Dr.

Ram Manohar Lohiya, National Law University,

Lucknow

Academic Session
2017-2018

ALTERNATIVE DISPUTE RESOLUTION

Final Project Report

Arbitrability of Real Estate Disputes

Submitted to: Submitted by:

Mr. Prasenjit Kundu Manu Pratap Singh

Ass. Professor (Law) Enroll no.- 140101075

Dr. RMLNLU, Lucknow Section A, Sem VIII

 ACKNOWLEDGMENT

Firstly, I would like to thank respected Mr. Prasenjit kundu sir for giving me such an excellent

opportunity to show my skills, through my project and enhance my knowledge on this topic.

The project is the result of extensive ultrapure study; hard work and labor, put into make it worth

reading and this was possible only with the heartiest support of my subject teachers. I wish to

acknowledge that in completing this project by receive help of my friends.

I wish to acknowledge that in completing this project I had full support of my library staff. This

project would not had been completed without the help of my university’s library Dr. Madhu

Limaye library that had various quality books on the chosen topic and the university’s internet

facility that helped me in making my research a success.

-Manu Pratap Singh

Enroll no - 140101075
TABLE OF CONTENTS

Acknowledgments...........................................................................................................................2

Introduction.....................................................................................................................................4

Arbitrability of Disputes..................................................................................................................6

The Case: Aftab Singh v. Emaar M.G.F. Land Ltd. & Anr..............................................................7

Analysis of Case..............................................................................................................................9

The Rera and Arbitration..............................................................................................................10

Conclusion....................................................................................................................................11

Bibliography.................................................................................................................................13
 INTRODUCTION

Members of the legal community have long signaled alternative dispute resolution (“ADR”) as a
method superior to litigation for resolving contractual disputes. Advocates argue arbitration is a
more expedient process than litigation.2 Arbitration has simpler procedural and evidentiary rules
than litigation, and arguably provides feuding parties with a less hostile method of resolving their
differences.3 In fact, arbitration can be a very effective method of resolving disputes, especially
between parties with equal bargaining power, such as businesses.4

India has also recognized the potential of ADR methods in solving the disputes long ago and thus
had inculcated the Arbitration and other methods way back. The laws on the same have
developed a lot after inculcation in the legal regime of the country. Now-a-days what is visible is
the fact that the arbitration clauses have made a way into the consumer contracts also, i.e. the
contracts which are between a consumer and a business entity for the sale or lease of goods and
services or other such things.5 However, when consumers enter into a contract with a business
entity, they are often unaware that their contracts contain an arbitration clause.6 A consumer of
ordinary prudence who is not initiated into the legal language may even have problem in
understanding the language and meaning of the arbitration clause, let alone understand what it
means and implication it carries in clear and simple terms.7

1Martin A. Frey, Does ADR Offer Second Class Justice?, 36 Tulsa L. J. 727, 729 (2001).
2Julia A. Scarpino, Mandatory Arbitration of Consumer Disputes: A Proposal to Ease the Financial Burden on
Low-Income Consumers, 10(3) Journal of Gender, Social Policy & the Law 679, 680 (2002), available at
http://digitalcommons.wcl.american.edu/cgi/viewcontent.cgi?article=1455&context=jgspl as accessed on March 25,
2018.
3Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 31 (1991).
4Scarpino, supra note 2.
5Frederick L. Miller, Arbitration Clauses in Consumer Contracts; Building Barriers to Consumer Protection, 78
Mich. B. J. 302, 302 (1999).
6Mary Flood, Arbitration Not Always Fair, Cheap for Parties in Dispute, Hous. Chron., Apr. 11, 2001, at 21.
7Joseph T. Mclaughlin, Arbitrability: Current Trends in the United States, 59 Alb. L. Rev. 905, 922 (1996).
The Real Estate sector plays a very important role in fulfilling the need and demand for housing
and infrastructure, especially in the urban areas of the nation. The sector has become very vast,
with a potential to become even more enormous in the years to come. However, it has faced the
mar of being a largely unregulated sector with absence of professionalism and standardization,
and also has earned opprobrium for being the one which lacks adequate consumer protection
measures.8 The real estate is a very important sector and is closely linked to economy of India, it
provides employment and is a major contributor in GDP, and has enormous potential to grow
with reports being that it may amount to $853 billion by 2028. 9 Considering all these factors the
Real Estate (Regulation and Development) Act, 2016 (“REA”) was passed.

