Omkar Realtors And Developers ... vs The Tenants Co Operative Housing ...
2023 Latest Caselaw 2258 Bom

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                       IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                              ORDINARY ORIGINAL CIVIL JURISDICTION
            COMMERCIAL ARBITRATION APPLICATION(L) NO.39368 OF 2022


            Omkar Realtors & Developer Private Limited]             ..       Applicant
                                        vs.
            The Tenants Co-Op. Housing Soc. Ltd. & Anr.]            ..       Respondents


            Mr.Prashant Naik a/w Alfiya Diamondwala i/b Diamondwala & Co. for
            the Applicant.
            Mr.Swanand Ganoo a/w Kishor Tembe for the Respondents.


                                              CORAM   :     BHARATI DANGRE, J

                                              RESERVED ON         : 2nd March, 2023
                                              PRONOUNCED ON       : 9th March, 2023.

            JUDGMENT :

1] A brief question that arise in the present Application is, whether a clause providing for settlement of disputes in the Tender, for redevelopment work of the Tenants Co-Operative Housing Society Limited (for short TCHS) , would justify invocation of arbitration by the Applicant-Developer, when the dispute arose between the parties.

2] Heard the learned counsel Mr.Prashant Naik a/w Alfiya Diamondwala i/b Diamondwala & Co. for the Applicant and Mr.Swanand Ganoo a/w Kishor Tembe for the Respondents.

3] The facts in the background would reveal that the Respondent No.1-Society registered under the Maharashtra Co-operative Societies

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Act, floated a Tender for redevelopment of their Society on 09.02.2012. The Applicant in the capacity of a Developer, having its registered office in Mumbai, submitted a Bid on 30.04.2012 which came to be accepted by the Respondent No.1 vide their letter dated 29.09.2012.

Upon the Letter of Acceptance, Respondent No.1 considered the earnest money deposit of Rs.2,00,00,000/- by the Applicant, as security deposit and also directed the Applicant to deposit balance security deposit of Rs.3,00,00,000/- against issuance of fresh Letter of Intent (LoI) incorporating amended terms and conditions.

According to the Applicant, the audio visual presentation of the redevelopment was also given to the members of the Society and various clauses of the approved Development Agreement were also discussed.

On 06.07.2013, a fresh Letter of Intent was issued in favour of the Applicant. However, in the wake of certain discrepancies recorded in the Minutes of Annual General Meeting held on 26.05.2014, when the Applicant made an attempt to set out the correct facts, the contents of letter were disputed by the Respondent-Society, pursuant to which a joint meeting was held to discuss the issue of redevelopment. The time to deposit additional amount of Rs.3,00,00,000/- was extended by the Respondent No.1 and even amendment to the Letter of Intent was proposed.

4] The dispute arose between the parties, since according to the Applicant, Respondent No.1 failed to consider the clarification offered by the Applicant, in the letters addressed to them and the Respondent insisted to set out progress of the proposed redevelopment.

In the meantime, the election of the managing committee was held resulting into appointment of new managing committee, which was

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not in favour of the Applicant and it set a tone of discord, ultimately resulting into a Letter of Termination dated 25.03.2019.

5] These background facts constrained the Applicant to invoke arbitration through a letter dated 23.06.2022, setting out factual scenario and placing reliance upon Clause 40 of the tender document. The notice also communicated the name of the Advocate to be appointed as Sole Arbitrator and the Respondents were called upon to confirm the appointment.

In response, the Respondents vide their letter dated 21.07.2022 denied existence of any dispute and difference between the parties and there was also specific denial of the arbitration agreement.

The Applicant clearly expressed an apprehension that the Respondents are in the process of inviting fresh proposal for redevelopment of the property, despite effective steps being taken by the Applicant by investing time, money and energy. The Applicant, therefore, filed Commercial Arbitration Petition (L) No.32933/2022 under Section 9 of the Arbitration and Conciliation Act, which is pending for adjudication.

6] Though there is divergence of opinion between the parties, about existence of disputes, it is not in dispute that a Tender Notice for redevelopment of the TCHS at Chunabhatti, over an area of 20,523 sq. mtrs. was floated by the Respondent Society. The tender invited sealed Bids from reputed developers having adequate resources and experience in the execution of similar works of comparable magnitude for the redevelopment work of TCHS.

