Bombay HC – Non-signatory member of society cannot be forced to arbitration under Development Agreement
The respondent no.2 is the dissenting member, has not consciously signed the Development Agreement would be a veritable party to the arbitration agreement.
In my view, therefore merely because the subject matter of DA and PAAA is common and merely because the two instruments may ultimately effect composite nature of transaction, the same cannot be enough for inferring that dissenting member becomes either a veritable party to the DA or that the arbitration agreement in the PAAA would bind him to arbitration agreement in the DA.
Incorporation of Arbitration Clause – It is difficult to hold that arbitration agreement in Clause 38 of the DA has been incorporated in any manner in the PAAA.
Member is a constituent of the Society –
Respondent No.2 who is the owner of the flat and member of the society, opposed the Development Agreement of the Society with the Developer and did not sign the same. Not only that, but he has also refused to vacate the flat, although 10 out of 11 members agreed to vacate the flats.
Clause 38 of DA provided for arbitration.
In the litigation, the possession of the said flat was taken through the court receiver. Thereafter, he had executed PAA Agreement with the Developer and the society There is arbitration clause in the said agreement.
However, the acts of respondent no.2 have caused losses due to indefinite delay in vacating the flat. The Developer gave notice for Rs.13,13,46,245/- to respondent no.2.
However, the Developer invoked Clause 38 of the DA in the legal notice dated 28.7.2025 and not clause 32 of the PAAA.
Judgment dated 6.3.2026 of the High Court of Bombay in Arbitration Application (L) No.35545 of 2025 of M/s. Space Master Realtors Vs. Mulund Sandhyaprakash CHS Ltd and another
The Applicant has sought to rope in Respondent No.2 in the arbitration on the ground that though Respondent No.2 is not a signatory to the DA, he is a beneficiary thereunder. It is contended that though the DA is signed and executed by the society, the members also stand benefited by execution and performance thereof. It is therefore contended that Respondent No. 2 cannot selectively seek to take benefits under the DA, but conveniently avoid the arbitration clause thereunder.
In the present case, the DA imposes a contractual obligation on the Applicant-Developer to demolish society’s building, reconstruct new building and to provide to the members flats in the new building with 25% additional carpet area free of costs. The Applicant-Developer has also undertaken the obligation to pay transit rent and other benefits such as security deposit, shifting charges, etc. Though the society has executed the DA, the benefit of securing permanent alternate accommodation with 25% additional carpet area free of cost, transit rent, security deposit, shifting charges, etc. would ultimately be availed by the individual members. Respondent No.2, though has opposed the redevelopment process, would also stand benefited through the DA. Issue for consideration is whether a third party, who receives benefits under an agreement, which he has not signed, or has refused to sign, would be bound by all contractual stipulations in that Agreement, particularly the arbitration agreement contained therein ?
Therefore, merely because Respondent No.2 happens to be a beneficiary under the DA or that he is bound to act in terms with the principal agreement in the DA, the same would not create arbitration agreement between him and developer.
