Arbitration Clauses in Bangalore Property Sale Agreements

What Is the Effect of an Arbitration Clause in a Bangalore Property Sale Agreement and When Should a Buyer Resist It?

By the Property Law Team | Legal Brigade | Bar Council of Karnataka

When a Bangalore developer’s pro-forma sale agreement includes an arbitration clause – a contractual provision that requires any dispute between the developer and the allottee to be resolved through private arbitration rather than through K-RERA adjudication or a civil court – the allottee who signs the agreement containing this clause may find that the developer subsequently invokes the arbitration clause to divert the allottee’s RERA complaint away from the K-RERA adjudicating officer to a private arbitrator, raising the question of whether the RERA remedy is excluded by the arbitration agreement and whether the allottee can be compelled to arbitrate rather than pursue the statutory RERA remedy.

RERA vs Arbitration – Which Prevails?

The Supreme Court of India addressed the conflict between arbitration clauses in sale agreements and RERA remedies in Emaar MGF Land Ltd v. Aftab Singh (2019) – holding that the remedies available under RERA are in addition to and not in derogation of any other remedy available to a person. The Court held that an allottee’s choice to approach the RERA forum rather than arbitration cannot be overridden by the arbitration clause in the sale agreement – RERA’s statutory remedies are available regardless of the arbitration agreement.

The practical implication: an allottee who files a K-RERA complaint for delayed possession, specification deviation or refund cannot be compelled to arbitrate instead. The developer cannot successfully invoke the arbitration clause to divert the RERA complaint to arbitration. However, once an allottee chooses the arbitration route (or agrees to arbitrate), they may be bound by the arbitration and cannot revert to K-RERA for the same dispute. The choice of forum is the allottee’s – the developer cannot impose arbitration.

When Should the Buyer Resist an Arbitration Clause?

An allottee should resist signing a sale agreement with an arbitration clause for RERA-covered disputes because: arbitration is significantly more expensive than K-RERA adjudication (the arbitrator’s fees can be lakhs of rupees for a property dispute); the arbitrator may not have RERA expertise; the arbitration award is harder to enforce against a recalcitrant developer than a K-RERA order; and the RERA statutory remedies are specifically designed for this type of dispute. Agreeing to arbitration effectively waives the allottee’s most convenient and cost-effective remedy.

A buyer negotiating a sale agreement should specifically propose deleting or narrowing the arbitration clause – limiting it to disputes that are genuinely outside RERA’s scope (such as disputes about the contract’s interpretation that do not involve any RERA obligation). A developer who insists on a blanket arbitration clause covering RERA disputes is attempting to make enforcement more difficult and expensive – a red flag about the developer’s intentions.

What Steps Should an Allottee Take When the Developer Invokes the Arbitration Clause?

Step 1: File the K-RERA complaint regardless of the arbitration clause – relying on the Supreme Court’s Emaar MGF ruling that RERA remedies are available despite the arbitration agreement.

Step 2: When K-RERA issues notice to the developer, if the developer files an application before K-RERA arguing the arbitration clause bars the complaint – file a detailed response citing the Emaar MGF ruling.

Step 3: If the developer simultaneously initiates arbitration proceedings – file a petition before the High Court challenging the arbitration’s maintainability for RERA-covered disputes, pending which the arbitration should be stayed.

Step 4: Have a property lawyer handle both the K-RERA complaint and any High Court petition challenging the arbitration – the two proceedings may run in parallel until the High Court stays the arbitration.

Step 5: Do not participate in the arbitration for RERA disputes – participation may be treated as a waiver of the right to object to arbitration.

Q1. What is an arbitration clause and why do developers include it in sale agreements?

An arbitration clause is a contractual provision requiring disputes to be resolved through private arbitration rather than courts or regulatory authorities. Developers include arbitration clauses in sale agreements because: arbitration is generally confidential (unlike K-RERA which is public); arbitration proceedings can be delayed or made expensive for the allottee; and the developer may prefer arbitrators who are familiar with the developer’s perspective over K-RERA adjudicating officers who are specifically appointed to protect allottees.

Q2. What did the Supreme Court hold in Emaar MGF Land Ltd v. Aftab Singh?

