Arbitration vs. RERA: Navigating time-bound dispute resolution in Indian real estate

Disputes arising out of real estate transactions have long been a source of frustration for homebuyers, developers, and legal practitioners alike in India. Historically characterized by delayed resolutions, complex litigation, and enforcement challenges, the landscape witnessed a significant regulatory intervention through the Real Estate (Regulation and Development) Act, 2016 (“RERA”). The introduction of RERA aimed to enhance transparency, expedite adjudication, and empower homebuyers by establishing a specialized, statutory, and time-bound dispute resolution framework.

In parallel, arbitration, rooted in contractual party autonomy under the Arbitration and Conciliation Act, 1996 (“A&C Act”), remains a widely invoked mechanism to settle disputes privately, offering confidentiality and procedural flexibility. As RERA gained prominence, its interaction with arbitration has spurred legal debate and judicial scrutiny, especially concerning the question of jurisdiction, arbitrability, and enforcement.

This article delves into the evolving dynamics of Arbitration vs. RERA, focusing on the time-bound dispute resolution processes, the legal interplay between these mechanisms, and the latest judicial clarifications shaping the real estate dispute resolution ecosystem.

Understanding RERA’s Time-bound Dispute Resolution Mechanism

RERA was legislated to address endemic issues such as project delays, lack of transparency, and failure to meet contractual obligations in the real estate sector. Its dispute resolution framework is characterised by:

1. Dedicated regulatory authorities and appellate tribunals tasked to adjudicate complaints related to real estate projects.
2. Statutory timelines taking approximately 60 days for resolution, aimed at swift justice.
3. Enforcement powers allowing for compensation, penalties, and recovery certificates, including criminal sanctions for non-compliance.
4. Emphasis on consumer protection and market transparency, mandating project registration, escrow account maintenance, and regular project updates by developers.

This special scheme highlights the legislative priority on fast, transparent, and accessible remedies for homebuyers, distinct from conventional civil courts or arbitral forums.

This blog is a part of our Arbitration Services.

RERA incorporates the following specific provisions that establish its primacy over other enactments in force:

Section 88[1] provides that the provisions of the RERA shall operate in addition to, and not in derogation of, any other prevailing law. In effect, the statute does not expressly exclude the application of other laws unless a direct inconsistency arises.

Section 89[2] goes a step further and declares the overriding effect of the RERA in the event of inconsistency with other laws. Accordingly, wherever there is a conflict, the provisions of the RERA Act shall prevail.

Section 79 imposes a bar on the jurisdiction of civil courts, expressly excluding them from entertaining suits or proceedings in respect of any matter which falls within the adjudicatory domain of the RERA authority or tribunal. This ensures that disputes specifically assigned to the RERA mechanism are not interfered with by ordinary civil courts.

Taken together, these provisions reflect the legislative intent to provide homebuyers with a special and efficacious remedy under RERA, over and above remedies available under general law. Notably, however, judicial pronouncements in several cases have clarified that the jurisdiction of the RERA tribunal takes precedence even over arbitral tribunals, thereby reinforcing the special statutory scheme envisaged by the Act.

Arbitration: Contractual Flexibility Amidst Limited Timeframes

Arbitration, governed by the A&C Act, affords parties the freedom to resolve disputes through a private tribunal of their choice with procedural autonomy. Key features include:

1. Privacy and confidentiality, often preferred in commercial real estate contracts.
2. Absence of rigid statutory timelines; arbitration duration depends on the tribunal and the parties’ agreement.
3. Limited judicial intervention, allowing annulment of awards under specific grounds enumerated in Section 34[3].
4. Enforcement backed by the A&C Act, with arbitral awards accorded the status of civil court decrees.

Despite its advantages, arbitration may not accord the specific consumer protections and speedy resolution timelines mandated by RERA in real estate contexts.

Jurisdictional Dilemma: Arbitration vs. RERA in Recent Jurisprudence

The coexistence of these two mechanisms has raised important questions on the exclusivity of jurisdiction, the arbitrability of RERA disputes, and the applicability of arbitration clauses in real estate contracts.

