Bombay High Court Ruling: RERA Disputes Cannot Be Settled Through Arbitration

The Bombay High Court has issued a significant ruling that disputes under the Real Estate (Regulation and Development) Act, 2016 (RERA) are non-arbitrable. This means that even if the agreement between an individual allottee and a promoter includes an arbitration clause, the jurisdiction of the Real Estate Regulatory Authority (RERA) cannot be ousted. The judgment is being hailed as a landmark decision that ensures arbitration will not be the primary method of dispute resolution in buyer-builder conflicts that fall under RERA's purview.

Case Background:

The dispute arose between Rashmi Realty Builders Pvt Ltd and a buyer who had entered into an agreement for a residential unit under the builder’s project, Rashmi’s Star City Phase IV. However, the sale agreement was unregistered, and the buyer filed a complaint seeking a refund of Rs 12 lakh along with interest, citing delays in possession of the property. In response, the builder argued that the matter should be resolved through arbitration, referencing an arbitration clause included in the memorandum of understanding (MoU) signed by both parties.

Initially, the Maharashtra Real Estate Regulatory Authority (MahaRERA) ruled in favor of the buyer, emphasizing that since the sale agreement was not registered, Section 18 of RERA applied. This provision grants buyers the right to receive a refund with interest if the builder delays possession of the property. The builder, however, contended that the dispute should be referred to arbitration based on the MoU’s clause, which provided for arbitration in case of conflicts.

The Legal Issue:

The main legal question that the Bombay High Court was tasked with addressing was whether the inclusion of an arbitration clause in the agreement between the buyer and the builder could override RERA's jurisdiction. Specifically, the Court needed to determine whether such disputes could be resolved through arbitration or whether RERA's specialized forums were the proper forums for adjudication.

The Court’s Judgment:

Justice Madhav Jamdar, in his ruling, made it clear that RERA’s provisions are special and designed to provide specific protections to homebuyers, especially in matters related to project delays and financial claims. The Court stated that RERA's framework is unique and cannot be bypassed by private agreements or arbitration clauses.

The judgment clarified that the mechanisms established by RERA for dispute resolution, such as MahaRERA and the RERA appellate tribunals, are exclusive to the statute and cannot be substituted by arbitration. Justice Jamdar emphasized that if arbitration is inconsistent with the law, it cannot be used as an alternative mode of dispute resolution. The provisions of RERA, which protect the rights of homebuyers, cannot be overridden by an arbitration agreement.

Understanding the RERA Framework:

RERA was introduced in 2016 to bring greater transparency and accountability to the Indian real estate sector. The Act aims to protect homebuyers, ensure timely delivery of projects, and create a more efficient regulatory framework for the real estate industry. One of RERA's key features is the establishment of specialized tribunals to handle disputes related to real estate projects. These tribunals are empowered to provide remedies for homebuyers, including enforcing timelines for project completion and ensuring builders fulfill their contractual obligations.

RERA also mandates that builders register their projects with the Real Estate Regulatory Authority (RERA) before they can begin advertising or selling properties. This process ensures that projects meet the necessary legal requirements and that buyers have a platform to address issues such as delays in possession, disputes over project specifications, and financial claims.

Court’s Reasoning:

In his judgment, Justice Jamdar noted that RERA’s legislative intent was to protect homebuyers and to provide them with specific statutory rights. These rights are enforceable through the mechanisms established under RERA, which include the MahaRERA and the RERA Appellate Tribunal. Therefore, allowing disputes covered under RERA to be arbitrated would undermine the purpose of the law and the protections it offers to homebuyers.

The Court pointed out that RERA’s provisions include certain protections that are designed specifically for the real estate sector and homebuyers. For instance, the Act provides a mechanism for buyers to withdraw from a project if possession is delayed, with the right to a refund along with interest. These protections are unique to the real estate sector and are not designed to be subject to private arbitration processes. In this case, the Court found that allowing arbitration in such matters would be inconsistent with RERA’s objective of safeguarding homebuyers.

Legal Counsels Perspectives

Senior counsel Atul Damle, acting as amicus curiae, highlighted the legislative intent behind RERA, which was designed to protect homebuyers. Damle emphasized that the law was established to safeguard buyers' interests, and arbitration should not override these protections.

On the other hand, R. Upadhyay, the builder’s advocate, argued that the MoU executed in 2013 provided for arbitration in Mira Road. He further contended that since no agreement was registered with flat numbers, the buyers should not be classified as ‘allottees' under RERA.

However, the HC ruled that the MoU clearly indicated the buyers as allottees since the flat numbers were to be allotted at a function to be hosted by the builder, as argued by Advocate Altaf Khan for Rahul Pagariya and other buyers, who had booked flats in the Rashmi's Star City Phase IV project.

Impact on the Real Estate Industry:

The Bombay High Court's judgment has profound implications for the real estate sector, particularly in the context of resolving disputes between buyers and builders. Arbitration, long seen as an efficient and private means of resolving commercial disputes, will no longer be applicable for cases involving homebuyers and builders under RERA. Instead, such disputes must be handled through the forums established under RERA, such as MahaRERA and the RERA Appellate Tribunal.

For builders, this means that disputes related to project delays, financial claims, and possession issues will now be adjudicated by RERA's specialized tribunals. Builders will need to adapt to the legal framework established by RERA and ensure that they comply with its provisions, including registering their projects and addressing buyer grievances through the appropriate channels.

For homebuyers, the judgment ensures that their grievances will be resolved through the platform specifically designed to protect their interests. It eliminates the possibility of builders bypassing the legal protections under RERA by invoking arbitration clauses in agreements.

The Court’s ruling has established an important legal precedent, reinforcing the idea that statutory protections for homebuyers under RERA cannot be circumvented by private agreements or arbitration clauses. This decision emphasizes the need for builders and buyers to understand and respect the regulatory framework established under RERA.