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Article: Can Jurisdiction of Consumer Courts be ousted by an Arbitration Clause?
Author: Nayantara Malhotra
Introduction
Consumer laws and arbitration laws in the country seek to provide speedy dispute resolution mechanisms. However, the question that arises is that if a consumer dispute arises out of an agreement having an arbitration clause, would the consumer forum have jurisdiction to decide the matter, or would the matter be referred to arbitration?
Relevant provisions of Arbitration and Consumer Protection Laws
According to Section 8 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), when a matter which is the subject of an arbitration agreement is brought before a judicial authority, then the judicial authority shall mandatorily refer the matter to arbitration. Section 2(3) of the Arbitration Act clarifies that Part I of the Arbitration Act does not affect any other law which bars any dispute from being referred to arbitration.
Sections 3 and 100 of the Consumer Protection Act, 1986 (“1986 Act”) and Consumer Protection Act, 2019, respectively state that the Consumer Protection Acts are not in derogation of any other law in force.
Since there is no express bar in the Consumer Protection Acts on consumer disputes being referred to arbitration, and the Acts are not in derogation of any other law in force, a plain reading of the aforesaid provisions may lead one to conclude that a consumer dispute arising out of an agreement containing arbitration clause would have to mandatorily be referred to arbitration.
This issue came up before the Supreme Court of India in M/s. Emaar MGF Land Limited v. Aftab Singh [Review Petition (C) Nos. 2629-2630 of 2018 in Civil Appeal Nos. 23512-23513 of 2017] (“Emaar MGF”).
Factual Matrix, Observations and Decision in Emaar MGF
In Emaar MGF, the appellant, a real estate developer, who was sued on account of its failure to deliver possession of a villa to the respondent, challenged the National Consumer Disputes Redressal Commission’s (“NCDRC”) order which held that consumer disputes are non-arbitrable, before the Supreme Court. The NCDRC was of the view that disputes governed by laws which sub-serve a public policy are not arbitrable.
However, the appellant’s appeal was dismissed by the Supreme Court. Consequently, the Appellant filed a review petition before the Court.
The appellant contended that the NCDRC being a judicial authority could not have refused to refer the matter to arbitration in light of Section 8 of the Arbitration Act. Whereas, the respondent contended that the 1986 Act provides for an additional beneficial remedy to consumers which cannot be taken away by Section 8 of the Arbitration Act.
Accepting the respondent’s contentions, the Supreme Court observed, “…the legislature intended to provide a remedy in addition to the consentient arbitration….Section 34 of the Act does not confer an automatic right…on the exercise of the power by the judicial authority under the Act. It is a matter of discretion….though the District Forum, State Commission and National Commission are judicial authorities…in view of the object of the Act and by operation of Section 3 thereof….it would be appropriate that these forums created under the Act are at liberty to proceed with the matters in accordance with the provisions of the Act rather than relegating the parties to an arbitration proceedings….The reason is that the Act intends to relieve the consumers of the cumbersome arbitration proceedings or civil action unless the forums on their own…come to the conclusion that the appropriate forum for adjudication of the disputes would be otherwise those given in the Act.”
The Court also observed, “Every civil or commercial dispute…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.” (emphasis supplied)
The Court further added that, “…in the event a person entitled to seek an additional special remedy provided under the statutes does not opt for the additional/special remedy and he is a party to an arbitration agreement, there is no inhibition in disputes being proceeded in arbitration.”
Conclusion
A consumer has the choice to either refer the matter to arbitration or seek remedy before the appropriate consumer forum. However, there is an implied bar on a matter being referred to arbitration if the consumer wishes to pursue the matter before a consumer court.
Such a liberal interpretation of the provisions of arbitration and consumer laws seems to rightly protect the interests of those consumers who may not have the requisite resources for seeking relief through arbitration. Moreover, given that the consumer protection laws aim at providing a simpler and cheaper mechanism for dispute resolution, consumers should not be precluded from availing the benefits of the special law, merely on account of presence of an arbitration clause in an agreement.
Disclaimer: Views, opinions, interpretations are solely those of the author, not of the firm (ALG India Law Offices LLP) nor reflective thereof. Author submissions are not checked for plagiarism or any other aspect before being posted.
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