As a condition of the tender, earnest money of Rs.100 Lakh in form of Demand Draft/Pay Order from nationalized bank was included,

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alongwith cost of Bid document being fixed at Rs.25,000/- (non- refundable). The tender document contemplated that for unsuccessful Tenderer only EMD shall be refunded.

7] The Tender document stipulated several terms and conditions which include a clause for "Award of Contract" which indicate that notification of the Award will be made in writing in favour of the successful developer, after passing of resolution in the Special General Body Meeting of the Society.

The clause in form of Letter of Acceptance in the Notice inviting Tender read as under :-

11. Letter of Acceptance :

"The chosen Developer will be informed by the Society by Letter of Intent. The chosen Developer shall sign the Letter of intent and return to the Society within 7 days. The chosen Developer shall submit his Letter of Acceptance along with Security deposit after adjusting the amount of EMD, Performance, Bank Guarantee and other requirements within 15 days after signing the Letter of Intent. The chosen Developer shall sign the Contract Agreement with the Society within 45 days from the date of finalization of the Draft of contract Agreement."

8] The Tender document also stipulated the General Conditions of Contract (GCC) and specifically provided for the general obligations to be discharged by the builder/developer.

Clause 9.1 of the Tender document stipulated that the Letter of Acceptance shall be issued before signing of the contract in accordance with contract documents and it stipulated as under:-

"Upon issue of such Letter of Acceptance by the Society, the Contract shall be deemed to have been fully and sufficiently made and the Society and the Builder/Developer shall become bound by all the terms and conditions of the Contract until the signing of the Contract."

Clause (b) provide for "Development Agreement" and it

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contemplated that the Builder/Developer shall when called upon to do so, shall enter into and execute Development Agreement to be prepared at the cost of the Builder/Developer by the Society's Advocates and Solicitors.

9] The Tender document, also provided for "Settlement of Disputes" and Arbitration was agreed to be a mode for settlement of disputes, with the clause, recording asunder :-

"SETTLEMENT OF DISPUTES Arbitration: All disputes or differences of any kind whatsoever which shall any time arise between the parties to the final contract, touching or concerning the works or the execution of the contract or the construction, remaining operation or effect thereof or to the rights of liabilities of the parties or arising out of or in relation thereto whether during or after determination, force closure or breach of the contract (other than those in respect of which the decision of any person is by the contract expresses to be final and binding) shall after written notice by either party to the contract to the other of them will be referred to the Arbitration as per the provisions of the Arbitration and Reconciliation Act, 1996. The Award of the Arbitrators will be final and binding upon the parties hereto."

10] The Tender document placed on record clearly contemplated the following stipulations as essential conditions of the Tender :-

       No.                     Rem                        Amount/Period
        1     Earnest Money Deposit            Rs.1,00,00,000/- (Rupees One
                                               Hundred Lakhs only) in the form of
                                               DD/PO only.
        2     Security Deposit                 By Demand Draft from a
                                               Nationalized Bank equivalent to
                                               Rs.5 Crore within 15 days of Letter
                                               of Intent valid until the end of
                                               project. The EMD will be refunded
                                               or adjusted only on furnishing this
                                               Security Deposit.
        3     Performance Bank Guarantees      Rs.35 Crores from a reputed Bank
                                               as per the Draft approved by the
                                               Society







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        6        Date of Commencement of Work Upon issuance of Letter of Intent
        7        Time of completion                 36 months from receipt of
                                                    Commencement Certificate.
       10        Validity of tender                 120 days from date of submission.


 11]        The case of the Applicant is specific, where it is projected that the

Bid of the Applicant was accepted by Respondent No.1-Society in its Special General Body Meeting held on 09.09.2012, with an agenda of selection and appointment the most suitable 'Developer' for the proposed redevelopment of the Society. The resolution was passed by the Society, awarding redevelopment rights, as per the Tender conditions, in favour of M/s.Omkar Realtors & Developers Pvt. Ltd., i.e. the Applicant.

The Minutes of Special General Body Meeting with signatures of its members, are placed on record.

