M/S AVINASH HITECH CITY 2 SOCIETY & ORS.versusBODDU MANIKYA MALINI & ANR. ETC.

                         [2019] 12 S.C.R. 95                              95


       M/S AVINASH HITECH CITY 2 SOCIETY & ORS.                           A
                                  v.
           BODDU MANIKYA MALINI & ANR. ETC.
                (Civil Appeal Nos. 7047-7049 of 2019)
                        SEPTEMBER 06, 2019                                B
            [ARUN MISHRA AND M. R. SHAH, JJ.]
       Arbitration and conciliation Act, 1996 – s. 8 – The original
land-owners executed 17 development agreements cum power of
attorney in favour of one developer for developing an integrated
                                                                          C
complex – Subsequently, the owners constituted themselves into three
societies which included appellant no.1-society – Thereafter, the
parties to each of the Development Agreements executed
supplementary Development agreements to their respective
Development agreement – Accordingly, the developer was allotted
11 commercial complexes and the owners were allotted 4 commercial         D
complexes – Respondents-owners were allotted a share in a building
H1B and they were also the members of the appellant no. 1 society
– Respondents and appellants entered into an Addendum to the
supplementary Development agreement – Various spaces in building
H1B were leased out to a company and rents were collected by the
                                                                          E
appellant no.1– Respondents sought sharing of the rent of the leased
space – Pursuant thereto, respondents filed applications u/s. 23 of
Societies Registration Act before the District Judge – Appellants
filed applications u/s. 8 of the Arbitration Act and sought the
appointment of Arbitrator in the light of the arbitration cl. 19 of the
addendum – District Judge held disputes between the parties were          F
not covered u/cl. 19 of the Addendum – Aggrieved, appellants filed
appeals before the High Court, which were dismissed – On appeal,
held: As per cl. 13 of the Addendum/Agreement, the societies were
the “sole authorities” to collect/receive the lease rents in respect of
the extends leased out in a given building earmarked as the share
                                                                          G
of the owners in the completion and pool the entire revenue
generated from each of the buildings by way of lease rents and
distribute the same to the owners – Therefore, the dispute between
the respondents and the appellants with respect to the sharing of
the rent with respect to the leased space can be said to be related to
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A    the Addendum and /or in connection with or relating to the Addendum
     – Cl.19 was applicable in the event of any dispute and difference
     arising among the parties out of, in connection with or relating to
     the agreement – Both the High Court and District Judge committed
     error in not referring the dispute between the appellants and the
     respondents to the arbitration – Parties referred to the Arbitration
B
     – Andhra Pradesh Societies Registration Act, 2001 – s. 23.
           Allowing the appeals, the Court
            HELD: 1. On reading Clause 19 of the Addendum as a
     whole, it appears that in the event of dispute or difference among
C    the parties out of, in connection with or relating to the agreement,
     the same shall be referred to arbitration. However, sub-clauses
     (c), (d) and (e) provide for different procedure in the event of any
     disputes and differences between the owners; between two or
     more societies or owners who are the members of two different
     societies and between two or more owners of the space in the
D    same building. Sub-clause (c) of Clause 19 provides that any
     disputes or differences whatsoever arising between owners, which
     could not be resolved by the parties through negotiations, within
     a period of 30 days from the service of the notice of dispute, the
     same shall be referred to and shall finally be settled by the
E    arbitration in accordance with the (Indian) Arbitration and
     Conciliation Act, 1996. Sub-clause (d) of Clause 19 provides that
     in the event of any dispute which involves two or more societies
     or owners who are the members of two different societies, the
     arbitral tribunal shall comprise of three or more arbitrators. It
     further provides, “who shall be appointed as a presiding
F    arbitrator; who shall be the Chairman of the arbitral tribunal and
     the venue of the arbitration”. Sub-clause (e) of Clause 19 provides
     that in the event of any dispute which involves two or more
     owners of the space in the same building, the arbitral tribunal
     shall comprise of the sole arbitrator and, in such a situation, each
G    party to the dispute shall refer the matter to the office bearers of
     their respective Society which shall be the arbitral tribunal and
     the venue of arbitration shall be in Hyderabad. [Para 7.1][104-H;
     105-A-E]
           2. As observed hereinabove, Clause 19 shall be applicable
H    in the event of any dispute and difference arising among the
       M/S AVINASH HITECH CITY 2 SOCIETY & ORS.                           97
           v. BODDU MANIKYA MALINI & ANR.

