Real Estate Arbitration in India: Practice, Pitfalls, and the Path Forward

Piyush Singla^[1]

Introduction

The Indian real estate market, which contributes the third-largest portion of the country's GDP, encompasses the residential, commercial, retail, and hospitality sectors. While urbanisation, communication, better transportation, technological advancements, and participation in global markets have all contributed to progress, they have simultaneously revealed structural deficiencies. Disputes in real estate, which often involve delays or battles over ownership across national borders, are becoming more common in India. However, regular courts do not always handle matters swiftly or with the right expertise, which frustrates buyers, developers, and investors. Alternative Dispute Resolution (ADR) methods, such as arbitration, are discussed in this blog, along with their advantages in dealing with disputes. Unlike going to court, arbitration allows flexibility, confidentiality, and access to experienced advisors, which aids complex real estate transactions. The blog explains how arbitration functions in real estate, why its importance is increasing, and what challenges exist with using it. The main contribution is actionable changes at the legal, technological, and organizational levels, helping arbitration become the main choice for settling disputes in real estate. As such, the main question that this paper attempts to answer is: In what ways is arbitration a viable model of resolving real estate disputes in India, and what are the reforms that need to be introduced to neutralise its present shortcomings?

THE ARBITRABILITY OF REAL ESTATE DISPUTES

Arbitration is indeed gaining popularity in the real estate industry, but not all disputes have the opportunity to be solved legally by this method. In Vidya Drolia v., the Supreme Court held that a state is required to order the seizure of a property that is subject to a specific concern of the national interest of the Republic of India. In Durga Trading Corporation (2020), it was explained that rights in rem (rights that have an effect against the outside world, such as ownership or tenancy governed by special enactments) are usually non-arbitrable, whereas rights in personam (reasonable disputes that fall within the domain of general contract law) are arbitrable.

The examples of real estate arbitrable disputes are:

·      Controversies between the developers and the contractors over the construction delays or flaws.

·      Cases between land avenues and developers associated with the contract in joint development.

·      Conflicts that come up based on financing, investment, or revenue-sharing arrangements.

Areas of non-arbitrable disputes are:

Cases that represent the exclusive jurisdiction of special forums (e.g., homebuyer complaints regarding delay in possession), which fall under the jurisdiction of RERA authorities or consumer courts.

·     Rent control eviction or tenancy-related issues.

·     Disputes concerning title to real estate, which imply the implication of third-party rights and thus can not be subject to the arbitration.

The availability of numerous adjudicatory platforms, including RERA and consumer commissions, civil courts, and arbitral tribunals, contributes to the redundancy and confusion. So, definite rules in the legislation on the arbitrability of real estate disputes are needed that do not allow any contradictory decision and the development of delays.

Arbitration In Real Estate: Resolving Disputes

Arbitration is a form of alternative dispute resolution (ADR) in which independent arbitrators hear the evidence and make a typically binding decision. It is arguably faster and more effective than traditional litigation systems. Theincreasing complexities in the real estate sector, including joint ownership conflicts, cross-border conflicts, technology-driven disputes, and construction-related disputes, have necessitated arbitration. The practicality, affordability, and time efficiency of arbitration make it an efficient technique for overcoming the complexities of real estate legal issues, as highlighted in the case of Chopra Fabricators & Manufacturers (P) Ltd. v. Bharat Pumps & Compressors Ltd. The story of Chopra Fabricators & Manufacturers (P) Ltd. v. Bharat Pumps & Compressors Ltd. brings out how the delays in enforcing the award can end up defeating the effect of arbitration, and this is more so when the arbitration is involved in the real estate or construction industry, where immediate resolution is of the essence. In the view of the Supreme Court, it was a bright case of undermining the arbitration process despite an award being given in 1992, but the execution petition came in 2003. The Court also noted that despite the lapse of 30 years, the party that has the benefit of the Award being granted is not in a position to reap the fruit of the litigation/Award. This reasserts the fact that although arbitration is itself a progressive, efficient system to resolve complex cases like cross-border and construction cases, delays in their enforcement can be a major deterrent to them unless judicial interventions are introduced to have prompt action in derivation.