Supreme Court’s Position: Harmony in Arbitration and Special Statutes

Although the Supreme Court has not issued a final conclusive verdict on arbitration vs. RERA jurisdiction, it has provided guiding principles:

• Arbitration agreements are valid and enforceable, but their jurisdiction is subordinate to the exclusive jurisdiction conferred by a special statute like RERA.
• The nature of the dispute and legislative intent towards consumer welfare influence arbitrability.
• Courts are to avoid ousting statutory remedies by private arbitration where specialized legal schemes are established to protect vulnerable parties.
• There is recognition of party autonomy but within the framework prescribed by law, particularly in sectors impacting public interest.

This approach underlines that arbitration does not ipso facto oust jurisdiction of statutory bodies such as RERA on applicable matters.

The Hon’ble Supreme Court, in M/s Newtech Promoters and Developers v. State of Uttar Pradesh[4], conclusively held that the provisions of the RERA Act apply retrospectively to all ongoing projects which had not obtained a completion certificate as on the date of enforcement of the Act. The Court reasoned that the legislative intent of RERA is to safeguard the interests of homebuyers by ensuring accountability of promoters and transparency in the real estate sector, and therefore, its operation must extend to projects already underway. This interpretation ensures that developers cannot escape the rigours of RERA merely by relying on the pendency of construction, thereby reinforcing the remedial and protective character of the statute.

Divergent Views From Other High Courts

In Rashmi Realty Builders Pvt. Ltd. vs. Rahul Rajendrakumar Pagariya & Ors[5], the Bombay High Court articulated that:

• Real estate disputes falling within RERA’s ambit form part of a special statutory regime focused on consumer protection and public interest.
• Arbitration clauses embedded in agreements do not confer jurisdiction to arbitral tribunals where RERA adjudication is statutorily mandated.
• RERA disputes are non-arbitrable, as their resolution requires adherence to timelines, procedural safeguards, and enforcement mechanisms beyond private arbitration.

This ruling draws upon Supreme Court jurisprudence, notably the Vidya Drolia vs. Durga Trading Corporation[6], a decision that established that rights created by special laws for public/consumer protection cannot be arbitrated away. The Court opined that although a complaint under RERA may be initiated by a single allottee against the developer, the outcome of such proceedings is capable of impacting all other allottees of the concerned project. Consequently, the dispute transcends individual rights and assumes the character of a matter affecting a wider class of the public, thereby falling outside the scope of “rights in personam.” The Court, therefore, held that such disputes are non-arbitrable, as they concern collective public interests rather than the private rights of one individual allottee.

Some High Courts, like the Gauhati High Court, in the matter of Pallab Ghosh Versus Simplex Infrastructures Limited and another[7], have taken a more flexible stance, permitting concurrent jurisdiction where parties may choose arbitration despite the availability of RERA remedies, reflecting the contractual freedom principle. However, such interpretations remain exceptions rather than the norm and have not displaced RERA’s primacy in real estate disputes.

In Priyanka Taksh Sood & Ors. v. Sunworld Residency Pvt. Ltd[8]., (Delhi High Court), the allottees sought a refund of monies under a Flat Buyer Agreement and invoked the arbitration clause for appointment of an arbitrator. The developer resisted, contending that (i) no dispute survived as possession was offered, (ii) the agreement was insufficiently stamped, and (iii) jurisdiction lay exclusively with RERA as a special statute. The Court rejected all objections, holding that refund claims arising from cancellation of allotments are rights in personam, squarely arbitrable under the A&C Act. It further clarified that the RERA does not impliedly oust arbitration, as Sections 88 and 89 expressly preserve concurrent remedies. Applying the doctrine of election, the Court emphasised that while a homebuyer may choose between RERA and arbitration, once a forum is elected, the other cannot be pursued for the same cause of action. The judgment distinguished Gujarat Urja (where the special law provided for statutory arbitration) and relied upon Vidya Drolia and Imperia Structures to affirm that RERA and arbitration are not mutually exclusive. Importantly, however, disputes with ICICI Bank under the Tripartite Loan Agreement could not be referred to arbitration since no arbitration clause bound the bank. The ruling demonstrates that contractual remedies through arbitration remain open to flat allottees unless they have already invoked RERA, thereby underlining the concurrent yet mutually exclusive nature of these two time-bound dispute resolution mechanisms.