12] In furtherance thereof, on 29.09.2012, a Letter of Intent was issued in favour of the Applicant for redevelopment of the Society which clearly stipulated that after evaluating the offers received from various developers at the Special General Body Meeting held on 09.09.2012, the Society has passed a resolution appointing the Applicant to undertake the work of redevelopment, as defined in the Tender Notice. sub Accordingly, Letter of Intent recording the intention to grant development rights of the property to the Applicant came to be issued, subject to following conditions.

a] Draft of the Development Agreement to be executed on being approved by the general body of the Society.

b] Letter of Intent is in respect of development of Part I. c] The intent of the Society is only to grant development rights in the capacity as a Developer and nothing shall be construed to create any right, title, interest.

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d] Letter of Intent is expression of intent and do not amount to concluded contract.

e] Copy of Letter of Intent, duly signed by the authorized representative of the Developer in token of acceptance, shall be submitted alongwith Pay Order for an amount of Rs.4,00,00,000/-, to be paid to the Society by way of security deposit.

Upon receipt of the Letter of Intent alongwith Pay Order, an amount of Rs.1,00,00,000/- paid by the Developer to the Society by way of Earnest Money Deposit, shall be treated as security deposit, considering that the Society has received an aggregate amount of Rs.5,00,00,000/- as interest-free Security Deposit.

13] Pursuant to the Letter of Intent, communication is exchanged by the Applicant with the Society, seeking clarification of certain terms and conditions and particularly seeking clarification about the title of TCHS by issuing a public notice.

On 09.06.2013, the Society addressed a communication to the Applicant intimating that Earnest Money Deposit of Rs.2,00,00,000/- paid by the Developer shall be treated as Security Deposit and balance deposit of Rs.3,00,00,000/- shall be paid against issuance of fresh Letter of Intent incorporating amended terms and conditions as discussed in the Special General Body Meeting dated 26.05.2013. The time to enter into Development Agreement (DA) came to be extended by the very said communication addressed to the Applicant.

14] In these background facts, the question arises, whether the arbitration clause contained in the Tender document can be construed as arbitration agreement being entered between the parties.

sub The aforesaid issue is no more resintegra.

The Hon'ble Apex Court in case of Unissi (India) Private

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Limited vs. Post Graduate Institute of Medical Education and Research1 was confronted with a similar question about existence of valid arbitration agreement, in the wake of a specific clause contained in a Tender floated for purchase of certain machines, which contain an arbitration clause. The tender offer submitted by the Appellant was accepted and subsequently acted upon by the Appellant.

The question raised for consideration was, whether in absence of existence of any formal arbitration agreement, Arbitrator could be appointed construing the arbitration clause in the Tender.

15] In the wake of facts, that no formal agreement was executed, but the Tender documents indicated certain conditions of Contract containing an arbitration clause, the Hon'ble Apex Court by making reference to Section 7 of the Arbitration and Conciliation Act, held as under :

"16. It is an admitted position that the appellant had sent the agreement containing the arbitration clause, as per the format provided by PGI, after duly signing the same on requisite value of stamp paper for signing of the same by PGI. PGI though admittedly received the same, did not send back the agreement to the appellant after signing it as per the agreement between the parties. PGI admittedly had used the machines for about an year and thereafter returned the same to the appellant. Subsequently, the bank guarantee furnished by the appellant for Rs.2,13,160 and the earnest money deposit of Rs.45,000 was encashed and forfeited by PGI.

17. In view of the aforesaid facts and the correspondences between the parties, particularly the tender offer made by the appellant dated 15-1-2001 and supply order of PGI dated 20-9-2002, and, in our view, to constitute an arbitration agreement between the parties and the action taken on behalf of the appellant and in view of Section 7 of the Act and considering the principles laid down by the aforesaid two decisions of this Court, as noted hereinearlier, we are of the view that the arbitration agreement did exist and therefore the matter should be referred to an arbitrator for decision."

16] The Apex Court in case of State of Uttar Pradesh & Ors. vs.

1(2009) 1 SCC 107

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Combined Chemicals Company Private Limited2, relied upon a similar issue and an 'Arbitration Clause' in the tender form was held to be effective, as pursuant to the tender, Respondent's Bid was accepted subject to the terms and conditions in the acceptance letter. Thus, it was held that there was substantial compliance with Article 299 of the Constitution of India and the Contract stood executed between Government and the Supplier and absence of formal agreement was held, could not negate the same.

