India: Arbitration Act vs. Rera Act- Applicability Of Dispute Redressal Mechanism In Ongoing Pre-Rera Projects.

The Maharashtra Real Estate Regulatory Authority ("MahaRERA") has settled the question of applicability of the dispute redressal mechanism between Real Estate Regulation and Development Act, 2016 ("RERA Act") and the Arbitration and Conciliation Act, 1996 ("Arbitration Act") in its recent order passed in Ayyaz Khan and Saba Khan vs. RERA Realtors Pvt Ltd¹ and others.

Prior to the enactment of the RERA Act and establishment of MahaRERA as a specialised forum, the dispute and grievance redressal mechanism for real estate development was governed by general legislations such as the Indian Contract Act, 1872, Specific Relief Act, 1963, Arbitration Act and the Consumer Protection Act, 1986 (prior to repeal). With the onset of the RERA Act, the RERA Act and the circulars issued by the authorities thereunder have laid down specific provisions and procedures to streamline the different aspects of the development of projects, including redressal of disputes and grievances and remedies available to the flat purchasers. This raises a question of which legislation would be applicable to the projects which had commenced prior to the RERA Act coming into force and are still ongoing.

FACTS OF THE CASE:

Ayyaz Khan and Saba Khan ("Complainants") had purchased a flat in an under-construction project which was being developed by Era Realtors Private Limited ("Era") by entering into an Agreement for Sale ("AFS") dated 20^th November 2014. Under the aforesaid Agreement for Sale, the date of possession was agreed as 31^st March 2017. The AFS provided for reference to arbitration for any disputes arising out of the AFS.

The date of possession as set out on the website of the MahaRERA was 30^th December 2021 which was thereafter further extended.

However, the construction of the project was not completed within the agreed timelines under the AFS and possession of the flat was not handed over to the Complainants.

CONTENTIONS OF THE COMPLAINANTS:

The Complainants prayed that the extension of the possession date was without their consent and due to the delay in the possession, the provisions of Section 18 of the RERA Act were breached. Section 18 of the RERA Act states that "If the promoter fails to complete or is unable to give possession of an apartment, plot or building, in accordance with the terms of the agreement for sale, and if the allottee does not intend to withdraw from the project, he shall be paid, by the promoter, interest for every month of delay, till the handing over of the possession, at such rate as may be prescribed ". In line with the provisions, the Complainants inter alia prayed for interest under the provisions of the RERA Act for the delay in handover of possession to them and for compensation for the hardships faced by them.

ARGUMENTS OF ERA:

Era stated that the project was a slum rehabilitation project. The delay in the project timelines had been caused due to the agitations from the slum dwellers on the land and delay due to regularity clearances such as environmental clearances. They stated that since there were no state environmental committee, they had to approach the central environmental committee and owing to the aforesaid reasons, the handover of possession had been delayed and the aforesaid delays fell within the purview of the reasons defined in the Agreement for Sale as 'beyond the control of the developer'.

Era further contended that under Clause 13 of the AFS, which defined the date of possession of the flat provided that in case of any dispute in relation to the same, the matter would be referred for arbitration to resolve such disputes. Hence, Era sought that the matter be referred to arbitration, as agreed in the AFS.

OBSERVATIONS OF MAHARERA:

While examining the applicability of the two legislations, MahaRERA observed that a dispute between a real estate promoter and an allottee is specific in nature and the adjudicating mechanism established under the RERA Act is exclusively for adjudicating such dispute between real estate consumers and promoters, whereas the Arbitration Act is general in nature regarding any dispute between two parties to a contract. It is a cardinal principle of law that a specific law regarding any subject matter has an overriding effect over any general law.

However, MahaRERA noted that it did not have the authority to rewrite the clauses under the AFS, which was executed before RERA came into force as the RERA Act does not provide for rewriting of contracts and agreements entered into before commencement of the RERA Act. The parties, at the time of entering into the AFS, put in place certain clauses and caveats/covenants to safeguard their interests under the laws in force at such time, which was before the RERA Act was in force, in view of the uncertainties because the project was a slum rehabilitation project. Hence, the clause of arbitration had been put in the AFS to qualify disputes with respect to the date of possession. In the absence of a specific law the Parties strive to use the general law to account for any exigencies that may arise which in this case the Parties had done. This mechanism of arbitration which was available in law then and is also recognized in law today cannot be overwritten just because a specific law is now available.

FINAL ORDER:

The MahaRERA passed an order on 14^th January 2022 under which it was held that the parties could not now take recourse under the RERA Act for the issue and the parties would abide by the terms of the AFS. The arbitration clause would be applicable to Agreement for Sale. The complaint was accordingly disposed of and the Parties were free to file necessary proceedings under the Arbitration Act.

Footnote

1. Complaint No. CC006000000194835, filed before Maharashtra Real Estate Regulatory Authority, Mumbai.

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