Delhi High Court Upholds Interim Protection for Real Estate Buyers in Arbitration

A Division Bench of the Delhi High Court has set aside the dismissal of multiple applications seeking interim measures under the arbitration law. The court held that buyers of commercial units are not barred from seeking Section 9 interim protection merely because they have already pursued remedies before the real estate regulator under the Real Estate (Regulation and Development) Act. The court found that the lower commercial courts had wrongly invoked the doctrine of election without comparing the reliefs sought in the two forums and granted protective injunctions to preserve the subject matter until arbitration commences, restraining the developer from creating third-party rights (including leasing) and directing status quo over the units.

The dispute arose from commercial unit allotments in a project located on the Dwarka Expressway, Gurugram. Buyers had entered into a builder-buyer arrangement and a memorandum of understanding promising assured monthly returns and eventual possession. From 2019 onwards, the developer allegedly stopped assured returns, issued notices raising vague dues coupled with cancellation threats, and delayed construction and possession. The buyers approached the economic offences wing leading to a criminal case and also filed complaints before the Haryana real estate regulator, which passed orders granting directions including setting aside cancellation/demand notices, payment of assured returns with interest, and possession-related directions. Subsequent communications from the developer allegedly raised fresh “fit-out” and other demands and warned of cancellation, triggering the buyers’ request for interim restraint pending arbitration.

The High Court framed the core maintainability question around whether Section 9 interim measures are (i) distinct from the reliefs sought and granted by the real estate regulator, and (ii) whether the commercial courts failed to appreciate the limited, protective nature of Section 9 jurisdiction meant to preserve the arbitral process. A connected issue arose in one matter where a commercial court dismissed the application on a hyper-technical reading of territorial jurisdiction by differentiating between “Delhi” and “New Delhi” as the seat of arbitration, rather than returning the petition for presentation before the proper court.

The buyers argued that the cause of action for Section 9 relief was not the same as the regulatory adjudication before the real estate authority. They maintained that the interim threat—leasing out units, creating third-party interests, and cancelling allotments unless unexplained charges were paid—required immediate protective orders so arbitration would not be rendered meaningless. They relied on the statutory structure indicating the real estate law operates in addition to other remedies and stressed that the commercial courts had dismissed their requests without assessing basic Section 9 parameters such as preservation of the subject matter and irreparable harm. In essence, they contended that invoking the real estate regulator did not amount to abandoning arbitration-based interim protection.

The developer resisted the interim measures by asserting that the buyers had already obtained adjudication before the real estate regulator and were, therefore, barred from seeking parallel relief under Section 9 based on the doctrine of election. It was argued that the Section 9 applications were essentially injunction suits in another form and that the grievances had been heard and decided by the regulator’s orders. The developer also advanced contractual submissions that the memorandum of understanding controlled over the builder-buyer arrangement and claimed that possession in such projects could be symbolic or proportionate rather than tied to a specifically identified space. In support of its position, it relied on asserted leasing arrangements and demanded “fit-out” and other charges as preconditions for possession-related steps.

The judgment treats Section 9 interim measures as a court’s supportive tool to preserve the arbitral process, not a mechanism to decide merits. The court contrasted the regulatory forum’s determinative role (granting directions on assured returns, possession, and contractual compliance within the regulator’s mandate) with the interim court’s narrowly tailored role of preserving property and preventing irreversible prejudice pending arbitration. It also examined the doctrine of election as explained in Supreme Court precedent: the doctrine applies only when truly concurrent and inconsistent remedies for the same relief exist, and not when the ambit and scope of two remedies are materially different. The court criticized lower courts for applying the doctrine mechanically without analysing the character and scope of the two proceedings.

To explain when election applies, the court relied on authorities clarifying that election requires multiple remedies, inconsistency between them, and an actual choice; if any element is missing, the doctrine fails. It also relied on jurisprudence on interim injunctions and the limited nature of interlocutory protection, emphasizing that interim relief is ancillary—meant to preserve the status quo until final adjudication. The court cited precedent recognizing that, without interim protection, arbitral outcomes can become illusory if property is alienated or encumbered. It invoked classic injunction principles of prima facie case, balance of convenience, and irreparable harm, adapted to the arbitration context, to justify why courts must intervene in real estate disputes where third-party interests can permanently alter the subject matter.

The court held that the commercial courts erred by dismissing Section 9 petitions without comparing the reliefs sought before the real estate regulator and those sought under arbitration law; without such analysis, it was legally impermissible to conclude that Section 9 relief was barred. It found the Section 9 reliefs to be preservative and ancillary—focused on restraining leasing, cancellation, and creation of third-party rights pending arbitration—rather than a challenge to the regulator’s orders. The court also recorded that a local commissioner’s inspection showed ongoing construction/renovation and that the premises were not fit for commercial use, casting doubt on the developer’s narrative of leasing and strengthening the need for interim restraint.

Allowing the appeals, the Delhi High Court granted interim protection in substance: it restrained the developer and its representatives from creating third-party interests, “including… leasing out the property” until commencement of arbitration; directed status quo regarding the units under the contractual documents; and clarified that once an arbitral tribunal is constituted, either party may seek modification of the interim protection before the tribunal. The ruling reaffirms that the presence of real estate regulator proceedings does not automatically extinguish the court’s power to secure the subject matter under Section 9, especially where the interim threat arises after regulatory orders and risks defeating arbitration.

This decision is significant for real estate arbitration, especially in commercial unit disputes involving assured returns, possession delays, and coercive cancellation threats. It signals that courts will not permit developers to use the doctrine of election as a blunt instrument to defeat interim protection, particularly where regulatory relief and Section 9 relief serve different purposes. For buyers, the judgment strengthens the strategy of seeking Section 9 interim injunctions to prevent leasing, alienation, or cancellation while arbitration is initiated, even if real estate regulator orders already exist. For developers, it underscores that post-order conduct—fresh demands, threatened cancellations, and creation of third-party interests—can invite immediate court restraint, and that interim compliance directions (like deposit of lease amounts) will matter in equitable assessment.