(Prayer: Arbitration Original Petition filed under Section 11(4) of the Arbitration and Conciliation Act, 1996 praying to appoint a sole arbitrator under Clause 29 of the bye-laws to adjudicate the dispute between the parties.)
1. This petition is filed under Section 11(4) of the Arbitration and Conciliation Act, 1996, to appoint a sole arbitrator under Clause 29 of the bye-laws to adjudicate the dispute between the parties.
2. Brief facts which gave rise to filing of the present Original Petition, are as follows:
(a) The petitioner is a real estate developer and had entered into a development of project with the respondentS by putting up a residential apartment complex in Cheran Nagar, situated at Perumbakkam Village (earlier Tambaram Taluk, now Sholinganallur Taluk), Kancheepuram District. After obtaining all the necessary building permission, approval etc. from the State authorities, the housing complex was put up by the petitioner consisting of Blocks 1 to 4 with stilt plus 9 floors; Blocks 5 and 7 to 10 with EWS Blocks consisting of stilt plus 19 floors and Block 6 consisting of ground floor plus 19 floors and School block consisting of ground floor plus two floors. The total number of units as per the approved plan were 2482 units and out of which, 496 were developed in Phase-I in 2013 and Phase-2-A consisted of 1020 units of apartments, which was also completed in 2017. According to the petitioner/developer, it was owning 118 apartments out of 1516 apartments constructed so far, besides undivided share of the land of the entire property, which is yet to be developed.
(b) The respondents herein are the owners of the individual flats and they are the office bearers of the Apartment Owners Association called Embassy Residency Apartment Owners Association (ERAOA). According to the petitioner, the respondents, under the pretext of representing the Association’s interest, have been interfering with the possession, enjoyment and occupation of the petitioner in the property owned by them. Between the petitioner and the respondents’ Association, there was a dispute in regard to the settlement of Corpus Fund in favour of the Association. There was also dispute in regard to the enforcement of certain provisions of the Construction Agreement entered into between the parties. In essence, the case of the petitioner is that the respondents, claiming themselves as the office bearers of the apartment owners association, have transgressed into unsold lands owned by the petitioner and preventing the access to the petitioner to their own lands under their occupation relating to the unsold apartment units.
(c) As there was a dispute between the developer and the Association represented by the respondents, for finding a resolution to the dispute, the present O.P. has been filed, invoking an Arbitration Clause contained in the Memorandum of Association, Rules and bye-laws of the Association.
3. The learned counsel appearing for the petitioner/developer drew the attention of this Court to the Bye-Laws in the Memorandum of Association of ERAOA, namely Bye-law No.29, which reads as under:
In case any dispute or difference of opinion arises between members, the matter is reconciled by the Executive Committee. Where reconciliation is not possible, the matter shall be referred to arbitration under Indian Arbitration Act without recourse for legal remedies under civil courts.”
4. According to the petitioner, the developer should also be treated as a member of the Association and in this regard, he has referred to various Bye-laws of the Association, more particularly, Bye-Law Nos.8.3, 9.1 and 9.4, which are extracted hereunder:
“8.3: Wherever the word “Permanent Member” is used, it shall mean a person who is the owner of an Apartment/flat in EMBASSY RESIDENCY at the above-mentioned address and registered as member in the Association.
Wherever the word “Temporary Member” is used, it shall mean person other than the owner, who is in occupation of an Apartment.”
“9.1. Permanent membership shall be restricted to the OWNERS of the 2482 Apartments/Flats in EMBASSY RESIDENCY. Temporary membership shall be restricted to the occupants of any of the Apartment at EMBASSY RESIDENCY.”
“9.4. All the Apartment/Flat-owners and the occupants shall become Permanent members/temporary members, as the case may be, of the Association and shall abide by the Rules and Byelaws of the Association. The legal heirs/successors of the ‘Permanent members” shall automatically be admitted as members of the Association in case of demise of the original member.”
5. The above clauses define as to what and who is permanent member, membership, etc. The learned counsel for the petitioner submitted that in terms of the definition as above and also by cumulative reading of the entire Bye-laws of the Association, the petitioner herein being the owner of the unsold flats in the complex and also having right over the undivided share in the property, is also a member of the Association and can invoke the Arbitration Clause as provided under Bye-Law No.29 extracted above.
