Does the agreement for sale between a homebuyer and the developer having a clause that says disputes are subject to arbitration preclude the buyer’s recourse to relief under the Real Estate (Regulation and Development) Act, 2016, (RERA) if the agreement was entered into before RERA was enacted?
That seems to be the case, going by the January 14 order of the Maharashtra Real Estate Regulatory Authority (MahaRERA), where it held that in the case of a complaint of alleged delayed possession under such a situation, the home buyer cannot seek recourse from the MahaRERA and that it was subject to the Arbitration and Conciliation Act, 1996. It directed the homebuyer and developer to go for arbitration saying RERA cannot change the arrangement of the agreement signed between the two parties before the act came into existence. The buyer has challenged the order in the RERA Tribunal.
However, experts have termed this order to be improper, and said it may set a wrong precedent. They said that the real estate act passed by Parliament is clear that it overrides all other arrangements, and in this case MahaRERA should merely apply that law rather than interpreting it.
Case history
The complainant, Ayyaz Khan, entered into an agreement for sale on November 10, 2014, for a flat measuring 1,059 square feet. Possession was promised by March 31, 2017. Khan paid over Rs 1.86 crore against the total consideration of Rs 2.54 crore. However, Khan has not got possession yet. The order states that according to MahaRERA registration, the date for handover registered with RERA was 2021, and was further extended to June 31, 2022. Khan has in the MahaRERA stated that no consent was taken for this extension and, hence, he desires interest till the date of possession together with compensation.
Developer’s argument
Era Realtors, the developer in the matter, has said that the matter should be referred for arbitration proceedings saying that the agreement for sale, while providing possession date, also provides for arbitration in case of dispute, adding that the delay had taken place due to agitation by slum dwellers as it was a slum rehabilitation project. Khan had booked the flat in the sale component of the project. Under such projects, property for free sale is allowed to be constructed in a certain proportion to the rehabilitation building or a certain portion of the land parcel meant to house residents of slums. The developer also cited delays in regulatory approvals for environmental clearance as one of the reasons for the project running behind schedule.
MahaRERA’s order
The MahaRERA order signed by MahaRERA chairperson Ajoy Mehta stated that RERA came into effect at a later stage. “The parties to the best of their knowledge have put in place a mechanism in the form of an arbitration clause to delay any disputes that may arise due to non-adherence to the completion date as stated,” it read.
The order added, “The mechanism of arbitration act was available in law then and is also recognised in law today and cannot be overwritten just because a specific law (RERA) is now available. To say that at the time of execution of the sale deed in November 2014, the parties should have had the foresight that a specific law was going to be enacted in 2016 and hence not indemnify themselves with the then available law is simply preposterous.”
The order further stated, “The parties will have to now abide by the terms of agreement for sale dated November 20, 2014. The parties cannot now take recourse to RERA for a disputed issue for which the available recourse was defined in the agreement then itself. The parties are bound by the agreement for sale and the said agreement has the Arbitration clause which would apply in this case as the same has been executed before the advent of RERA. The complaint stands disposed of and the parties can file necessary proceedings under the Arbitration Act.”
Lawyers say RERA is must in picture
Satish Dedhia, an advocate and vice-president of RERA Practitioners Welfare Association said, “The order sets a wrong example as once the project is registered with MahaRERA, the developer should not be allowed to dispute the jurisdiction of MahaRERA and applicability of provisions under RERA. A developer cannot say that only selective provisions of RERA will apply. A developer cannot be allowed to say that he can take benefit of registration of a project with MahaRERA, but benefits thereof will not be taken by the flat purchasers. There is no question of rewriting but interpretation and application of the provisions contained in such agreement. MahaRERA has been established for the protection of buyers and not developers.”
Dedhia added, “Normally, every agreement for sale executed provides a statement that the agreement is executed as per the provisions under MOFA (Maharashtra Ownership Flats (Regulations of The Promotion of Construction, Sale, Management and Transfer) Act, 1963) or RERA. Thus, in the past it was MOFA and now RERA is the special law that governs the sale and transfer of flats in Maharashtra. Once the parties have accepted jurisdiction of MOFA and now RERA, the promoter cannot object to applicability of that law. Further, MOFA as well as RERA have provided model agreements. It is mandatory for the parties to follow model agreements except than the commercial bargain.”
“A contract between the parties cannot prevail over an overriding statutory provision. Both the Supreme Court and Bombay High Court have held that RERA operates retroactively and it affects existing rights. Its action is drawn from a time antecedent to its passing. It creates a new obligation on transactions or considerations already passed or destroys or impairs vested rights,” added Dedhia.
Agreement format of MOFA was followed
Advocate Namrata Powalkar, representing the developer in this case, said, “My argument for my client was that we have followed model agreement for sale format of MOFA, which says dispute is subject to arbitration. We followed the MOFA that was in existence that time and the RERA Act came in later. After hearing the submissions made by both the parties, the honourable chairman decided the matter in favour of my client.”
Buyer hope in RERA Tribunal
Advocate Harshad Bhadbhade, who is representing the buyer, said, “The order was passed in January 2022, which is challenged by my client before the Hon’ble MahaREAT (Maharashtra Real Estate Appellate Tribunal). The matter is sub judice and will be taken up for hearing at an early date.”
MahaRERAspeak
A comment from MahaRERA chairman Mehta was awaited at the time of publishing this article.
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