Section 9 Arbitration Petitions Maintainable Despite RERA Proceedings: Delhi High Court - 2025-09-18

Bridging the Gap: Delhi High Court Affirms Section 9 Recourse Amidst RERA Proceedings

In a significant order addressing the intersection of real estate regulation and arbitration, the Delhi High Court has clarified that homebuyers and investors are not precluded from seeking interim protection under the Arbitration and Conciliation Act, 1996, simply because they have approached the Real Estate Regulatory Authority (RERA).

The division bench comprising Justice Prathiba M. Singh and Justice Shail Jain observed that the persistent non-compliance of contractual obligations by promoters creates a "continuing cause of action," allowing allottees to seek necessary judicial intervention to safeguard their interests.

The Backdrop: A Crisis of Confidence

The dispute arises from the "Neo Square Mall" project in Gurugram, developed by M/S Neo Developers Pvt Ltd . Several investors had booked commercial units, expecting assured returns and timely delivery. After repeated delays and missing possession deadlines, these investors turned to the Haryana Real Estate Regulatory Authority (HARERA), which ordered the developer to pay arrears and fulfill commitment obligations.

However, the situation turned complex when the developer began leasing units to a third party, Vexto Commercials Private Limited , alleging fit-out charges were due from the original buyers. When investors filed petitions under Section 9 of the Arbitration Act to restrain the developer from creating third-party interests in their units, the commercial courts dismissed the petitions, citing the "election of remedies" principle linked to their earlier RERA complaints.

The Tug-of-War

The appellants argued that the RERA orders provided only partial relief and that the developer was effectively utilizing a "sham" lease (with a company allegedly linked to its own promoters) to strip the units of their value while holding the investors' money. They contended that their petitions were essential to prevent the assets from being compromised before arbitration could commence.

Conversely, the Developers relied heavily on the Supreme Court’s decision in Ireo Grace Realtech Private Limited v. Abhishek Khanna , arguing that the appellants had "elected" their remedy under RERA and were therefore barred from pursuing auxiliary relief via the Arbitration Act.

Legal Analysis: Distinguishing Concurrent Remedies

The High Court rejected the notion that the pursuit of RERA relief acts as a universal estoppel against Section 9 applications. Justice Prathiba M. Singh clarified that Section 9 proceedings are a distinct mechanism for "preservation of the subject matter" and are not barred if the factual circumstances—specifically the issuance of completion certificates and the creation of subsequent encumbrances—have evolved.

The court noted that while Ireo Grace prohibits simultaneous pursuit of identical reliefs to avoid contradictory outcomes, it does not strip an allottee of the right to secure their property against predatory third-party interests that arise after initial regulatory complaints have been filed.

Key Observations

• On the nature of Section 9 relief: "The power of the Court under Section 9 of the Arbitration and Conciliation Act, 1996, is quite broad and would permit grant of relief in cases where prima facie case, balance of convenience and irreparable injury is made out."
• On the distinction between proceedings: "The proceedings before HARERA are not from the same cause of action. They were filed prior to the issuance of completion certificates and at a different stage of the project."
• On the rights of allottees: "The continued non-adherence of any obligations by the Respondent, constitutes a continuing cause of action in favour of the Appellants."

The Court’s Mandate

In a move to protect the financial integrity of the units, the Court directed the developer to deposit all lease rents earned from the units into a fixed deposit maintained by the Registrar General of the High Court. Furthermore, the court appointed a Local Commissioner to conduct an immediate inspection of the Neo Square Mall to verify the status of occupancy and potential sub-tenancies.

This ruling provides much-needed clarity for aggrieved homebuyers, ensuring that the regulatory safety net of RERA does not inadvertently become a legal trap that leaves investors powerless to protect their property from being drained by developers during the lengthy arbitration process. The matter is set for further hearing on October 30, 2025.