6. The learned counsel also referred to Form-VI submitted to the Registrar under the Tamil Nadu Societies Registration Act, 1975, at the time of registration of the apartment owners Association (i.e. ERAOA) by including a representative of the petitioner-Company showing him as one of the members of the Association. Therefore, the petitioner herein is entitled to invoke the Arbitration clause and as there was dispute in regard to the several issues between the parties, the Arbitrator may be appointed for redressal of the dispute between the parties.
7. Per contra, the learned counsel appearing for the respondents (i.e. office bearers of the Association) submitted that the Arbitration Clause as provided in the Bye-laws of the Association is available only for the flat owners of the housing complex and certainly it is not available to the developer of the complex. According to the learned counsel, by no stretch of legal standard, the developer can be called ‘apartment owner’ and could be conferred with the right of invoking the Arbitration Clause, which is fully meant to take care of the dispute among the flat owners and not as between the Association and the developer. The remedy therefore available to the petitioner is else-where and not under the Bye-laws of the Association.
8. The learned counsel for the respondents drew the attention of this Court to certain averments made in the counter affidavit of the respondents to show that that there was no truth in the allegations of the petitioner. He also referred to the various provisions of the Bye-laws of the Association in order to contend that the developer cannot claim himself to be an apartment owner at all for the purpose of becoming a member of the Association. Therefore, the present Original Petition (OP) is not at all maintainable and liable to be dismissed.
9. By way of reply, the learned counsel for the petitioner submitted that the Association has also been in receipt of the maintenance charges for the unsold apartment from the petitioner, running to several Lakhs of Rupees. Therefore, it is not open to the Association or its representatives to oppose the invocation of the Arbitration Clause. When the legal notice was issued for appointment of an Arbitrator on 16.01.2021, the respondents replied through an Advocate on 28.01.2021, denying the allegations in the notice, but neither consented to the petitioner’s nominee Arbitrator, nor had they nominated an Arbitrator, and therefore, the present O.P. has been filed. According to the learned counsel, he reiterated that at the time of incorporation of the Association itself, nominee of the petitioner has been included and it is too late in the date to deny a membership of the petitioner in the Association for the purpose of denying their right to seek appointment of an Arbitrator towards the resolution of the dispute between them.
10. On behalf of the respondents (of the Association), it is further argued that as per the provisions of the Tamil Nadu Apartment Ownership Act, 1994, the petitioner-Company cannot call itself a member at all. The learned counsel particularly referred to the objects and reasons behind the said enactment of 1994, which clearly show that the Act of 1994 is intended only to protect the bona-fide apartment owners from being exploited by the developers. The learned counsel also referred to the definition of “apartment owner” and the association of apartment owners as defined under the Act of 1994. In line with the definition and in tune with the objects and reasons of the Act of 1994, the Bye-laws of the Association need to be interpreted and constructed. In such contextual contract, the developer cannot come within the ambit of an apartment owner in tune with the definition as contained in the statute. He therefore submitted that the present Arbitration Petition is without any merits and liable to be dismissed.
11. This Court heard and considered the submissions of the learned counsel appearing for the parties, perused the pleadings and materials placed on record.
12. On behalf of the petitioner, the relevant Bye-laws of the Association have been referred (extracted supra), for sustaining the claim that the petitioner is to be treated as owner for all purposes and in which event, it is well within their right to invoke the Arbitration Clause as provided under the Bye-law 29 of the Association.
13. According to the learned counsel for the petitioner, all apartments or flat owners and occupants shall become permanent/temporary members. Indisputably, the petitioner herein is also an owner of several unsold flats and having undivided share in the premises occupied by the members of the Association, which has been formed for all the apartment owners. He has also referred to Bye-law No.11 of the Association which deals with the membership fee and the monthly maintenance charges, which have also been complied with by the petitioner. Over and above, when the Association itself was incorporated in 2014, the representative of the Company was shown as one of the founding members. Therefore, it does not lie in the mouth of the respondents to contend that the petitioner cannot invoke the Arbitration Clause as provided in the Bye-laws of the Association.