As is with all the other form of the consumer contracts the arbitration clauses had also made their
way in the Buyer Contracts for the dealings related to real estate. The problem arises that most of
the contracts entered into are standard form contracts which give almost little or no power to the
other party to argue on the terms and conditions of the contract and it is a choice that whether
they want to enter into contact with those clauses or not entering into the contract itself. Recently
the N.C.D.R.C. in an order10 held that the consumer disputes, even if with a valid Arbitration
Agreement cannot be forced to have arbitration, an appeal against which was dismissed by the
Supreme Court.11
The present paper seeks to analyze the nature or real estate disputes; different laws in picture
their intermingling with the Arbitration. The paper would also analyze the judgment given, its
ramification in the upcoming time.

8Dr. Raj K. Agarwal, Dr. Rakesh Gupta, Taxation of Real Estate Developers & Joint Development Arrangements,
541 (Taxmann 2nd ed., 2016).
9 Mohd. Khalid Parwez, Real Estate (Regulation and Development) Act 2016, Vol. 8 Issue 12 Lex Witness 8,
9 (2017).
10 Aftab Singh v. Emaar M.G.F. Land Ltd. Consumer Case 715 of 2015.
11 Emmar M.G.F. Land Limited v. Aftab Singh, Civil Appeal No. 23512-23513 of 2017.
 ARBITRABILITY OF DISPUTES

The Arbitration Act does not define, clarify or state in specific terms the kind of disputes that are
amenable to arbitration. The bar to arbitrability is contained in §34(2) (b) and §48(2) of the
Arbitration Act which provide, inter alia, that an award can be challenged if the subject matter of
the dispute is not arbitrable.12 Generally the arbitrability of the dispute is subject to a valid
arbitration agreement, which provides for non-exclusion of the jurisdiction of the arbitration
tribunal.13 In principle every dispute which is civil and commercial in nature, is generally
arbitrable, the genesis of such dispute may be a contract or otherwise.14
In Booz Allen & Hamilton, Inc. v. SBI Home Finance Ltd.15, the Supreme Court of India (‘SC’)
Outlined the following test for the ‘arbitrability’ of a dispute:

a. “Whether the disputes are capable of adjudication and settlement by arbitration? That
is, whether the disputes, having regard to their nature, could be resolved by a private
forum chosen by the parties (the arbitral tribunal) or whether they would exclusively
fall within the domain of public fora (courts)?
b. Whether the disputes are covered by the arbitration agreement? That is, whether the
disputes are enumerated or described in the arbitration agreement as matters to be
decided by arbitration or whether the disputes fall under the ‘excepted matters’
excluded from the purview of the arbitration agreement.
c. Whether the parties have referred the disputes to arbitration? That is, whether the
disputes fall under the scope of the submission to the arbitral tribunal, or whether they
do not arise out of the statement of claim and the counter claim filed before the
arbitral tribunal.”16

12 Ajar Rab, Redressal Mechanism under the Real Estate (Regulation and Development) Act, 2016: Ouster of
the Arbitration Tribunal?, 10 N.U.J.S. L. Rev. 1, 9 (2017).
13 Booz Allen & Hamilton, Inc. v. S.B.I. Home Finance Ltd., (2011) 5 S.C.C. 532, ¶ 29.
14 Id., ¶ 35.
15 Booz Allen & Hamilton, Inc. v. S.B.I. Home Finance Ltd., (2011) 5 S.C.C. 532.
16 Id., ¶ 21.
However, the Supreme Court, also earlier in a catena of cases has held that the jurisdiction of the
ordinary civil court is excluded by conferring exclusive jurisdiction on a special court or tribunal
as a matter of public policy, then the dispute would not be arbitrable. 17 This was exactly the case
with Consumer Act.18

THE CASE: AFTAB SINGH V. EMAAR M.G.F. LAND LTD. & ANR.

