w w w . L a w y e r S e r v i c e s . i n

Goverdhangiri CHS Ltd V/S Bharat Infrastructure & Engineering Ltd.

Company & Directors' Information:- BHARAT INFRASTRUCTURE AND ENGINEERING PRIVATE LIMITED [Active] CIN = U45200MH1998PTC116452

Company & Directors' Information:- D AND H ENGINEERING (BHARAT) PRIVATE LIMITED [Active] CIN = U29259GJ2006FTC049278

Company & Directors' Information:- R. B. ENGINEERING AND INFRASTRUCTURE PRIVATE LIMITED [Active] CIN = U74210AS2012PTC011127

Company & Directors' Information:- CHS INDIA PRIVATE LIMITED [Active] CIN = U74999DL2016PTC305727

Company & Directors' Information:- N R R ENGINEERING AND INFRASTRUCTURE PRIVATE LIMITED [Strike Off] CIN = U45200TG2013PTC090071

Company & Directors' Information:- BHARAT ENGINEERING COMPANY LIMITED [Dissolved] CIN = U00349KA1948PLC000517

    Arbitration Petition (L) No. 3237 of 2020

    Decided On, 02 November 2020

    At, High Court of Judicature at Bombay



Judgment Text

1. Heard through video conferencing.

2. This is a Petition under Section 9 of the Arbitration and Conciliation Act 1996. The Petitioner is a cooperative society. The society has a plot of land of about 5,200 sq yards at Link Road, Bangur Nagar, Goregaon (West). There were originally five buildings, R1 to R5 on this plot. The 1st and 2nd Respondents are both redevelopers.

3. The society had 91 members. In a special general meeting on 4th October 2009, the Society decided to undertake redevelopment and to appoint a developer for this purpose. That proposal contemplated demolition of the existing buildings, which were by then dilapidated, and the construction of new buildings under the existing Development Control Regulations, 1991. Ultimately, the Respondents were appointed as developers. They submitted a joint proposal for this redevelopment. This proposal envisaged the construction of several multi-storied buildings. This was accompanied by the usual terms such as payment of transit rent, corpus contribution and so on. Obviously there was also a provision for a free sale component, i.e. some portion of the redeveloped structure which the Respondents could sell. Of necessity, the proposal required the existing members to be re-accommodated in part or parts of the redeveloped building(s). The construction was to be completed in 24 months from the date of commencement certificate with a further grace period of six months.

4. These negotiations resulted in a development agreement dated 19th December 2012. There was also the usual Power of Attorney. This development agreement has an arbitration clause. Arbitration clause 75 requires a reference to a sole Arbitrator. The arbitration is to be held in Mumbai.

5. There is no dispute that the development work did in fact begin. There is also no dispute that as of today a substantial amount of work has been completed but this is not to be understood to mean that what remains is only minor. There is yet a significant amount of work that is yet to be done.

6. In the meantime, the Respondents created third party rights. Some of those flat purchasers are represented by Mr. Behramkamdin. They have not filed any application of their own but they do have independent flat purchase agreements with the Respondents. Under those agreements, these flat purchasers are liable to make further payments towards completion of their respective sale agreements.

7. The petition says that the Respondents committed several defaults including in payment of transit rent, payments into the agreed escrow account, and timely completion. Moreover, on 6th November 2015, the 1st Respondent sought to exit the joint redevelopment. There were talks at that time of entering into a supplementary deed or a supplementary agreement to record the departure from the project of the 1st Respondent. According to the Petitioners, from August 2016, the Respondents abruptly suspended payment of transit rent or displacement compensation. Further breaches continued, according to the Petitioners. The society also had a grievance in regard to the loading of additional TDR and certain FSI discrepancies.

8. Ultimately this led to the Petitioners filing Arbitration Petition No. 244 of 2017 on 4th April 2017. There were then, as there have been before me in this matter, talks of settlement initiated by the Respondents. Ultimately, in the 2017 petition parties did arrive at the Consent Terms. The 1st Respondent opted out altogether. The 2nd Respondent continued with sole development rights. The 2nd Respondent was to execute a supplementary development agreement. The project completion period was stated to be 24 months plus a grace period of six months according to a bar chart Compensation arrears were agreed to be paid. Other provisions were also included.

9. Despite this, it seems that the 2nd Respondent has not only continued to be in default but was now in violation of the obligations under the Consent Terms. The society came back to the Court, this time in Contempt Petition No. 34 of 2019. From paragraph 16 onwards there is a detail listing of the orders that came to be passed in this contempt petition.

