India: Statutory Remedy Vs. Arbitration: What Survives? Interplay Between Special Statutes And The Arbitration Act On Applicability Of Non-Obstante Clauses

Last Updated: 31 July 2017
Article by Kshama Loya Modani and Vyapak Desai

The NCDRC has held that:

  • Disputes governed by statutory enactments established for specific public purpose cannot be mandatorily referred to arbitration;
  • Amendment to Section 8 calling for reference "notwithstanding any judgment, decree or order of the Supreme Court or any Court" was solely to curtail wide enquiry by courts on existence or validity of arbitration agreements - under Sections 8 and 11, A&C Act;
  • The amendment does not intend to sidestep pre-amendment body of case law on arbitrability;
  • A contrary construction would result in mandatory reference of parties to arbitration under Section 8, dehors other special laws in force.

INTRODUCTION

A three-member panel of the National Consumer Disputes Redressal Commission ("NCDRC") in Aftab Singh and Others ("Complainants") v. Emaar MGF Land Limited and Another ("Builders")1 has held that an arbitration clause in agreements between Builders and Purchasers cannot circumscribe the jurisdiction of a Consumer Forum, notwithstanding the amendments made to Section 82 of the Arbitration & Conciliation Act, 1996 ("A&C Act").

Recognizing that the Consumer Act was envisaged as a special social legislation to protect consumer rights and provide a special dispute redressal mechanism, the NCDRC held that disputes governed by statutory enactments established to serve a particular public policy are not arbitrable.

BRIEF FACTS

This case involves batch matters. The complainants in these matters had booked residential villas/flats/plots in Projects of the Builders and accordingly executed Buyers' Agreements (Agreements). Every agreement contained an arbitration clause. Upon the Builders' failure to deliver possession of properties by the agreed date, the Complainants filed complaints before Single Member of the NCDRC. On the other hand, the Builders filed applications before the NCDRC under Section 8 of the Arbitration Act - praying for reference to arbitration as per the Agreements.

Considering the potential wide impact of the issue involving interplay between dispute redressal mechanism under the Consumer Protection Act ("CPA") and the A&C Act ("A&C Act"), the Learned Single Member referred the issue to a larger bench.

CONTENTIONS OF THE COMPLAINANTS

  • In National Seeds Corporation Limited,3 the Supreme Court held that the remedies provided under Section 3 of the CPA are in addition to, and not in derogation of, other laws in force. A consumer complaint can therefore be filed before the consumer forum taking aid of Section 3 under CPA, despite presence of an arbitration clause as per A&C Act.
  • The addition of words – "notwithstanding any judgment, decree or order of the Supreme Court or any Court" ("Non-obstante clause") in the amended Section 8 of A&C Act cannot be interpreted to alter law declared by the Supreme Court prior to amendment. The amended Section 8 does not override any other law in force.
  • The aforesaid amendment was intended solely to curtail the scope of enquiry by courts into issues of existence of arbitration agreement in applications filed under Section 11 and Section 8 of the A&C Act. It did not alter nor affect the interplay between Section 3 of the CPA and the A& C Act.

CONTENTIONS OF THE OPPOSING PARTY

  • Section 8 read with the expression in Section 5 of the A&C Act4 - "notwithstanding anything contained in any other law for the time being in force"– includes other Acts/Laws such as the CPA as well as law laid down by the Supreme Court prior to amendment.
  • The amended Section 8 of the A&C Act mandates any "judicial authority" to sidestep decisions of the Supreme Court prior to the amendment, and mandatorily refer parties to arbitration. The judgment in National Seeds Corporation Ltd., therefore, ceases to be a valid precedent.
  • A combined reading of Section 5 and amended Section 8 implies that notwithstanding provisions of the CPA and pre-amendment judgments denying reference to arbitration of consumer disputes, a judicial authority would be bound to refer parties to arbitration.

JUDGMENT

The NCDRC rejected the contentions of the Builders and held that an arbitration clause in the Agreements cannot circumscribe the jurisdiction of a Consumer Fora, notwithstanding the amendments to Section 8 of the A&C Act. The reasoning of the NCDRC is as follows:

'Arbitrability' of certain disputes

The NCDRC analysed principles on arbitrability of certain types of disputes, as culled out in landmark cases of the Supreme Court viz. Booz Allen Hamilton,5 Vimal Kishore Shah,6 Natraj Studios7 and Ayyaswamy.8 In particular, it relied upon jurisprudence on non-arbitrability of consumer disputes,9 or to be accurate, on recourse to special remedy under the CPA - rather than arbitration under the A&C or civil suits under the Code of Civil Procedure.