parties out of, in connection with or relating to the agreement.          A
As observed hereinabove, the developers, owners, societies and
the original owners and even subsequent societies formed are
parties to the agreement and the Addendum. It is also required
to be noted and, as observed hereinabove, the dispute is with
respect to sharing of the rent of the leased space and it can be          B
said that the respondents are also claiming the share relying upon
the Development Agreements; Supplementary Development
Agreements and the Addendum. Therefore, the dispute can be
said to in connection with or relating to the Agreements also.
[Para 7.2][105-F-G]
                                                                          C
      3. Considering the above facts and circumstances, both the
High Court and the District Judge have committed grave error
in not referring the dispute between the appellants and the
respondents to the arbitration. This Court is of the opinion that
Clause 19 of the Addendum to the Supplementary Development
Agreement shall be squarely applicable and therefore the disputes         D
between the respondents and the appellants for which the
respondents initiated proceedings under the Societies
Registration Act, are required to be referred to the Arbitration
and/or to the Arbitral Tribunal. [Para 7.3][105-H; 106-A-B]
      CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 7047-               E
7049 of 2019
      From the Judgment and Order dated 22.11.2018 of the High
Court of Judicature at Hyderabad in C.M.A. Nos. 1257, 1379 and 1380
of 2017.
                                                                          F
      Jayant Bhushan, Sr. Adv., Yelamanchili Shiva Santosh Kumar,
Tarun Gupta, Advs. for the Appellants.
      Joy Basu, Sr. Adv., Ms. Pallavi Sharma, Adv. for the Respondents.
      The Judgment of the Court was delivered by
                                                                          G
      M. R. SHAH, J.
      1. Leave granted.
     2. Feeling aggrieved and dissatisfied with the impugned common
judgment and order dated 22.11.2018 passed by the High Court of
                                                                          H
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A    Judicature at Hyderabad for the State of Telangana and the State of
     Andhra Pradesh in C.M.A. Nos. 1257, 1379 and 1380 of 2017 by which
     the High Court has dismissed the said appeals and has confirmed the
     order passed by the learned Principal District Judge, Ranga Reddy
     rejecting applications under Section 8 of the Arbitration and Conciliation
B    Act, 1996 filed by the appellants herein and has refused to refer the
     dispute between the parties to the Arbitrator, the original applicants have
     preferred the present appeals.
           3. The facts leading to the present appeals in nutshell are as under:
           3.1 That the original land-owners of the land admeasuring 25 acres
C          and 68 cents in aggregate forming part of Survey Nos. 30, 34, 35
           and 38 situated at Gachibowli Village, Serilingampally, Rangareddy
           District executed 17 development agreements cum power of
           attorney in favour of one Phoenix Infocity Private Limited for
           developing an integrated complex comprising of residential units,
           commercial and office spaces and service apartments on the
D
           project land. Subsequently, the owners constituted themselves
           into three societies registered under the Andhra Pradesh Societies
           Registration Act, 2001, namely Avinash Hitech City 2 Society
           (appellant no. 1), Ganga Hitech City 2 Society and Vignesh Hitech
           City 2 Society. That the said societies applied for and were granted
E          co-developer status in respect of the SEZ Project. It appears that
           thereafter the parties to each of the Development Agreements
           executed Supplementary Development Agreements to their
           respective Development Agreement. That, in terms of the
           Development Agreements and the Supplementary Development
           Agreements, the constructed space in the proposed buildings were
F
           to be shared in the ratio of 37.5 : 62.5 between the owners and
           the developer. Accordingly, the developer was allotted 11
           commercial complexes and the owners were allotted 4 commercial
           complexes. It seems that the respondents are the owners who
           have been allotted a share in building H1B and also are the
G          members of the appellant no. 1 Society. It appears that, thereafter,
           an Addendum to the Supplementary Development Agreement was
           executed by inter alia the appellants and the respondents
           (excluding the lessee, HCL Technologies Limited) on 12.03.2010.
           Clause 19 of the Addendum provides for the mechanism to resolve
           the dispute between the parties (which shall be dealt with
H
M/S AVINASH HITECH CITY 2 SOCIETY & ORS. v.                              99
  BODDU MANIKYA MALINI [M. R. SHAH, J.]

