The Bombay High Court has clarified that a person acquiring leasehold rights in a property does not automatically become a party to an arbitration agreement contained in a development agreement, absent express assignment or acceptance of that agreement. In a Section 11 application, the Court appointed an arbitrator for disputes between the original developers and landowners but rejected the application against a subsequent assignee of leasehold rights, holding that privity of contract cannot be created by mere knowledge of the arbitration clause or acquisition of property interest. The Court also ruled that limitation objections must be decided by the arbitral tribunal under Section 16, not at the referral stage.
Background & Facts
The Dispute
The applicants, Shree Satguru Developers and its partners, were appointed as developers by Respondent Nos. 2 to 4 (the original landowners) under a registered Assignment of Development Rights dated 12 November 2007. The agreement concerned redevelopment of property known as Mangla Bhuvan in the JVPD Scheme, Mumbai. Respondent No. 1, Chandrashekhar Champalal Hingarh, subsequently acquired leasehold rights in the property through an Indenture of Assignment dated 13 August 2024. The applicants invoked arbitration under Clause 39 of the 2007 agreement against all respondents by notice dated 30 April 2026.
Key Facts
- 12 November 2007: Assignment of Development Rights executed between Respondent No. 2 (with Respondent Nos. 3 and 4 as confirming parties) as owners and the applicants as developers; Clause 39 contained arbitration agreement providing for a three-member committee and, failing resolution, a sole arbitrator nominated jointly by "the parties hereto"
- 11 April 2008: Applicants submitted building plans and obtained Intimation of Disapproval (IOD) from MCGM
- 25 March 2008: Respondent No. 4 addressed letters to MCGM regarding tenant vacating
- 30 November 2010: Applicants entered into Permanent Alternate Accommodation Agreements with 10 tenants
- January 2012 to June 2014: Fungible FSI introduced under DCR 1991; tenants raised further demands; restrictions on TDR use in JVPD Scheme caused difficulties
- 28 November 2014: Applicants submitted revised plans and obtained revised IOD
- January 2015: Applicants had paid total of Rs. 5,21,50,000 to Respondent Nos. 2 to 4
- 20 August 2015: Respondent Nos. 3 and 4 entered into Memorandum of Agreed Terms (MOAT) with M/s Converge Realtors for development rights
- 18 December 2015: Respondent Nos. 3 and 4 issued notice terminating the Assignment of Development Rights
- 16 January 2016: Applicants replied to termination notice, denying delay was their fault
- 8 March 2017: Applicants requested recall of termination notice; discussions followed; Respondent Nos. 3 and 4 accepted payment of Rs. 10,00,000 from Applicant No. 1
- June 2018: DCPR 2034 notified; Respondent Nos. 3 and 4 sought to re-negotiate commercial terms
- 25 November 2019: Respondent No. 6 issued notice under Section 353(B) of MMC Act, 1888 proposing demolition
- March 2020: Covid-19 lockdown prevented development activities
- 28 June 2021: Applicants submitted structural engineer's report to Respondent Nos. 8 and 9
- 23 July 2021 and 14 January 2022: Notices sent to MCGM informing about termination of Development Agreement
- 30 November 2021: Hearings before Technical Advisory Committee (TAC) of MCGM
- 13 December 2021: TAC report classified building as C-1 category, directed immediate vacation
- January 2022: MCGM implemented TAC decision
- 20 September 2021: NOC from Civil Aviation Department obtained
- 30 September 2021: Chief Fire NOC obtained
- 31 December 2021: Concessions from MC obtained
- 27 January 2022: Revised IOD obtained
- 13 February 2023: AAI NOC obtained
- 14 September 2022: Tenants filed Commercial Suit (L) No. 29492 of 2023; dispute settled via consent terms
- 13 August 2024: Respondent Nos. 2 to 4 executed Deed of Assignment in favour of Respondent No. 1
- October 2025: Respondent No. 1 submitted redevelopment proposal (not approved due to applicants' claimed rights)
- 30 April 2026: Applicants issued notice invoking arbitration under Clause 39
- 7 May 2026: Respondent No. 1 replied, denying arbitration agreement
- 13 May 2026: Respondent Nos. 2 to 4 replied, asserting termination and limitation bar
Procedural History
- 2026: Arbitration Application (L) No. 27816 of 2026 filed before Bombay High Court seeking appointment of arbitrator under Section 11 of Arbitration and Conciliation Act, 1996
- 2 September 2026: Matter reserved for judgment
- 7 September 2026: Judgment pronounced
The Parties' Positions
Applicants: Contended Respondent No. 1, as assignee of Respondent Nos. 3 and 4, is bound by arbitration clause; limitation questions should be left to arbitrator under Section 16 per SBI General Insurance v. Krish Spinning.
