Re-development of Chawls – Interesting facts and important decision

Beware the Developers should check eligibility of Committee to execute Development Agreement and should also take indemnity.

Challenge to Arbitral Award allowing the section 16 application and terminating the arbitration proceedings –

Important decision – Managing Committee of the society was not eligible to execute Development Agreement and therefore, it is void ab initio.

FACTS – On 13.9.2002, the Development Agreement between the petitioner-developer by the Society for redevelopment of chawls was executed.

On 30.1.2010, the notice terminating the Agreement was issued and fresh tender was issued.

In 2013 civil suit of the Developer for specific performance, the dispute was referred to the Arbitrator.

The Society filed preliminary defence and preliminary issues on existence of “arbitration agreement” and “limitation”.

By the Award dated 28.11.20214, on first preliminary issued, the Arbitrator held that the Development Agreement was void ab initio since the then Members of the Managing Committee were not eligible to execute the said agreement. Therefore, the petitioner had no right to claim specific performance.  In view of this, second preliminary issue was not answered.

HELD, the Managing Committee was elected on 11.8.2002, as per Section 73(1AB) of the MS Cooperative Societies Act, 1960, the Committee members were required to execute bonds within 15 days and having failed to execute such bonds, by operation of said law these members were disqualified and shall be deemed to have vacated their office.  Thus, the said Committee had no authority to execute Agreement on 13.9.2002.  As a result, such a document would not confer any right on the petitioner to enforce arbitration against the society. The order of the Arbitrator under Section 16 of the AA was upheld and the writ petition was dismissed.

Arbitration Petition No.441 of 2015 – M/s. Panama Builders & Developers Pvt Ltd  Vs. M/s. Nutan Kalpana Coop. Housing Society Ltd.