hereinbelow). Clause 13 of the Addendum is with respect to the           A
collection of lease rents in respect of the extends leased out in a
given building earmarked as the share of the owners till the
completion. Clause 16 empowers the societies to determine and
collect monthly maintenance charges from the owners and Clause
18 provides that the owners are liable to pay the proportionate
                                                                         B
share of common expenses for upkeep and maintenance to the
societies.
3.2 A cold shell of building H1B was completed by the developer
and appellant no. 1 Society converted the same to warm shell by
setting up the air conditioning facilities, back-up generators and
back-up power implementation, building management system                 C
implementation, electrical works and civil works and the funds
for the same were raised by appellant no. 1 Society by way of
bank loans. Thereafter, various spaces in building H1B were leased
out to HCL Technologies Ltd. and the rents were collected by
appellant no. 1 Society.                                                 D
3.3 That, thereafter, the respondents filed a petition under Section
23 of the Andhra Pradesh Societies Registration Act, 2001 (for
short ‘the Societies Registration Act’) before the Principal District
Judge, Ranga Reddy District making an allegation that their
purported share in the rentals were not being paid to them and           E
prayed for a direction to appellant no. 1 Society to produce the
entire accounts for the rental amounts received by it from the
tenants along with audit reports and minute books from 2011 to
2015. The respondents also prayed that appellant no. 1 Society be
directed to pay amounts already due to the respondents, being
their purported share in the rental amounts. That, thereafter another    F
petition was filed by the respondents praying that the Court split
appellant no. 1 Society into two different societies claiming to
have “lost all faith and confidence on the integrity” of the executive
committee of appellant no. 1 Society and claiming that their interest
could no longer be protected by appellant no. 1 Society. That,           G
thereafter, third application was filed by the respondents before
the learned District Judge under Section 23 of the Societies
Registration Act and prayed for a mandatory injunction against
the appellants herein directing them to inter alia distribute the
rents purportedly received by appellant no. 1 Society.
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A           3.4 In the light of the arbitration Clause 19 of the Addendum, the
            appellants filed petitions under Section 8 of the Arbitration and
            Conciliation Act, 1996 seeking the appointment of an arbitrator in
            accordance with Clause 19 of the Addendum. All the three
            applications came to be dismissed by the learned District Judge
            on the ground that the disputes between the parties in the petition
B
            under Section 23 of the Societies Registration Act are not covered
            under Clause 19 of the Addendum.
            3.5 Aggrieved by the order of the learned District Judge dismissing
            the application under Section 8 of the Arbitration and Conciliation
            Act, the appellants herein preferred three separate appeals before
C           the High Court. By the impugned common judgment and order
            dated 22.11.2018, the High Court has dismissed the said appeals.
            Hence, the present appeals.
             4. Shri Jayant Bhushan, learned Senior Advocate appearing on
      behalf of the appellants has vehemently submitted that, in the facts and
D     circumstances of the case, the High Court has materially erred in
      dismissing the appeals and confirming the order passed by the learned
      District Judge dismissing the applications filed under Section 8 of the
      Arbitration and Conciliation Act, 1996. It is vehemently submitted by
      Shri Jayant Bhushan, learned Senior Advocate appearing on behalf of
E     the appellants that the High Court has failed to appreciate Clause 19 of
      the Addendum to the Supplementary Development Agreement dated
      12.03.2010 in proper perspective while dismissing the applications of the
      appellants under Section 8 of the Arbitration and Conciliation Act, 1996.
            4.1 It is vehemently submitted by the learned Senior Advocate
F           appearing on behalf of the appellants that the dispute between the
            appellants and the respondents is the quantum of the share claimed
            by the respondents in the lease rents collected by appellant no. 1
            Society. It is submitted that the respondents are claiming their
            share in the rent collected by appellant no.1 Society relying upon
            the relevant provisions of the Development Agreements and the
G           Supplementary Development Agreements and the Addendum. It
            is submitted that, therefore, the dispute can be said to be arising
            out of the agreements executed between the parties and the
            Addendum. It is submitted that, therefore, Clause 19 of the
            Addendum shall be squarely applicable. It is further submitted
H           that Clause 19 of the Addendum is very clear and, as per Clause
M/S AVINASH HITECH CITY 2 SOCIETY & ORS. v.                             101
  BODDU MANIKYA MALINI [M. R. SHAH, J.]

