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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
G.S. Patel, J.
Rajawadi Arunodaya Co-op Hsg Soc Ltd - Appellant
Versus
Value Projects Pvt. Ltd. - Respondent
Comm Arbitration Petition (L) No. 74 of 2020, 3930 of 2020
Decided On : 15-03-2021
The court was tasked with deciding two competing petitions under Section 9 of the Arbitration and Conciliation Act, 1996. The first petition was filed by the Rajawadi Arunodaya Co-operative Housing Society Ltd (Society) against the respondent builder, Value Projects Pvt Ltd (Developer). The Society sought, among other things, a mandatory injunction directing the Developer to deliver possession of the project site, the appointment of a Receiver to take possession, a temporary restraint against the Developer from creating third-party rights, and an order to deliver to the Society the necessary documents regarding the redevelopment project. The Developer's petition sought an order of status quo in regard to the Development Agreement, a restraint against the Society from appointing another developer, and a prayer for a bank guarantee of about Rs.20 crores to secure the Developer's monetary claim.
Fact of the Case:
The Society and its members had been out of possession of their respective premises for a considerable period of time. The Developer had entered into a Deed of Redevelopment with the Society in 2013. The project was to be completed within 24 months of being delivered vacant possession by the members of the Society and receipt of a commencement certificate. There was a six-month grace period. At its broadest level, the Developer agreed to pay stated amounts as monthly transit or relocation compensation, corpus, reallocation or shifting charges, and some share in the profits. A day later, the Society executed a Power of Attorney in favor of the Developer. An Intimation of Disapproval or IOD - as the initiating building permission in Mumbai is oddly called, with all permissions being worded in the negative - from the MCGM came in on 9th December 2014. Up to this point, the Society members were still in occupation of their respective premises. Very shortly after the IOD, in January 2015, the members of the Society delivered vacant possession to the Developer. This is important because this is the trigger or starting point of the development process. It is also this that triggers a large range of financial obligations on the part of the Developer, including payment of transit rent, etc. This assumes importance for two reasons. First, it has not been shown to me that these financial obligations of the Developer were in any way conditional or contingent upon any further act of the Society or its members. In other words, the obligations began to operate once the Developer had possession. Second, and this is an aspect to which I will return towards the end of the judgment, is that the delivery of vacant possession of the old flats, and the transition of Society members into transit accommodation, have a profound societal and human impact. This is seldom, if ever, explicitly acknowledged in judgments. But, in my judgment, this must affect any consideration of the balance of convenience, irreparable prejudice and balancing of competing equities.
Finding of the Court:
The court found that the Developer had breached the terms of the Development Agreement by failing to complete the project within the stipulated time, failing to deliver copies of building plans, failing to pass on the benefits of the implementation of the new development regime, failing to execute P3As, failing to pay the monthly rent, failing to pay hardship compensation, non-payment of taxes and dues, selling members flats to third parties, etc. The court also found that the Developer had not paid its share of property taxes and other statutory dues, had not provided a bank guarantee of Rs. 3.48 crores, and had converted a fourth-floor podium parking area into residential. The court held that the Developer's conduct amounted to a fundamental breach of the Development Agreement and that the Society was entitled to terminate the Agreement and the Power of Attorney.
Issues: 1. Whether the Developer had breached the terms of the Development Agreement? 2. Whether the Society was entitled to terminate the Agreement and the Power of Attorney?
Ratio Decidendi: The court held that the Developer had breached the terms of the Development Agreement by failing to complete the project within the stipulated time, failing to deliver copies of building plans, failing to pass on the benefits of the implementation of the new development regime, failing to execute P3As, failing to pay the monthly rent, failing to pay hardship compensation, non-payment of taxes and dues, selling members flats to third parties, etc. The court also found that the Developer had not paid its share of property taxes and other statutory dues, had not provided a bank guarantee of Rs. 3.48 crores, and had converted a fourth-floor podium parking area into residential. The court held that the Developer's conduct amounted to a fundamental breach of the Development Agreement and that the Society was entitled to terminate the Agreement and the Power of Attorney.
Final Decision: The court allowed the Society's petition and dismissed the Developer's petition. The court ordered the Developer to hand over possession of the project site to the Society, appointed a Receiver to take possession, restrained the Developer from creating third-party rights, and ordered the Developer to deliver to the Society the necessary documents regarding the redevelopment project. The court also directed the Developer to pay the Society's costs of the petitions.
JUDGMENT
G S Patel, J. - This order will dispose of two competing Petitions under Section 9 of the Arbitration and Conciliation Act 1996. The first Petition is filed by the Rajawadi Arunodaya Co-operative Housing Society Ltd ("Rajawadi"; "the Society") against the Respondent builder, Value Projects Pvt Ltd ("Value Projects"; "the Developer"). The opposing petition is by Value Projects.
2. While the narrative runs the usual pattern with some minor factual variations, I believe it is important to begin with an analysis of the rival claims and the relief that each seeks. Rather than set out the prayers in full, I will summarise them, thus. Rajawadi seeks, first, a mandatory injunction directing Value Projects to deliver possession of the project site or plot along with the structures on it, whether complete or partially complete. It then seeks the appointment of a Receiver to take possession (a prayer added by amendment); a temporary restraint against the Developer from creating third party rights over the land and building; another restraint against the Developer from interfering with or obstructing the redevelopment process being taken up by the Society or from interfering with Rajawadi's possession; and, finally, an order to deliver to the society the necessary documents regarding the redevelopment project.
3. The Developer's Petition first seeks an order of status quo in regard to the Development Agreement as it stood prior to the termination notice of 13th December 2019; a restraint against the Society from appointing another developer; another restraint from creating third party rights; a restraint against the Society from taking steps to eject the Petitioner from the project; and a prayer for a bank guarantee of about Rs.20 crores to secure the Developer's monetary claim.
4. Before I proceed to the factual narrative and the legal questions that arise, I must record here that, although the Society's Petition was filed in January 2020, much of that year was lost to an effective hearing on account of the pandemic. Hearings could not be regularly scheduled to ensure some continuity. Despite this, whenever possible, I took up the matter on several dates in an effort to bring both sides together to avoid precipitating a more protracted legal battle. I did this because there is a partially complete construction on site. The Society and its members have been out of possession and without their new homes for a long time (some members have possession of commercial units). Proceeding on its own or through a new developer is, I thought, very likely a complex and delicate business demanding a next level of civil engineering and construction skill. Plus, there were financial considerations on both sides. If, therefore, both sides could be brought together, the building completed, the Developer's financial obligations under the contract met, and all this done in a stated time-frame under Consent Terms with a built-in default clause, then the needs of all sides could be met and litigation costs, time and trouble saved. To this end, I involved the Municipal Corporation of Greater Mumbai ("MCGM") though not a party to the Society's petition on the aspect of arrears of property tax. I asked Mr Shah for the Developer more than once to submit without prejudice proposals by which the various issues could be resolved. He has done this, identifying the various financial and development matters that need to be addressed. The most recent of these proposals was just a few days ago. None of these proposals has met with the Society's approval. But this is not to suggest that the Society and its members have been unreasonable or that they are unjustified in declining to consider the proposals that come from the Developer. There is, and now there is no doubt about it, an irreversible and irredeemable loss of confidence in the developer. To put at its most blun
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