The complainants in this case were the allottes who had booked residential villas/flats/plots in
Projects of the Builder (respondent). These properties were to be developed in Gurgaon/Mohali
and in regards to the same booking the complainants had executed Buyers’ Agreements. The
Complainants alleged that the Builder had failed in delivering the possession of aforementioned
villas/flats/plots by the date committed in the Buyers Agreement and hence, they were seeking
directions to the Builder for delivery and possession of the villas, etc. and/or, in the alternative,
refund of the amounts deposited by them, along with compensation.19
The builder on the other hand argued that due to the amendment done in Section 8 of the
Arbitration Act, 1996 the tribunal did not had jurisdiction in the present matter. This was based
on the ground that Section 8 mandated that if prima facie a valid arbitration agreement existed
then the courts have to refer the parties to the arbitration, which, according to him, in present
case was. It was contended by him that the amendment in 2016 was brought in to specifically
ouster the jurisdiction of the courts and tribunals in such matters and limit the resolution of
dispute only through arbitration.

17 Natraj Studios (P.) Ltd. v. Navrang Studios, (1981) 1 S.C.C. 523; A. Ayyasamy v. A. Paramasivam, (2016)
10 S.C.C. 386; Vimal Kishore Shah v. Jayesh Dinesh Shah, (2016) 8 S.C.C. 788.
18 Naval Sharma, Aditya Gupte, Arbitration Clauses cannot Oust the Jurisdiction of the Consumer Courts,
Mondaq,
July 19, 2017, available at
http://www.mondaq.com/india/x/611750/Arbitration+Dispute+Resolution/Arbitration+Clauses+Cannot+Oust+The+
Jurisdiction+Of+The+Consumer+Courts as accessed on April 2, 2018.
19 Aftab Singh v. Emaar M.G.F. Land Ltd. Consumer Case 715 of 2015.
This also becomes pertinent to mention here that the Arbitration Agreement in the present case
was a standard form of agreement, which provided that there shall be a sole arbitrator who can be
employee or the lawyer of the builder, and the allottee would have to trust into his impartiality
and cannot raise doubts about the same.

The N.C.D.R.C. held that


The Consumer Act is a special social legislation enacted to protect consumer rights,
which establishes a level-playing field between unequal players, i.e. consumers and large
Corporations, and is quite unlike other legislations that create dispute resolution
mechanisms between level players.

By virtue of Section 2(3) thereof, the Arbitration Act itself excludes from its purview
certain disputes, which fall within the public law regime and with respect to which
statutory remedies are put into place to sub serve a public policy. Since consumer
disputes would fall within the umbrella of the said provision, they were not intended to be
covered by the amendment to Section 8 of the Arbitration Act.

The jurisdiction of the Consumer Forums to adjudicate upon consumer disputes is not
affected by either Section 8 (as amended) of the Arbitration Act or by any other provision
thereof.

To accept the plea of the Builder would be to set at naught the entire purpose and object
of the Consumer Act, viz. to ensure speedy, just and expeditious resolution and disposal
of consumer disputes.20
It was also held that the amendment of Section 8 was intended solely to curtail the scope of
enquiry by courts into issues of existence of arbitration agreement in applications filed under
Section 11 and Section 8 of the A&C Act.

20 Ajit Warrier, Consumer Rights and Arbitration Agreements – A Balancing Act, Mondaq, February 6, 2018,
available
athttp://www.mondaq.com/india/x/671040/Arbitration+Dispute+Resolution/Consumer+Rights+And+Arbitration+A
greements+A+Balancing+Act as accessed on March 19, 2018.
The judgment was the challenged by the respondents in the Supreme Court, where the court
dismissed the appeal.21 Thus as of now, the judgment given by the N.C.D.R.C. stands strong and
continues to govern the matter, in terms of arbitration, arising out of the consumer contracts.