19, any dispute between the owners, including the dispute relating      A
to the Addendum and all questions relating to its interpretation
shall be construed in accordance with the laws of India. It further
provides that, except as otherwise specifically provided in the
Agreement, in the event of any dispute or difference arising among
the parties out of, in connection with or relating to this agreement,   B
shall be governed by Clause 19 of the Addendum and Sub-clauses
(a) to (g) of Clause 19 shall be applicable. It is submitted that
therefore the dispute between the parties for which the respondents
filed the application under Section 23 of the Societies Registration
Act before the District Judge shall be squarely covered within
Clause 19 and therefore the High Court ought to have allowed            C
the appeals and ought to have referred the dispute to Arbitrator
as per Clause 19 of the Addendum.
4.2 It is further submitted by the learned Senior Advocate appearing
on behalf of the appellants that the High Court has materially
erred in observing and holding that in the event of any dispute         D
which involves two or more owners of the space in the same
building only, Clause 19 shall be applicable.
4.3 It is vehemently submitted by Shri Jayant Bhushan, learned
Senior Advocate for the appellants that appellant no.1 Society is a
co-developer and has received the rent as per Clause 13 of the          E
Agreement. It is submitted that in any case when the respondents
are claiming their share in the rent collected and received by the
appellant and the dispute is sharing of the rent of the space rented,
certainly Clause 19 of the Addendum shall be applicable.
4.4 It is further submitted by the learned Senior Advocate appearing    F
on behalf of the appellants that the High Court has materially
erred in considering Sub-clause (e) of Clause 19 of the Addendum
only and has materially erred in not considering the entire Clause
19 of the Addendum and the intention of the parties to the
Agreement/Addendum.                                                     G
4.5 Making the above submissions, it is prayed to allow the present
appeals and quash and set aside the impugned common judgment
and order passed by the High Court and consequently allow the
three applications filed under Section 8 of the Arbitration and
Conciliation Act and refer the dispute between the parties for          H
102             SUPREME COURT REPORTS                          [2019] 12 S.C.R.


A           which the respondents filed an application under Section 23 of the
            Societies Registration Act to Arbitration.
             5. Shri Joy Basu, learned Senior Advocate appearing on behalf of
      the contesting respondents has opposed the present appeals and has
      supported the impugned common judgment and order passed by the High
B     Court.
            5.1 It is vehemently submitted by the learned Senior Advocate
            appearing on behalf of the respondents that, in the facts and
            circumstances of the case and considering the relevant sub-clauses
            of Clause 19 of the Addendum, the High Court has rightly not
C           interfered with the order passed by the learned District Judge
            while not referring the dispute to Arbitration and not appointing
            the Arbitrator.
            5.2 It is vehemently submitted by learned Senior Advocate
            appearing on behalf of the respondents that on fair reading of
            Clause 19 of the Addendum, only the disputes and differences
D
            arising between the Owners [Sub-clause (c) of Clause 19]; the
            dispute which involves two or more societies or owners who are
            the members of the different societies [Sub-clause (d) of Clause
            19]; or the dispute which involves two or more owners of the
            space in the same building [Sub-clause (e) of Clause 19], are
E           required to be referred to Arbitration and to the Arbitral Tribunal
            comprising of the sole arbitrator. It is submitted that, in the present
            case, the dispute between the respondents and the appellants
            cannot be said to be between the owners or between the two or
            more societies. It is submitted that even the opening part of Clause
            19 specifically refers to any dispute between the owners. It is
F           submitted that therefore the High Court has rightly observed and
            held that the dispute between the respondents and the appellants
            shall not fall in any of the Sub-clauses of Clause 19. It is submitted
            that no error has been committed by the High Court and the learned
            District Judge.
G           5.3 Making the above submissions, it is prayed to dismiss the
            present appeals.
             6. We have heard the learned counsel appearing on behalf of the
      respective parties at length. At the outset, it is required to be noted that
      the dispute between the parties for which the respondents have initiated
H     proceedings under Section 23 of the Societies Registration Act is with
       M/S AVINASH HITECH CITY 2 SOCIETY & ORS. v.                               103
         BODDU MANIKYA MALINI [M. R. SHAH, J.]

