Rashmi Realty Builders v. Pagariya (2024): a RERA dispute cannot be sent to arbitration

When a homebuyer who is owed a refund is met with the answer that the contract sends every dispute to a private arbitrator appointed by the builder, the question becomes whether the statutory regulator can still be invoked at all. In Rashmi Realty Builders Pvt. Ltd. v. Rahul Rajendrakumar Pagariya, decided on 22 August 2024, a Single Judge of the Bombay High Court, Justice Madhav J. Jamdar, answered that the protective architecture of the Real Estate (Regulation and Development) Act, 2016 ("RERA") cannot be displaced by such a clause. The decision applies the by-now familiar arbitrability doctrine of Booz Allen and Vidya Drolia to the real-estate regulator and aligns the Bombay High Court with the consumer-forum logic of Emaar MGF v. Aftab Singh.

The facts in brief

The promoter, Rashmi Realty Builders, and the allottees had executed a memorandum of understanding for a residential unit in the promoter's project. The MOU recorded that any dispute would be referred to a sole arbitrator to be appointed by the promoter, whose award would bind both sides. No registered agreement for sale was ever executed.

When possession was delayed, the allottees did not invoke the arbitration clause. They filed a complaint before the Maharashtra Real Estate Regulatory Authority ("MahaRERA") seeking a refund of the consideration paid, together with interest, under Section 18 read with Section 31 of RERA. MahaRERA dismissed the complaint, reasoning that because the parties had not entered into a registered agreement for sale, Section 18 did not apply. On appeal, the Maharashtra Real Estate Appellate Tribunal reversed that view, set aside the MahaRERA order, and directed the promoter to refund the amount with interest from the date of payment until realisation.

The promoter carried the matter to the Bombay High Court by way of a second appeal under RERA. Among its contentions was that, given the arbitration clause in the MOU, the dispute ought to have been resolved by arbitration rather than before the statutory authority.

The question

Two issues were entangled. The first was whether a homebuyer who has paid consideration can claim a refund under Section 18 even where no registered agreement for sale has been executed. The second, which gives the decision its doctrinal significance, was whether a dispute otherwise cognisable by RERA becomes non-justiciable before the Authority simply because the parties' contract contains an arbitration clause — in other words, whether such a dispute is arbitrable, and whether the arbitration agreement ousts the regulator's jurisdiction.

What the Court held

The Court held that the dispute fell squarely within RERA and was non-arbitrable, and that the arbitration clause could not oust the Authority's jurisdiction. The protections that RERA confers on allottees are conferred by a special statute enacted to address the systemic asymmetry between promoters and homebuyers, and they are not the kind of purely private, in personam rights that parties may carve out for private adjudication. A promoter cannot, by drafting a one-sided arbitration clause into a builder-buyer arrangement, contract a homebuyer out of the very forum the legislature created to protect that homebuyer.

The Court located its reasoning within the now-settled framework on arbitrability. Booz Allen & Hamilton v. SBI Home Finance had identified categories of disputes that, by their nature, are reserved for adjudication by public fora and excluded from arbitration; Vidya Drolia v. Durga Trading Corporation had refined this into a four-fold test under which rights and remedies created by a special statute with its own enforcement machinery, operating for a public purpose, are non-arbitrable. RERA, with its dedicated authority, appellate tribunal, and overriding provisions, is exactly such a regime. The Court read this together with RERA's non-obstante clause and the bar on the jurisdiction of ordinary fora, concluding that the statute occupies the field and that the regulator's jurisdiction survives the contractual choice of arbitration.

Analysis

The structure of the reasoning matters as much as the result. RERA contains a non-obstante clause (Section 89) giving the Act primacy over inconsistent laws, an "in addition to and not in derogation" clause (Section 88), and a bar (Section 79) on civil courts entertaining matters which the Authority or Tribunal is empowered to decide. The combined effect is that the legislature has created a self-contained code with a specialised forum. Under the Vidya Drolia test, that is precisely the configuration in which arbitrability fails: the right asserted is not a free-standing contractual right but a statutory remedy, the forum is a creature of public policy, and the dispute carries consequences beyond the two contracting parties because the regulator's writ protects the body of allottees generally.

The decision is also a study in the relationship between Section 8 of the Arbitration and Conciliation Act, 1996 — which ordinarily compels a court to refer parties to arbitration where a valid arbitration agreement exists — and a special-statute forum. Section 8 is not a trump card. Where the subject matter is non-arbitrable, the existence of an arbitration agreement does not require, or even permit, a reference; the statutory forum retains its jurisdiction. The promoter's reliance on the arbitration clause therefore failed at the threshold, because there was nothing arbitrable to refer.

That the agreement for sale was unregistered did not rescue the promoter either. The Court's treatment of Section 18 confirms that a homebuyer who has parted with money is not disentitled to the refund remedy merely because the promoter never executed the registered agreement that RERA itself obliges the promoter to execute. A promoter cannot benefit from its own default in formalising the transaction.

Why it matters

The judgment is a clean application of the non-arbitrability doctrine to the real-estate regulator, and it reinforces a consumer-protective theme that runs across Indian consumer and housing law. It sits alongside Emaar MGF v. Aftab Singh, where the Supreme Court held that a Section 8 reference cannot displace a consumer complaint, and Newtech Promoters v. State of UP, which read RERA's remedial scheme expansively in favour of allottees. For developers, the practical lesson is blunt: an arbitration clause buried in an MOU or an unregistered understanding will not insulate a project from MahaRERA proceedings. For homebuyers and their counsel, Rashmi Realty is a ready authority that the regulator's door stays open regardless of the contract's dispute-resolution boilerplate.

The decision does, however, sit within a field where High Courts have not spoken with one voice — some have allowed a homebuyer to pursue interim or even substantive arbitral relief alongside RERA — and the divergence may eventually need to be settled higher up. Within Maharashtra, Rashmi Realty is the governing word that a RERA dispute belongs to RERA.

Related on Valkya

• Vidya Drolia v. Durga Trading: the four-fold test for arbitrability
• Booz Allen v. SBI Home Finance: the taxonomy of arbitrability
• Emaar MGF v. Aftab Singh: arbitration clause does not displace the consumer forum
• Newtech Promoters v. State of UP: RERA's retroactive application upheld
• Rahul Bhargava v. Neo Developers: RERA relief and Section 9 protection

Sources

• Bar & Bench, "Concurrent or exclusive? The need to settle the RERA-arbitration debate"
• SCC Online Blog, "No bar to invoke arbitration even if alternative remedy available under RERA Act: Gauhati High Court"