Tuesday, 6 November 2018

When a party can approach court even though there was arbitration clause in agreement?

The presence of an arbitration clause with regard to a dispute which is found to be non-arbitrable cannot deprive the plaintiffs of their right to approach the Civil Court. A somewhat similar question arose in M/s. National Seeds Co-operative Limited (supra). In the context of provisions of Seeds Act, 1966 as well as the Consumer Protection Act, 1986 it was held that the remedy of arbitration was not only the remedy available. It was an optional remedy and the aggrieved person could either seek reference to an arbitrator or file a complaint under the Consumer Protection Act, 1986. It was observed that if the aggrieved person opts for the remedy of arbitration then it could be said that he cannot subsequently file a complaint before the Consumer Forum. However, he could not be denied relief by invoking provisions of Section 8 of the Act of 1996. Similarly, in Sukanya Hoarding Pvt. Ltd. (supra), it was held that bifurcation of the cause of action or the subject matter of the suit has not been intended as bifurcation of a suit in two parts, one to be decided by the arbitral tribunal and the other to be decided by the Civil Court would delay the proceedings. If the prayers in the suit are perused, it can be seen that all the reliefs cannot be adjudicated by the arbitrator and it is only the Civil Court which would have jurisdiction to consider the grant of such relief.

12. It is thus found that the reliefs sought by the plaintiffs were in the nature of reliefs in rem and therefore, the disputes between the plaintiffs and the defendant were non-arbitrable. In the light of aforesaid law, the plaintiffs cannot be compelled to approach the Arbitrator nor can they be bound by Clause No. 19 of the byelaws. Moreover, as per the scheme of the Act of 1970 it does not appear to be intention of the legislature to require the parties to resolve the disputes through arbitration. There is also no statutory requirement for incorporation of an arbitration clause in the Deed of Declaration or Deed of Apartments as per the provisions of the Act of 1970. In the light of aforesaid, the decisions relied upon by the learned Counsel for the defendant do not support his contentions.

IN THE HIGH COURT OF BOMBAY (NAGPUR BENCH)

Writ Petition No. 863 of 2015

Decided On: 03.05.2018

 Sharad Vs  Hemantkumar

Hon'ble Judges/Coram:
A.S. Chandurkar, J.

Citation: 2018(5) MHLJ 191


1. Rule. Heard finally with the consent of learned Counsel for the parties.

2. The petitioners are the original plaintiffs who have filed suit for declaration that the respondent - defendant has made excess construction than permissible under law and that the defendant has no right to transfer the excess construction made by him. Further relief sought is to correct the Deed of Declaration dated 14-10-2008 as well as the subsequent sale deeds dated 26-4-2012. Other ancillary reliefs have also been sought in the suit. In that suit, the defendant filed an application under Section 8 of the Arbitration and Conciliation Act 1996 (for short, the Act of 1996) praying that in view of Clause No. 19 in the Deed of Declaration the disputes ought to be referred to an Arbitrator. By the impugned order the trial Court allowed that application and directed the parties to refer the disputes to the Arbitrator. Being aggrieved the plaintiffs have challenged the aforesaid order.

3. In the plaint it is the case of the plaintiffs that initially the father of the defendant was the owner of the suit property which was land at Nazul Sheet No. 49/B. After his death the defendant became owner of the said property. The defendant intended to construct apartments on the suit land and thus approached the Municipal Council for sanctioning the map. The map was accordingly sanctioned on 20-6-2007. In accordance with the provisions of the Maharashtra Apartment Ownership Act, 1970 (for short, the Act of 1970) a Deed of Declaration was registered on 14-10-2008. The plaintiffs entered into an agreement with the defendant to purchase two flats on the fifth floor of the said apartments. Similarly, the plaintiff No. 3 agreed to purchase a flat on the third floor. Subsequently, sale deeds were executed in favour of the plaintiffs. According to the plaintiffs, they found that there was excess construction made by the defendant which was not in consonance with the sanctioned plan. This excess construction to the extent of about 1250 square feet was part of Hall "A", Hall "B" and Hall "C" jointly. The plaintiffs therefore called upon the defendant to correct the revenue records and provide amenities in accordance with the Deed of Declaration, but the same was avoided. On that basis the plaintiffs filed the aforesaid suit seeking reliefs mentioned herein above.

4. Along with the suit the plaintiffs filed an application for temporary injunction seeking to restrain the defendant from alienating in any manner Hall "A", "B" and "C" of the apartments. The defendant in turn filed an application below Exhibit-14 under Section 8 of the Act of 1996 praying that in view of Clause No. 19 in the Deed of Declaration dated 14-10-2008 the disputes were required to be referred to arbitration. According to the defendant, there was a efficacious remedy available to the plaintiffs and as the plaintiffs were party to the Deed of Declaration the said arbitration clause was binding. This application was opposed by the plaintiffs on the ground that the suit was maintainable and considering the reliefs as sought, the dispute was not liable to be referred to arbitration. By the impugned order, the trial Court held that in view of Clause No. 19 in the Deed of Declaration the parties ought to be referred to the Arbitrator. Accordingly, by the impugned order dated 20-1-2015 the trial Court allowed the application at Exhibit-14. Being aggrieved the plaintiffs have challenged that order.

