The Hon'ble Bombay High Court recently issued an order in Interim Application (L) No. 32741 of 2024 in connection with Commercial Arbitration Petition (L) No. 32740 of 2024. The case arises from a dispute between Heritage Lifestyle and Developers Pvt. Ltd. and Madhugiri Co-operative Housing Society Ltd. over the termination of a redevelopment agreement.
Heritage challenged an arbitral order dated October 14, 2024, under Section 37(2)(b) of the Arbitration and Conciliation Act, 1996 (Act), after the Arbitral Tribunal denied its request for interim relief under Section 17. The dispute revolves around delays in redevelopment, amendments to contractual terms, and conflicting interpretations of the parties' obligations.
The following analysis summarises the key facts, arguments, and reasoning of the Tribunal's decision and the Bombay High Court's ruling.
Key Facts
Parties Involved
Heritage is a real estate developer, while Madhugiri Co-operative Housing Society Ltd. (Madhugiri) is a housing society located in Chembur, Mumbai, comprising 82 members and 84 flats situated on a 7,340-square-yard plot.
Initial Agreement and Development Plan
Heritage bid for Madhugiri's redevelopment and submitted a revised proposal on September 27, 2012. The final proposal, dated December 24, 2012, included provisions for 62,700 square feet allocated to Madhugiri's members, an additional 4,500 square feet distributed proportionally, one parking slot per member, and a 24-month completion timeline from the Commencement Certificate. Madhugiri approved the project on February 17, 2013, and issued a letter of intent on March 12, 2013.
Agreements Executed
On March 19, 2014, the parties executed a Development Agreement (DA), which stipulated that Madhugiri would receive 62,700 square feet of the total 1,09,220 square feet, with the remaining area allocated to Heritage. Any additional Floor Space Index (FSI) or Transferable Development Rights (TDR) arising from legal changes were to be shared in a 54:46 ratio in favor of Madhugiri. On the same day, they signed a Supplemental Development Agreement (SDA), covering compensation, transit rent, and shifting expenses. However, the SDA was only notarized and not registered. Both agreements specified that any additional FSI or TDR resulting from legal changes would belong exclusively to Madhugiri.
Project Delays and Disputes
Despite years of delay, no evidence indicated that Madhugiri had breached the DA. Disputes arose regarding additional entitlements related to road width, FSI, and setbacks. On June 18, 2017, Heritage proposed a 27% increase in space but sought reductions in other entitlements. Madhugiri accepted this proposal on July 22, 2017, urging Heritage to commence redevelopment. However, no progress was made. Consequently, on August 19, 2022, Madhugiri terminated the DA and SDA.
Revised Proposals and Continued Negotiations
In 2023, Heritage submitted revised proposals. The final proposal, dated March 24, 2023, increased the total redevelopment area to 1,63,620 square feet. Under this proposal, Madhugiri's share increased to 68,620 square feet (from 62,700), while Heritage's share expanded to 95,000 square feet (from 46,520). Although Madhugiri continued the approval process, disputes over entitlements remained unresolved. On July 28, 2023, Madhugiri presented Heritage with two options: proceed without additional entitlements or share extra entitlements as per the 54:46 ratio. The disagreement persisted.
Legal Proceedings and Tribunal Decision
On September 13, 2023, Heritage sought interim relief under Section 9. Madhugiri reaffirmed the termination of the DA and SDA on January 21, 2024. Subsequently, on February 27, 2024, Heritage filed a Section 11 application, leading to the appointment of an Arbitral Tribunal. On October 14, 2024, the Tribunal ruled that Madhugiri's termination was valid and denied Heritage's request for interim relief.
Arguments
Heritage's Arguments
Heritage's Counsel contended that various documents effectively amended the 2014 DA and SDA. These documents included Heritage's Revised Proposal (March 24, 2023), Madhugiri's approval (March 26, 2023), Heritage's clarification letter (April 12, 2023), and Madhugiri's confirmation letter (May 3, 2023).
Heritage argued that although no formal amendment was signed, Madhugiri revived the terminated agreements by approving the Revised Proposal. The only pending issue was Heritage's clarification on the additional area, which it provided on April 12, 2023. By May 3, 2023, the agreements were effectively amended. Heritage further claimed that Madhugiri's termination on January 21, 2024, was unjustified and was merely a strategy to negotiate additional benefits, particularly regarding the road setback. Lastly, Heritage asserted that the Tribunal overlooked key facts and erred in denying an injunction against Madhugiri's termination.
Madhugiri's Arguments
Madhugiri's Counsel maintained that negotiations for an amended agreement were ongoing, but no final amendment was signed. The legal representatives' emails had no binding effect, and Madhugiri never granted formal approval. Furthermore, Madhugiri argued that any benefits from the road setback belonged exclusively to Madhugiri and not to Heritage.
Madhugiri justified its termination of the agreements, citing Heritage's failure to fulfill its obligations under the original DA and SDA. It also claimed that Heritage had subtly introduced its claim over road setback benefits in the draft amendment, which the society later recognized as an unfair disadvantage. After Heritage failed to provide satisfactory clarifications, Madhugiri terminated the agreement, and a special general body meeting confirmed this decision.
Tribunal's Decision
After reviewing the case and arguments from both parties, the Tribunal upheld Madhugiri's termination of the DA and SDA. The Tribunal determined that negotiations were still ongoing and that a binding contract had not been finalized.
The members' approval on March 26, 2023, reinstated Heritage as the developer but was conditional upon further clarification from Heritage regarding entitlements. Madhugiri's approval communication of May 3, 2023, confirmed that members had approved the revised proposal but also requested additional documentation, indicating that discussions were still in progress.
Since key contractual terms were still under negotiation, the Tribunal found that no legally binding amendment to the DA and SDA had been reached. Consequently, Madhugiri's termination remained valid.
Conclusion
The Bombay High Court's decision reinforces the principle that contractual amendments must be clear, final, and mutually agreed upon to be legally binding. The Court upheld the Arbitral Tribunal's decision, ruling that Madhugiri's termination of the redevelopment agreements was valid, as no conclusive amendments had been executed. The decision emphasises the necessity of formalizing negotiations through definitive agreements and underscores the limited scope of judicial intervention in appeals against interim arbitral orders. With Heritage's appeal dismissed, the Tribunal's ruling stands, providing clarity on the legal position of the dispute.
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