Court Directs Developer To Deliver Keys To Court Receiver; Third‑party Flat Purchasers Allowed To Appeal Arbitral Interim Orders

A Single‑Judge bench of the Bombay High Court comprising Justice Somasekhar Sundaresan heard rival Section 37 petitions challenging interim orders passed by a sole arbitrator under Section 17 of the Arbitration and Conciliation Act, 1996. The petitions arose from a redevelopment joint development agreement and concerned withholding of possession of sixteen flats: one petition was filed by the legal heirs of the original owner and the other by flat purchasers who sought possession of units they had purchased under registered sale agreements.

The court held that third‑party flat purchasers who were directly affected by interim measures under Section 17 could invoke Section 37 to challenge those measures and found the arbitral interim orders vulnerable on the facts. The Court, in its reasoning, observed: “I would wholeheartedly agree with the aforesaid observations and would respectfully adopt the same in the specific facts of this case. It is clear to me that Section 37 permits a challenge to decisions made under Section 17 of the Act. Even if one were to depend on the meaning of the term ‘party’ as a party to the arbitration agreement, it is well settled that the meanings given in definitions are capable of variation where the context otherwise requires. Section 37 is a check and balance against decisions under Section 17 of the Act. The context in the Act, which is a self‑contained code, is to provide a wholesome check and balance in the course of conduct of arbitration proceedings. A person aggrieved by a decision under Section 17 has been given Section 37 as the avenue for such check and balance. That is meant to run its full scope and such legislative policy objective cannot be lost sight of.” The High Court directed the developer to deliver keys of the subject flats to the Court Receiver within four weeks; ordered each flat purchaser to deposit the balance consideration with the Receiver in a fixed deposit; and directed the Receiver to place purchasers in possession as agents of the Receiver without payment of royalty. The court also asked the arbitral tribunal to convene at the earliest and complete the arbitration, warning it could impose costs for dilatory conduct. The owner’s petition was disposed of by the same terms.

Background

The dispute arose from a Joint Development Agreement dated August 20, 2009 for redevelopment of land in Kurla, Mumbai. The developer paid an advance and claimed a lien on the owner’s free‑sale entitlement to secure sums claimed from the owner; the owner alleged a different account of construction liabilities and sales. In September 2013 the developer issued an Allocation Confirmation Letter identifying specific flats as the owner’s entitlement and two flats as lien flats. The owner executed and registered sale agreements for several of the identified flats in 2013–2014; the developer later confirmed by an April 29, 2016 letter (OC Confirmation Letter) that the occupation certificate would be issued within 15 days and the certificate was received on May 4, 2016.

Commercial arbitration commenced; on February 14, 2019 the arbitral tribunal dismissed interim reliefs sought by the owner and effectively left the status quo intact, treating the developer’s security claim as a matter that could only be quantified at final adjudication. Flat purchasers had separately pursued reliefs under Section 9 and in commercial suits; a Single Judge on March 7, 2019 recorded that purchasers had legitimately acquired rights but did not grant relief, and subsequent orders in 2023 in a commercial suit and its appeal recognised a “strong prima facie case” in favour of a purchaser and directed possession to be given via a court receiver. The developer’s Special Leave Petition against the appellate order was later withdrawn.

The flat purchasers challenged the arbitral interim orders under Section 37, contending that the tribunal’s blanket extension of lien over the owner’s entire free‑sale entitlement, including flats sold with the developer’s own confirmations, was perverse and ignored material documentary evidence. The High Court relied on precedents including Prabhat Steel Traders and Girish Mulchand Mehta, and reiterated the principle that “the foundational principle would be the wider concept of how acts of the Court should prejudice no one and that ordinarily, no Court ought to pass any interlocutory orders which would affect a third party.” The court found that the Allocation Confirmation Letter, the OC Confirmation Letter and admissions on record gave purchasers legitimate third‑party rights which could not be set aside by an interlocutory lien without adequate consideration; accordingly it moulded the relief to protect purchasers’ possession while preserving the developer’s and owner’s rights to full adjudication in arbitration.

Case Details: Case No.: Commercial Arbitration Petition (L) Nos. 3903 and 5353 of 2023 Case Title: Mohammed Ali M. Sali (since deceased) through Legal Heirs & Ors. v. Rajaram Chavan Real Estate Private Limited; with Shadab Y. Mukadam v. Mohammed Ali M. Sali (since deceased) through Legal Heirs & Ors. Appearances: For the Petitioner(s): Mr. E. A. Sasi (for Owner’s legal heirs) a/w Tejas Shinde; Mr. Mutahhar Khan i/b Lokesh Zade (for Flat Purchasers) For the Respondent(s): Mr. Simil Purohit, Senior Advocate a/w Mr. Rishikesh Soni i/b Ashok Purohit & Co. (for the Developer)