India: The Consumer Is Paramount – National Consumer Commission's Assertion Of Its Jurisdiction

Last Updated: 19 July 2017
Article by Anuj Berry, Malak Bhatt and Reva Mann

Recently, the National Consumer Disputes Redressal Commission ("Commission"), in its judgment dated 13.07.2017, adjudicated on the extent of applicability of the amended Section 8(1) of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") with respect to the Consumer Forums established under the Consumer Disputes Act, 1986 ("Consumer Act"). Section 8 of the Arbitration Act deals with the obligation of any judicial authority to refer a dispute to arbitration when a valid arbitration agreement exists between the parties.

The case originates from complaints filed by 30 apartment owners before the Commission against Emaar MGF Land Private Limited i.e. the Builder, who failed to give delivery of the plots committed to the buyers as per the timeline laid down in the Buyer's Agreement executed between both parties. The Builder filed applications under Section 8 of the Arbitration Act and argued that the Commission is a 'judicial authority' as per Section 8  of the Arbitration Act and is therefore mandated to refer parties to arbitration on the basis of a valid arbitration agreement as is present in the Buyers' Agreements executed between the Builders and the plot owners. Per contra, the lynchpin of the Complainant's argument was that Section 8 does not have the effect of nullifying precedents that have held that the remedies provided under the Consumer Act are in addition to and not in derogation of other laws as per Section 3 of the Consumer Act.

Moreover, the Complainants argued that remedy of arbitration does not operate as a bar to the jurisdiction of the Consumer Courts by virtue of the purpose and object of the Consumer Act as was held in National Seeds Corporation Ltd. v. Madhusudan Reddy & Anr.1 (National Seeds Case). On the other hand, the Builders distinguish the decision in the National Seeds Case on the fact that the Hon'ble Supreme Court had not dealt with the option of arbitration available to the opposite parties in the said case.

In what amounted to a relief for various flat owners who have filed similar cases for failure of delivery of plots by various builders, the Commission in the present case rejected the argument on the Builders and held that under the Scheme of the Consumer Act, the Commission is not mandated to refer disputes to arbitration when the disputes have been brought in under the Consumer Act.

In light of the above, this article seeks to analyse the Commission's judgment and the implications thereof:

Commission's reference to a 3 Judge Bench

The primary issue surrounding these applications is if the amended Section 8 of the Arbitration Act has the power to oust the jurisdiction of the consumer courts, which were established to provide better and effective redressal to consumers for deficiency in service. It is pertinent to note that this issue was referred to a larger bench considering the implication it has on the mechanism for settlement of consumer disputes falling within the ambit of the Consumer Act.

In this regard, the Hon'ble Supreme Court had previously held in the National Seeds Case that the Commission is not mandated to refer a dispute to arbitration when the party has chosen to raise a consumer dispute. Further, the Supreme Court in a plethora of cases had also distinguished between arbitrable and non-arbitrable dispute – For Eg: the Court has consistently held that while rights in rem cannot be arbitrable, disputes concerning in personam rights can be referred to arbitration.2

In light of the above, the question before the Commission in the present case was whether authorities under the Consumer Act would be bound to refer parties to arbitration when a valid arbitration agreement exists between the parties and in lieu of the amended Arbitration Act which puts a greater thrust to encourage arbitration.

Analysing the Commission's Judgment

The Builder's primary argument rested on the amendment to Section 8 which states that a judicial authority will refer the parties to arbitration, "notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists." On the basis of the above, it was argued that the law laid down by the Supreme Court basis the pre-amendment Act would not apply and an express mandate to refer parties to arbitration is prescribed under the amended Section 8 of the Arbitration Act. Further, they argued that such an interpretation is in furtherance of Section 5 of the Arbitration Act, which seeks to prevent judicial intervention in matters falling squarely within the jurisdiction of the Arbitration Act.

The Commission rejected the said argument and held that prior to the amendment stated above, the law was settled that the Consumer Commission / Forum was not bound to refer disputes to arbitration under Section 8 of the Arbitration Act.3 In order to understand whether the amendment changes that position, the Commission proceeded to examine the law on arbitrability of disputes as follows:

(a) Arbitrability as a Concept

The Commission dealt with the principles surrounding arbitrability of disputes and took note of the fact that there was never a fully formulated theory on which disputes are arbitrable and which are not. However, it recognized the cardinal principle that arbitration cannot be resorted to for resolution of disputes which warrant the intervention of the State such as matrimonial disputes, guardianship matters etc. These form a separate category of disputes, which are non-arbitrable by their nature and require the intervention of the State.4

