Real estate developers can’t force homebuyers to go for arbitration

NCDRC says that Consumer Protection Act prevails over laws related to arbitration

The National Consumer Disputes Redressal Commission (NCDRC) has provided relief to home buyers who cannot pursue cases against developers due to a conflict in the law concerned.

According to lawyers, many cases were pending in different consumer forums because developers had included a clause that disputes between two parties would be first settled though a private resolution mechanism, also known as arbitration.

The Consumer Protection Act is an additional remedy available to individuals, and it is usually not affected by other Acts in force.

But in 2015 the Arbitration and Conciliation Act was changed. The new changes said that a judicial authority has to refer for arbitration those cases where a provision for arbitration had been included in the agreement.

“In cases where builders had included the arbitration clause, they appealed to consumer forums to not admit cases and refer them for arbitration, based on the changes made in the law,” says advocate Sushil Kaushik, who contested the case on behalf of around 40 buyers. “But the NCDRC ruled that real estate players cannot force buyers to settle their disputes through arbitration by restraining them from approaching consumer forums,” adds Kaushik.

This judgement brings massive relief to buyers seeking relief from consumer courts.

Lawyers say many cases were pending because the law was not settled on this. It was left to the discretion of the judges (or presidents) hearing the case. The recent ruling now settles the law.

The bench ordered: “We unhesitatingly reject the arguments on behalf of the builder, and hold that the arbitration clause in the aforementioned kind of agreements (read builder-buyer agreements) between complainants and builders circumscribe the jurisdiction of a consumer fora, notwithstanding amendments made in the Arbitration Act.”

Arun Saxena, founder and president of the International Consumer Rights Protection Council, explains: “Section 3 of the Consumer Protection Act (CPA) clearly states that the CPA is in addition to, and not in derogation of, the provisions of any other law for the time being in force. Consumer courts, therefore, have full right to entertain complaints even if there was an arbitration clause in the agreement with the builder.”

Consumer activists and lawyers say that developers pushed consumers to go for arbitration because these proceedings can be influenced and money power can play a big role in such cases. In arbitration, the builder and the consumer appoint their lawyers and try to settle the case. “The fees of such lawyers are also high and most consumers cannot afford them,” says Kaushik.

Builders usually create builderbuyer agreements that are tilted in their favour. Consumer don’t understand the technicalities unless they get into a dispute and get trapped in litigation. Courts have also taken cognisance of such lopsided agreements and awarded relief to consumers. “Developers at times don’t even share a copy of the agreement with the purchaser,” says Saxena.

In recent times, however, courts have started taking strict actions against errant builders. “The number of cases against developers has been on rise in recent years. The courts realise that the consumers have little option to get a fair deal when developers use laws to keep things in their favour,” says Abhishek Khare, founder and managing partner, Khare Legal Chambers.