In these decisions, rendered prior to amendment of Section 8 of the A&C Act, the Supreme Court had placed reliance on Section 3 of the CPA and held that the legislature intended to provide a remedy in addition to the consentient arbitration or the civil action in a suit. Hence, the remedy of approaching a consumer forum was not in derogation of the A&C Act by mere presence of an arbitration clause under the Agreements.

Amendment to Section 8, A&C Act vs. law on arbitrability

The amended Section 8(1) states that: the judicial authority shall refer parties to arbitration, inter alia "notwithstanding any judgment, decree or order of the Supreme Court or any Court..." The NCDRC held that the Non-obstante clause under the amended provisions was not intended to, and in fact cannot, undo existing jurisprudence under the CPA on adjudication of consumer disputes before consumer fora.

The NCDRC looked into the legislative history of the amendments to Section 8 and held that the Non-obstante clause was intended solely to curb continued application of judgments where excessive judicial power was usurped by courts while enquiring into issues of existence or validity of arbitration agreements - in the matter of appointing arbitrators under Section 11 (as in SBP10) as also in making reference to arbitration under Section 8. The NCDRC held that interpretation of the Non-obstante clause to ignore the entire body of pre-amendment case law would also unfasten jurisprudence related to other non-arbitrable areas of disputes - such as tenancy, trusts, crimes, insolvency etc. Such an interpretation would also tantamount to over-ruling by the Parliament of law made by the Supreme Court.

Special Legislations

The NCDRC considered the principle of exclusion of jurisdiction of a forum in the presence of a special forum under special legislations. In the context of consumer disputes, it relied on Skypack Couriers, National Seeds Corporation and Rosedale Developers.

Considering the specific case of the Indian Trusts Act, 1882, the NCDRC relied on the Supreme Court ruling in Vimal Kishore where it was held that, "since sufficient and adequate remedy is provided under the Trusts Act, 1882 for deciding the disputes in relation to trust deed, trustees and beneficiaries, the remedy provided under the Arbitration Act for deciding such disputes is barred by implication". The NCDRC reiterated that public policy requires that parties cannot also be permitted to contract out of the legislative mandate which requires certain kind of disputes to be settled by Special Courts constituted by the Act.11

Object of CPA vs. A&C Act

The NCDRC further observed the importance of remedies available under the CPA and the special object and purpose of a beneficial legislation such as the CPA in protecting interests of consumers. The NCDRC reasoned that allowing Section 8 to oust the jurisdiction of consumer fora would set at naught the entire purpose and object of the Consumer Act, which was to ensure speedy, just and expeditious resolution and disposal of consumer disputes. Exposure of such disputes to the Arbitration Act could invite application of portions of the A&C Act that are enforceable only through Civil Courts. This would be repugnant to the manifest purpose underlying the enactment of the CPA. The NCDRC also briefly relied on Section 2(3)12 of the A&C Act which recognizes schemes under other legislations that make disputes non-arbitrable.

The NCDRC finally held that in light of the overall architecture of the CPA and Court-evolved jurisprudence, amended sub-section (1) of Section 8 cannot be construed as a mandate to the Consumer Fora, constituted under the CPA, to refer the parties to arbitration in terms of the Arbitration Agreement.

ANALYSIS

This judgment is a welcome reiteration of the principle that - jurisdiction of specially constituted judicial authorities cannot be ousted by a blanket mandate to refer disputes to arbitration under the umbrella of Section 8, A&C Act. On the ground level, it provides relief to a party to avail special remedies available under a statute, despite presence of an arbitration clause. This serves to protect parties from lop-sided and sparely-negotiable standard form agreements. From another angle, parties will no longer be mandated to adopt the relatively long and expensive process of arbitration - in disputes arising under specific statutes having specific dispute redressal mechanisms.

This judgment could also be used to interpret Section 79 of the Real Estate (Regulation and Development) Act 2016 ("Real Estate Act") which bars the jurisdiction of civil courts in matters involving real estate. The NCDRC applied the reasoning in Ayyaswamy to conclude that the same principles could apply to cases under the Real Estate Act, which provides a special mechanism for resolution of disputes between buyers and builders.

