Allowed

M/S. Indu Enterprise v. Manohar B. Darpe and 6 Others

Bombay HC18 Sept 2014NMS/1031/2014

Case brief

AI extract

What is this about?

The court granted a notice of motion for the appointment of a court receiver. It held that individual members of a cooperative society are bound by the society's General Body resolution to redevelop the property and execute a development agreement, overriding their individual objections.

What did the court decide?

Appointment of court receiver to take possession of flats; directing respondents to vacate flats within four weeks; permitting police assistance if possession is not voluntarily handed over.

M/S. Indu Enterprise Vs Manohar B. Darpe and… — Contract and Commercial Disputes | Bombay HC (2014)

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY

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ORDINARY ORIGINAL CIVIL JURISDICTION

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NOTICE OF MOTION NO.1031 OF 2014 IN SUIT NO.622 OF 2014

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M/s. Indu Enterprise

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...Applicant/Orig. Plaintiff

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In the matter between

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M/s. Indu Enterprise ...Plaintiff

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Manohar B. Darpe And 6 Others ...Defendants.

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Mr. Y.S. Jahagirdar, Senior Counsel, a/w. Mr. Prashant Naik, a/w. Ms. Bharti Mahant, a/w. Ms. Devika Nigade, i/b. Divya Shah Associates, for the Plaintiff.

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Mr. C.G. Gavnekar, i/b. Gautam Hiranandani, for Defendant Nos. 1 to 6.

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CORAM : S.C. GUPTE, J.

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DATED : SEPTEMBER 18, 2014

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P.C. :

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. The Notice of Motion is taken out by the Plaintiff inter alia for appointment of a Court Receiver of the flats, which are the subject matter of the present suit, with powers to take and handover possession of the flats to the Plaintiff for the purpose of redevelopment of the suit property. The suit is filed for a declaration that the development agreement and other documents executed between the Plaintiff and Defendant No.7 Society are valid, subsisting and binding on Defendant Nos.1 to 6 and for direction to Defendant Nos. 1 to 6 to handover vacant and peaceful possession of the suit flats to the Plaintiff for redevelopment in accordance with the development agreement and other documents referred to above.

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The short facts of the Plaintiff's case may be stated as follows :-

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Defendant No.7 is a Co-operative Housing Society, which owns a plot of land bearing CTS No.1108 at Mulund in Mumbai, together with a building known as “Ankoor Building” standing thereon. Defendant Nos. 1 to 6 are members of Defendant No.7. In pursuance of a resolution passed in a Special General Body Meeting of Defendant No.7, offers were invited from developers for redevelopment of the building. The Plaintiff gave his offer. In a Special General Body Meeting held on 26 September 2010, the Plaintiff's offer was accepted and the Plainitff was appointed as a developer for carrying out the redevelopment project. An MOU was, thereafter, executed between the Plaintiff, Defendant No.7 and the individual members of Defendant No.7, including Defendant Nos. 4, 5 as well as the predecessor-in-title of Defendant No.6. On the basis of the MOU, draft development agreement and power of attorney were exchanged between the parties and approved by the members of Defendant No.7. A letter was, accordingly, addressed by the members of Defendant No.7, including Defendant Nos. 4, 5 and the predecessor-in-title of Defendant No.6. On 5 December 2010, a development agreement was executed between the Plaintiff and Defendant No.7. Defendant No.7 also executed a power of attorney on the same date in favour of the Plaintiff. In pursuance of decisions taken in the Annual and Special General Body Meetings held in that behalf, the members of Defendant No.7 resolved to execute a supplemental agreement with the Plaintiff to amend certain terms and conditions of the original development agreement in view of amended DCR Rules. On 23 June 2013, a Special General Body Meeting of Defendant No.7 decided that the members would vacate their respective flats by

