Can Consumer Forums Set Aside the Arbitration Clause?

After 2015, the year in which an amendment was made to Section 8 of Arbitration and Conciliation Act, 1996, several cases were discussed at the National Commission as well as the Supreme Court wherein it seemed that the amendment clause was being used as a shield by the accused parties to wriggle out of the court of law – they tried to legally nullify the jurisdiction of the consumer forum, stating facts from the amended part of Arbitration and Conciliation Act.Recently, an interesting judgement was passed by the Supreme Court in two such cases wherein the bench had concluded that “amendment to Section 8 of the Arbitration and Conciliation Act, 1996, as amended in 2015, has not changed the theory of earlier judgements by the Supreme Court that ‘consumer court has the jurisdiction in the cases where arbitration clause exists in the agreement executed between the parties’.”

A Case to Note

A special petition had been filed against the order of the National Consumer Disputes Redressal Commission (NCDRC) in the case of Aftab Singh and others versus Emaar MGF Land Limited and others. The petition had challenged the order of the National Commission on the basis of the amended Section 8 (1) of the Arbitration and Conciliation Act, 1996. (The given section provides the mandate to the judicial authority to refer parties to arbitration if there is a valid arbitration agreement between the parties.) At National Commission, a three-member bench presided by Justice DK Jain had held that such disputes were to be governed by the statutory laws and were non-arbitral.

The SC bench comprising justices AK Goel and U Lalit stayed the NCDRC judgement. In the final verdict, after hearing the appeal of Emaar MGF, SC agreed with the order passed by the National Commission which was in favour of the consumers and dismissed the appeal by the builders, and inter alia stated that consumer disputes were not capable of being settled by arbitration.

“We do not find any ground to interfere with the impugned order(s). The appeals are accordingly dismissed. Pending applications, if any, shall also stand disposed,” stated the bench.

Consumer Act and Arbitration Act

The Emaar MGF case became a much-debated issue in the wake of the complaints against the company for failure of allotment of flats and villas. The complainants alleged that the company had failed to deliver possession of the properties on the committed dates and sought delivery of possession or, in lieu thereof, refund of the amounts deposited by them along with compensation.

The builder, in response, referred to the existence of an arbitration clause in the buyers’ agreements and presented points from the amended sub-Section (1) of Section 8 of Arbitration and Conciliation Act, 1996, to justify that consumer courts could not intervene in the matter.

To strengthen the statement made earlier, a larger bench of NCDRC framed the issue for adjudication as under:

“Whether the Arbitration Act mandates consumer forums, constituted under the Consumer Protection Act, 1986, to refer parties to arbitration in terms of a valid arbitration agreement?”

The bench held that:

  1. Despite amending Section 8 (1) of the Arbitration Act, along with a similar amendment to Section 11 of the said Act to curtail the nature and scope of enquiry to be undertaken in terms of Sections 8 and 11 of the Arbitration Act, there is no intention to alter the interplay between the provisions of the Arbitration Act and the Consumer Act as settled by the Hon’ble Supreme Court of India through various judgements on the issue.
  2. The Consumer Act is a special social legislation enacted to protect consumer rights. It establishes a level-playing field between unequal players (that is, consumers and large corporations), and is quite unlike other legislations that create dispute-resolution mechanisms between level players. Hence, issues covered under this A are not arbitrable, nor are they intended to be covered by the amendment to Section 8 of the Arbitration Act.
  3. By virtue of Section 2 (3) of the Consumer Act, the Arbitration Act itself excludes from its purview certain disputes that fall within the public law regime and with respect to which statutory remedies are put into place to subserve a public policy. Since consumer disputes would fall under the umbrella of the said provision, they were not intended to be covered by the amendment to Section 8 of the Arbitration Act.
  4. The jurisdiction of the consumer forums to adjudicate on consumer disputes is not affected by either Section 8 (as amended) of the Arbitration Act or any other provision thereof.
  5. To accept the builder’s plea would be to hinder the entire purpose and object of the Consumer Act – that is, to ensure the speedy, just and expeditious resolution and disposal of consumer disputes.

As per Section 8 of the Arbitration Act, with regard to power to refer parties to arbitration where there is an arbitration agreement, a judicial authority before which an action is brought in a matter that is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.

While determining whether a consumer dispute ought to be referred to arbitration, the consumer forum will have to focus on the nature of dispute brought before it. In spite of an arbitration clause, a consumer court may go ahead and exercise jurisdiction on matters related to the subjects under its domain – that is, purchase of goods and hiring of services.

Read more on:

Builders can’t force Buyers to go for Arbitration
Arbitration agreements cannot oust the jurisdiction of consumer forums

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