IIDL Aerie Apartment Owner's Association & Mrs. Sherry D'Couto v A.G. Alexander, Abraham K. George, James John, Sadasivan N.N., Joppan George, M. Ambikalmjan Pillai

## `IN THE HIGH COURT OF KERALA AT ERNAKULAM` ## `PRESENT` ``` THE HONOURABLE MR.JUSTICE C.S.DIAS ``` ``` WEDNESDAY, THE 22[ND] DAY OF FEBRUARY 2023 / 3RD PHALGUNA, 1944 ``` ## `OP(C) NO. 2392 OF 2022` ``` AGAINST THE ORDER DATED 04.11.2022 IN CMA NO.19/2022 OF ADDITIONAL DISTRICT COURT - VII, ERNAKULAM ``` ## `PETITIONERS/ APPELLANTS/ PETITIONERS/ DEFENDANTS:` ``` 1IIDL AERIE APARTMENT OWNER'S ASSOCIATION AGED 44 YEARS REGN.NO.EKM/TC/605/2018, IIDL AERIE, SHIHAB THANGAL ROAD, PANAMPILLY NAGAR, COCHIN - 682036, REPRESENTED BY ITS SECRETARY, MRS.SHERRY D'COUTO, FLAT NO.504, IIDL AERIE, SHIHAB THANGAL ROAD, PANAMPILLY NAGAR, COCHIN, PIN – 682036 ``` ``` 2MRS.SHERRY D'COUTO, AGED 44 YEARS W/O BAIDEN D'COUTO, FLAT NO.504, IIDL AERIE, SHIHAB THANGAL ROAD, PANAMPILLY NAGAR, COCHIN , SECRETARY, IIDL AERIE APARTMENT OWNER'S ASSOCIATION, PIN – 682036 ``` ``` BY ADVS.MANOJ RAMASWAMY S.SREEKUMAR (SR.)(S-571) ``` ## `RESPONDENTS/ RESPONDENTS/ RESPONDENTS/ PLAINTIFFS:` ``` 1A.G.ALEXANDER, AGED 64 YEARS, S/O LATE A.M.GEORGE, JOINT OWNER OF FLAT NO.301, IIDL AERIE APARTMENT OWNER'S ASSOCIATION, SHIHAB THANGAL ROAD, PANAMPILLY NAGAR, COCHIN - 682036, NOW RESIDING AT 27/3706, CHAKKALAKKAL ROAD, PERUMANOOR, THEVARA, COCHIN, PIN - 682015 2ABRAHAM K.GEORGE AGED 59 YEARS S/O G.K.ABRAHAM, OWNER OF FLAT NO.903, IIDL AERIE, SHIHAB THANGAL ROAD, PANAMPILLY NAGAR, COCHIN - 682036, NOW RESIDING AT D-11A, ``` ``` O.P.(C)No.2392/2022 ``` ``` -:2:- ``` ``` WILLINGDON ENCLAVE, THEVARA FERRY ROAD, THEVARA, COCHIN ., PIN – 682013 ``` ``` 3JAMES JOHN AGED 66 YEARS S/O E.K.JOHN, JOINT OWNER AND RESIDING AT FLAT NO1002, IIDL AERIE, SHIHAB THANGAL ROAD, PANAMPILLY NAGAR, COCHIN, PIN – 682036 4SADASIVAN N.N. AGED 60 YEARS S/O P.V.NARAYANAN, JOINT OWNER AND RESIDING AT FLAT NO1003, IIDL AERIE, SHIHAB THANGAL ROAD, PANAMPILLY NAGAR, COCHIN, PIN – 682036 5JOPPAN GEORGE, AGED 71 YEARS, S/O EAPEN GEORGE, FLAT NO.802, IIDL AERIE, SHIHAB THANGAL ROAD, PANAMPILLY NAGAR, COCHIN, PIN – 682036 ``` ``` 6MR.M.AMBIKALMAJAN PILLAI FLAT NO.504, IIDL AERIE, SHIHAB THANGAL ROAD, PANAMPILLY NAGAR, COCHIN- SECRETARY,IIDL AERIE APARTMENT OWNER'S ASSOCIATION, PIN – 682036 ``` ``` BY ADVS.SHYAM S ``` ``` JOHN NELLIMALA SARAI ``` ``` THIS OP (CIVIL) HAVING COME UP FOR ADMISSION ON 22.02.2023, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ``` ``` O.P.(C)No.2392/2022 ``` ``` -:3:- ``` Dated this the 22[nd] day of February, 2023 ## **J U D G M E N T** The original petition is filed challenging the order passed in I.A.No.6/2021 in O.S.No.551/2021 by the Court of the II[nd] Additional Munsiff, Ernakulam (Trial Court) and the order passed in C.M.A. No.19/22 by the Court of the Additional District Judge-VII, Ernakulam (Appellate Court). The petitioners are defendants 1 and 2, the respondents are plaintiffs 1 to 5 and the sixth defendant in the suit. 2. The relevant background facts leading to the above orders are: - (i) The first petitioner is an Association registered under the Travancore Cochin Literary Scientific and Charitable Societies Registration Act, 1969, constituted for managing an apartment complex named ‘IIDL Aerie Apartment Owner’s Association’ (in short, ‘Association’). The second petitioner is ``` O.P.(C)No.2392/2022 ``` ``` -:4:- ``` the Secretary of the Association, and the respondents are owners of the Apartments in the complex and members of the Association. - (ii) Disputes arose between the first petitioner and the respondents 1 to 5, which led the latter to file O.S.No.556/2021 before the Trial Court, inter alia, to declare that the extraordinary general body meeting of the Association held on 29.11.2020 was illegal. - (iii) The petitioners filed I.A. No.6/2021 under Section 8 of the Arbitration and Conciliation Act,1996 (in short, ‘Act), to refer the parties to arbitration as provided in Clause 37 of the bye-laws of the Association. The respondents opposed the application. However, the Trial Court, by the impugned order dismissed the application, which order was confirmed by the Appellate Court in C.M.A.No.19/2022. - (iv) The above orders are palpably wrong and unsustainable in law. Hence, the original petition. ``` O.P.(C)No.2392/2022 ``` ``` -:5:- ``` 3. The respondents 1 to 5 have filed a counter affidavit through the first respondent, inter alia, denying the allegations in the original petition. The respondents have contended that there is no arbitration agreement between the parties, as prescribed under Section 7 of the Act, to refer the parties to arbitration. The bye-laws of the Association cannot be treated as an agreement within the purview of Section 7 of the Act. The courts below have rightly rejected the application to refer the parties to arbitration. The original petition deserves to be dismissed. 