The decision in case of Unissi (India) Private Limited (supra) was cited with approval and by recording that by the Letter of Acceptance, the Bid given by the Respondent was accepted by Governer of Uttar Pradesh and the terms and conditions embodied in the Letter of Acceptance spoke of the formal Agreement, but since it was stated the same was to be executed only if required, it was held that the Respondent completed all the formalities, inasmuch as it deposited the security money and also sent letters for placing supply order, dispatched a duly signed agreement to the Directorate of Agriculture, it was held that a Contract had come into existence between the parties and the fact that the Director of Agriculture did not sign the formal Agreement, did not negate the inference that a Contract was executed.

17] The learned counsel for the Respondent, would place reliance upon the decision of the Apex Court, in case of Bharat Sanchar Nigam Limited vs. Telephone Cables Limited3.

On perusal of the facts, which were involved in the said case,the observations of the Hon'ble Apex Court would have to be read in the

2(2011) 2 SCC 151 3(2010) 5 SCC 213

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light of the peculiar facts, which reveal that the Applicant invited Bids for supply of different sizes of polythene insulated jelly filled cables. Nicco, the Bidder, with the highest vendor rating, was considered for placing the order for 30% of the tendered quantity and the balance quantity was distributed among the remaining selected bidders in each group in direct ratio of their vendor rating. The Respondent, claimed that it should have been given the highest vendor rating and it would have secured a purchase order for a huge quantity, but it was treated as one of the "other bidders", consequently only a small quantity order was placed on it.

The Respondent approached the High Court which allowed the Writ Petition and directed the BSNL to reassess the vendor rating and if it secured the rating V-I, it was directed to allot, unallotted quantity of cables. By the time, the decision was rendered, according to BSNL, no balance quantity was available and no order for any further quantity could be placed with the Respondent, despite the Respondent being given higher rating on re-evaluation.

The Respondent, then issued a notice to BSNL suggesting that the disputes between them to be referred to arbitration and the Respondent filed application for appointment of Arbitrator to decide its claim for alleged loss of profit, which was allowed by the High Court appointing a retired Judge as an Arbitrator.

Being aggrieved, BSNL filed Special Leave Petition contending that there was no arbitration agreement between the parties.

18] In the backdrop of the peculiar facts, the general conditions of contract and Clause 20 which provide for arbitration stipulated that it will not be applicable to any dispute in regard to the Tender or Bid, or non-placing of a purchase order, but will apply only in regard to any

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contract awarded by BSNL by placing a purchase order.

In these peculiar facts, it was held that the Contract is entered into in pursuance of the Bid, when a purchase order is placed by BSNL on a bidder, but when no purchase order is placed, there is no contract or agreement and if there is no Contract or Agreement, the terms of the general conditions including arbitration clause did not come into existence, giving rise to an inference that there is no arbitration agreement at all.

The observations in the case of BSNL (supra) are, therefore, to be read in the facts of the case inasmuch as the Respondent is concerned, when no purchase order was placed on it.

19] However, the facts of the present case are clearly distinguishable, where the Tender document itself stipulated that the Developer will be informed by the Society about acceptance of its Bid by Letter of Intent (LoI) and the Developer shall submit security deposit after adjusting the amount of Earnest Money Deposit, Performance Bank Guarantee (PBG) and other requirements within 15 days. It was also stipulated that the chosen Developer shall sign the Contract Agreement with the Society within 45 days of finalization of the draft of Contract Agreement.

20] A specific clause in the Tender document clarify, that upon issuance of Letter of Acceptance by the Society, the contract shall be deemed to have been fully and sufficiently made and the Society and the Builder/Developer shall become bound by all the terms and conditions of the contract until signing of the formal Contract.

As far as the Development Agreement (DA) is concerned, the Tender document stipulated that the Builder/Developer shall, when

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called upon to do so, enter into and execute 'Development Agreement' to be prepared at the cost of the Builder/Developer by the Society's Advocates and Solicitors.