respect to sharing of the rent of the leased space. It is required to be         A
noted that appellant no. 1 Society claims to be the co-developer. It cannot
be disputed and it is not in dispute that owners, societies and developers
are the parties to the Development Agreements, Supplementary
Development Agreements and the Addendum. According to appellant
no. 1-co-developer, after execution of the Development Agreements,
                                                                                 B
Supplementary Development Agreements and the Addendum, a cold
shell in building H1B was completed by the developer and appellant no.
1 Society (as co-developer), converted the same to warm shall by setting
up the air conditioning facilities, back-up generators and back-up power
implementation, building management system implementation, electrical
works and civil works and the funds for the same were raised by appellant        C
no. 1 Society by way of bank loans. That, thereafter, various spaces in
building H1B were leased out to HCL Technologies Limited and one
other and they recovered the rent from the lessee. As per Clause 13 of
the Addendum/Agreement which sets out that the societies would be
the “sole authorities” to collect/receive the lease rentsin respect of the
                                                                                 D
extends leased out in a given building earmarked as the share of the
owners in the completion and pool the entire revenue generated from
each of the buildings by way of lease rents and distribute the same to the
owners, pro-rata to their respective shares in the build-up space in the
project after addressing the liabilities towards loans. Therefore, the dispute
between the respondents and the appellants with respect to the sharing           E
of the rent with respect to the leased space can be said to be related to
the Addendum and/or in connection with or relating to the Addendum.
      7. Clause 19 of the Addendum, which is the arbitration clause and
provides how to settle the dispute between the parties, reads as under:
          “The owners agree that any dispute between the Owners,                 F
          including the dispute relating to this Addendum and all questions
          relating to its interpretation shall be construed in accordance
          with the laws of India, without reference to its principles of
          conflicts of law. Except as otherwise specifically provided in
          this Agreement, the following provisions apply in the event of         G
          any dispute or difference arising among the Parties out of, in
          connection with or relating to the Agreement (The ‘Dispute’).
          (a) The Dispute shall be deemed to have occurred, when one
          Party serves on the other Party/ies a notice stating the nature
          of the Dispute (‘Notice of Dispute’).                                  H
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A     (b) The Parties hereto agree that they will use all reasonable efforts
      to resolve among themselves, any Dispute between them through
      negotiations.
      (c) Any Dispute and differences whatsoever arising between the
      Owners which could not be resolved by Parties through
B     negotiations, within a period of thirty (30) days from the service
      of the Notice of Dispute, the same shall be referred to and shall
      finally be settled by arbitration in accordance with the (Indian)
      Arbitration and Conciliation Act, 1996, and all the proceedings
      shall be conducted in English and a daily transcript in English shall
      be prepared.
C
      (d) In the event of any dispute which involves two or more Societies
      or Owners who are the members of two different Societies, the
      arbitral tribunal shall comprise of three or more arbitrators. In
      such a situation, each party to the dispute shall appoint one
      arbitrator, who shall be from the office bearers of their respective
D     Societies and the two or more arbitrators so appointed shall appoint
      a presiding arbitrator, who shall be one of the office bearers of
      the Hitech City-2 Owners Welfare Association (HOWA) and the
      Chairman of the arbitral tribunal; and the venue of arbitration shall
      be in Hyderabad, India.
E     (e) In the event of any dispute which involves two or more Owners
      of the space in the same building, the arbitral tribunal shall comprise
      of the sold arbitrator. In such a situation, each party to the dispute
      shall refer the matter to the office bearers of their respective
      Society which shall be the arbitral tribunal; and the venue of
F     arbitration shall be in Hyderabad, India.
      (f) The Parties are debarred from exercising any right or filing
      any application to any court or tribunal having jurisdiction in
      connection with matters involving substantial questions of law
      arising during any arbitration.
G     (g) The Parties here by submit to the Arbitrator’s award and the
      award shall be enforceable in any competent court of law.”
      7.1 On reading Clause 19 of the Addendum as a whole, it appears
      that in the event of dispute or difference among the parties out of,
      in connection with or relating to the agreement, the same shall be
H
M/S AVINASH HITECH CITY 2 SOCIETY & ORS. v.                            105
  BODDU MANIKYA MALINI [M. R. SHAH, J.]