4. The sixth respondent – the former Secretary of the Association – has filed a counter affidavit supporting the petitioners and has prayed that the original petition be allowed. 5. Heard; Sri.S.Sreekumar, the learned Senior ``` O.P.(C)No.2392/2022 ``` ``` -:6:- ``` Counsel appearing for the petitioners, Sri.S.Shyam, the learned counsel appearing for the respondents 1 to 5 and Sri. John Nellimala, the learned counsel appearing for the sixth respondent. 6. The question is whether there is any illegality in the orders passed by the courts below. 7. The respondents 1 to 5, the owners of apartments in the apartment complex named ‘IIDL Aerie’ and members of the Association, have instituted the plaint, inter alia, to declare that the general body meeting of the Association held on 29.11.2020 as illegal. 8. The petitioners filed I.A. No.6/2021 under Section 8 of the Act, inter alia, contending that, in view of Clause 37 of the bye-laws of the Association, the members of the Association have consciously agreed to refer all disputes in the functioning of the ``` O.P.(C)No.2392/2022 ``` ``` -:7:- ``` ## society to arbitration. Clause 37 of the bye-law reads as follows:- ## “37. General Arbitration:- Any dispute in the functioning of the society shall be referred for the arbitration and appointment of arbitrator/arbitrators shall be made by General Body. For anything in all specifically provided for in this Bye Law, the provision of The Travancore-Cochin Literary, Scientific and Charitable Societies Registration Act (Act XII/1955) shall apply. In the Annual meeting of the IIDL Aerie Apartment Owner’s Association(IAAOA) held on 28[th] October 2018 is decided to register this Association with District Registrar, Ernakulam.” 9. The respondents 1 to 5 have opposed the application contending that there is no valid arbitration agreement executed by the parties, falling within the purview of Section 7 of the Act, to refer the parties to arbitration. The bye-laws are only a formal document framed to satisfy the statutory requirements to register the association under the Travancore Cochin Literary Scientific and Charitable Societies Registration Act. ``` O.P.(C)No.2392/2022 ``` ``` -:8:- ``` The bye-laws are not signed by the members of the Association, but only by the office bearers of the association. Therefore, the parties cannot be referred to arbitration. 10. The second petitioner has filed a reply affidavit contending that by the covenants in the sale deeds, by which the apartments were transferred to the members of the Association, all the purchasers have agreed that they would become members of the first petitioner Association. The respondents 1 to 5 cannot disown the bye-laws because they are the ones who framed the bye-laws. Hence, the parties may be referred to arbitration. 11. The Trial Court, after adverting to the rival pleadings by the impugned order, arrived at the conclusion that the bye-laws are not an agreement falling within the purview of Section 7 of the Act. ``` O.P.(C)No.2392/2022 ``` ``` -:9:- ``` Although the petitioners carried the order in appeal, the Appellate Court, relying on the decision of this Court in **Sathyan & Ors v. Puthupallipuram SNDP Sakhayogam** [2019(1) KLT 76], confirmed the order of the Trial Court. 12. Section 7 of the Arbitration and Conciliation Act reads as follows:- “7. Arbitration agreement.— (1) In this Part, “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. (2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. (3) An arbitration agreement shall be in writing. (4) An arbitration agreement is in writing if it is contained in— (a) a document signed by the parties; (b) an exchange of letters, telex, telegrams or other means of telecommunication 1 [including communication through electronic means] which provide a record of the agreement; or (c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other. (5) The reference in a contract to a document ``` O.P.(C)No.2392/2022 ``` ``` -:10:- ``` containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.” 13. Interpreting Section 7 of the Act, the Hon’ble Supreme Court in **M.R. Engineers and Contractors Private Limited v. Som Datt Builders Limited** [(2009) 7 SCC 696] has held as follows:- “13. Section 7 of the Act defines “arbitration agreement”. Sub-sections (1) and(5) of Section 7, relevant for our purpose, are extracted below: “7. Arbitration agreement.