The sequence of events, unmistakingly point out that the Letter of Intent was issued in favour of the Applicant by the Society and the Applicant discharged its obligations contemplated under the Tender document by depositing the Earnest Money Deposit and the Respondent-Society treated the Earnest Money Deposit of Rs.2,00,00,000/- paid by the Applicant as security deposit and also directed that the balance security amount shall be paid against issuance of fresh Letter of Intent. The Society itself extended the time for entering into Development Agreement, thus, indicating that the parties agreed on the basis of Letter of Intent issued in favour of the Applicant, but ultimately with the replacement of the new Managing Committee, it dragged its feet and the Development Agreement was not executed, but instead a termination letter was issued to the Applicant.

21] The Tender document specifically contemplate, the date of commencement work as the date of issuance of Letter of Intent. The Society converted the Earnest Money Deposit of the Applicant into Security Deposit and as per the Applicant, the dispute arose on account of non-co-operation tactics played by the Respondent, after appointment of newly elected managing committee and the Applicant was deliberately prevented from taking steps in the redevelopment process, which resulted into the Respondent refunding partial security deposit to the Applicant.

In any case, since the Tender document stipulated an 'arbitration clause' and the very same document clearly stipulated that issuance of Letter of Intent shall amount to commencement of work with a specific

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stipulation in form of clause 9.1 creating a deeming fiction, upon issuance of Letter of Acceptance by the Society and the Development Agreement was expected to be executed only when the Developer was called upon to do so.

The present case would clearly fall within the parameters laid down by the Hon'ble Apex Court in case of Unissi (India) Private Limited (supra).

Considering that an arbitration clause existed in the Tender floated by the Respondent and since effective steps were taken by the Applicant pursuant to the Letter of Intent being issued in its favour and since Tender document contemplate that the parties have deemed, to enter into a contract, the Applicant has rightly invoked arbitration and sought appointment of Sole Arbitrator.

In the wake of above, the Applicant deserve the relief sought in the application i.e. for appointment of a Sole Arbitrator to adjudicate the disputes arisen between them, I deem it expedient to pass the following order of appointment, which shall be subject to the following terms :-

TERMS OF APPOINTMENT

(a) Appointment of Arbitrator :

Mr.Rohan Kelkar, Advocate, is hereby appointed as a Sole Arbitrator to decide the disputes and differences between the parties under the documents referred to above.

(b) Communication to Arbitrator of this order :-

(i) A copy of this order will be communicated to the learned Sole Arbitrator by the Advocates for the applicant/petitioner within one week from the date this order is uploaded.

(c) Disclosure : The learned Arbitrator, within a period of 15 days before entering the arbitration reference, shall forward a statement of disclosure as per the requirement of Section

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11(8) read with Section 12(1) of the Arbitration and Conciliation Act, 1996, to the Prothonotary & Senior Master of this Court, to be placed on record of this application, with a copy to be forwarded to both the parties.

(d) Appearance before the Arbitrator : The parties shall appear before the Sole Arbitrator within a period of two weeks from today and the learned Arbitrator shall fix up a first date of hearing in the week commencing from 27/03/2023. The Arbitral Tribunal shall give all further directions with reference to the arbitration and also as to how it is to proceed.

(e) Contact and communication information of the parties : Contact and communication particulars are to be provided by both sides to the learned Sole Arbitrator. This information shall include a valid and functional E-mail address as well as mobile numbers of the parties, participating in the process as well as of the Advocates.

(f) Section 16 application : The respondent is at liberty to raise all questions of jurisdiction within the meaning of section 16 of the Arbitration Act. All contentions are left open.

(g) Fees : The learned Arbitrator shall be entitled for the fees as per the Bombay High Court (Fee Payable to Arbitrators) Rules, 2018 and the arbitral costs and fees of the Arbitrator shall be borne by the parties in equal portion and shall be subject to the final Award that may be passed by the Tribunal.

(h) Venue and seat of Arbitration : Parties agree that the venue and seat of the arbitration will be in Mumbai.

(i) Procedure : These directions are not in derogation of the powers of the learned Sole Arbitrator to decide and frame all matters of procedure in arbitration.

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(j) All contentions of both sides are left open to be raised by the respective parties before the Arbitral Tribunal, in accordance with law.

Commercial Arbitration Application stand disposed off in the aforesaid terms.

[BHARATI DANGRE, J]