Cures For Homebuyers’ Woes

Real estate is a capital-intensive sector and accounts for major credit lending (public as well as private). Unfortunately, it is one of India's most financially distressed sectors mainly due to financial indiscipline. According to the Insolvency and Bankruptcy Board of India (IBBI) data, real estate, and manufacturing account for three out of every five insolvency cases admitted since 2016 when the Bankruptcy Code came into play. An estimated inventory of 4.12 lacs housing units worth Rs4.08 trillion is caught in the stalled housing projects across India, impacting hundreds of thousands of homebuyers. The problem of stalled and abandoned housing projects has been plaguing the sector for a long time, and homebuyers have been at the receiving end of it.

The Real Estate (Regulation & Development) Act, 2016 (RERA) was enacted to address many issues plaguing the housing sector in India, bringing much-needed transparency, accountability, and financial discipline to the housing market and protecting homebuyers' interests. It also put in place a mechanism for resolution of disputes between homebuyers and developers.

However, since the provisions of the RERA Act are in addition to and not in derogation of the provisions of any other law, the remedies available to homebuyers under other laws are not taken away. In re Imperia Structures Limited [(2020)10 SCC 783], the Supreme Court of India (Supreme Court) examined the issue of remedies that an aggrieved homebuyer had under the law before RERA came into force:

Scenario A: If he qualified to be a consumer under the Consumer Protection Act, 2019 (CP Act), he could have initiated proceedings under the CP Act in addition to normal civil remedies.

Scenario B: However, if he didn’t qualify as a “consumer”, he could have initiated and availed only normal civil remedies.

However, if his agreement for sale with the developer provided for dispute resolution through arbitration, then:

1. In cases covered under Scenario B above, he could initiate or be called upon to invoke the remedies in arbitration.
2. In cases covered under Scenario A above, the law laid down in re Emaar MGF Land Limited [(2019) 12 SCC 751], will apply and he could still choose to proceed under the CP Act.

With the RERA Act in place and the changes in the Insolvency and Bankruptcy Code, 2016 (Bankruptcy Code), homebuyers have many concurrent remedies available. These remedies are in addition to the dispute redressal mechanism provided under the RERA Act. They can cherry-pick the one best suited to them. In the legal lexicon, it is called the doctrine of election.

• Doctrine of election

When two remedies are available concurrently for the same relief, the party to whom these remedies are available can elect either, in which event he will lose the right to exercise the other remedy simultaneously (except for insolvency proceedings that homebuyers can avail simultaneously). It is clear from numerous judgments of the apex court that homebuyers can choose from one of the available remedies. The remedy should be opted at the first available opportunity. However, the courts discourage forum shopping as stated in numerous judgments of the apex court of India.

With the above background, we will discuss each legal remedy available to the homebuyers.

• Freedom to invoke arbitration

If the sales agreement between the developer and the homebuyer includes dispute resolution through arbitration, any party may refer their dispute to the arbitral tribunal. Section 8 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) puts the onus on the judicial authority—quasi-judicial consumer fora have been held to be a judicial authority—before which an action is brought in a matter which is the subject of an arbitration agreement to refer the parties to arbitration if prima facie a valid arbitration agreement exists covering the subject matter of the dispute. However, it is also clear from various Supreme Court judgments that Section 8 cannot be applied blindly to all cases.

Every civil or commercial dispute, whether contractual or non-contractual, that a court can decide, can be resolved through arbitration unless the jurisdiction of arbitral tribunals is expressly or implicitly excluded. However, adjudication of certain disputes is exclusively reserved for courts and tribunals constituted under the law as a matter of public policy. Certain disputes may not be resolved through arbitration, and if they are, the courts have the power to overturn them. The judicial authorities have the power to refuse to refer the parties to arbitration if the subject matter of the dispute is non-arbitrable or where special or additional remedies are provided under any special statutes and a party opts for such remedy, even though the parties have a valid arbitration agreement. The apex court in re Emaar MGF Land Limited (supra) has held as follows:

“We may, however, hasten to add that in the event a person entitled to seek an additional special remedy provided under the statutes does not opt for the additional/special remedy and he is a party to an arbitration agreement, there is no inhibition in disputes being proceeded in arbitration. It is only the case where specific/special remedies are provided for and which are opted by an aggrieved person that judicial authority can refuse to relegate the parties to the arbitration.”