14. In support of this contentions, the learned counsel for the petitioner relied on a decision of a Division Bench of this Court reported in 1989 (2) LW 593 (Park View Enterprises, M/s., Vs. State Government of Tamil Nadu) saying that the builder can also be called as a owner of the property in resolution of the contract. This Court may not have any quarrel over the proposition of law laid down in the said decision. But the issue in this case is not whether the petitioner can call himself an owner of the unsold property or owner of the undivided share, the issue herein is whether he can call himself a owner for the purpose of invoking the arbitration clause in the Association Bye-laws or not ? The right of the petitioner herein therefore, is to be decided within the frame work of the Bye-laws of the apartment owners Association in conjunction with the scheme of the Act, 1994.
15. On behalf of the respondents, apart from the above referred Bye-laws, the other Bye-laws have also been cited and relied upon, particularly, Bye-law No.11.3, which is very relevant for the purpose of consideration of this Court. The said Bye-law 11.3 reads as under:
“11.3. When a flat is sold, the buyer shall become a Permanent member of the Association by paying Membership fee of Rs.500/-. The corpus fund already paid by the seller shall be transferred to the buyer.”
16. Although it appears on the first blush that if the arguments to be taken into consideration that the developer could also be defined as a “member” and entitled to invoke the Arbitration Clause in terms of Bye-law No.29, yet on a critical consideration, the arguments appear to be a specious plea, which cannot be countenanced both in law and on facts for the following reasons.
17. The Statement of Objects and Reasons as set out in the Tamil Nadu Apartment of Ownership Act, 1994, are extracted hereunder:
“The Urban areas in the State in general and Madras City in particular, have been facing an acute shortage of land for housing purposes, resulting in the enormous increase in land prices beyond the reach of the lower and middle income groups. Therefore, the need to construct multi-storeyed houses for persons of these grounds has become a necessity and such need has also been increasingly felt by the Government. In constructing such multi-storeyed, for sale, a problem has been met with, namely, the individual buyers cannot secure any effective mortgageable title to such apartments so as to enable them to raise loans under any scheme or from the financial institutions. To overcome these difficulties and to provide for the ownership of an individual apartment in a building and to constitute such apartment together with the undivided interest in the common areas and facilities and the limited common areas and facilities as heritable and transferable immovable property, the Government proposed to enact a Legislation and accordingly introduced in the Legislative Assembly, the “Tamil Nadu Apartment Ownership Bill” during the year 1981. This Bill was referred to a Joint Select Committee of the State Legislature and the Joint Select Committee presented its report to the Legislative Assembly. But, this Bill lapsed due to the dissolution of the State Legislative Assembly in November 1984. Hence, it has been decided by the Government to reintroduce the said Bill in the Legislative Assembly with suitable modifications.
2. The Bill seeks to give effect to the above decisions. The provisions of the Bill are explained in the Notes on Clauses.”
18. Further in the introduction to the said Act of 1994, it has been observed as follows:
“The construction of the flats for sale on ownership basis has become a permanent profession under house building activities. In order to prevent malpractices prevalent in an extensive scale in the areas where construction and sale of flats on ownership basis was carried out such as--
(a) Misuse of deposit from prospective flat owners;
(b) Delay in conveying the title of the land and building;
(c) Bogus sale of land and flats to the dummy persons of builders;
(d) Defect in the construction of the building;
(e) Plans shown to flat owners were different from the sanctioned plans;
(f) Construction without following regulations under local laws;
(g) Delay in delivery of possession;
(h) Using sub-standard materials in construction of flats;
(i) Inordinate delay in forming Flat Owners Association and conveying title to the intended purchasers;
and with a view to provide for the ownership of an individual apartment in a building together with the undivided interest in the common areas and facilities and to make such apartment heritable and transferable immovable property, the above Act is enacted and has come into force on 7th April 1997 for the whole of the State of Tamil Nadu by virtue of the notification made under sub-section (3) of Section 1 of the Act. The buildings that are constructed should fulfil the following conditions for attracting the provisions of this Act--
(a) The building should contain five or more apartments or three or more floors;
(b) The construction has been made in accordance with planning and permission obtained under local laws;
(c) The building plan should be sanctioned by the Appropriate Authority under relevant laws for the time being in force. So Building Regulations under Municipal Laws and the Tamil Nadu Town and Country Planning Act, 1971 is made applicable and Section 25(2) of this Act makes it clear regarding the applicability of those Acts.
.. .. ..”
19. The above objects of the Act of 1994 clearly establish that the enactment became necessary to protect the apartment owners, particularly from the lower and middle income groups, from being exploited by the developers/builders. In the said circumstances, the actual apartment owners stand as a class by themselves and are governed by the said Act of 1994.
