A landmark judgment by the Bombay High Court has clarified that a dissenting member of a cooperative housing society, who refuses to sign a development agreement, cannot be compelled into arbitration with the developer - even after receiving benefits under the agreement or executing a separate Permanent Alternate Accommodation Agreement. The Court emphasized that arbitration requires explicit or clearly inferred consent, and mere participation or benefit receipt does not equate to agreement to arbitrate.
Background & Facts
The Dispute
The dispute arises from the redevelopment of a 11-unit cooperative housing society in Mulund, Mumbai. The Society executed a Development Agreement (DA) with M/s. Space Master Realtors, the Applicant-Developer, on 2 July 2021. The DA contained an arbitration clause (Clause 38) binding the Society and its signatory members. Respondent No. 2, the owner of Flat No. 10, opposed the redevelopment from inception and refused to sign the DA. Despite this, the Society, acting on majority resolution, proceeded with redevelopment.
Procedural History
- 2017: Society passed resolution for redevelopment.
- 2021: Development Agreement executed between Society and Developer; Respondent No. 2 did not sign.
- 2023: Municipal Corporation issued Intimation of Disapproval (IOD), triggering evacuation notices.
- 2024: Developer sought interim possession under Section 9 of the Arbitration Act; Bombay HC ordered Respondent No. 2 to vacate upon IOD renewal.
- November 2024: Court Receiver took possession of Flat No. 10; Respondent No. 2 executed Permanent Alternate Accommodation Agreement (PAAA) under protest.
- July 2025: Developer issued notice invoking Clause 38 of the DA, demanding Rs. 13.13 crore in damages for delay caused by Respondent No. 2.
- August 2025: Respondent No. 2 denied existence of arbitration agreement; Society accepted arbitration.
- October 2025: Developer filed Section 11(6) application seeking appointment of arbitrator against Respondent No. 2.
Relief Sought
The Applicant seeks appointment of an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 to adjudicate claims for financial losses allegedly caused by Respondent No. 2’s refusal to vacate possession under the DA.
The Legal Issue
The central question was whether a dissenting member of a cooperative society, who has not signed the development agreement, can be compelled into arbitration under the agreement’s arbitration clause based on his subsequent execution of a Permanent Alternate Accommodation Agreement (PAAA) and receipt of benefits under the DA.
Arguments Presented
For the Appellant/Petitioner
The Applicant argued that Respondent No. 2 is a veritable party to the DA through his conduct and participation in the redevelopment process. He relied on Cox & Kings Ltd. v. SAP India Pvt. Ltd. to assert that non-signatories can be bound if there is mutual intent, composite transaction, and active performance. He contended that the PAAA and DA are inextricably linked, and the PAAA’s reference to the DA incorporates its arbitration clause by implication. He further argued that Respondent No. 2 is a third-party beneficiary of the DA and cannot selectively enjoy benefits while rejecting obligations, including arbitration. He cited M.C. Chacko v. State Bank of Travancore to support beneficiary rights and ASF Build-tech v. Shapoorji Pallonji to argue that the referral court should adopt a hands-off approach and leave the issue of consent to the arbitral tribunal.
For the Respondent/State
Respondent No. 2 contended that he is not a party to the DA and never consented to arbitration. He emphasized that Clause 38 of the DA refers to "both parties," clearly indicating a binary relationship between the Society and the Developer. He relied on Ketan Champaklal Divecha v. DGS Township and Shankar Vithoba Desai v. Gauri Associates, where this Court held that individual members cannot invoke arbitration against developers unless explicitly permitted by the arbitration clause. He argued that his execution of the PAAA was coerced after eviction by the Court Receiver and cannot be construed as consent to arbitrate disputes under the DA. He invoked Cox & Kings to stress that mere incidental involvement or benefit receipt does not constitute positive, direct, and substantial participation required to infer consent.
The Court's Analysis
The Court undertook a meticulous analysis of the Arbitration Act, 1996, and binding precedents, particularly Cox & Kings Ltd. v. SAP India Pvt. Ltd. and ASF Build-tech Private Ltd. v. Shapoorji Pallonji & Co. Pvt. Limited. It held that arbitration is founded on party autonomy and consent, and the burden lies on the applicant to prove such consent.
"To join a non-signatory to arbitration, the decisive question that has to be answered is whether a non-signatory consented to the arbitration agreement, as distinct from the underlying contract containing the arbitration agreement."
The Court rejected the argument that Respondent No. 2’s execution of the PAAA or receipt of transit rent constituted consent to arbitrate under the DA. It distinguished between contractual obligations and arbitration agreements, noting that while a non-signatory may be bound by substantive terms of a contract under principles of benefit and estoppel, this does not extend to arbitration clauses. The Court emphasized that the PAAA contained its own arbitration clause (Clause 32), limited to disputes arising under the PAAA, and the Developer had consciously invoked only Clause 38 of the DA - confirming that no composite reference was intended.
The Court further held that Respondent No. 2’s conduct was not in harmony with the Society’s actions; he actively opposed redevelopment, filed a civil suit challenging the PAAA, and only executed the PAAA after being evicted by court order. His participation was involuntary, not voluntary. The Court declined to apply the "group of companies" doctrine, noting no corporate relationship, alter ego, or composite transaction existed between Respondent No. 2 and the Society.
The Court also rejected the argument that the DA’s broad language - "any dispute arising out of or in connection with" - extended to non-signatories. It held that such language cannot override the absence of consent, especially where the non-signatory has expressly refused to sign.
Finally, the Court clarified that while referral courts under Section 11 must conduct a prima facie inquiry into whether a non-signatory is a veritable party, they are not required to abdicate this duty. Here, the Court found no prima facie evidence of consent, and therefore, the application could be dismissed without referring the issue to the arbitral tribunal.
The Verdict
The Applicant’s application under Section 11(6) of the Arbitration and Conciliation Act, 1996 was dismissed. The Court held that a dissenting member of a cooperative society who refuses to sign a development agreement cannot be compelled into arbitration under that agreement, even after executing a PAAA or receiving benefits under the DA. The absence of express or clearly inferred consent to arbitrate renders the arbitration clause inapplicable to non-signatory dissenters.
What This Means For Similar Cases
Arbitration Requires Explicit or Voluntary Consent
- Practitioners must demonstrate clear, objective evidence of consent to arbitrate from non-signatory parties - mere benefit receipt, execution of ancillary agreements, or passive participation is insufficient.
- In redevelopment disputes, the burden is on the developer to prove that a dissenting member affirmatively intended to be bound by the arbitration clause, not merely to comply with the redevelopment process.
- Applications under Section 11 must include affidavits or documents showing conduct consistent with arbitration intent, not just contractual benefit.
PAAA Does Not Incorporate DA’s Arbitration Clause
- A Permanent Alternate Accommodation Agreement (PAAA) that references a Development Agreement (DA) does not, by itself, incorporate the DA’s arbitration clause unless explicitly stated.
- Arbitration clauses must be expressly incorporated or mirrored in subsequent agreements; general references to "terms of the DA" are insufficient to bind non-signatories to arbitration.
- Developers must ensure that arbitration clauses are replicated in all agreements with individual members if they intend to enforce them.
Dissenting Members Are Not Automatically Bound
- A member who opposes redevelopment and refuses to sign the DA cannot be treated as a veritable party merely because the majority of the society has approved the project.
- Courts will not infer consent from coercion, eviction, or economic pressure - even if the member later accepts benefits.
- This judgment reinforces the principle that arbitration is consensual, and the doctrine of "loss of individuality" under the Maharashtra Co-operative Societies Act does not override the fundamental requirement of consent under the Arbitration Act.