Respondent No. 1: Contended no contract exists with applicants; development agreement creates personal rights not running with land; acquired only leasehold rights via 13 August 2024 Indenture; development agreement terminated in 2016; consent terms with tenants cannot bind non-parties.
Respondent Nos. 2 to 4: Raised limitation objection; contended termination became final; applicants allowed termination to become final; no arbitration invoked for years.
Relief Sought
Applicants sought appointment of arbitrator under Section 11 for disputes arising under Clause 39 of the 2007 Assignment of Development Rights against all respondents.
The Legal Issue
The Court had to determine two principal questions: (1) Whether Respondent No. 1, having acquired leasehold rights through an assignment deed but not being a signatory to the 2007 Development Agreement, can be compelled to arbitrate under Clause 39; and (2) Whether the Court at the Section 11 stage must adjudicate the limitation objection raised by Respondent Nos. 2 to 4 or leave it for the arbitral tribunal under Section 16.
Arguments Presented
For the Applicants
Mr. Dinyar Madon, Senior Advocate, relied on SBI General Insurance Company Limited v. Krish Spinning, (2024) 12 SCC 1, submitting that limitation questions fall within the arbitrator's jurisdiction under Section 16. He further argued that Respondent No. 1, as assignee of Respondent Nos. 3 and 4, is covered by the arbitration clause in the Development Agreement.
For Respondent No. 1
Mr. Aspi Chinoy, Senior Advocate, submitted that Respondent No. 1 has no contract with the applicants and no Development Agreement with them. The alleged Development Agreement creates personal rights and obligations between the original parties; such rights do not run with the land. The MOAT contemplated a separate arbitration agreement that never materialised. On 13 August 2024, Respondent No. 1 acquired leasehold rights via Indenture of Assignment with full knowledge and consent of the applicants. The Development Agreement was terminated in 2016 and the applicants did not challenge it timely. Any consent terms with tenants cannot bind Respondent No. 1. Respondent No. 1 is assignee only of leasehold rights, not of the Development Agreement.
For Respondent Nos. 3 and 4
Mr. Karl Tamboly supported the limitation objection, contending the Development Agreement stood terminated since 2016 and the applicants' claims are time-barred.
The Court's Analysis
The Court began by delineating the limited scope of inquiry under Section 11 post the 2015 Amendment introducing Section 11(6-A). Relying on Ajay Madhusudan Patel v. Jyotrindra S. Patel, (2025) 2 SCC 147, the Court noted that the referral court must confine examination to the "existence" of an arbitration agreement, legislatively overruling SBP & Co. and Boghara Polyfab. As stated in Duro Felguera v. Gangavaram Port Ltd., (2017) 9 SCC 729, "all that the courts need to see is whether an arbitration agreement exists - nothing more, nothing less."
On the first issue, the Court analysed Clause 39, which refers to disputes "between the parties hereto" and provides for an arbitrator "to be nominated jointly by the parties hereto." The clause does not extend to subsequent lessees or transferees. The Court held:
"A person does not become an 'assignee' merely because the title of the Development Agreement contains the word 'assignees' or because the agreement refers to certain categories of persons who may be bound by it. The question is whether the lessee has acquired the rights and obligations of a party by assignment, express incorporation or by conduct."
