Introduction
The Bombay High Court (Bombay HC), while adjudicating a second appeal in the matter of M/s. Rashmi Realty Builders Pvt. Ltd. v. Mr. Rahul Rajendrakumar Pagariya and Ors., delivered a seminal ruling that underscores the prominence of statutory forums over privately negotiated dispute resolution mechanisms in specific legal contexts. The judgment revolved around the jurisdiction of Real Estate Regulatory Authority ("RERA"), established under Section 20 of the Real Estate (Regulation and Development) Act, 2016, vis-à-vis the existence of an arbitration clause encapsulated within an agreement executed between the promoter and the allottees.
The Court, while construing the legislative intent of RERA, unequivocally held that the statutory jurisdiction of RERA is not ousted or rendered nugatory merely by the incorporation of an arbitration clause in the agreement. The doctrine of generalia specialibus non derogant—a general law does not derogate from a special law—was invoked to substantiate the reasoning that RERA, being a special statute enacted to protect the interests of homebuyers and promote transparency in the real estate sector, would prevail over the general principles enshrined in the Arbitration and Conciliation Act, 1996.
The Court reiterated the primacy of the statutory forum under RERA, which was established as a sui generis mechanism to provide for expeditious and efficacious resolution of disputes within the real estate sector.
It sets a persuasive precedent in the realm of consumer protection jurisprudence by unequivocally prioritising statutory safeguards over contractual obligations, particularly where such obligations tend to subvert the rights and remedies statutorily conferred upon vulnerable stakeholders.
By fortifying the supremacy of RERA in such disputes, the judgment aligns with the overarching principles of equity, justice, and good conscience while simultaneously curbing any potential misuse of arbitration clauses as a mechanism to bypass statutory obligations.
Background Facts
A Memorandum of Understanding (MoU) was executed between the Promoter and the Allottees, wherein the Promoter undertook to allot a residential unit to the Allottees in exchange for valuable consideration, with a clause stipulating that any disputes would be referred to a sole arbitrator. Dispute subsequently arose when the Promoter failed to complete construction within the stipulated time, despite substantial payments made by the Allottees. Aggrieved by the failure, Allottees filed a complaint before the Maharashtra Real Estate Regulatory Authority (MahaRERA) under Section 31(1) read with Section 18 of RERA, seeking a refund of the amount along with compensation. MahaRERA dismissed the complaint, holding that Section 18 was inapplicable in the absence of a registered agreement for sale. In appeal, however, the Maharashtra Real Estate Appellate Tribunal reversed MahaRERA's decision, ordering a refund with interest, while applying the principle of equity ex aequo et bono (according to the right and good) in view of the Promoter's failure to meet contractual obligations. The Promoter then challenged this ruling in the second appeal before the Bombay High Court, which was tasked to adjudicate on the interplay between the jurisdiction of MahaRERA and the arbitration clause embedded in the MoU.
Issues before the Court
The question for consideration, identified and framed by the Bombay HC, was as follows:
Whether the jurisdiction of the RERA, established under Section 20 of the RERA Act, is ousted if the agreement between the promoter and the allottee contains an arbitration clause?
Findings of the Court
Non-Arbitrability of Disputes under RERA:
Disputes arising under the RERA 2016 cannot be characterized as rights in personam (legal claims which are personal in nature). Instead, such disputes possess an erga omnes effect (decisions that affect third parties), as the resolution of a dispute under RERA directly impacts the collective rights and interests of other allottees as well as the rights of the association of allottees. The statutory framework of RERA establishes specialized rights, and mandates the creation of exclusive forums for the enforcement, adjudication, and execution of these rights. Being a special statute, RERA overrides the general law, including the Arbitration and Conciliation Act, 1996, in matters governed by its provisions. The legislative intent underpinning RERA underscores the non-arbitrability of disputes falling within its purview, thereby reinforcing the primacy of specialized forums for the enforcement of its objectives.
Doctrine of Election in Arbitration:
The doctrine of election, whereby parties may choose arbitration as an alternative mechanism for dispute resolution, is contingent upon the legislative framework recognizing arbitration as a viable and lawful remedy. This election is viable only where the statutory provisions governing the dispute are not inconsistent with or repugnant to arbitration as an alternative dispute resolution mechanism. In circumstances where mandatory statutory provisions conflict with the principles of arbitration, the doctrine of election is rendered inapplicable.
The Court upheld the Tribunal's decision, reaffirming that statutory rights under RERA could not be ousted by a private arbitration clause and emphasizing that RERA, being sui generis, aims to protect the interests of vulnerable homebuyers.
Our Analysis
We assert that the presence of an arbitration clause in a contractual agreement between parties does not, in any manner, oust the jurisdiction of RERA or its designated forums. The Bombay HC, by rejecting the Promoter's contention and upholding the Tribunal's decision, reaffirmed the maxim salus populi suprema lex—the welfare of the people is the supreme law—underscoring that RERA's remedial provisions must be interpreted in a manner that prioritizes consumer protection and ensures greater accountability in the real estate sector. The Court highlighted that RERA is a special legislation enacted to safeguard homebuyers which offers a more robust and consumer-centric dispute resolution mechanism than arbitration. Unlike private arbitration, which may often favor developers and limit consumer remedies, RERA provides an accessible, transparent, and efficacious forum that not only holds errant promoters accountable but also ensures aggrieved homebuyers receive just and adequate compensation.
The legislative intent underpinning RERA is clear in prioritizing these forums for dispute resolution, thereby safeguarding the broader public interest and the collective rights of all stakeholders involved in real estate projects.
It is unequivocal that the jurisdiction of RERA remains paramount and exclusive in respect of disputes falling within its ambit, notwithstanding the existence of an arbitration agreement between the parties. This position reaffirms the principle that, statutory rights and remedies created under special laws cannot be diluted or circumvented through contractual mechanisms that are inconsistent with the legislative intent and the public policy objectives underlying such statutes.
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