· Cross-Border Disputes

In a globalized world, real estate companies from various countries clash over multiple disputes, such as contract violations. Unlike litigation, which involves jurisdictional and delay issues, disputes in arbitration can be resolved without these challenges and promptly. In Eitzen Bulk A/S vs Ashapura Minechem Limited & Anr, the court, in its opinion, divided the panel into two groups and held that the panel is liable to one group and not the other.  The Supreme Court upheld the New York Convention and its application towards enforcing a foreign arbitral award even in cases where the Indian party is opposed to the award. The Court made it clear that on the fulfillment of conditions under Section 47 of the Arbitration and Conciliation Act, 1996, the award should be enforced unless it comes under rare exceptions under Section 48. In focusing on the notion that there exists a pro-enforcement bias, it was noticed that the public policy objections have to be interpreted narrowly. The Court added that the enforcing court is not entitled to practise on the merits of the award being enforced overseas or internationally, but to merely examine whether the award fits into the narrow grounds prescribed in section 48. This further ascertains the effectiveness of arbitration as a tool to settle even intricate international disputes, such as real estate and construction disputes.

· Construction Related Disputes

Disputes during construction are usually more complicated and complex. Technical problems, for example, fixing the wrong materials, facing construction delays due to design obstacles, delays caused by labor problems, and extenuating circumstances such as force majeure events, are very common in such cases. The traditional court system is not flexible and lacks specialists in technological advancements field and thus, it struggles to deal with such multifaceted cases promptly. On the other hand, arbitration can adjust the process and bring in experts in the involved field. A party might determine in the arbitration clause that certain hearings will be fast-tracked or that interim relief can be quickly granted for ongoing projects. An arbitrator who has experience in construction, design, or engineering can check blueprints, inspection records, or charts. Additionally, arbitration offers options like examining the site, using digital models, and questioning experts simultaneously. The Supreme Court, in McDermott International Inc. v. Burn Standard Co. Ltd. & Ors. , observed that the technical and construction disputes are well-suited to arbitration since parties are permitted to select arbitrators on the basis of relevant legal as well as subject-matter expertise. The Court made it clear that arbitrators possess the role of final judges of fact and law and that courts must not use the facts or even make a reappreciation of the evidence or replace their opinions with the technical findings. It held: The jurisdiction of the court is not an appeal jurisdiction; the award is not liable to be challenged because the arbitrator has uncritically come to his own conclusions or because he has ignored facts. This demonstrates how arbitration offers the flexibility, specialisation, and swiftness of a specialised method of handling construction disputes that demand technicality as well as legal adjudication.

In conclusion, Arbitration simplifies construction disputes, takes into account the technical and legal issues, and issues decisions that are both right and valuable for business. While arbitration has proven effective in addressing a range of real estate conflicts, from cross-border investment disputes to construction-related complexities, its growing use has also revealed several persistent challenges. These barriers, unless addressed, may undermine the efficiency and reliability of arbitration as a dispute resolution mechanism in the real estate sector.

Barriers to Effective Arbitration

Arbitration is unquestionably a more practical and favored approach than the conventional litigation system. However, it has  some challenges and problems, some of which are listed below:

· Multiple Party Disputes

Most real estate projects have developers, landowners, investors, buyers, and contractors working together, and some of their agreements include arbitration clauses, but not all do. So, there are jurisdictional issues, cases are tried in more than one venue (civil courts, consumer tribunals, RERA, arbitrators), and the decisions vary. Examples are: Disputes between landowners and developers in township projects being decided by arbitrators, and buyers of flats turning to consumer courts when their buildings are delayed, leading to slow and divided dispute handling.