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September 2012 and handover the same to Defendant No.7, who, in turn, would handover the same to the Plaintiff. Accordingly, a consent letter was forwarded to the Plaintiff by Defendant No.7. The consent letter was signed by the members of Defendant No.7, who included Defendant Nos. 4 and 5 herein. In pursuance of the Special General Body Resolution, in or about September 2013, 15 members of Defendant No.7 vacated their respective flats and handed over possession of the same to Defendant No.7. Defendant No.7 has put the Plaintiff in possession of these flats. In pursuance of the various General Body Resolutions, and communications addressed by Defendant No.7 to the Plaintiff, the Plaintiff, thereafter, called upon Defendant Nos. 1 to 6 to vacate their respective flats in accordance with the development agreement. The Defendants, however, refused to vacate their flats. In the meantime, on or about 19 April 2014, the supplemental agreement was executed between the Plaintiff and Defendant No.7 inter alia modifying the terms of the development agreement and incorporating additional terms in accordance with the amended DCR Rules. The supplemental agreement was forwarded by the Plaintiff to Defendant Nos. 1 to 6, and the Defendants were once again called upon to vacate their respective premises. It is the case of the Plaintiff that the Plaintiff has already spent a sum of over Rs.1.10 crores towards the redevelopment project, including the payment of rent for temporary alternative accommodation to the members of Defendant No.7. Since Defendant Nos. 1 to 6 refused to vacate their respective flats, the present suit is filed by the Plaintiff. The Plaintiff has taken out the present Notice of Motion for appointment of a Court Receiver with powers to takeover the suit flats from Defendant Nos. 1 to 6 and handover the same to the Plaintiff to enable the Plaintiff to carry out the redevelopment work in accordance with the development agreement.

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The Notice of Motion is opposed by Defendant Nos. 1 to 6. Learned Counsel appearing for Defendant Nos. 1 to 6 basically advanced three submissions. Learned Counsel submitted that the present suit is not maintainable. It is submitted that the development agreement contains an arbitration agreement. It is submitted that the subject matter of the present suit is covered by that arbitration agreement. A separate Motion under Section 8 of the Arbitration and Conciliation Act, 1996 is taken out by the Plaintiff for reference of the parties to arbitration. (A separate order is passed on that Notice of Motion.) It is submitted that, accordingly, no relief can be claimed against Defendant Nos. 1 to 6. Alternatively, it is submitted that if Defendant Nos. 1 to 6 were not to be treated as parties to the arbitration agreement (by reason of their not being party to the development agreement), no relief can be claimed against Defendant Nos. 1 to 6 for want of privity of contract between them and the Plaintiff. Thirdly, it is submitted that the Plaintiff has not claimed specific performance of the development agreement and that in the absence of such prayer, the interim relief prayed for herein, cannot be granted.

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At the outset and before these three contentions are considered, it is important to note that neither the various resolutions of the General Body of Defendant No.7 are disputed nor the development agreement and various documents in connection therewith are contested by the Defendants. The arguments in the present Notice of Motion only revolved around the legality or the permissibility of the reliefs claimed in the Notice of Motion on the ground of lack of jurisdiction and want of privity, as noted above.

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As far as the objection to the grant of relief on the ground of

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existence of an arbitration agreement is concerned, as noted in the order passed in the companion Notice of Motion, namely, Notice of Motion (L) No. 1768 of 2014, the Defendant Nos. 1 to 6 are not parties to the development agreement. The subject matter of the present suit, accordingly, is not covered by the arbitration agreement.

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Learned Counsel for the Defendants has next contended that in the alternative, in the event this Court comes to the conclusion that Defendant Nos. 1 to 6 are not parties to the development agreement, there is no privity of contract between the Plaintiff and Defendant Nos. 1 to 6. It is submitted that in that case, no relief can be granted against Defendant Nos. 1 to 6 in the present suit and Notice of Motion.

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In this behalf, it may be noted that the Plaintiff has filed the present suit for a declaration that the suit development agreement, power of attorney and supplemental agreement entered into between the Plaintiff and Defendant No.7 are binding upon Defendant Nos. 1 to 6. On the basis of such declaration, the Plaintiff seeks an order for possession of the suit flats respectively occupied by Defendant Nos. 1 to 6 in the building owned by Defendant No.7 Society. This question has been considered by our Court in a number of cases, where reliefs have been granted to plaintiff developers on the basis of a development agreement between the developers and cooperative Societies and recovery of possession of flats has been ordered against individual members.

