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While homebuyers with disputes against builders can take their cases to civil courts or RERA tribunals, there’s also another option: Arbitration. High net-worth individuals and commercial property owners often prefer Arbitration because it keeps the award from becoming public records.
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This is important since all court orders are public and anyone can look them up, whereas arbitration records remain private, ensuring the confidentiality of the terms of the deal. However, arbitration isn’t the best choice for everyone. This article explains what arbitration is and help you decide whether to pursue it or fight your battle in court and tribunals.
What is arbitration?
Ishita Jain, a Partner at Sagus Legal and Advocate-on-record, Supreme Court of India, says that arbitration is an alternative dispute resolution mechanism wherein the parties enter into an agreement (formally or informally, like through emails, letters, or telegrams) to adjudicate their dispute through one or more neutral arbitrators, instead of litigating the matter before a court of law.
Jain says: “When the seat of arbitration is in India i.e., parties agree that the procedural law of India would be applicable, the proceedings of arbitration are governed under the Arbitration and Conciliation Act, 1996 in India.”
According to Jain, arbitral awards are not public records. The proceedings of arbitration are confidential in nature.
Jain says: “Section 42A of the Arbitration and Conciliation Act, 1996 obligates the arbitrator, the arbitral institution and the parties to the arbitration agreement are required to maintain confidentiality of all arbitral proceedings, except for the purpose of implementation and enforcement of arbitral award.”
Is there any minimum monetary value for using an arbitration clause in a contract?
According to Alay Razvi, Managing Partner, Accord Juris, under Indian law, there is no minimum monetary value prescribed for including or enforcing an arbitration clause in a contract. The Arbitration and Conciliation Act, 1996 does not lay down any financial threshold for disputes to be resolved through arbitration.
Razvi says: “As a result, arbitration clauses can legally be included in contracts of any value, whether it is a Rs 10 lakh property purchase agreement, a Rs 10,000 loan agreement, or any other small or large commercial contract.”
However, Razvi says that from a practical point of view, arbitration may not always be advisable for small-value disputes because of the costs involved, such as arbitrator fees and procedural expenses.
Razvi says: “In summary, while there is no legal restriction based on monetary value, the decision to include an arbitration clause should be based on practicality rather than legality.”
If an agreement between builder and homebuyer mentions arbitration, can the homebuyer still file a case in RERA or any court and not go for arbitration?
According to B. Shravanth Shanker, Advocate-on-Record, Supreme Court of India, even in cases where the builder buyer agreement contains an arbitration clause, the homebuyer is not compelled to arbitrate and may institute proceedings before RERA or the Consumer Forum.
Razvi explains:
- The Supreme Court has made it clear that remedies under RERA and consumer law are statutory, special, and in addition to other remedies, and cannot be ousted by a private arbitration agreement.
- In Emaar MGF Land Ltd. v. Aftab Singh and Imperia Structures Ltd. v. Anil Patni, the court held that a builder cannot invoke the Arbitration Act to defeat a homebuyer’s right to approach these fora.
Razvi says: “The limited exception lies in the doctrine of election: once a homebuyer consciously invokes and participates in arbitration for the same cause of action, a later shift to RERA or the Consumer Forum may be barred. Separately, buyers purchasing purely for commercial purposes are excluded from consumer jurisdiction, though their right to approach RERA as allottees generally remains intact.”
Is arbitration better than RERA or courts for builder–homebuyer disputes from a homebuyer’s perspective?
Razvi says that for homebuyers, RERA is generally more beneficial than arbitration for resolving disputes with builders. RERA provides a specialized forum that is designed specifically to address grievances of homebuyers and offers relatively faster resolution, with the law prescribing a time-bound framework for disposal of complaints.
Razvi says: “The costs involved in filing and pursuing a RERA complaint are also significantly lower when compared to arbitration. Arbitration, while legally binding, often turns out to be expensive and time-consuming for individual homebuyers.”
Arbitrator fees, administrative costs, and legal expenses can be substantial, particularly in comparison to the value of the dispute.
According to Razvi, RERA orders are directly enforceable and carry statutory backing, including recovery mechanisms similar to court decrees. Arbitration awards, though binding, can be challenged in court, which may delay relief.
Razvi says: “For these reasons, arbitration rarely offers practical advantages to homebuyers. In most cases, RERA provides faster, cheaper, and more effective relief against builders.”
Shanker agrees with Razvi and says that for a typical homebuyer, arbitration rarely offers a meaningful advantage over proceedings before RERA or the consumer fora. Though arbitration is often projected as faster, in practice it is cost intensive and prone to delay through appointment disputes and post award challenges.
Shanker says: “An arbitral award does not carry independent coercive force and must be executed through the civil court, where enforcement can take years. RERA, by contrast, is a specialised statutory regulator with summary procedures, low filing costs, and strong enforcement powers including recovery as arrears of land revenue and project level sanctions.”
According to Shanker, a builder’s appeal against a RERA order is conditioned on substantial pre-deposit, which significantly curtails dilatory tactics.
Shanker says: “Arbitration may be attractive only in exceptional, high value or purely commercial disputes where confidentiality or technical expertise is paramount.”
Who pays fees for arbitration? Buyer or seller?
Saumya Brajmohan, Partner at Solomon & Co., says that generally, the costs of arbitration, including the arbitral tribunal’s fees and administrative expenses, are borne by the parties in the manner agreed between them, either in the arbitration clause or by subsequent consent. In the absence of any such agreement, the arbitral tribunal is empowered to fix its fees and direct the manner of deposit and sharing of costs, typically requiring parties to contribute equally at the outset.
According to Brajmohan, once the proceedings end, the tribunal has the discretion to allocate costs between the parties, including directing one party to reimburse the other, based on factors like outcome of the dispute, conduct of the parties, and reasonableness of the claims and defences, as per Section 31A of the Arbitration and Conciliation Act, 1996.
Brajmohan says: “There is no automatic rule that the buyer or seller alone must bear the fees; liability for costs ultimately follows the tribunal’s final determination, subject to any contractual stipulation.”
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