The Court distinguished between assignment of property rights and assignment of contractual rights and obligations. A lease transfers an interest in property; an assignment transfers rights and obligations. Respondent No. 1's own case was that it acquired leasehold rights under the 13 August 2024 Indenture. No document showed assignment of the Development Agreement or acceptance of its obligations. The Court held:
"Acquisition of an interest in the property and acquisition of rights under the Development Agreement are separate matters."
The Court considered Cox & Kings Ltd. v. SAP India (P) Ltd., (2024) 4 SCC 1, as summarised in Ajay Madhusudan Patel at paragraph 76.7, which held that while the referral court must prima facie rule on whether a non-signatory is a veritable party to the arbitration agreement, complex determinations may be left to the arbitral tribunal. However, in this case, "there is no such prima facie material in respect of Respondent No. 1." Knowledge of the applicants' claim does not constitute consent to arbitration.
On the limitation issue, the Court relied on Krish Spinning where the Supreme Court clarified:
"The Referral Courts, at the stage of deciding an application for appointment of arbitrator, must not conduct an intricate evidentiary enquiry into the question whether the claims raised by the applicant are time-barred and should leave that question for determination by the arbitrator."
The Court noted the termination notice of 18 December 2015, the reply of 16 January 2016, subsequent discussions on 8 March 2017, and payment of Rs. 10,00,000. Whether these circumstances affect limitation requires evidentiary examination unsuitable for the Section 11 stage. The Court also noted the applicants' continued efforts - permissions obtained, dealings with tenants, consent terms - which they rely on to assert continuing rights. All such matters were left to the arbitral tribunal.
The Verdict
The application was partly allowed. The Court: (i) referred disputes between the applicants and Respondent Nos. 2 to 4 arising from the 12 November 2007 Assignment of Development Rights to arbitration under Clause 39; (ii) kept the limitation objection open for determination by the arbitral tribunal under Section 16; (iii) appointed Mr. Amrut Joshi, Advocate, as Sole Arbitrator subject to Section 12 disclosure; (iv) rejected the application against Respondent No. 1, holding Respondent No. 1 is not a party to the arbitration agreement; (v) directed the arbitrator to decide all issues including jurisdiction, limitation, and merits; (vi) ordered parties to appear before the arbitrator for procedural directions; (vii) directed arbitral costs to be borne equally in the first instance; (viii) made no order as to costs.
What This Means For Similar Cases
Leasehold Assignment Does Not Bind Non-Signatories To Arbitration
The judgment establishes a clear boundary: acquiring leasehold rights in a property subject to a development agreement with an arbitration clause does not, without more, make the assignee a party to that arbitration agreement. Practitioners must demonstrate express assignment of the development agreement itself, written acceptance of the arbitration clause, or unequivocal conduct adopting the agreement. Mere knowledge of the clause or redevelopment activity is insufficient. The Court's emphasis on reading the entire agreement - operative clauses, definitions, restrictions on assignment - provides a checklist for drafting and for challenging non-signatory impleadment.
Limitation Objections Belong To The Arbitral Tribunal
Following Krish Spinning, the Court reinforced that Section 11 courts must not conduct "intricate evidentiary enquiry" into whether claims are time-barred. The three-year limitation for filing the Section 11 application itself remains the court's concern, but the merits of whether underlying claims are barred - including effect of subsequent correspondence, part-payment, acknowledgment, or continuing breach - are for the tribunal under Section 16. Practitioners should raise limitation before the arbitrator, not expect the referral court to filter out stale claims.
Drafting Arbitration Clauses For Successors And Assignees
The Court's textual analysis of Clause 39 - limited to "parties hereto" with no reference to successors, assignees, or transferees - underscores the importance of explicit succession language. Drafters should include clear provisions binding "successors, permitted assigns, and transferees" to the arbitration agreement if that is the commercial intent. Absent such language, courts will not imply consent to arbitrate from property transactions alone.