—(1) In this Part, ‘arbitration agreement’ means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. x x x (5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.” Having regard to Section 7(5) of the Act, even though the contract between the parties does not contain a provision for arbitration, an arbitration clause contained in an independent document will be imported and engrafted in the contract between the parties, by reference to such independent document in the contract, if the reference is such as to make the arbitration clause in such document, a part of the contract. 14. The wording of Section 7(5) of the Act makes it clear that a mere reference to a document would not have the effect of making an ``` O.P.(C)No.2392/2022 ``` ``` -:11:- ``` arbitration clause from that document, a part of the contract. The reference to the document in the contract should be such that shows the intention to incorporate the arbitration clause contained in the document, into the contract. If the legislative intent was to import an arbitration clause from another document, merely on reference to such document in the contract, sub-section (5) would not contain the significant later part which reads: “and the reference is such as to make that arbitration clause part of the contract”, but would have stopped with the first part which reads: “7. (5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing….” 15. Section 7 (5) therefore requires a conscious acceptance of the arbitration clause from another document, by the parties, as a part of their contract, before such arbitration clause could be read as a part of the contract between the parties. But the Act does not contain any indication or guidelines as to the conditions to be fulfilled before a reference to a document in a contract can be construed as a reference incorporating an arbitration clause contained in such document into the contract. In the absence of such statutory guidelines, the normal rules of construction of contracts will have to be followed. 16. There is a difference between reference to another document in a contract and incorporation of another document in a contract, by reference. In the first case, the parties intend to adopt only specific portions or part of the referred document for the purposes of the contract. In the second case, the parties intend to incorporate the referred document in entirety, into the contract. Therefore when there is a reference to a document in a contract, the court has to consider whether the reference to the document is with the intention of incorporating the contents of that document in entirety into the contract, or with the intention of adopting or borrowing specific portions of the said document for application to the contract. 17. We will give a few instances of incorporation and mere reference to explain the position (illustrative and not exhaustive). If a contract refers to a document and provides that the said document shall form part and parcel of the contract, or that all terms and conditions of the said document shall be read or treated as a part of the contract, or that the contract will be governed by the provisions of the said document, or that the terms and conditions of the said document shall be incorporated into the contract, the terms and conditions of the document in entirety will get bodily lifted and incorporated into the contract. When there is ``` O.P.(C)No.2392/2022 ``` ``` -:12:- ``` such incorporation of the terms and conditions of a document, every term of such document (except to the extent it is inconsistent with any specific provision in the contract) will apply to the contract. If the document so incorporated contains a provision for settlement of disputes by arbitration, the said arbitration clause also will apply to the contract. xxx xxx xxx 19. Sub-section (5) of Section 7 merely reiterates these wellsettled principles of construction of contracts. It makes it clear that where there is a reference to a document in a contract, and the reference shows that the document was not intended to be incorporated in entirety, then the reference will not make the arbitration clause in the document, a part of the contract, unless there is a special reference to the arbitration clause so as to make it applicable. 20. The following passages from Russell on Arbitration throw considerable light on the position while dealing with Section 6(2) of the (English) Arbitration Act, 1996 corresponding to Section 7(5) of the Indian Act. (See pp. 52-55, 23[rd] Edn.): “Reference to another document.