Composite reference of Builder-Buyer disputes to arbitration

June 7, 2023
Real Estate Regulatory Authority

By Nihit Nagpal and Zahra Naqvi
Arbitration and Conciliation Act, 19961 was enacted in order to provide a quicker, simpler, and more flexible solution to the parties entering into a contract. The advantages of this dispute resolution mechanism have been the reason behind the significant rise in Arbitration as the same is evidenced by the increasing number of case filings and arbitration institutions across the Country.

However, many times the advantages of this Dispute Redressal mechanism are compromised due to the multiplicity of proceedings. In other words, where there are multiple contracts emanating from a common project, parties tend to invoke separate arbitration clauses from similar causes of action leading to the formation of separate Arbitral Tribunals. This ultimately results in multiplicity of proceedings, prolonged adjudication, and higher cost, thereby, defeating the very purpose behind the enactment of this Act.

In such scenarios, an ideal approach would be to combine these disputes into one and refer them to one arbitral tribunal. This is called “Composite reference”. A composite reference in arbitration is a single reference of all the disputes arising from multiple agreements carrying independent arbitration clauses with respect to the execution of a common project. The Delhi High Court has comprehensively dealt with the issue of multiplicity of arbitral proceedings in the case of “Gammon India Ltd. And Ors. Vs NHAI”2 and emphasised on the composite reference of disputes to arbitration.

Gammon India Ltd. And Ors. Vs NHAI

“26. The endeavour of Courts in the domain of civil litigation is always to ensure that claims of parties are adjudicated together, or if they involve overlapping issues, the subsequent suit is stayed until the decision in the first suit. It is with the intention of avoiding multiplicity that the principles enshrined in Order 2 Rule 2 CPC, Section 10 CPC and Res Judicata are part of the Code of Civil Procedure from times immemorial. However, since arbitral proceedings are strictly not governed by the Code of Civil Procedure, 1908, it is possible for parties to invoke arbitration as and when the disputes arise, but should the same be permissible without any limitation and ignoring the principles of public policy as enshrined in these provisions.”

The Court further observed that multiple arbitrations before different Arbitral Tribunals in respect of the same contract is bound to lead to enormous confusion. The constitution of multiple Tribunals in respect of the same contract would set the entire arbitration process at naught, as the purpose of arbitration being speedy resolution of disputes, constitution of multiple tribunals is inherently counter-productive. Thus, the Court concluded that in respect of a particular contract or a series of contracts that bind the parties in a legal relationship, the endeavour always ought to be to make reference to a single arbitral tribunal.

In this article, with the help of observations made in this judgment, we will try to analyse the applicability of it in the context of disputes between the builder and the residents of a common residential project. In other words, what would be the legal course of action available for the residents/allotees of a residential project where the builder defaults in providing the amenities as promised to them while selling the residential unit.

The Delhi High Court has noted that multiplicity of arbitral proceedings involves parallel adjudication of overlapping issues resulting in uncertainty and confusion, which further defeats the purpose of arbitration as a mechanism for speedy and effective resolution of disputes. The court observed that multiplicity of arbitral proceedings may arise in the following situations:

i. Arbitrations and proceedings between the same parties under the same contract.
ii. Arbitrations and proceedings between the same parties arising from a set of contracts constituting one series, which bind them in a single legal relationship
iii. Arbitrations and proceedings arising out of identical or similar contracts between one set of entities, wherein the other entity is common.

At the time of sale, a legal document called the ‘Builder-Buyer Agreement’ is executed between the builder and the allotee containing all the terms and conditions that the buyer/allotee and the builder have to comply with. As a common practice, these agreements generally contain an arbitration clause for adjudication of any dispute that might arise. Of the many builder-buyer disputes, the most common ones are improper maintenance of society especially the lifts, common area, builder unwilling to handover the maintenance to the residents even after formation of the Resident Welfare Association (RWA), altering the carpet area of the residential unit without the knowledge of the buyer, providing lesser green area as promised to the buyer, infringing the minimum required space between two buildings etc. When such dispute(s) arise, the buyers of a common society have an option to collectively bring an action towards the Builder as they all are similarly placed and have common grievance against the Builder. As the cause of action, subject matter and the Defendant (the builder) is common, an ideal approach to adopt is to bring a collective action against the Builder/defendant.

The common disputes as discussed above are covered under the sub clause (iii) category. Therefore, a single composite notice on behalf of the aggrieved residents invoking the Arbitration Clause can be served upon the Builder for appointment of an Arbitrator. A single Arbitral Tribunal will then be formed and adjudicate upon the common maintenance issue faced by the residents.

In another case involving set of petitions3 filed by several caterers seeking appointment of Sole Arbitrator to adjudicate upon the issue that was common in to them against Indian Railway Catering & Tourism Corporation Limited, the Delhi High Court appointed a single arbitrator to adjudicate the disputes. The Court further held that that since all the petitions are against a common entity and the cause of action is same, all the Petitions will be treated as one petition for reference to arbitration with respect to the fee of the Learned Arbitrator

Following a composite reference approach in these kind of matters, will be efficient, cost-effective and will eventually restore the lost spirit behind the enactment of the Arbitration and Conciliation Act, 1996.

1 ACT No. 26 OF 1996
2 OMP 680/2011, New No OMP (COMM)392/2020)
3 Arbitration Petition 745 of 2019

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