Supreme Court on Arbitrability of Consumer Disputes

The Consumer Protection Act, 1986 (1986 Act) was enacted to provide for better protection of the interests of consumers and for the purpose, to make provision for the establishment of Consumer Councils and other authorities for the settlement of consumer disputes and for matter connected therewith. The 1986 Act provides for an additional and beneficial remedy to the consumer to avail of the speedy, expeditious disposal of his or her dispute.

The Supreme Court of India in the case of Emaar MGF Land Limited v. Aftab Singh had held that consumers should be allowed to avail the beneficial remedy provided under the ambit of the Arbitration and Conciliation Act, 1996 (1996 Act) and should not be forced to adjudicate their disputes before an arbitral tribunal under the 1996 Act. The appellants in the case had filed appeals in order to challenge an order passed by  the  National  Consumer  Disputes  Redressal  Commission  (NCDRC)  holding  consumer  disputes  as non-arbitrable in nature. 

• The appellant had acquired and purchased land in Mohali, Punjab to set up and develop an integrated township. The respondent submitted an application to the appellant for allotment of a villa in the same property.
• A Buyer’s agreement was entered between the parties. In the Buyer’s agreement, there was an arbitration clause providing for settlement of disputes between parties under the 1996 Act.
• In a later stage, the respondent filed a complaint against the appellant in NCDRC.
• The appellant then filed an application under Section 8 of the 1996 Act for referring the matter to arbitration. In the application, appellant referred to the Buyer’s agreement, which according to appellant would constitute a valid arbitration agreement in terms of Section 7(2) of the 1996 Act.
• NCDRC held that the present dispute was non-arbitrable in nature and must be kept at a distance from private dispute resolution. Section 2(3) of the 1996 Act recognizes schemes under other legislations that make disputes non-arbitrable and in light of the overall architecture of the 1986 Act and Court-evolved jurisprudence, amended sub-section (1) of Section 8 cannot be construed as a mandate to the Consumer Forums, constituted under the 1996 Act, to refer the parties to Arbitration in terms of the Arbitration Agreement.
• The appellant filed an appeal in the Delhi High Court challenging the orders of NCDRC. The High Court held that appeals filed by the appellant under Section 37(1)(a) of the 1996 Act have been wrongly brought before the High Court. The High Court refused to entertain the appeals and returned to be presented before the appropriate Appellate Court.

The Supreme Court in the case of Lucknow Development Act v. M.K. Gupta had considered the object and purpose of the Consumer Protection Act. The preamble of this Act affords useful assistance to ascertain the legislative intention. It was enacted to provide for the protection of the interest of consumers. Use of the word ‘protection’ furnishes the key to the minds of makers of the Act. Various definitions and provisions which elaborately attempt to achieve this objective have to be construed in this light without departing from the settled view that a preamble cannot control the otherwise plain meaning of a provision. In fact, the law meets the long-felt necessity of protecting the common man from such wrongs for which the remedy under ordinary law for various reasons has become illusory.

In Thirumurugan Cooperative Agricultural Credit Society v. M. Lalitha, it was held that from the scheme of this Act, it was apparent that the main objective of the Act was to provide for better protection of the interest of the consumer and for that purpose to provide for better redressal, the mechanism through which cheaper, easier, expeditious and effective redressal is made available to consumers.

Section 2(3) of the 1996 Act expressly states that Part I of the Act does not affect any other law for the time being in force by virtue of which certain disputes may not be referred to arbitration.

The 1986 Act is a beneficial legislation enacted to give an additional remedy for the settlement of disputes, and the same cannot be taken away by Section 8 of the 1996 Act.

The Supreme Court while deciding the appropriate forum and jurisdiction of such cases has already held that the 1996 Act does not exclude the jurisdiction of the Consumer Forum to decide disputes under the 1986 Act. The amendment to Section 8(1) of the 1996 Act by Act of 2016 was never intended to interfere with the jurisdiction of Consumer Forum to decide consumer disputes.