referred to arbitration. However, sub-clauses (c), (d) and (e)         A
provide for different procedure in the event of any disputes and
differences between the owners; between two or more societies
or owners who are the members of two different societies and
between two or more owners of the space in the same building.
Sub-clause (c) of Clause 19 provides that any disputes or
                                                                       B
differences whatsoever arising between owners, which could not
be resolved by the parties through negotiations, within a period of
30 days from the service of the notice of dispute, the same shall
be referred to and shall finally be settled by the arbitration in
accordance with the (Indian) Arbitration and Conciliation Act,
1996. Sub-clause (d) of Clause 19 provides that in the event of        C
any dispute which involves two or more societies or owners who
are the members of two different societies, the arbitral tribunal
shall comprise of three or more arbitrators. It further provides,
“who shall be appointed as a presiding arbitrator; who shall be the
Chairman of the arbitral tribunal and the venue of the arbitration”.
                                                                       D
Sub-clause (e) of Clause 19 provides that in the event of any
dispute which involves two or more owners of the space in the
same building, the arbitral tribunal shall comprise of the sole
arbitrator and, in such a situation, each party to the dispute shall
refer the matter to the office bearers of their respective Society
which shall be the arbitral tribunal and the venue of arbitration      E
shall be in Hyderabad.
7.2 As observed hereinabove, Clause 19 shall be applicable in the
event of any dispute and difference arising among the parties out
of, in connection with or relating to the agreement. As observed
hereinabove, the developers, owners, societies and the original        F
owners and even subsequent societies formed are parties to the
agreement and the Addendum. It is also required to be noted and,
as observed hereinabove, the dispute is with respect to sharing of
the rent of the leased space and it can be said that the respondents
are also claiming the share relying upon the Development
Agreements; Supplementary Development Agreements and the               G
Addendum. Therefore, the dispute can be said to in connection
with or relating to the Agreements also.
7.3 Considering the above facts and circumstances, both the High
Court and the learned District Judge have committed grave error
                                                                       H
106                SUPREME COURT REPORTS                     [2019] 12 S.C.R.


A           in not referring the dispute between the appellants and the
            respondents to the arbitration. We are of the opinion that Clause
            19 of the Addendum to the Supplementary Development
            Agreement shall be squarely applicable and therefore the disputes
            between the respondents and the appellants for which the
            respondents initiated proceedings under the Societies Registration
B
            Act, are required to be referred to the Arbitration and/or to the
            Arbitral Tribunal.
             8. In view of the above and for the reasons stated above, all these
      appeals are allowed. The impugned common judgment and order dated
      22.11.2018 passed by the High Court in C.M.A. Nos. 1257, 1379 and
C     1380 of 2017 is hereby quashed and set aside. The order passed by the
      learned District Judge rejecting the applications submitted by the
      appellants under Section 8 of the Arbitration and Conciliation Act, 1996
      are also hereby quashed and set aside. Consequently, the applications
      submitted by the appellants under Section 8 of the Arbitration and
D     Conciliation Act, 1996 are hereby allowed and the disputes between the
      respondents and the appellants are hereby directed to be referred to the
      Arbitration. No costs.


      Ankit Gyan                                                 Appeals allowed.
E




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