MOHAMMED ALI M. SALI, SINCE DECEASED, v. RAJARAM CHAVAN REAL ESTATE PRIVATE LIMITED
Locus Standi of Third Parties to Challenge Section 17 Interim Orders under Section 37 and the Perversity of Extending Developer Liens to Flats Sold to Bone Fide Purchasers.
Court: Bombay High Court
Citation: 2026:BHC-OS:5678
Decision Date: 05-03-2026
List of Laws
The Arbitration and Conciliation Act, 1996; Section 17 of the Arbitration and Conciliation Act, 1996; Section 37 of the Arbitration and Conciliation Act, 1996; Locus Standi of Third Parties in Arbitration Appeals; Equitable Relief and Balancing of Equities; Joint Development Agreements (JDA)
- Facts: The dispute stems from a Joint Development Agreement (JDA) executed in 2009 between a Landowner and a Developer for a project in Mumbai. The JDA entitled the Owner to a share of the free-sale component. In 2013, via an Allocation Confirmation Letter, the Developer specifically identified sixteen "Subject Flats" as the Owner’s entitlement, which the Owner subsequently sold to various Flat Purchasers through registered agreements. However, the Developer later refused to hand over possession of these flats, claiming a lien and a monetary counter-claim of approximately Rs. 1.75 crores against the Owner for construction costs. The Developer argued that under the JDA, he held a lien over the Owner's entire share until all dues were settled. The Owner and the Flat Purchasers moved the Arbitral Tribunal for interim possession of the flats.
- Procedural Posture: The Flat Purchasers and the Owner filed petitions under Section 37 of the Arbitration and Conciliation Act, 1996, challenging the Arbitral Tribunal's interim orders dated February 14, 2019, and December 15, 2022. The Tribunal had refused to grant possession of the Subject Flats, maintaining a status quo that effectively allowed the Developer to retain the flats as security.
- Issue: Whether third-party Flat Purchasers, who are not parties to the arbitration agreement, have the locus standi to challenge an interim order under Section 37; and whether the Arbitral Tribunal was justified in allowing the Developer to withhold possession of flats already sold to third parties based on a monetary dispute with the Owner.
- Holding: The High Court held that third parties whose rights are affected by Section 17 orders have the locus to file an appeal under Section 37. On merits, the Court set aside the Impugned Orders, holding that the Developer's blanket lien over flats already legitimately sold to third parties was perverse.
- Reasoning: The Court reasoned that Section 37 acts as a check and balance; if an interlocutory order affects the vital interests of third parties, they must have a statutory remedy. Relying on "Prabhat Steel Traders", the Court affirmed that a "party" for the purpose of an appeal can include a person aggrieved by an order. On the merits, the Court found the Tribunal's view perverse because it ignored the "Allocation Confirmation Letter" and "OC Confirmation Letter", where the Developer had acknowledged the Owner's right to sell the Subject Flats. The Court noted that the Developer’s claim was essentially a money claim that could be secured by the balance consideration payable by the purchasers. The Court directed the Developer to hand over possession to the Court Receiver, who would then grant possession to the Flat Purchasers as agents, subject to them depositing their balance dues.
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