5. Shri R.L. Khapre, the learned Counsel for the petitioners - plaintiffs submitted that the trial Court committed an error in accepting the prayer made by the defendant for referring the dispute to arbitration. According to him, the reliefs sought in the suit were not of such nature that could be resolved through arbitration. He referred to the averments made in the plaint and urged that the reliefs sought in the suit were in the nature of reliefs in rem and not reliefs in personam. The suit pertained to immoveable property and therefore the declaration as sought in the suit if granted would operate against the entire world. In other words, the relief would operate in rem and not only against the defendant - in personam. When such relief in rem was sought, the jurisdiction of the Civil Court could not be excluded on the basis of an arbitration clause. The dispute as such was not an arbitrable dispute and it was for the Civil Court to grant the declaration as sought. For said purpose the learned Counsel placed reliance on the judgment of the Supreme Court in Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. & Ors. MANU/SC/0533/2011 : AIR 2011 SC 2507.

The learned Counsel then referred to the various provisions of the Act of 1970 to urge that the Deed of Declaration was a statutory document that was required to be prepared in the light of provisions of Sections 11 and 12 of the Act of 1970. The insertion of the arbitration clause was dehors the requirements of the Act of 1970. In the statutory document there was no requirement or provision in the Act of 1970 by which the disputes were required to be referred for arbitration. In fact, such insertion of the arbitration clause was inconsistent with the requirements stipulated by the Act of 1970. As the reference of dispute to arbitration was not prescribed by the Act of 1970, the plaintiffs were justified in approaching the Civil Court for seeking reliefs as prayed in the suit. In that regard, the learned Counsel placed reliance on the decision in Purushottam H. Judy and others v. V.B. Potdar MANU/SC/0244/1965 : AIR 1966 SC 856, M/s. National Seeds Corporation Ltd. v. Madhusudhan Reddy and Anr. MANU/SC/0038/2012 : AIR 2012 SC 1160 and Sukanya Holdings Pvt. Ltd. V. Jayesh H. Pandya and another MANU/SC/0310/2003 : AIR 2003 SC 2252. It was thus submitted that it should be held that the arbitration clause was not liable to be acted upon and the Civil Court had jurisdiction to try the suit.

6. Shri R. Tajne, learned Counsel for the respondent - defendant supported the impugned order. According to him, the Deed of Declaration was duly signed by the plaintiffs by accepting all the terms mentioned therein. The copy of the Deed of Declaration having been accepted by the plaintiffs, they were bound by the arbitration clause and therefore the trial Court was justified in referring the parties to the Arbitrator. It was open for the parties to provide for settlement of disputes through arbitration and merely because there was no reference in the statutory Deed of Declaration to any such clause, the parties were not precluded from inserting such clause while complying with the provisions of the Act of 1970. It is not the case of the plaintiffs that the Deed of Declaration was illegal and hence the terms were binding on both the parties. In terms of the provisions of Section 16 of the Act of 1996 such stand could be taken before the arbitrator who could rule on his jurisdiction. It was therefore submitted that the trial Court was justified in relying upon the arbitration clause and allowing the application filed by the defendant. The learned Counsel relied on the decisions in Groupe Chimique Tunisien Sa v. Southern Petrochemicals Industries Corporn. Ltd. MANU/SC/8192/2006 : 2006 (6) Mh.L.J. 1 and Hema Khattar and Another v. Shiv Khera MANU/SC/0397/2017 : (2017) 1 SCC 716.

7. I have heard the learned Counsel for the parties at length and I have given due consideration to their respective submissions. It is not in dispute that in the Deed of Declaration dated 14-10-2008 along with the bye-laws of the said Apartments Clause No. 19 provides for settlement of disputes and differences through arbitration. Clause No. 20 provides that the Court having original jurisdiction over the premises would have jurisdiction in all matters relating to or arising out the said agreement. The Deed of Declaration as well as the bye-laws have been got executed while complying with the provisions of the Act of 1970. To appreciate the contention raised on behalf of the plaintiffs that insertion of the arbitration clause was not consistent with the provisions of the Act of 1970, it would be necessary to refer to certain provisions thereof.