A similar examination was seen in Vimal Kishor Shah & Ors. v. Jayesh Dinesh Shah5 where pursuant to the analysis of the provisions of the Trusts Act, 1882, the Supreme Court held that the Trust Act provides for adequate and sufficient remedies related to the affairs of the trust and remedies provided under the Arbitration Act are barred by implication. This flows from the principle of interpretation that, where there is a specific remedy provided for in a statute, it deprives any party from resorting to an alternate remedy other than the one mentioned in the said statute.6

(b) Arbitrability of Consumer Disputes

Having outlined the principle pertaining to the arbitrability of disputes, the Commission proceeded to analyse the application of the said principle to consumer disputes. At the outset, the Commission held that it was legally untenable to state that a mere amendment of Section 8 of the Arbitration Act would automatically oust the jurisdiction of the Consumer Court.

The Commission recognized that the main purpose of enacting the Consumer Act, over and above existing mechanism provided before the Civil Courts under the Code of Civil Procedure, 1908 (CPC) was to give the consumer a level playing field between unequal players i.e. service providers and large corporations. It held that it was necessary for the Consumer Courts to take a pragmatic view of the rights of the consumer in light of their disadvantageous position vis-ŕ-vis the large corporations and/or other service or goods providers.7

Accordingly, considering the statutory scheme of the Consumer Act and its object to serve a public purpose, the Commission held that the disputes falling under the said Act would be non-arbitrable.

(c) Effect of amendment to Section 8

The Commission then examined the Law Commission Report in order to outline the purpose behind the amendment to Section 8 of the Arbitration Act. In this regard, the Commission held that the purpose of this amendment was dedicated to the scope and nature of permissible pre-arbitral judicial intervention with respect to the 'conduct of arbitrations' and did not intend to refer or disturb the views of the Hon'ble Supreme Court in National Seeds Case with respect to the non-arbitrability of consumer disputes. The Commission also referred to Section 2(3) of the Arbitration Act, which clearly recognizes the non-arbitrable nature of certain disputes by stating that 'This Part shall not affect any other law for the time being in force by virtue of which certain disputes may not be submitted to arbitration'.

Accordingly, the Commission came to the following conclusions –

  1. The disputes which are to be adjudicated and governed by statutory enactments, established for specific public purpose to sub-serve a particular public policy are not arbitrable;
  2. There are vast domains of the legal universe that are non-arbitrable and kept at a distance from private dispute resolution;
  3. The subject amendment was meant for a completely different purpose, leaving status quo ante unaltered and subsequently reaffirmed and restated by the Hon'ble Supreme Court;
  4. Section 2(3) of the Arbitration Act recognizes schemes under other legislations that make disputes non-arbitrable and
  5. In light of the overall architecture of the Consumer 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 Act, to refer the parties to Arbitration in terms of the Arbitration Agreement. 8

Implication of the Commission's Judgment

The Commission's judgment comes as a relief for various flat owners who have similar Agreements with Builders with an arbitration clause. The Commission's judgment forecloses the Builders from filing similar applications in such other pending cases. However, the judgment also raises two fundamental legal issues:

  1. In terms of the conclusion arrived at, the Commission hints at consumer disputes being non-arbitrable. Hence, it may very well be possible that parties under various service related agreement may prefer to approach the Consumer Forums to escape the arbitration clause agreed between the parties. Such an approach may undermine the purpose and intent of the Arbitration Act.
  2. The Commission's reference to National Seeds Case to analyse the arbitrability of consumer disputes (a judgment rendered prior to the amendment), may have an important bearing on the analysis of the amendment to Section 8, which specifically states that a judicial authority shall refer parties to arbitration regardless of any prior judgment or order.

It is probable that the Commission's judgment will be challenged before the Supreme Court, at which stage it shall be interesting to see the interpretation adopted by the Supreme Court on this issue.

Footnotes

1. (2012) 2 SCC 506.

2. Booz Allen and Hamilton Inc. v. SBI Home Finance Limited & Ors. (2011) 5 SCC 532, Vimal Kishor Shah & Ors. v. Jayesh Dinesh Shah (2016) 8 SCC 788, Natraj Studios (P) Ltd. v. Navrang Studios (1981) 1 SCC 523

3. Supra at 1

4. Booz Allen and Hamilton Inc. v. SBI Home Finance Limited & Ors. (2011) 5 SCC 532

5. (2016) 8 SCC 788

6. Premier Automobiles Ltd. v. Kamlekar Shantaram Wadke, (1976) 1 SCC 496

7. National Insurance Company Ltd. V. Hindustan Safety Glass Works Ltd.

8. Supra at 1

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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