The Supreme Court’s Twin Signals to Real Estate Litigants: Consumer Fora Stay Open, But Corporate Veils Stay Shut

Arbitration Clauses Cannot Lock the Consumer Forum Door

The Supreme Court has once again affirmed that an arbitration clause in a builder-buyer agreement does not, by itself, oust the jurisdiction of consumer fora. Setting aside orders that had mechanically referred a flat-possession delay dispute to arbitration, the Court has reinforced a principle that practitioners had assumed was settled after Imperia Structures Ltd. v. Anil Patni (2020) — but which developers’ counsel kept litigating anyway.

The logic is straightforward. The Consumer Protection Act, 2019 is a beneficial legislation. Section 100 explicitly states that the Act is in addition to and not in derogation of other laws. The remedies under it are not contractual remedies — they are statutory remedies rooted in public policy. An arbitration clause governs the contract; it cannot erase a statutory right.

Practice point: If you represent homebuyers, do not waste time arguing against the arbitration clause on technical grounds. Cite Imperia Structures and the present ruling together. If you represent developers, stop raising this objection as a routine preliminary defence — it is increasingly likely to draw judicial irritation rather than a referral.

That said, the Court has not said arbitration clauses are irrelevant. What it has said is that the mere existence of such a clause does not automatically divert the dispute. Consumer fora retain discretion, and the burden lies on the party seeking to shut the forum’s doors. This nuance matters — it preserves the option of arbitration where both parties genuinely consent post-dispute, but kills the tactic of using boilerplate clauses to delay consumer proceedings.

Directors Are Not Personal ATMs for Homebuyer Decrees

The second significant ruling cuts the other way. The Supreme Court has held that a decree obtained solely against a builder company cannot be executed personally against its directors or promoters unless specific findings of personal liability were recorded in the original proceedings.

This is a direct application of the corporate veil doctrine, and frankly, it was overdue. Too many execution petitions in consumer fora have treated directors as co-extensive with the company, ignoring basic Company Law principles. Section 2(60) of the Companies Act, 2013 defines “officer in default” for penal provisions, but consumer decrees for refund or possession are civil money decrees — they do not carry automatic personal liability for directors.

Practice point: If you are a homebuyer’s counsel, this ruling should change how you draft the original complaint. Name the directors and promoters as opposite parties from the outset, plead specific acts of personal involvement — diversion of funds, personal guarantees, fraudulent misrepresentation — and seek findings against them individually. A decree against “M/s. XYZ Builders Ltd.” alone is now practically unenforceable against the people who actually control the money.

For developers’ counsel, this is a significant shield. It means that even where the company is judgment-proof — a common reality in stalled projects — directors cannot be dragged into execution proceedings without prior adjudication of their personal role. Expect this ruling to be cited heavily in Section 27 CPC execution objections and in applications under Order XXI Rule 58.

The Commercial Purpose Defence Gets Harder to Prove

In Vinit Bahri v. MGF Developers Ltd., the Supreme Court addressed a question that has plagued consumer litigation since the 2019 Act: when does buying a residential flat become a “commercial purpose” that excludes the buyer from the definition of “consumer” under Section 2(7)?

The Court’s answer is clear — merely purchasing or leasing a residential flat does not, by itself, constitute commercial purpose. The burden of proving commercial intent lies squarely on the service provider. This is consistent with the Explanation to Section 2(7), which carves out purchases for “earning livelihood by means of self-employment” from the commercial-purpose exclusion, but the Court has gone further in placing the evidentiary burden on the developer.

This matters enormously in practice. Developers routinely raise the commercial-purpose objection where a buyer owns multiple properties or has leased out the flat. The Court has now said: that alone is not enough. The developer must demonstrate, with evidence, that the dominant purpose of the purchase was commercial. A homebuyer who buys a second flat for investment or rental income is still a consumer unless the developer proves otherwise.

What This Means for Real Estate Litigation Strategy

Taken together, these rulings redraw the tactical map for real estate disputes in consumer fora:

For homebuyers: The consumer forum remains accessible and arbitration clauses are no longer a reliable roadblock. But the decree-execution ruling means that relief against the company alone may be a paper victory. The front-loaded work — identifying the right opposite parties, pleading personal liability with specificity, and securing findings against individuals — is now critical. Do not treat execution as an afterthought.

For developers: The commercial-purpose defence requires actual evidence, not inference. The arbitration clause defence is effectively dead as a preliminary objection. But the corporate veil ruling offers genuine protection to directors and promoters who were not individually impleaded. Ensure that consumer complaints are scrutinised at the admission stage for whether specific allegations are made against individuals.

The Broader Pattern

These rulings sit within a broader judicial trend. The NCDRC has dismissed complaints by defaulting homebuyers who challenged allotment cancellations, and has enforced limitation strictly — holding that taking possession in 2016 starts the clock, and later discovery of deficiencies does not create a continuing cause of action. The Madras High Court has confirmed that RERA cannot adjudicate title disputes. The Karnataka State Commission has held that demolished property claims are civil disputes, not consumer complaints.

The message from the courts is coherent: consumer fora are open, but they are not a shortcut around civil procedure, limitation law, or corporate law fundamentals. Practitioners who treat consumer complaints as a simplified alternative to civil suits do so at their clients’ peril. The forum is accessible — but the law still applies.