   the   petitioner,   the   respondent

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Society should be foisted with the services of the petitioner or its agents,

when the petitioner's agreement stands terminated by the society and un­

assailed.  The answer in the facts and circumstances would be certainly in

the negative. If such a course of action is adopted it would cause serious

prejudice to the members of the society and further delay the completion

of the project.

24. In   the   above   circumstances,   I   am   not   inclined   to   accept   the

contentions as urged on behalf of the petitioner. Certainly a prima facie

case was made out by the petitioner for grant of interim mandatory reliefs

and more particularly when the contract stood terminated as far as back

on   16   May   2018.   It   cannot   be   countenanced   that   the   project   of   the

respondent­society is required to be rendered to a 'dead stop' and/or the

project should not progress any further till the litigation comes to an end.

Whatever is necessary for the redevelopment project to progress, so that

the rehabilitation of the members of the society would happen at an early

date, which is imminently in the interest of the members of the society, is

what   is   considered   by   the   learned   arbitrator,   in   passing   the   impugned

order.     Certainly   the   law   would   not   preclude   the   society   to   seek   such

appropriate   reliefs   in   this   direction,   which   the   impugned   order   has

enabled the  respondent­society to achieve.   The  learned  Arbitrator  was

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justified in passing the interim order when clearly the petitioner is unable

to perform its obligations under the contract and fulfill the  contractual

obligations   by   itself.   The   learned   Arbitrator   has   taken   an   appropriate

commercial view of the fact situation in passing the impugned order. 

25. In so far as the principles which would enable the Court to pass an

order   of   mandatory   injunction   are   well   settled.   The   courts   so   also   the

arbitral tribunals would not lack authority and jurisdiction to consider the

facts and circumstances and pass such interim mandatory orders, as the

circumstances of the case so desire.

26. In the light of the above discussion, prima facie, I do not find that

there is anything illegal in the approach of the learned arbitrator to such

interim directions as contained in the impugned order. The circumstances

in fact warrant grant of such reliefs, in favour of the respondent­society.

27. A perusal of the impugned order passed by the learned Arbitrator

even indicates that the learned Arbitrator has in depth considered all the

issues and for the reasons which are completely borne out by the record

has   felt   it   appropriate   to   grant   interim   mandatory   relief   by   appointing

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private receivers and  interalia  directing the petitioner to hand over the

documents in respect of the project to the society, so that society can take

further steps to complete the project.

28. For all the above reasons I am of the clear opinion that in the facts

and   circumstances   of   the   case,   no   case   for   an   ad­interim   stay   of   the

impugned   order   has   been   made   out.   The   prayer   for   ad­interim   relief

stands rejected.

29. Let   the   petition   be   listed   for   hearing   on   11   July   2019.   In   the

meantime, the parties are directed to complete the pleadings.

30. At this stage, the learned Counsel for the petitioner submits that the

learned   Arbitrator   has   directed   that   the   petitioner   should   remove   its

material by 10 June 2019, he submits that more time be granted. Time to

comply with the directions is extended by two weeks.

[G.S. KULKARNI, J.)

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