In Skypak Couriers Ltd. v. Tata Chemicals, the Court held that even if there exists an arbitration clause in an agreement and a complaint is made by the consumer, in relation to a certain deficiency of service, then the existence of an arbitration clause will not be a bar to the entertainment of the complaint by the Redressal Agency, constituted under the Consumer Protection Act, since the remedy provided under the Act is in addition to the provisions of any other law for the time being in force.

This Supreme Court considered the provisions of 1986 Act as well as of 1996 Act, and laid down that despite there being an arbitration agreement available, a complaint under the 1986 Act which provides a remedy for consumer disputes must be proceeded before the Consumer Forum and therefore, there was no error committed by Consumer Forum on rejecting the application. There is the reason for not interjecting proceedings under the 1986 Act on the strength of an arbitration agreement by Act, 1996. The remedy under the 1986 Act is a remedy provided to a consumer when there is a defect in any goods or services. The complaint means any allegation in writing made by a complainant has also been explained in Section 2(c) of the Act. The remedy under the 1986 Act is confined to the complaint filed by the consumer as defined under the Act for defect or deficiencies caused by a service provider, the cheap and a quick remedy has been provided to the consumer which is the object and purpose of the Act as noticed above. 

The Supreme Court while deciding the disputes which are non-arbitrable in nature, made reference to the judgment in Booz Allen and Hamilton Inc. v. SBI Home Finance Limited. The Arbitral Tribunals are private fora chosen voluntarily by the parties to the dispute, to adjudicate their disputes in place of courts and tribunals which are public fora constituted under the laws of the country. Every civil or commercial dispute, either contractual or non-contractual, which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of the Arbitral Tribunals is excluded either expressly or by necessary implication. Adjudication of certain categories of proceedings are reserved by the legislature exclusively for public fora as a matter of public policy.

The Court held that this class of actions operates in rem, which is a right exercisable against the world at large as contrasted with a right in personam which is an interest protected against specified individuals. All disputes relating to rights in personam are considered to be amenable to arbitration while rights in rem are required to be adjudicated by courts and public tribunals. The well-recognised examples of non-arbitrable disputes are:

• Disputes relating to rights and liabilities which give rise to or arise out of criminal offences;
• Matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody;
• Guardianship matters;
• Insolvency and winding-up matters;
• Testamentary matters (grant of probate, letters of administration and succession certificate); and
• Eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.

 

Now, the issue to be addressed is the effect and consequences of the above stated position of law consequent to the Arbitration and Conciliation (Amendment) Act, 2015 amending Section 8. Section 2(3) gives predominance of any other law for the time being in force by virtue of 33which certain disputes may not be submitted to arbitration.

An amendment under Section 8 has been undertaken by the Parliament after taking into consideration the 246th Law Commission Report (2014). The Commission had recommended amendments to sections 8 and 11 of the 1996 Act. The scope of the judicial intervention is only restricted to situations where the Court/Judicial Authority finds that the arbitration agreement does not exist or is null and void. In so far as the nature of the intervention is concerned, it is recommended that in the event the Court/Judicial Authority is prima facie satisfied against the argument challenging the arbitration agreement, it shall appoint the arbitrator and/or refer the parties to arbitration, as the case may be. The amendment envisages that the judicial authority shall not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement or that it is null and void. If the judicial authority is of the opinion that prima facie the arbitration agreement exists, then it shall refer the dispute to arbitration, and leave the existence of the arbitration agreement to be finally determined by the arbitral tribunal. 

The Supreme Court held that the NCDRC did not commit any error in rejecting the application filed by the appellant under Section 8 and also dismissed their review petition. They held that they could not accept the argument forwarded by the appellant as it would mean collapsing of entire edifice of consumer jurisprudence, and also jurisprudence relating to trusts, tenancy disputes, industrial disputes, telecom disputes, intellectual property disputes and other non-arbitral disputes. Repeating the words of NCDRC, it was established that “the ripples of the amendment to Section 8(1) cannot be so large as to inundate the domains of other legislations and jurisprudence, painstakingly built by the Legislators and Courts, especially without any engagement, debate and critique with the foundations of these related laws.”