In M/s Bihar Home Developers and Builders v. Shri Narendra Prasad Gupta[9] (Patna High Court, 2021), the petitioner developer invoked the arbitration clause in a registered Development Agreement when disputes arose over the execution of a real estate project. The respondent resisted arbitration, alleging fraud in the execution of the agreement and even lodging civil and criminal proceedings, including complaints before the Real Estate Regulatory Authority. The Court, however, distinguished between mere allegations of fraud and serious fraud going to the root of the arbitration clause itself. Referring to the Supreme Court’s decisions in A. Ayyasamy, Rashid Raza, Avitel Post Studioz, Vidya Drolia, and N.N. Global, the Court held that civil aspects of fraud are arbitrable unless the arbitration agreement itself is directly impeached. Importantly, it clarified that the remedies under RERA and the Arbitration Act operate concurrently and are not inconsistent, with Section 88 of RERA expressly preserving additional remedies. Since the respondent’s objections did not establish that the arbitration clause was invalid, the Court appointed a sole arbitrator under Section 11(6) of the A&C Act. This decision underscores that recourse to RERA does not foreclose arbitration, and that parties retain the autonomy to pursue contractual arbitration despite parallel statutory frameworks, provided the allegations do not vitiate the arbitration agreement itself.

Comparative Analysis: Time-Bound Dispute Resolution Under Arbitration and RERA

Practical Implications for Stakeholders

1. Homebuyers gain confidence from RERA’s mechanism, ensuring swift resolutions and statutory protections.
2. Developers and contractors must recognize that arbitration clauses may be unenforceable in disputes governed by RERA.
3. Legal practitioners advising on real estate transactions need to carefully draft contracts, considering the legislative overlay and judicial trends favoring RERA’s jurisdiction.
4. Dispute resolution professionals and arbitrators must stay abreast of evolving jurisprudence that limits arbitration’s application in certain real estate disputes.

Conclusion

The intricate relationship between arbitration and RERA’s time-bound dispute resolution mechanism highlights the ongoing evolution of Indian real estate law. Statutory mandates embedding consumer protection principles through RERA often supersede arbitration agreements, particularly when disputes impact public interest and homebuyer rights.

While arbitration remains an indispensable tool for commercial dispute resolution, its role is circumscribed in the real estate sector, where RERA’s specialized forums and statutory timelines offer a more appropriate path for speedy and equitable justice.

Ultimately, the judiciary’s balanced approach aims to harmonize party autonomy, statutory consumer safeguards, and expeditious dispute resolution, guiding stakeholders through the complex terrain of modern real estate disputes in India.

FOOT NOTES

[1] “The provisions of this Act shall be in addition to, and not in derogation of, the provisions of any other law for the time being in force.”

[2] “The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force.”

[3] Under Section 34 of the A&C Act, an arbitral award may be set aside only by a court upon limited grounds, such as incapacity of a party, invalidity of the arbitration agreement, procedural unfairness, or the award exceeding the scope of reference. Additionally, an award may be set aside if it is in conflict with the public policy of India, which includes instances of fraud, contravention of fundamental legal policy, or violation of basic notions of justice. In domestic arbitrations (other than international commercial arbitrations), an award may also be set aside if it is vitiated by patent illegality appearing on its face. However, mere errors of law or reappreciation of evidence do not warrant interference.

[4] Civil Appeal No(S). 6745 6749 OF 2021

[5] Second Appeal No. 434 OF 2023

[6] AIRONLINE 2020 SC 929

[7] Arb.P./21/2023

[8] 2022/DHC/001768

[9] AIR 2021 PATNA 142