—The terms of a contract may have to be ascertained by reference to more than one document. Ascertaining which documents constitute the contractual documents and in what, if any, order of priority they should be read is a problem encountered in many commercial transactions, particularly those involving shipping and construction. This issue has to be determined by applying the usual principles of construction and attempting to infer the parties; intentions by means of an objective assessment of the evidence. This may make questions of incorporation irrelevant, if for example it is clear that the contractual documents in question are entirely separate and no intention to incorporate the terms of one in the other can be established. However, the contractual document defining and imposing the performance obligations may be found to incorporate another document which contains an arbitration agreement. If there is a dispute about the performance obligations, that dispute may need to be decided according to the arbitration provisions of that other document. This very commonly occurs when the principal contractual document refers to standard form terms containing an arbitration agreement. However the standard form wording may not be apt for the contract in which the parties seek to incorporate it, or the reference may be to ``` O.P.(C)No.2392/2022 ``` ``` -:13:- ``` another contract between parties at least one of whom is different. In these circumstances it may be possible to argue that the purported incorporation of the arbitration agreement is ineffective. The draftsmen of the Arbitration Act, 1996 were asked to provide specific guidance on the issue, but they preferred to leave it to the court to decide whether there had been a valid incorporation by reference. (Para 2.044) *** Subject to drawing a distinction between incorporation of an arbitration agreement contained in a document setting out standard form terms and one contained in some other contract between different parties, judicial thinking seems to have favoured the approach of Sir.John Megaw in Aughton, namely, that general words of incorporation are not sufficient. Rather, particular reference to the arbitration clause needs to be made to comply with Section 6 of the Arbitration Act, 1996, unless special circumstances exist. (Para 2.047) Reference to standard form terms.—If the document sought to beincorporated is a standard form set of terms and conditions the courts are more likely to accept that general words of incorporation will suffice. This is because the parties can be expected to be more familiar with those standard terms including the arbitration clause.” (Para 2.048) xxx xxx xxx 24. The scope and intent of Section 7(5) of the Act may therefore be summarised thus: (i) An arbitration clause in another document, would get incorporated into a contract by reference, if the following conditions are fulfilled: (1) the contract should contain a clear reference to the documents containing arbitration clause, (2) the reference to the other document should clearly indicate an intention to incorporate the arbitration clause into the contract, (3) the arbitration clause should be appropriate, that is capable of application in respect of disputes under the contract and should not be repugnant to any term of the contract. (ii) When the parties enter into a contract, making a general reference to another contract, such general reference would not have the ``` O.P.(C)No.2392/2022 ``` ``` -:14:- ``` effect of incorporating the arbitration clause from the referred document into the contract between the parties. The arbitration clause from another contract can be incorporated into the contract (where such reference is made), only by a specific reference to arbitration clause. (iii) Where a contract between the parties provides that the execution or performance of that contract shall be in terms of another contract (which contains the terms and conditions relating to performance and a provision for settlement of disputes by arbitration), then, the terms of the referred contract in regard to execution/performance alone will apply, and not the arbitration agreement in the referred contract, unless there is special reference to the arbitration clause also. (iv) Where the contract provides that the standard form of terms and conditions of an independent trade or professional institution (as for example the standard terms and conditions of a trade association or architects association) will bind them or apply to the contract, such standard form of terms and conditions including any provision for arbitration in such standard terms and conditions, shall be deemed to be incorporated by reference. Sometimes the contract may also say that the parties are familiar with those terms and conditions or that the parties have read and understood the said terms and conditions. (v) Where the contract between the parties stipulates that the conditions of contract of one of the parties to the contract shall form a part of their contract (as for example the general conditions of contract of the Government where the Government is a party), the arbitration clause forming part of such general conditions of contract will apply to the contract between the parties. [Emphasis supplied] 14. The above legal position has been reiterated in **Inox Wind Limited v. Thermocables Limited** [(2018) 2 SCC 519] and **Giriraj Garg v. Coal India Limited & Ors.