Jurisdiction Of The Real Estate Regulatory Authority Will Not Be Ousted Inspite Of An Arbitration Clause In An Agreement For Sale

Recently the Hon'ble Bombay High Court ("Bombay HC"), while deciding a second appeal in the case of M/s. Rashmi Realty Builders Pvt. Ltd. vs. Mr. Rahul Rajendrakumar Pagariya and Ors.,¹ inter alia held that the jurisdiction of the Real Estate Regulatory Authority established under section 20 of the Real Estate (Regulation and Development) Act, 2016 ("RERA") will not be ousted notwithstanding an arbitration clause in the agreement entered into between the promoter and the allottees.

Brief facts

1. The Appellant ("Promoter") and the Respondents ("Allottees") executed a Memorandum of Understanding ("MOU") recording that the Promoter had agreed to allot a residential unit/ flat to the Allottees for consideration and in case of any dispute the same be referred to a sole arbitrator to be appointed by the Promoter and the award passed will be binding on both parties.
2. Subsequently, disputes arose as despite having made substantial payment, the Promoter failed to finish the construction work within the stipulated time.
3. The Allottees filed a complaint for refund alongwith compensation before the Maharashtra Real Estate Regulatory Authority ("MahaRERA") under Section 31(1) r/w Section 18 of the RERA. MahaRERA ruled that since the parties are yet to enter into a registered agreement for sale, the provisions of Section 18 of the RERA are not applicable and dismissed the complaint.
4. The order of MahaRERA was challenged by the Respondents before the Maharashtra Real Estate Appellate Tribunal ("Tribunal"). The Tribunal allowed the appeal and set aside the order passed by MahaRERA and directed the Appellant to refund the amount along with interest from the date of payment till realisation at the rate of highest marginal cost of lending rate of State Bank of India plus 2%. This order of the Tribunal came to be challenged by way of a second appeal before the Bombay HC.

Issue

The Bombay HC in the second appeal 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 and analysis

1. All disputes relating to rights in personam are considered to be amenable to arbitration and all disputes relating to right in rem are required to be adjudicated by courts and public tribunals, being unsuited for arbitration.
2. The doctrine of election to select arbitration as a dispute resolution mechanism is available only if the law accepts existence of arbitration as an alternate remedy. There should not be any inconsistency or repugnancy between the provisions of the mandatory law and arbitration as an alternative.
3. A dispute covered by RERA cannot be termed as a right in personam as a decision will affect the rights of other allottees as well as the rights of association of allottees (erga omnes effect). Upon examining the provisions of RERA, it is clear that special rights are created and for enforcement of the same special forums are established for ensuring enforcement and execution of these rights. Moreover, RERA being a special statute, the disputes under RERA would override the general statute being the Arbitration and Conciliation Act 1996.

Conclusion

A dispute covered under RERA is non-arbitrable in nature and the jurisdiction of RERA is not ousted even if an agreement between the parties contains an arbitration clause.

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Footnotes

1 2024: BHC-AS:50612

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