A registered society ought to independently be a party to Arbitration Agreement in order to be amenable to Section 8 of Arbitration Act

The Delhi High Court reiterated that arbitration cannot be invoked against a non-party to the arbitration agreement. It was also held that the mere fact that the members of a registered society are parties to an arbitration agreement does not automatically make the society amenable under Section 8 of Arbitration Act as it is a separate legal entity.

This was a case where the Defendant filed an application under Section 8 of the Arbitration and Conciliation act, 1996 along with an application for leave to defend in a suit under Order XXXVII. The Plaintiff in the instant case was an owner’s association registered as a society. The said judgment was passed by the Delhi High Court in the case of The Uniworld Garden Apartment Owners Association vs. Unitech Realty Private Ltd., CS(OS) 396/2016, decided on 09.01.2018.

Challenge:

The issue that arose was whether the plaintiff which is an association of apartment owners duly registered under the Societies’ Registration Act, 1980 is independent of its members and would thus be not bound by the arbitration clause in the Agreements to Sell executed between its members and defendant.

It was claimed by the Defendant that by virtue of Section 8 of the Arbitration Act being applicable, the suit was not maintainable. The suit of the plaintiff was premised on the Agreement to Sell executed by a flat owner with the defendant and as per Clause 11.2 of the said Agreement to Sell all disputes, difference and disagreements arising out of/in connection with/or in relation to this Agreement have to be decided by arbitration. It was contended that the association is merely a culmination of various individual flat owners with commonality of interest and thus are permitted to be sued through the association. Every correspondence between the parties being in terms of the Agreement to Sell, there exists no privity of contract or relationship between the association and the defendant. The plaintiff association claimed that it is a society registered under the Societies’ Registration Act, 1860 thus is a separate legal entity, independent of its individual apartment owners, hence any arbitration agreement entered between the members would not be binding on the plaintiff association.

Held:

It was held that it is trite law that a society registered under the Societies Registration Act is a legal persona capable of suing and being sued in the name of its President, Chairman or Principal Secretary or trustees as may be determined by the rules and regulations of the Society.

Relying on the judgment of Sukanya Holdings Pvt. Ltd. vs. Jayesh H. Pandya & Anr. the Court held that the legal position was that a party who has not entered into an arbitration agreement cannot be subjected to arbitration. In view of this observation it was held that since the plaintiff is an independent legal entity and not a party to the Agreements to Sell entered into between its members and the defendant, it is not amenable to arbitration under Section 8 of the Arbitration Act. The application under Section 8 of the Arbitration Act was thereby dismissed.