10. The Court appointed a Receiver. It also formed a Committee to supervise the completion of the redevelopment project. This Committee included representatives of the society as also representatives of Respondent No. 2. According to the Petitioners, the Respondents even now continued to be in default. It submitted various proposals that were at variance with the timelines and time frames set out in the Consent Terms. It seems that in July 2018, the society found that the 2nd Respondent had attempted to take the benefit of a certain setback FSI contrary to the specific provision in clause 4 of the development agreement. This led to the society having to move the Court again and to obtain an order allowing the society to make a representation before the Special Committee.

11. This wrangle continued and the petition sets out at some length and in some detail the discrepancies in regard to construction and FSI. I am not required to address those details today for reasons that will shortly become apparent in the rest of this order. It is sufficient to note that the society was put to additional expenses and trouble of obtaining an independent Architect's Report and opinion in regard to these discrepancies.

12. The result of all of this is that the construction remained incomplete. The society and its members were without their homes. They were also left having to pay for transit accommodation without receiving their regular monthly displacement compensation. There were breaches in regard to the bank guarantees. The construction was not proceeding according to schedule by the 2nd Respondent. The Petitioners say in paragraph 33 that the situation has gone from bad to worse.

13. Before me today Mr. Tamboly for the 2nd Respondent has candidly accepted that there are arrears of transit rent that remain unpaid. He does say that the 2nd Respondent has put a considerable amount into the project. He cannot however claim that the project is complete except for minor finishing works; there is clearly much that remains to be done. There are pending instalments of FSI that have not been paid. Sale proceeds from the free sale flats have not been put into the escrow account. There are significant arrears of property tax. A bank guarantee of about Rs. 3 crores to cover the rent to be paid has not been furnished. The arrears of compensation until March 2020 have touched nearly Rs. 3 crores.

14. I have given both sides repeated opportunities to try and resolve these differences. I am mindful of the condition of the members of the society. This has to be a primary concern of any Court of equity. Indeed this was the primary concern that led to the Court in the contempt petition taking an extraordinary step of appointing not only a Receiver but a Special Committee including an independent Architect to complete the project. The society's members had to be provided housing at the earliest possible. They also had to be provided transit accommodation.

15. Let us take a step back and imagine or visualize the scenario from the point of view of the members of the society represented by Mr. Subramanian. He has not, in fairness, used this simply as a point of prejudice though he was well within his rights to have done so. His submissions have been to portray the desperate plight of the members of the society: out of the original homes that they had for a long time, left to fend for themselves for payment of compensation or rent while in transit; deprived of rent and displacement compensation; not being provided their homes; only being given repeated assurances; and with no real prospect of seeing their new promised homes ever becoming reality.

16. Consequently, Mr. Tamboly's task as an advisor to the 2nd Respondent necessarily meant that the 2nd Respondent would, to avoid the consequences that must now follow, have to commit unequivocally to even more stringent conditions. One of these would be to establish that it is not in arrears and to clear all financial dues to the society. It is true that the society has indeed invoked a bank guarantee but there has been no restraint against that and that is well within the permissible contours of the law regarding the bank guarantee. That is not an equitable consideration that can conceivably be invoked by the 2nd Respondent. There is undoubtedly an amount payable to the society. This has not been paid. Construction has not been completed. Property tax dues are in arrears--and this alone puts the Society's own property in jeopardy for no fault of the Society's members. There is no evidence before me that the 2nd Respondent has any funds at all to complete the project. It only says that it is on the verge of receiving financial support. That is not good enough.

17. The only argument available to the 2nd Respondent is that it has ploughed money into the project. This is commended as an equitable consideration. It is not. It can never be. The 2nd Respondent committed to the re-development enterprise not out of any altruistic motivations for the common good of the Society, but to make a profit. It knowingly took the risk. It risked its funding. Every risk-taking necessarily contemplates either success or failure, two sides of a single coin. No developer can turn an open-eyed risk into an advantage in equity unless it shows that its risk has been caused or increased by a default by the Society, but for which matters would not have come to this pass. The 2nd Respondent developer cannot insist on contractual rights being safeguarded or protected as a matter of equity or law. If the developer wants equity, the developer must demonstrate that it has done equity; clearly at least at a prima facie stage, this appears to be far from correct.

18. As against this--and this is the âbalance of convenience' test--is the condition of the Society and its members, and the inconceivable prejudice to them. Apart from the very many tangibles I have outlined above, there is now the added burden of finding a source of funding, or a means of self-financing, to complete the project, and perhaps having to write off the promises displacement compensation altogether short of an arbitral award in a long and expensive litigation process. There can be not the slightest doubt that the balance of convenience is with the Petitioners who have made out a very strong prima facie case.