ANALYSIS OF CASE

While the view of the NCDRC is restricted to consumer disputes under the COPRA, the
reasoning may well be extended to special legislations. This judgment will certainly benefit
consumers and help establish a settled position of law with respect to non-arbitrability of
disputes in the presence of specific dispute resolution mechanisms under various legislations.22
The judgment given seems to follow the view taken by the Hon’ble Supreme Court in the Natraj
Studios (P.) Ltd. v. Navrang Studios23, wherein it was held that in the presence of specific statutes
enacted for social welfare and with a public policy objective was the more pragmatic view. The
underlying rationale was that one should not be permitted to contract out of a statute, especially
when the legislation has been enacted to serve certain social objectives. 24 Moreover the NCDRC
is a special forum constituted under the CPA for adjudication of consumer disputes. It is
therefore, needless to mention that the NCDRC will be the proper adjudicatory forum for any
dispute falling under the COPRA, despite existence of an arbitration agreement.25

21 Emaar M.G.F. Land Limited v. Aftab Singh, Civil Appeal No. (s). 23512-23513 of 2017.
22 Ajar Rab, Consumers Cannot be Compelled to Arbitrate Disputes, IndiaCorpLaw, October 5, 2017,
available at https://indiacorplaw.in/2017/10/consumers-cannot-compelled-arbitrate-disputes.html as accessed on
April 1, 2018.
23 Natraj Studios (P.) Ltd. v. Navrang Studios, (1981) 1 S.C.C. 523.
24 Ibid.

25 News Details, STATUTORY REMEDY VS. ARBITRATION: WHAT SURVIVES? INTERPLAY BETWEEN
SPECIAL STATUTES AND THE ARBITRATION ACT ON APPLICABILITY OF NON-OBSTANTE CLAUSES,
Nishith Desai Associates, July 25, 2017, available at http://www.nishithdesai.com/information/news-storage/news-
details/article/statutory-remedy-vs-arbitration-what-survives-interplay-between-special-statutes-and-the-arbitrat.html
as accessed on April 1, 2018.
If we look into the nature of the Real Estate disputes, it is clear as a crystal that both the parties
are not at the equal pedestal if the bargaining power is to be taken into consideration. If parties
are permitted to contract out of statutory remedies, especially in cases where legislation has been
enacted to remedy a specific social problem, it would defeat the purpose of such legislation.
Furthermore, in cases where the bargaining power between parties is uneven, such as real estate
disputes, forcing the parties to go to arbitration may not only add substantial litigation costs in
some cases and leave the consumers further disadvantaged, but may also serve as a deterrent to
seek redressal of their grievances.26
Hence it can be said that the judgment is a welcome move, and would try to preserve the rights
of the innocent homebuyers, who are harassed by unscrupulous homebuilders. This would also
provide a legitimate check even on the terms of agreement which is entered, as the buyer would
always have the option to not to submit to the arbitration is the terms are biased to one side, as
was in the present, Aftab Singh, case.

THE RERA AND ARBITRATION

The REA was enacted to solve the problems, which were faced by the homebuyers earlier. The
REA was brought in to regulate the largely unregulated sector; it brought in certain provision to
safeguard the interest of the consumers. Here what needs to be considered is that the REA also
provides methods of resolution of disputes. The interface of REA and Arbitration is to be judged
in this section.

It is most relevant to note that §88 of the REA states that the REA shall be in addition to, and not
in derogation of, any other law. A plain reading of the provision leans in the favour of ouster of
arbitration, or arbitration being an alternative remedy optional to the parties. On the other hand,
§89 of the REA states: “The provision of this Act shall have effect, notwithstanding anything
inconsistent contained in any other law for the time being in force.” Therefore, §89 of the REA

26 Rab, supra note 16.

clearly has an overriding effect. Thus, both the sections, on a plain reading, suggest that the
provisions of the REA would prevail over the Arbitration Act. However, this literal interpretation
directly conflicts with §8(1) of the Arbitration Act, which mandates the reference of every
dispute to the Tribunal, when there is an arbitration clause. Thus, there appears to be a direct
conflict between two statutes, i.e., the REA and the Arbitration Act, as to which will prevail in
case of real estate disputes.27
However, if the judgment given by the NCDRC along with the judgments of the Supreme Court
in Nataraj Studios is to be taken into consideration then it is a settled principle in law that if there
is a special legislation in place, then as a matter of public policy, its jurisdiction cannot be
excluded, rather it would be the Tribunal whose jurisdiction shall be excluded. 28 Moreover it is
always the general law which has to make the way for the special law.