· Outdated Laws of Arbitration  

The Arbitration and Conciliation Act, 1966 was last modified in 2019. Since then, no further changes have been made, leaving the law outdated for the new challenges created by technological advancements. With the introduction of Artificial Intelligence (AI) and blockchain technologies, the inadequacy of laws has become more pronounced. For Instance, The Rise of Proptech and Smart Contracts in the Indian Real Estate sector has transformed how real estate transactions are completed, verified and followed. Many land registration services and digital contract negotiation platforms are now built with the assistance of blockchain and AI. At the same time, these new technologies have worsened cybersecurity problems, including unauthorized data theft, changes to blockchain records, digital land title fraud, and AI errors in contract execution. Despite the increasing prevalence of such issues, the existing statutes lack a comprehensive framework to address technology-driven difficulties, which is one of the pressing concerns in the real estate industry.

Strengthening Arbitration for Real Estate Disputes

There are indeed problems or challenges with the arbitration process, but we cannot reject its benefits in resolving disputes. With some suggestive and practical approaches, we can resolve these disputes. For instance, amending the Arbitration and Conciliation Act,1963, and adding descriptive arbitration clauses in contracts under RERA, additionally improving the system with modern technologies and algorithms. Some of the suggestions that make arbitration more effective are listed below:

· Creating Consolidated Arbitration Systems Especially for Real Estate Projects

Construction contracts are structurally different, although at the core they are similar to ordinary ones as they are governed by the principles of contract law, such as the liquidated damages, termination clauses, or the performance aspects. Unlike bilateral construction disputes, the real estate projects involve various contracts and various parties: developers, landowners, contractors, investors, and numerous buyers. Such a multiplicity leads in most cases to concurrent proceedings before arbitral tribunals, consumer forums, civil courts, and RERA authorities, leading to conflicting results. That’s why India should have a special arbitration framework for this sector. One can implement this in these two main ways:

a) As an alternative to simply mandating all agreements to be subject to standard arbitration provisions, India could also set up project-specific arbitrating bodies in real estate mega-projects. These panels would have a consistent panel of arbitrators specialising in real estate, construction, and finance disputes, and serve as a single tribunal to all disputes that occur in a project, regardless of the specific contract in question. They may hold parallel hearings on the related controversies, say, buyer-developer or contractor-developer disputes, to uphold consistency in the awards.

b) Real estate arbitration institutions ought to set clear guidelines to handle consolidation and allow parties to join, even when not all have an existing arbitration agreement. SIAC and ICC have these tools, and India should also have them for its domestic real estate arbitration.

· Modification of Law

Regarding Digital and Electronic Contracts in Arbitration, by amending the Arbitration and Conciliation Act to explicitly accept arbitration agreements formed via emails or chats or paper documents stamped electronically, when there is a clear agreement and both sides consent. As a result, many property transactions that presently cannot use arbitration would become legal through arbitration clauses. Because new PropTech applications use things such as smart contracts, AI, and blockchain technology, the law should be changed to accept them as valid in arbitration cases. Provisions need to state that blockchain data can be used as evidence, and permission is given to arbitrators to take interim measures for cases involving digital fraud, data breaches, or automated contract mistakes. It would also be helpful if arbitration institutions set up panels made up of experts in technology and let digital forensics experts aid in the process. Because of these reforms, arbitration will continue to be useful and important even as real estate goes digital.

Conclusion

Alternative dispute resolution through arbitration is now considered highly reliable for settling real estate issues. Since it provides flexibility, takes privacy into account, and involves experts knowledgeable in special sectors, it is widely used for construction issues, foreign investments, and involves many parties. Arbitration allows for a different method in the legal system, since it is often faster and more convenient than litigation. Due to its ability to use current technology, arbitration remains an attractive method for managing real estate deals. However, to untapped its full potential, it needs updated laws, improved contractual processes, and changes like setting up peer review and confidential databases of support. With necessary amendments, arbitration becomes more effective to support the real estate industry’s progress and stability and provide useful and prompt solutions.

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^[1] He is a second-year law student of B.A.LL.B (Hons.) Course at Rajiv Gandhi National University of Law, Punjab. E-Mail: piyushsingla24011@rgnul.ac.in.