The Supreme Court in Emaar MGF (2019) held that the remedies available under RERA to an allottee – including the right to approach K-RERA’s adjudicating officer – are in addition to and not in derogation of any other remedy. An allottee cannot be compelled to arbitrate a RERA dispute in preference to the K-RERA remedy. The arbitration clause in the sale agreement does not bar the allottee from pursuing K-RERA remedies.

Q3. Can the allottee pursue both K-RERA and arbitration simultaneously for the same dispute?

An allottee generally cannot pursue the same dispute in both K-RERA and arbitration simultaneously – that would be parallel proceedings for the same cause of action. The allottee’s choice of K-RERA for the RERA dispute effectively supersedes the arbitration clause for that dispute. If the allottee has already started arbitration before filing the K-RERA complaint, the allottee should seek to terminate the arbitration before the K-RERA complaint proceeds.

Q4. Is arbitration ever appropriate for Bangalore property disputes?

Arbitration may be appropriate for: commercial property disputes between businesses where both parties have equal bargaining power; disputes about contractual terms that are genuinely outside RERA’s scope; disputes between co-owners or joint developers; and international property disputes involving foreign entities where arbitration is the preferred cross-border dispute resolution mechanism. For standard residential allottee-developer disputes covered by RERA, K-RERA adjudication is almost always preferable.

Q5. What is the cost difference between K-RERA adjudication and arbitration?

A K-RERA complaint filing fee is relatively modest – typically a few thousand rupees. A K-RERA adjudication is conducted by a government-appointed officer who does not charge personal fees. An arbitration involves the arbitrator’s fee (typically calculated as a percentage of the claim amount – potentially lakhs of rupees for large property disputes), the arbitration institution’s administrative fee and the legal costs of both parties. Arbitration is substantially more expensive for the individual allottee.

Q6. Can the allottee negotiate the arbitration clause out of the sale agreement?

An allottee who is in a position to negotiate the sale agreement can propose deleting the arbitration clause entirely or narrowing it to disputes outside RERA’s scope. However, many developers use standard-form sale agreements where negotiation of specific clauses is difficult. In those cases, the allottee’s protection is the Supreme Court’s Emaar MGF ruling – the arbitration clause does not actually bar the K-RERA remedy even if it remains in the agreement.

Q7. What if the sale agreement specifies arbitration under the institutional rules of a specific arbitration body?

The arbitration institution named in the clause is irrelevant for RERA-covered disputes – the Emaar MGF ruling applies regardless of which arbitration institution is named. Whether the clause specifies ICC, SIAC or any other body, the allottee can ignore the clause for RERA disputes and file the K-RERA complaint.

Q8. Does an arbitration clause affect the allottee’s right to approach the consumer forum?

The National Consumer Disputes Redressal Commission (NCDRC) and state consumer forums also have jurisdiction over property disputes. The Supreme Court has held that the arbitration clause does not bar the allottee from approaching consumer forums either – the consumer protection remedy is also a statutory remedy that cannot be excluded by contractual arbitration clauses.

Q9. What if the K-RERA adjudicating officer refers the dispute to arbitration?

K-RERA adjudicating officers do not have the authority to refer RERA disputes to arbitration – their jurisdiction is to hear and decide the RERA complaint. If a K-RERA officer suggests or orders arbitration, the allottee can challenge that direction before the REAT or the High Court – the officer cannot divest K-RERA’s jurisdiction by referring to arbitration.

Q10. How does Legal Brigade assist allottees who receive an arbitration notice from a developer?

Legal Brigade files the K-RERA complaint regardless of the arbitration notice, files the High Court petition challenging the arbitration’s maintainability for RERA-covered disputes and advises on whether to ignore the arbitration notice or actively contest it. Legal Brigade cites the Emaar MGF ruling in both the K-RERA response and the High Court petition to establish the allottee’s right to K-RERA adjudication notwithstanding the arbitration clause.

Your Bangalore developer’s sale agreement has an arbitration clause and they sent you an arbitration notice when you tried to file a K-RERA complaint? Legal Brigade files the K-RERA complaint anyway and challenges the arbitration – citing the Supreme Court’s Emaar MGF ruling.

WhatsApp → wa.me/8497029999

Frequently Asked Questions