When RERA Isn’t Enough: Delhi High Court Upholds Right to Arbitration Amidst Real Estate Tug-of-War

In a significant reprieve for commercial space buyers, the Delhi High Court has clarified the boundaries between regulatory relief and arbitration, ruling that individuals are not barred from seeking interim protection under the Arbitration and Conciliation Act, 1996 , even if they have previously approached the Real Estate Regulatory Authority (RERA).

The bench, comprising Justice Prathiba M. Singh and Justice Shail Jain , emphasized that the pursuit of remedies in the real estate sector often involves distinct causes of action arising at different stages of a project’s lifecycle.

The Conflict at Neo Square Mall

The dispute centers on commercial units booked by appellants in "Neo Square Mall," located in Sector-109, Gurugram. What was promised as a lucrative investment in commercial real estate turned into a protracted legal battle involving allegations of construction delays, failed possession timelines, and unpaid "assured returns."

While the appellants successfully secured an order from the Haryana Real Estate Regulatory Authority (HARERA) in August 2024, directing the developer, M/s Neo Developers Pvt Ltd, to pay arrears and eventually hand over possession, the developer continued to exploit the properties by leasing them out to third parties—allegedly via front companies. Frustrated by the lack of compliance and the looming threat of their units being permanently leased to others, the buyers filed for interim injunctions under Section 9 of the Arbitration and Conciliation Act to protect their interests while heading toward arbitration.

A Tug-of-War over Legal Remedies

The respondent developer argued that the court’s doors should remain shut. Citing the Supreme Court’s decision in Ireo Grace Realtech Private Limited v. Abhishek Khanna , the developer contended that once a party elects a remedy under RERA, they are estopped from seeking concurrent relief under the Arbitration Act.

The appellants countered that their legal journey was not a duplication of effort, but a necessity. They argued that the HARERA complaints were filed during the construction phase, whereas the current Section 9 petitions were triggered by new developments—specifically the issuance of completion certificates and the developer’s attempts to lease their units to "sham" entities linked to the promoters.

Key Observations

The Court found logic in the appellants' pleas, distinguishing their current circumstances from the bar on simultaneous proceedings:

• On the nature of the proceedings: "Prima facie, the legal issue... would not bar the filing of petitions under Section 9 of the Arbitration and Conciliation Act, 1996 as the proceedings before HARERA are not from the same cause of action."
• On the practical reality of the buyers: "In all these appeals, the Appellants are running from pillar to post since the last several years... in order to secure their units which they have booked. They have made substantial payments to the Respondent and have not enjoyed any fruits of the said payment."
• On the breadth of Section 9 powers: "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."

Court's Decision: Putting the Money in Escrow

Declaring that the appellants deserved protection against the developer's "fencing off" of the property, the High Court issued a series of robust interim directions:

1. Rent Deposits: The Court ordered the developer to deposit all lease rents earned from the appellants' units with the Registrar General of the High Court, to be maintained in an interest-bearing fixed deposit.
2. Independent Inspection: To cut through the allegations of "shell company" lessees, the Court appointed a Local Commissioner to visit the mall, record the occupancy status, and obtain copies of any existing lease deeds.
3. Strict Filing: Both parties were directed to submit precise computations of all dues by the next hearing date, set for October 30, 2025.

Implications for Future Cases

This order serves as a vital precedent for buyers dealing with developers who fail to comply with RERA directions. It affirms that the legal system is not a rigid cage; where a developer’s ongoing actions—such as leasing out units that rightfully belong to an allottee—create a continuing cause of action , the Court retains the power to intervene under the Arbitration Act. For the appellants, this means that while their long search for justice continues, their investment is finally under the protective watch of the Court.