RERA Vs. Arbitration: Bombay HC Sides With Homebuyers’ Protection

The Bombay High Court, in its landmark ruling, adjudicated a second appeal in the case of M/s. Rashmi Realty Builders Pvt. Ltd. vs. Mr. Rahul Rajendrakumar Pagariya and Ors., where the decision underscored the jurisdiction of the Real Estate Regulatory Authority (“RERA”) in disputes, emphasizing the importance of protecting the rights of homebuyers and restricting promoters from circumventing their duties by utilizing private arbitration mechanisms. The Court reaffirmed the overriding effect of RERA even if the agreement entered into by the promoter and allottee contains an arbitration clause.

Background:

The Appellant (“Promoter”) and the Respondent (“Allottee”) executed a Memorandum of Understanding (“MOU”) for two apartments for a certain consideration. The MOU contained an arbitration clause mandating that any disputes shall be referred to a sole arbitrator who will be appointed by the Appellant. Subsequently, the Promoter failed to complete the project in time. The allottees were dissatisfied by the delay and proceeded to file a complaint with the Maharashtra Real Estate Regulatory Authority (“MahaRERA”). The complaint was filed under Section 31 (1) which gives an aggrieved person the right to file a complaint in case the Act or rules have been contravened or violated by the promoter, coupled with Section 18 which allows the allottee to withdraw from a delayed project as well as receive a refund with interest. MahaRERA observed that since there was no allotment of apartments nor an agreement of sale, the provisions of RERA could not be applied and the complaint was dismissed. Aggrieved by the order, the Allottee appealed in the Maharashtra Real Estate Appellate Tribunal overturned the decision ruling in favor of the allottees, directing the promoter to refund the consideration amount along with Interest.

The promoter discontent with the ruling appealed to Bombay High Cout to adjudicate whether the acts and rules under RERA would be ousted by a clause for dispute resolution.

Issues:

The Bombay High Court framed the following substantial question of law

“Whether the jurisdiction of Real Estate Regulatory Authority established under Section 20 of the Real Estate Regulation and Development Act, 2016 is ousted, if the agreement between the promoter and the allottee contains arbitration clause?”

Findings:

The Court clarified that disputes under RERA cannot be categorized as mere contractual disagreements, as well as the subject matter of the dispute, affects third-party rights i.e. they have an erga omens effect, centralized adjudication would be enforceable. Since RERA has its own specialized adjudicatory mechanism, its authority cannot be overridden by arbitration clauses in agreements. Additionally, the dispute does not fall under the ambit of rights in personam. which are amenable to arbitration.

The Court affirmed that as a special statute, the Real Estate (Regulation and Development) Act, 2016 holds precedence over the general provisions of the Arbitration and Conciliation Act, 1996.

The Doctrine of Election allows parties to opt for arbitration as a dispute resolution when statutory law does not expressly exclude it. Since RERA’s dispute resolution framework makes arbitration inapplicable, the Court emphasized that statutory provisions cannot be bypassed by contractual clauses favoring private arbitration. The Bombay High Court upheld the Tribunal’s decision.

Conclusion:

This Judgment was paramount in establishing the protection of homebuyers and prevents any dilution of these rights through contractual mechanisms that could undermine the objectives of RERA. The utilization of arbitration though beneficial in certain legal contexts, can be often leveraged by Promoters or developers to sidestep statutory obligations. RERA’s dispute resolution forum is efficient and consumer centric. The decision by the High court set a precedent reaffirming RERA’s jurisdiction and also ensuring statutory obligations are fulfilled, preventing promoters from evading their responsibilities through arbitration clauses. By upholding the supremacy of RERA, the Bombay High Court has reinforced the legislative intent of the Act—to safeguard homebuyers’ rights and ensure accountability in the real estate sector. This ruling serves as a crucial precedent in maintaining regulatory oversight and ensuring that statutory remedies under RERA cannot be contractually bypassed.