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In the case of Girish Mulchand Mehta v/s Mahesh S. Mehta¹ which is a leading judgment of our Court on this question, a Division Bench

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1 2010(1) Bom.C.R. 31

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of our Court has considered the position of individual members of the Cooperative Society vis-a-vis a development agreement executed between the society and its members on one hand and the developer on the other. That was a case where the developer, who was the Petitioner before the Court in an Arbitration Petition under Section 9 of the Arbitration and Conciliation Act, 1996, had alleged that the Respondent Society had entered into a development agreement with the developer; that several members of the Society, excepting the dissenting members, had signed individual undertakings confirming the development agreement; that in pursuance of the development agreement the developer had performed his part of the contract and had taken steps and expended amounts for undertaking the redevelopment work; that whereas possession of flats by majority of flat owner members of the society was handed over to the developer, the dissenting members had refused to vacate their respective flats; that accordingly, disputes had arisen between the parties, namely, the Petitioner developer and the Respondent Society, which were referred to arbitration; and that under Section 9 of the Arbitration and Conciliation Act, 1996, the developer was entitled to an interim order for appointment of a Court Receiver with power to take possession of the flats occupied by the dissenting members and handover the same to the developer for redevelopment. In the backdrop of these facts, this Court examined the position of the individual members of a co-operative society vis-a-vis the development agreement executed between the Society and the developer. This Court held as follows :-

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“16. In the present case, it is not in dispute that the General Body of the Society which is supreme, has taken a conscious decision to redevelop the suit building. The General Body of the Society has also resolved to appoint the Respondent No. 1 as the Developer. Those decisions have not been challenged at

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all. The Appellants who were members of the Society at the relevant time, are bound by the said decisions. The Appellants in the dispute filed before the Cooperative Court have only challenged the Resolution dated 27/4/2008, which challenge would merely revolve around the terms and conditions of the Development Agreement. As a matter of fact, the General Body of the Society has approved the terms and conditions of the Development Agreement by overwhelming majority. Merely because the terms and conditions of the Development Agreement are not acceptable to the Appellants, who are in minuscule minority (only two out of twelve members), cannot be the basis not to abide by the decision of the overwhelming majority of the General Body of the Society. By now it is well established position that once a person becomes a member of the Cooperative Society, he looses his individuality with the Society and he has no independent rights except those given to him by the statute and Bye-laws. The member has to speak through the Society or rather the Society alone can act and speaks for him qua the rights and duties of the Society as a body (see Daman Singh and Ors. v. State of Punjab reported in 1985 DGLS (Soft.) 110: AIR 1985 SC 973). This view has been followed in the subsequent decision of the Apex Court in the case of State of U.P. v. Chheoki Employees Cooperative Society Ltd. reported in 1997 DGLS (Soft.) 69: AIR 1997 SC 1413. In this decision the Apex Court further observed that the member of Society has no independent right qua the Society and it is the Society that is entitled to represent as the corporate aggregate. The Court also observed that the stream cannot rise higher than the source. Suffice it to observe that so long as the Resolutions passed by the General Body of the Respondent No. 2 Society are in force and not overturned by a forum of competent jurisdiction, the said decisions would bind the Appellants. They cannot take a stand alone position but are bound by the majority decision of the General Body. Notably, the Appellants have not challenged the Resolutions passed by the General Body of the Society to redevelop the property and more so, to appoint the Respondent No. 1 as the Developer to give him all the redevelopment rights. The propriety rights of the Appellants herein in the portion (in respective flats) of the property of the Society cannot defeat the rights accrued to the Developer and/or absolve the Society of its obligations in relation to the subject matter of the Arbitration Agreement. The fact that the relief prayed by the Respondent No. 1 in section – 9 Petition and as granted by the Learned Single Judge would affect the propriety rights of the Appellants does not take the matter any further. For, the propriety rights of the Appellants

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in the flats in their possession would be subservient to the authority of the General Body of the Society. Moreso, such rights cannot be invoked against the Developer (Respondent No. 1) and in any case, cannot extricate the Society of its obligations under the Development Agreement.”