19. The prejudice to the Petitioners if relief is denied will be incalculable. All that they are being offered today are more promises. Promises were made before, only to be broken, again and again and again.

20. Today Mr. Subramanian is joined by Mr. Behramkamdin who, in a certain sense, represents a class of persons whose interest are also in jeopardy. Mr. Behramkamdin says that he is appearing for some flat purchasers. Those details are unavailable and his position is not accepted by the Society. I am making no order in regard to the relations between Mr. Behramkamdin's clients and Mr. Subramanian's clients. They are free to negotiate and transact in any manner that they wish.

21. Mr. Tamboly requests that some of his client's contentions including the right to continue as a developer be left open to be canvassed before the arbitral tribunal to be appointed. I am not inclined to give the 2nd Respondent any such broad-based liberty just for the asking. If the 2nd Respondent wants that, it will come at a price--the cost of making good on arrears and defaults, including displacement compensation and property tax dues, which the 2nd Respondent is admittedly in no position to pay. Of course, the 2nd Respondent may make any application that it wishes before the Arbitrator but I am perfectly clear that no such application can be permitted to be entertained unless the 2nd Respondent is able to show that it has rectified and cured enough of its contractual breaches including, most importantly, its financial obligations. as a condition precedent and without any adjustment or reckoning of any amounts recovered by encashment of the bank guarantee or by contribution from the free sale flat purchasers.

22. What the Society seeks now pursuant to its termination dated 17th March 2020 is a restraint against the 2nd Respondent's representatives from continuing on the Special Committee appointed by this Court on 1st March 2018; from in any manner disturbing the society's possession of the land in question; permitting the society to complete the redevelopment on its own or by appointing another developer of its choice, restraining the 2nd Respondent from creating any further third party rights in respect of the unsold flats constructed or to be constructed hereafter, and for certain other reliefs including cash deposits.

23. Having considered the rival submissions, it is clear that there is a more than sufficient prima facie case made out by Mr. Subramanian. Mr. Tamboly cannot be heard to argue that the Petitioners should not be granted relief or that the 2nd Respondent should not be put to terms. Clearly, the balance of convenience is only with the society. There is no conceivable equity on the side of a defaulting developer.

24. Consequently, I am inclined to make an order on this Section 9 petition in terms of prayer clauses 73(a), (b), (c), (d)(i) and (e) and will leave open to the Petitioners the right to canvass their remaining reliefs before the learned sole Arbitrator to be appointed.

25. So far as the 2nd Respondent developer is concerned, it has not yet filed a Section 9 petition of its own. Presumably it will seek the right to continue as the developer and to stay the effect of the termination of 17th March 2020. Obviously this will have to be on some terms. What those terms are or should be and which are to be imposed on the 2nd Respondent is a matter that is left to the arbitral tribunal, subject to what I have said above.

26. The 2nd Respondent's representatives are removed from the Committee appointed by this Court, i.e. the Court Receiver's Committee and the order dated 1st March 2018 stands modified for these reasons and to this extent. If the Society does appoint another developer, it is open to the society to apply to the Court under Section 9(3) even if an arbitration is pending for a further modification to include the new developer's representative on this Special Committee.

27. So far as th

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e flat purchasers are concerned, their rights are unaffected by this order and it is open to them to enter into appropriate negotiations or discussions with the society. 28. All views expressed are prima facie and only for the purpose of this order, except to the extent indicated above, i.e. that the 2nd Respondent cannot seek continuance as a developer without rectifying a substantial part of its defaults, including the entirety of its financial obligations to the Society and in payment of statutory dues. 29. There is an amount of Rs. 5,95,600/- payable to Mr. Shetgiri, the professional Architect appointed to the Special Committee. Mr. Tamboly had on the last occasion stated that his clients will make payment. The 2nd Respondent requires some time to make payment, i.e. until 12th November 2020. If the is not paid by that date, Mr. Subramanian on behalf of the Society says that the society will pay Mr. Shetgiri from Society funds by 16th November 2020. If it is the Society that makes that payment, the Society will be entitled to add this claim against the 2nd Respondent along with a claim for interest at a commercial rate. 30. The developer has already invoked arbitration. The Petitioner will take the necessary steps within a period of three months from today. 31. The Section 9 petition is disposed of in these terms. In the facts and circumstances of this case, there will be no order as to costs. 32. This order will be digitally signed by the Private Secretary of this Court. All concerned will act on production of a digitally signed copy of this order.