Housing Society Bound By Arbitration Clause In Individual Sale Agreements: Bombay High Court

 On 10 February, the Bombay High Court held that a co-operative housing society, although a distinct legal entity, is a “veritable party” to the agreements signed by its individual members and is therefore bound by the arbitration clauses embedded within them.

The Single Bench of Justice Somasekhar Sundaresan, emphasised that when a society is formed specifically to represent the collective interests of homebuyers, it inherits the obligations of arbitration contained in the individual sale agreements, and disputes arising from those agreements must be resolved through arbitration.

The Bench referred the dispute to arbitration and appointed Justice (Retd.) Akil Kureshi as the Sole Arbitrator to adjudicate all disputes between the parties.

The Court observed:

“The very nature of the arrangement is that each constituent of the Society is a party to an arbitration agreement and when they form a society on the very same subject matter of their bilateral agreements, it would be a classic example of the Society being a veritable party to the collective arbitration agreement.”

The dispute arose after Bhadra Enterprises (the Developer) developed a building known as Veer Tower and sold flats to individual purchasers under agreements containing identical arbitration clauses. The agreements also recorded that in 2014, a portion of the land had been gifted to the Shree Dev Shasan Jain Shwetambar Murtipujak Trust (Temple Trust) for the construction of a Jain temple. After purchasing flats, 89 buyers formed Veer Tower Cooperative Housing Society Ltd.

Disagreements emerged when the Society challenged the Temple Trust's rights and filed a civil suit seeking cancellation of the gift deeds. On 16 January 2023, the Civil Court rejected the suit under Section 8 of the Arbitration and Conciliation Act, 1996 and directed the parties to arbitration.

The Society also pursued other legal avenues, including a writ petition in which it obtained a “deemed conveyance” order in February 2025. Meanwhile, the Developer and Temple Trust invoked arbitration in January 2025. Applications for appointment of a tribunal were filed under Section 11 of the Act after the named arbitrators recused themselves.

The Developer and Temple Trust contended that all members of the Society had signed agreements containing arbitration clauses, and as a collective of these members, the Society had “inherited” the arbitration arrangement.

The Society, however, claimed it was a separate legal entity, a “body corporate,” and not a signatory to the original agreements, further arguing that disputes regarding cancellation of conveyance instruments were not arbitrable.

At the outset, Justice Sundaresan found the Society's stand unreasonable. He observed that the “very cause of the Society's existence is the collection of interests of its members. The very formation of the Society is a facet contemplated in these agreements containing the arbitration clause”.

Terming the Society a 'veritable party' to the arbitration agreement, the Court held that it would be bound by the arrangement, as all members had privity to identical commercial provisions and had agreed to arbitrate disputes.

It held:

“The subject matter of the relationship between the Society and the Developer is but the development of the property that is contracted in individual contracts between each member of the Society and the Developer. This is an active, direct and substantive privity, and not an incidental, ephemeral and insignificant formal privity to the subject”, it held.

The Court also held that the Temple Trust, claiming through the Developer, would be bound by the outcome of the proceedings. It rejected the Society's stance of non-arbitrability and emphasised that the consistent intent in the flat purchase agreements to resolve disputes through arbitration clearly showed that all related disputes were meant to be decided through that mechanism.

The Bench further clarified that, on any aspect of subject-matter arbitrability, objecting parties remain free to pursue their claims before the Tribunal under Section 16 of the Act.

Accordingly, the Bombay High Court referred the disputes to arbitration and appointed Justice (Retd.) Akil Kureshi as the Sole Arbitrator to adjudicate all matters between the parties.

Appearances:

For the Applicants (Shree Dev Shasan Jain Shwetambar Murtipujak Trust & Bhadra Enterprises): Mr. Yogesh Naidu, Eden D.H. Ribeiro, Khushbu Mota

For the Respondent (Veer Tower CHS Ltd.) in ARBPL/2695/2025: Advocates Dr. Abhinav Chandrachud, Pragya, Ameya Khot, instructed by M/s. Legal Vision

For the Respondent (Veer Tower CHS Ltd.) in ARBAP/103/2025: Advocates Mr. Aadil Parsurampuria, Pragya, Ameya Khot, instructed by M/s. Legal Vision