CONCLUSION

One of the most significant complaint regarding arbitration of consumer disputes is that
arbitration lacks many of the crucial due process protections of the justice system. 29 It is a well-
documented and acknowledged fact that the Arbitration and Conciliation Act, 1996 does not
provides which matters are arbitrable, it merely provides under what circumstance an agreement
would not be arbitrable.

The Real Estate consumers in particular, and the consumers in general were at the suffering end
due to the unscrupulous builders, who would then further use the Arbitration Clauses to harass
them further. However it was a settled principle in law that in case there is a special legislation,
the jurisdiction under that special legislation cannot be taken away. The problem arose due to the
amendment of 2015, which made it compulsory to refer parties to arbitration. The judgment of

27 Raj, supra note 12 at 15.

28 Hindustan Lever Ltd. v. Ashok Vishnu Kate, (1995) 6 S.C.C. 326.
29 Cherisse Mastry, Arbitration of Consumer Disputes – The AAA’s Consumer Due Process Protocol, Journal
of Texas Consumer Law, available at http://www.jtexconsumerlaw.com/Arbitration.pdf as accessed on April 5, 2018.
Aftab Singh makes certain bold and appreciable steps in preserving the rights of consumers
against the unscrupulous builders and their one sided contracts. The REA also makes provision
for settlement of disputes, which are also time bound in nature.

The judgment is sound in its logic and follows the precedents in the correct manner, that the
Consumer Protection Act, being a social legislation, its jurisdiction cannot be taken away by an
arbitration agreement, and hence the parties cannot be compulsorily be mandated to enter into
arbitration for resolution of disputes. They are free to choose the remedy, which they want to
seek. At the same time if a consumer does not wants to further a consumer complaint then he/she
shall be free to opt for arbitration, which however is unlikely considering the time and money
related to it. Also consumer courts can tend to be more sympathetic to the aggrieved consumers
than a sole arbitrator who may end up being the employee or the lawyer of the party causing the
problems at the first place.

Also, since the appeal is dismissed against the Aftab Singh case it is most likely probable that the
consumer disputes, especially real estate ones would come under Arbitration at first place.
 BIBLIOGRAPHY

1. Books and Articles

 Julia A. Scarpino, Mandatory Arbitration of Consumer Disputes: A Proposal to Ease the Financial Burden
on Low-Income Consumers, 10(3) Journal of Gender, Social Policy & the Law.
 Dr. Raj K. Agarwal, Dr. Rakesh Gupta, Taxation of Real Estate Developers & Joint Development
Arrangements, (Taxmann 2nd ed., 2016).
 Mohd. Khalid Parwez, Real Estate (Regulation and Development) Act 2016, Vol. 8 Issue 12 Lex Witness 8
(2017).
 Ajar Rab, Redressal Mechanism under the Real Estate (Regulation and Development) Act, 2016: Ouster of
the Arbitration Tribunal?, 10 N.U.J.S. L. Rev. 1 (2017).
 Cherisse Mastry, Arbitration of Consumer Disputes – The AAA’s Consumer Due Process Protocol, Journal
of Texas Consumer Law.

2. Web Sources
 http://www.nishithdesai.com/information/news-storage/news-details/article/statutory- remedy-vs-
arbitration-what-survives-interplay-between-special-statutes-and-the-arbitrat.html
 https://indiacorplaw.in/2017/10/consumers-cannot-compelled-arbitrate-disputes.htm
 http://www.mondaq.com/india/x/671040/Arbitration+Dispute+Resolution/Consumer+Right
s+And+Arbitration+Agreements+A+Balancing+Act
 http://www.mondaq.com/india/x/611750/Arbitration+Dispute+Resolution/Arbitration+Clau
ses+Cannot+Oust+The+Jurisdiction+Of+The+Consumer+Courts
 www.scconline.com
 www.manupatra.com