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Accordingly, it is clear that once a General Body of the Society approves the terms and conditions of a development agreement by a majority and the society executes the same, a minority of the members cannot refuse to abide by the decision of the majority or refuse to honour the development agreement. Once a resolution is passed by the General Body and development agreement is duly executed, after complying with the requirements of law in this behalf, individual members of the Society cannot take a stand alone position and refuse to comply with the development agreement on the basis of their proprietary rights concerning their individual flats. The proprietary rights of individual members concerning flats in their possession are subservient to the authority of the General Body. Assertion of these rights cannot extricate the society of its obligations under the development agreement.

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The decision of Girish Mehta ( supra) has been followed by our Court in a number of cases. In fact, the very question of lack of privity between the plaintiff developer and objecting dissenting members was expressly considered by this Court in the case of Vardhaman Developers Ltd. v/s Thailambai Co-op. Hsg. Socy. Ltd.² where this Court held as follows :-

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“8. Finally, it may be observed that there is no merit in the contention that there is no privity of contract between the objecting Defendants and the Plaintiff. All the objecting Defendants are members of the First Defendant which is a Cooperative Housing

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2 NMS-3274-10, dtd. 7 March 2011.

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Society. They have executed Consent Affidavits agreeing to the process of re-development by the Plaintiff. The argument that there is a lack of privity is therefore devoid of substance.”

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In the present case, the society has duly passed resolution after following the guidelines issued by the State Government in this behalf, appointing the Plaintiff as a developer of the suit property. The resolution was supported by an overwhelming majority including Defendant Nos. 4 and 5 and the predecessor-in-title of Defendant No.6 herein. After the resolution was passed, a development agreement was duly executed between the Plaintiff and Defendant No.7. The members of Defendant No.7 have executed writings, including an MOU, individual consent letters, and communications. These consents, letters and communications have been signed by all members, except Defendant Nos. 1 to 3 herein. Defendant No.3, for his part, was present in the meeting of the Special General Body of the Society and accepted the proposal for executing a supplemental agreement in favour of the Plaintiff. On these facts, it cannot be suggested that Defendant Nos. 1 to 6, who are the only objecting members of Defendant No.7 Society, can take a stand alone position and contest the obligations of Defendant No.7 Society under the development agreement to handover possession of all flats in the existing building to the Plaintiff for carrying out the redevelopment work.

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The present suit, which seeks a declaration that the development agreement is binding on Defendant Nos .1 to 6 and recovery of possession against Defendant Nos. 1 to 6 on that basis, is actually a suit seeking performance of the development agreement and it cannot possibly be suggested that by reason of not praying for specific performance in terms against Defendant No.7, the present application for recovery of possession

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of individual flats does not lie against individual members. For the reasons discussed, there is a case for appointment of Court Receiver, as prayed for in the Notice of Motion. Accordingly, the Notice of Motion is made absolute in terms of prayer clauses (b) and (d). The prayer clause (d) of the Notice of Motion is amended by adding the word “not” in the last line of the prayer clause, after the word “are” and before the word “enforceable”.

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Defendant Nos. 1 to 6 are directed to handover the possession of their respective flats, namely, flat Nos. 10, 11, 16, 5, 19 and 21 in the building known as “Ankoor Building” described in clause (b) of the Notice of Motion within a period of four weeks from today.

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The Plaintiff is directed to pay the compensation towards the alternative temporary accommodation to Defendant Nos. 1 to 6, in the same manner as paid to the other members of Defendant No.7 Society.

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In the event of Defendant Nos. 1 to 6 or any of them refusing to handover possession of their respective flats to the Court Receiver within the stipulated period, the Court Receiver is permitted to seek police assistance for recovery of possession and take over physical possession of the respective flat/s.

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In the event of recovery of possession with police assistance, the Plaintiff shall deposit the compensation payable to such member/s as directed in clause 14 above in this Court.

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