• Freedom to approach consumer courts

Homebuyers qualify as consumers under the CP Act, and they can invoke the jurisdiction of the consumer dispute redressal mechanism. The CP Act is a special legislation brought in by the government to protect the consumers' interests and provide cheaper, easier, and expeditious redressal of consumer disputes.

In re Skypak Couriers [(2000) 5 SCC 294], the Supreme Court held that even if there exists an arbitration agreement and a complaint is made by the consumer concerning a certain deficiency of service, there is no bar under the law on the dispute redressal agency constituted under the CP Act to entertain any consumer complaint since the remedy provided under the CP Act is in addition to the provisions of any other law for the time being in force. In re Emaar MGF Land Limited (supra), the apex court of India has categorically ruled that an aggrieved homebuyer has a clear choice to opt for consumer courts over arbitration even if he is a party to an arbitration agreement.

 In re Imperia Structures Limited (supra), the Supreme Court examined whether the remedy provided under the RERA Act to a homebuyer is the only and exclusive mechanism to raise a grievance and whether the provisions of the RERA Act bar jurisdiction of other fora.

On the plain reading of Section 79 of the RERA Act (which bars the jurisdiction of a Civil Court over RERA matters), an allottee described in Scenario B above would stand barred from invoking the jurisdiction of a civil court. However, as regards the allottees falling under Scenario A, two questions would arise:

1. whether the bar specified under Section 79 of the RERA Act would apply to proceedings initiated under the provisions of the CP Act; and
2. whether there is anything inconsistent in the provisions of the CP Act with that of the RERA Act.

The Supreme Court has already held that while the proceedings before the consumer forum under the CP Act are judicial, at the same time they are not a civil court within the meaning of the provisions of the Code of Civil Procedure. It may have all the trappings of the civil court, yet it cannot be called a civil court. Therefore, the bar under Section 79 of the RERA Act does not apply to the Consumer Forum. In other words, only civil courts and not the consumer forum are barred from exercising jurisdiction over the matters that the judicial mechanism provided under the RERA Act is entitled to determine. Moreover, Section 88 of the RERA Act specifies that the provisions of the RERA Act would be in addition to and not in derogation of the provisions of any other law.

• Freedom to invoke Bankruptcy Code

The Bankruptcy Code was amended in 2018 to accord the status of financial creditors to homebuyers. They were also given the right to be on the committee of creditors. In re Pioneer Urban Land and Infrastructure Limited [(2019) 8 SCC 416], the 3-judge bench of the Supreme Court comprehensively discussed the right of the homebuyers to invoke the Bankruptcy Code. The apex court held that it is clear that even by a process of harmonious construction, the RERA Act and the Bankruptcy Code must be held to co-exist, and, if there is a conflict between the two, the Bankruptcy Code will take precedence over the RERA Act. The RERA Act cannot be held as a special statute that, in the case of a conflict, would override the general statute, viz. the Bankruptcy Code.

It was further held that the remedies available to homebuyers under the CP Act, RERA Act, and the Bankruptcy Code are concurrent, and the homebuyers can avail themselves of any of them. However, the remedy under the IBC Act can be availed simultaneously with other remedies and the doctrine of election will not apply. It was held that the homebuyers have the right to invoke insolvency proceedings against the developers under the Bankruptcy Code as financial creditors without resorting to the remedies available under the RERA Act.

• Can homebuyers still take recourse to civil courts?

As per Section 79 of the RERA Act, no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Authority or the adjudicating officer or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act.

In re Imperia Structures Limited, it was held that it is clear from the plain reading of Section 79 of the RERA Act that an allottee would stand barred from invoking the jurisdiction of a civil court after coming into effect of the RERA Act. However, this doesn’t exclude the writ jurisdiction of the high courts and the Supreme Court.

• Prevention is better than cure

The above remedies are curative measures to get redressal when things go wrong. For preventive measures, homebuyers are advised to be diligent before investing their hard-earned money and life savings in a project and make all possible efforts to verify the viability of the project and the background and track records of the developers.