RERA – Regulation rules over arbitration?

By Anjala Parveen and Neha Joshi, Vidhii Partners

The Real Estate (Regulation and Development) Act, 2016 (RERA), was enacted with the objective of ensuring transparency and efficiency in real estate transactions and to establish a mechanism for speedy adjudication of disputes. The Real Estate Regulatory Authority (Authority) was created by RERA in each state not only for the protection of the consumers but also for the regulation and promotion of the real estate sector, an industry that had long been unregulated. From requiring mandatory registration of real estate projects to prescribing penal consequences for violation of builder-buyer agreements, RERA establishes an effective and well-regulated framework for transactions in the real estate sector.

Anjala ParveenAssociatesVidhii Partners
Anjala Parveen
Vidhii Partners

Question of jurisdiction: In a recent decision on Ganesh Lonkar v DS Kulkarni Developers Ltd, the Maharashtra Real Estate Authority (MahaRERA) has taken the view that, despite the existence of an arbitration agreement between the parties, it has the jurisdiction to adjudicate disputes that are the subject of the arbitration agreement. The reasoning in the decision has two foundations. Firstly, the legislature is presumed to be aware of all laws enacted by it; as RERA was enacted after the Arbitration and Conciliation Act, 1996 (ACA), RERA would prevail over ACA. Secondly, the legislature has specifically provided a non obstante clause in section 89 of RERA. This states that RERA shall have effect notwithstanding anything inconsistent contained in any other law for the time being in force. Thus, the provisions of RERA override section 8 of ACA, which mandates a judicial authority to refer to arbitration disputes that are subject to an arbitration agreement.

While it may be argued that the reasoning of MahaRERA is flawed, the same conclusion may also be arrived at by way of another legal route.

Alternate argument: Although ACA does not provide for the exclusion of any category of disputes, a number of judicial pronouncements have given guidance as to what types of disputes are non-arbitrable. In Natraj Studios (P) Ltd v Navrang Studios & Ors, the Supreme Court had to decide whether a landlord and tenant dispute falling within the exclusive jurisdiction of the Court of Small Causes to the exclusion of other civil courts could be arbitrated. The Supreme Court observed that the Bombay Rent Control Act is a welfare legislation with the social and public policy objective of protecting the rights of tenants. Therefore, parties should not be permitted to contract out of legislative mandates that require certain disputes to be decided by special courts constituted under the legislation.

Neha JoshiAssociatesVidhii Partners
Neha Joshi
Vidhii Partners

In Booz Allen and Hamilton Inc v SBI Home Finance Limited & Ors, the Supreme Court held that while arbitral tribunals are private forums chosen by parties, the legislature may, as a matter of public policy, reserve the adjudication of certain disputes to public courts and bodies and by implication, exclude certain disputes from being heard in private forums. Therefore, the court will refuse to refer such disputes to arbitration. In a subsequent ruling in A Ayyasamy v A Paramasivam, the Supreme Court held that there are classes of disputes that fall within the exclusive domain of special bodies created under legislation that confers jurisdiction to the exclusion of ordinary civil courts. Such disputes would not then be capable of resolution by arbitration.

The Bombay High Court in Rakesh Malhotra v Rajinder Malhotra held that where a statutory body is given certain powers under a statute that includes the adjudication of disputes, such disputes cannot be referred to arbitration, regard being given to the nature and scope of powers that get invoked when disputants submit to the jurisdiction of such a body.

As RERA is a beneficial legislation enacted in the larger public interest and as the authority is a special body given extensive powers including those to enforce its directions, it can be argued, on the authority of the Supreme Court and the Bombay High Court, that disputes falling within the exclusive domain of RERA may not be referred to arbitration.

However, in cases where both parties consensually choose to refer their disputes to arbitration or where the dispute does not wholly fall within the scope of RERA, it will be interesting to see how the courts ultimately decide on the issues of whether such disputes can be referred to arbitration and whether and how arbitral awards can be enforced.

Anjala Parveen and Neha Joshi are associates at Vidhii Partners.

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