Individual / minority members of a Co-operative housing society cannot invoke arbitration clause in a development agreement.

In the matter of Ketan Champaklal Divecha vs. DGS Township Pvt. Ltd. & Anr., Arbitration Application (L) No. 21860/2023 decided by Hon’ble Bombay High Court on 02.01.2024.

Facts of the case–

A development agreement was executed on 25.03.2021 for re-development of the property of a Co-operative Housing Society (R2), of which the Petitioner is one of the members. The development agreement was signed between the Developer (R1), the society and the 216 members of the society. Subsequent to a change in the re-development scheme, a supplemental development agreement was executed between the Managing Committee of the society and the Developer.

However, Petitioner and some other members of the society being unhappy with the terms of the supplemental agreement invoked clause 35 of the development agreement pertaining to arbitration and thereafter filed the present petition.

Respondent No. 1- developer raised a fundamental objection as to the maintainability of the present petition. According to R1, the arbitration clause is so worded and structured that the disputes capable of resolution under it are disputes between the Society and the developer. The Petitioner as a lone member of society is incapable of invoking arbitration and since the invocation itself is defective, the proceedings cannot continue in the present case.

Analysis and Conclusion–

Interpreting the arbitration clause in the present case based on definition of “party” and “arbitration agreement” in the Act, the Court noted that the concerned clause does indicate that the disputes, claims, and questions arising with respect to the agreement between the ‘parties’, shall be referred to arbitration under the Arbitration Act. The Court noted that the Agreement specifically stipulates ‘Society and the members’ as one party and the ‘developer’ as the other party.

The Court further noted that the arbitration clause must be read in the backdrop of the settled position of law that when a Co-operative Housing Society enters into a development agreement with a developer, the will of the majority members prevails. The individual desire or identity of the member is subsumed within the will of the Co-operative Housing Society, which collectively represents the aspirations and the cause of its members. The Hon’ble Court further relied on the judgment of the Supreme Court in the case of Daman Singh & Ors. vs. State of Punjab & Ors., 1985 (2) SCC 670, wherein it is specifically laid down that the Society alone can act and speak for an individual member and that the member loses his individuality qua the Society, having no independent rights.

The Court concluded that ‘for a valid invocation of arbitration, notice will have to be issued by the society along with its member or members on the one hand or the developer on the other. An individual member simply does not have the capacity to invoke arbitration under clause 35 of the development agreement.’ Therefore, the Hon’ble Court rendered the invocation of arbitration clause by the Petitioner as defective.

SP-03-2024