** [(2019) 5 SCC 192]. ``` O.P.(C)No.2392/2022 ``` ``` -:15:- ``` 15. Returning to the facts of the case, it can be gathered from the minutes of the General Body Meeting held on 28.10.2018 of the proposed Association that the draft bye-laws were placed before the members of the prospective Association and the same were approved. Consequently, the bye-laws were entrusted to the then office bearers of the Association to complete the registration. Following the General Body Meeting, all the members of the Association, including respondents 1 to 5, applied for membership in the Association by submitting membership registration forms, which is a standard form. In Clause 3 of the form, each applicant has, in unambiguous terms, agreed to accept and abide by the code of conduct, rules and regulations and the bye-laws of the Association. Thus, by the execution of the membership registration form, the petitioners have accepted Ext P1 ``` O.P.(C)No.2392/2022 ``` ``` -:16:- ``` bye-laws in their entirety. 16. Indisputably, the members of the Association prepared the bye-laws on their own free will and volition. A reading of the averments in the plaint would reveal that the respondents 1 to 5 have filed the suit clamouring for their rights in the Association based on the bye-laws. After that, the respondents 1 to 5 cannot seek for enforcement of their rights in the Association as per bye-laws in isolation to Clause 37. After voluntarily and consciously accepting the bye-laws, the respondents 1 to 5 cannot disown the arbitration clause on the ground that they have not signed the byelaws. 17. Going by the precedential authority in **M.R. Engineers** , **Inox Wind Limited** and **Giriraj Garg** (supra), I hold that by submission of the membership registration forms, the respondents 1 to 5 are estopped ``` O.P.(C)No.2392/2022 ``` ``` -:17:- ``` from impeaching the arbitration clause in the bye-laws which is a valid arbitration agreement. 18. The law laid down by this Court in **Sathyan & Ors.** (supra), has no application to the facts of this case because that was a case where the members of the Yogam did not accept the bye-laws, unlike the case on hand. 19. On a conspectus of the pleadings and materials on record, the law laid down in the aforecited decisions and a co-joint reading of the registration form and Clause 37 of the bye-laws, I have no hesitation in holding that all disputes arising out of bye-laws are referrable to arbitration. Resultantly, in exercise of the supervisory powers of this Court under Article 227 of the Constitution of India, I allow the original petition as follows:- - (i) Exts P6 and Ext P9 orders are set aside. ``` O.P.(C)No.2392/2022 ``` ``` -:18:- ``` (ii) Ext P3 application is allowed. (iii)The parties are referred to arbitration as per Clause 37 of the bye-laws. Sd/- ## **C.S.DIAS,JUDGE** DST/23.02.23 //True copy/ P.A.To Judge ``` O.P.(C)No.2392/2022 ``` ``` -:19:- ``` ## `APPENDIX` - `PETITIONER EXHIBITS EXHIBIT P1 TRUE COPY OF THE BYE-LAW OF THE ASSOCIATION` - `EXHIBIT P2 TRUE COPY OF THE PLAINT IN O.S.NO.556 OF 2021 BEFORE THE MUNSIFF COURT, ERNAKULAM` - `EXHIBIT P3 TRUE COPY OF THE APPLICATION UNDER SECTION 8 FILED BY THE PETITIONER` - `EXHIBIT P4 TRUE COPY OF THE COUNTER AFFIDAVIT IN I.A.NO.6 OF 2021 BEFORE THE MUNSIFF COURT, ERNAKULAM` - `EXHIBIT P5 TRUE COPY OF THE REPLY AFFIDAVIT IN I.A.NO.6 OF 2021 BEFORE THE MUNSIFF COURT, ERNAKULAM` - `EXHIBIT P6 TRUE COPY OF THE ORDER DATED 25.03.2022 IN I.A.NO.6 OF 2021 OF THE ADDITIONAL MUNSIFF COURT-II, ERNAKULAM` - `EXHIBIT P7 TRUE COPY OF THE MEMORANDUM OF APPEAL FILED AS C.M.A.NO.19 OF 2022 BEFORE THE DISTRICT COURT, ERNAKULAM` - `EXHIBIT P8 TRUE COPY OF THE DOCUMENTS SUBMITTED BEFORE THE HON'BLE ADDITIONAL DISTRICT COURT-IV, ERNAKULAM` - `EXHIBIT P9 TRUE COPY OF THE ORDER DATED 04.11.2022 IN C.M.A.NO.19 OF 2022 OF THE ADDITIONAL DISTRICT JUDGE-VII, ERNAKULAM` - `RESPONDENT EXHIBITS` - `EXHIBIT R1` ``` TRUE COPY OF THE EMAIL DATED 29/12/22 ADDRESSED TO MR.NEGANDHI AND FORWARDED ``` ``` O.P.(C)No.2392/2022 ``` ``` -:20:- ``` ``` TO ALL THE OWNERS ``` ``` EXHIBIT R2STATEMENT OF ACCOUNTS AS ON 31/7/2020 RELEASED AS ANNEXURE ALONG WITH THE MINUTES OF THE MEETING ON 28/12/22 ``` ``` EXHIBIT R6-1R6 COUNTER FILED IN CMA 19/2022 ```