20. As far as the developer/builder is concerned, they may own certain unsold flats and may have undivided share/interest in the residential complex, but certainly they cannot be defined as the “owner” for the purpose of claiming membership in the owners Association. As regards the contention that the petitioner’s representatives was shown as one of the seven founding members at the time of the incorporation of the Association in 2014, when Form-VI was submitted before the Registrar under the Tamil Nadu Societies Registration Act, 1975, merely because at the time when the Association was in the formative stage, the inclusion of a representative of the petitioner cannot be stretched to mean that the petitioner herein could become a “permanent member” of the Association for all times to come.
21. Even otherwise, the mentioning of the name of the petitioner’s representative before the Registrar, cannot give rise to any indefeasible right to the petitioner herein, when such a right is repugnant to the scheme of the Act of 1994. In fact, as relied on by the learned counsel for the respondents’ Association, in terms of Bye-law No.11.3, a buyer shall become a “permanent member” when a flat is sold to him and the permanent membership is restricted only to the owner of the 2482 apartments/flats in Embassy Residency Owners Association (ERAOA) in terms of Clause 9.1 of the Bye-laws of the Association.
22. The interpretation of the construction of these provisions ought to be in tune and in consonance with the scheme of the said Act of 1994. The ownership must be interpreted to mean that the individual buyers of the apartments, which would certainly not include the owner of the project for the purpose of Arbitration Clause provided under the Bye-laws of the Association. Such a right being claimed by the builder/developer within the frame work of the owners/residents Association Bye-laws, is alien and extraneous to the concept of the ownership contemplated in the Bye-laws of the Association and the statutory scheme governing the relationship between the apartment owners and the developer/builder. Merely because there were some unsold flats and the developer is still retaining to with-hold the rights in the property being owner of the unsold flats, he cannot seek enforcement of his right within the scheme of the Association Bye-laws for settlement of his dispute with the owners of the apartments, who form a distinct class by themselves.
23. In a conflict of interest as between the parties belonging to two different classes, there cannot be a resolution of the dispute between such parties within the framework of the Association Bye-laws which exclusively is meant for redressing the grievance among the apartment owners, who form a homogeneous class. Such is not the case with the developer/builder, who cannot pitchfork itself in that class as an apartment owner and claim any right as made available to the actual owners of the apartments in the Association Bye-laws.
24. As rightly contended by the learned counsel for the respondents’ Association, in respect of any dispute with the owners, the developer has to seek remedy else-where and certainly not within the frame work of the Bye-laws of the Association calling themselves as the owner and permanent member. It would be a travesty if the deve
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loper/builder be included in the definition of “permanent member” within the scheme of the Bye-laws of the apartment owners’ Association. The pleading of the petitioner that the monthly maintenance charges have been paid, and therefore, the developer is also to be considered as a “member”, is also not legally acceptable for the reason that the charges are being paid only for maintenance of the unsold flats, but mere maintenance charges being paid by the petitioner, cannot make the petitioner a valid member of the Association. 25. The entire Bye-laws have to be read as a whole in conjunction with the concept and principles laid down under the Act of 1994. The Act is primarily framed to protect the apartment owners against the exploitation by the developer/builder. By no stretch of legal standard, the builder/developer can seek to express his right as apartment owners. Therefore, it is not open for the petitioner to seek any remedial action within the regulation of any Association, which are quite evidently meant to solve the inter-se grievance/problem faced by the apartment owners. The scope and ambit of the Association Bye-laws cannot be extended to include the developer/builder, as the interest of the apartment owners is always in conflict with the interest of the developer/builder. 26. In fact, Bye-law No.29 of the Association states that when any dispute or difference of opinion arises between the members, the matter is to be first reconciled by the Executive Committee and the expression “between members” would certainly not include a developer/builder, as the relationship is to be confined only to the actual apartment owners who have purchased the flats from the buyer and not the developer itself. 27. For the above said reasons, this Court finds force in the contentions put forth on behalf of the respondents’ Association. On the other hand, this Court does not find any merit in the Original Petition, as the petitioner cannot claim any right as a “member” of the respondents’ Association for the purpose of invoking the Arbitration Clause as provided under the Bye-laws of the Association. 28. The O.P,. therefore stands dismissed as not maintainable. No costs.