8. The Act of 1970 has been enacted to provide for the ownership of an individual apartment in a building and to make such apartment heritable and transferable property. As per Section 2 of the Act of 1970, the Act was applicable only to property which the owners submit to the provisions of the Act of 1970 by executing and registering a declaration as provided for. As per provisions of Section 3 (r), "property" means land, the building, all improvements and structures thereon and all easements, rights and appurtenances belonging thereto. As per Section 4 each apartment along with its undivided interest in the common areas and facilities would for all purposes constitute heritable and transferable immoveable property within the meaning of any law for the time being in force. Section 7 of the Act of 1970 requires compliance with provisions of the bye-laws as well as the conditions and requirements put-forth in the Deed of Declaration. Section 11 prescribes the contents of the Deed of Declaration and Section 11(j) provides for any other details in connection with the property which the person executing the declaration may seem desirable to set forth consistent with the Act of 1970. Section 12 prescribes the contents of the Deeds of Apartments and Section 13 requires the Deed of Declaration as well as the Deeds of Apartments to be duly registered. Section 16 provides for bye-laws and their contents.

Thus from the aforesaid provisions it can be seen that on submitting an apartment to the provisions of the Act of 1970 and by executing the Deed of Declaration, the owner of an individual apartment is entitled to heritable and transferable property in the form of said apartment. In other words, the rights accrued by virtue of purchase of an apartment would be rights exercisable in rem and not in personam.

9. At this stage, reference can be made to the judgment of the Hon'ble Supreme Court in Booz Allen and Hamiltor INC (supra) wherein question of arbitrability of a dispute has been considered. It was held that where the cause/dispute is inarbitrable the Court where a suit is pending would refuse to refer the parties to arbitration under Section 8 of the Act of 1996 even if the parties might have agreed upon arbitration as the forum for settlement of such dispute. In that context, it was observed that various actions in rem are examples of non-arbitrable disputes. It was explained that a right in rem was a right exercisable against the world at large as contrasted from a right in personam which is an interest protected solely against specific individuals. Actions in rem referred to actions determining title to property and the rights of parties not merely amongst themselves but also against all persons at any time claiming an interest in that property. It was therefore held that a judgment in personam refers to a judgment against a person as distinguished from a judgment in rem which is a judgment that determines the status or condition of property which operates directly on the property itself. It was thus concluded that normally all disputes relating to rights in rem were required to be adjudicated by Courts and Tribunals and were not suitable for private arbitration. It was accordingly held that a suit for enforcement of a mortgage by sale was in the nature of an action in rem and therefore it was required to be tried by the Civil Court and not by an arbitral Tribunal.

10. When the case in hand is viewed in the context of the aforesaid law as laid down, it becomes clear that the nature of reliefs sought in the suit being a declaration with regard to rights in immoveable property, those rights were rights in rem. In the context of the provisions of the Act of 1970, those rights would operate against the entire world and not against the defendant alone.

11. The presence of an arbitration clause with regard to a dispute which is found to be non-arbitrable cannot deprive the plaintiffs of their right to approach the Civil Court. A somewhat similar question arose in M/s. National Seeds Co-operative Limited (supra). In the context of provisions of Seeds Act, 1966 as well as the Consumer Protection Act, 1986 it was held that the remedy of arbitration was not only the remedy available. It was an optional remedy and the aggrieved person could either seek reference to an arbitrator or file a complaint under the Consumer Protection Act, 1986. It was observed that if the aggrieved person opts for the remedy of arbitration then it could be said that he cannot subsequently file a complaint before the Consumer Forum. However, he could not be denied relief by invoking provisions of Section 8 of the Act of 1996. Similarly, in Sukanya Hoarding Pvt. Ltd. (supra), it was held that bifurcation of the cause of action or the subject matter of the suit has not been intended as bifurcation of a suit in two parts, one to be decided by the arbitral tribunal and the other to be decided by the Civil Court would delay the proceedings. If the prayers in the suit are perused, it can be seen that all the reliefs cannot be adjudicated by the arbitrator and it is only the Civil Court which would have jurisdiction to consider the grant of such relief.

12. It is thus found that the reliefs sought by the plaintiffs were in the nature of reliefs in rem and therefore, the disputes between the plaintiffs and the defendant were non-arbitrable. In the light of aforesaid law, the plaintiffs cannot be compelled to approach the Arbitrator nor can they be bound by Clause No. 19 of the byelaws. Moreover, as per the scheme of the Act of 1970 it does not appear to be intention of the legislature to require the parties to resolve the disputes through arbitration. There is also no statutory requirement for incorporation of an arbitration clause in the Deed of Declaration or Deed of Apartments as per the provisions of the Act of 1970. In the light of aforesaid, the decisions relied upon by the learned Counsel for the defendant do not support his contentions.

It is thus found that the trial Court proceed merely on the basis that in view of Clause No. 19 in the Deed of Apartments, the parties were bound to have the disputes resolved through arbitration. The nature of dispute and whether the same was arbitrable has not been considered by the trial Court. On that count the impugned order is liable to be set aside.

13. Accordingly, the order dated 20-1-2015 passed below Exhibit-14 in Regular Civil Suit No. 198/2014 is quashed and set aside. The application at Exhibit-14 stands rejected. The trial Court shall proceed to adjudicate the suit in accordance with law.

14. Rule is made absolute in aforesaid terms with no order as to costs.


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