The reasoning of this judgment is simple and well-founded on object of beneficial legislations, coupled with recourse to special remedies provided there-under. However, what is of utmost importance is interpretation of the Non-obstante clause under the amended Section 8, A&C Act. Delving into the legislative intent and mischief attempted to be remedied by this clause, it is clear that the Non-obstante clause was added to undo the effect of judgments like SBP & Co. which opened floodgates of enquiry by courts into existence / validity of arbitration agreements - at pre-arbitration stages of Section 8 and Section 11. This power could also be sufficiently exercised by arbitral tribunals under Section 16 of the A&C Act, except in certain circumstances (as laid out in Ayyasamy).13

Therefore, the Non-obstante Clause is likely to assist in ignoring pre-amendment case law that widens court-intervention. However, it certainly cannot be interpreted to upset the long-standing and carefully examined body of case law that determines types of disputes that are or are not arbitrable. In this regard, a combined reading of Section 5 and Section 8 - alongwith Section 2(3) of the A&C Act - is crucial to acknowledge laws under which certain disputes cannot be submitted to arbitration.

The Supreme Court considered this issue of arbitrability in the context of Section 8, A&C Act in the landmark case of Booz Allen. It held that all aspects of arbitrability have to be decided by the court seized of the suit, and cannot be left to the decision of the Arbitrator. Even if an arbitration agreement exists and the dispute is covered therein, the court will refuse to refer the parties to arbitration - if the subject matter of the suit is capable of adjudication only by a public forum or the relief claimed can only be granted by a special court or Tribunal.

The NCDRC is a special forum constituted under the CPA for adjudication of consumer disputes. It is therefore, needless to mention that the NCDRC will be the proper adjudicatory forum for any dispute falling under the CPA, despite existence of an arbitration agreement. This reasoning also finds place in rulings of the Supreme Court – notable ones being Natraj Studios14 for disputes relating to leave and license under the then existing Bombay Rent Act,15 and Vimal Kishore for disputes arising under the Indian Trusts Act, 1882.

Does this imply that arbitration cannot be resorted to for adjudication of disputes falling under specific statutes? If a party submits to arbitration by filing its statement of defence, or files its statement of claim followed by a corresponding statement of defence by the opposing party, would it constitute submission to arbitration? Would such submission, once crystallized, preclude a party from adopting the statutory remedy? These issues call for scrutiny and purposive interpretation of the statute vis-à-vis the A&C Act.

Footnotes

1 Consumer Case No. 701 of 2015
2 Section 8(1) under A&C Act, 1996: 8. Power to refer parties to arbitration where there is an arbitration agreement.— (1) A judicial authority before which an action is brought in a matter which 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.
Amended Section 8(1) under A&C Act, 2015:
8(1). "(1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, 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."
3 National Seeds Corporation Limited v. M. Madhusudhan Reddy & Anr. (2012) 2 SCC 506
4 Section 5. Extent of judicial intervention.—Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.
5 Booz Allen and Hamilton Inc. v. SBI Home Finance Limited & Ors., (2011) 5 SCC 532
6 Vimal Kishor Shah & Ors. v. Jayesh Dinesh Shah, (2016) 8 SCC 788
7 Natraj Studios (P) Ltd. v. Navrang Studios, (1981) 1 SCC 523
8 A Ayyasamy Vs. A Paramasivam & Ors., (2016) 10 SCC 386
9 Skypak Couriers Ltd. v. Tata Chemicals Ltd., AIR 2000 SC 2008; Secretary, Thirumugugan Cooperative Agricultural Credit Society Vs. M. Lalitha (through LRs) & Ors., (2004) 1 SCC 305; Fair Air Engineers Pvt. Ltd. & Anr. Vs. N.K. Modi, (1996) 6 SCC 385; National Seeds Corporation Limited; Rosedale Developers Pvt. Ltd. Vs. Aghore Bhattacharya, (2015) 1 WBLR 385 (SC)
10 SBP v Patel Engineering, (2005) 8 SCC 618
11Natraj Studios
12 "2. Definitions... (3) 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."
13Please see out hotline on Ayyasamy case here.
14Natraj Studios (P) Ltd vs Navrang Studios & Anr., AIR 1981 SC 537
15Bombay Rents, Hotel and Lodging House Rates Control Act, 1947

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Kshama Loya Modani
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions