India: A Valid Arbitration Clause Cannot Oust Jurisdiction Of The Consumer Forums In A Builder's Agreement

In order to protect the customers from the situation arising out of unequal bargaining power, the Legislature has tried to provide an additional remedy under Section 3 of the Consumer Protection Act, which states that the provisions of the Act are in addition to and not in derogation of the provisions of any other law prevailing for the time being.30

Section 3 of the Consumer's Protection Act (hereinafter referred to as "CP Act") prima facie appears to be in direct conflict with the amended Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "Arbitration Act") which states that in the situations of dispute matters which are arbitrable and the presence of a valid arbitration agreement, the reference to an arbitration is must once invoked by a party. There are many case laws on the issue and the law is well settled that notwithstanding the provisions under Section 8 of the amended Arbitration Act, the arbitration agreements do not bar the jurisdiction of the National Consumer Disputes Redressal Commission (hereinafter referred to as "NCDRC") and other consumer forums. The issue of the extent of applicability of the amended Section 8(1) of the Arbitration Act with respect of the Consumer Foras established under the Consumer Protection Act 1986 was reconsidered at length by a Full Bench of the NCDRC dated 13.07.2017 in the case of Aftab Singh v Emaar MGF Land Limited & Anr31 wherein it was again reiterated that the Consumer Courts by the virtue of being a special act constituted to serve a public purpose, the provisions of the amended Arbitration Act will not apply to it. The present case originated from the complaints filed by a group of apartment owners before the Commission against Emaar MGF Land Private Limited i.e. the Builder, who failed to give delivery of the plots 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.

Contention of the Petitioners

The main contention of the petitioners was that the remedies that are provided by the CP Act are in addition to and not in exclusion of the other laws is force. This was argued on the basis of the ratio laid down in the case of National Seeds Corporation Limited v M Madhusudhan Reddy [(2012) 2 SCC 506] . It was also argued that the CP Act is a beneficial legislation and, therefore, the intention behind its enactment ought to be advanced. A consumer complaint can therefore be filed before the consumer forum taking aid of Section 3 under CP Act, despite presence of an arbitration clause as per the Arbitration Act. The argument was stretched to include that the intention of the legislature was never to bar the jurisdiction of the Consumer Courts, even under the un-amended Arbitration Act in the existence of an arbitration clause. The argument in this regard was that the addition of words – "notwithstanding any judgment, decree or order of the Supreme Court or any Court" in the amended Section 8 of the Arbitration 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 because 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 Arbitration Act and thereby it did not alter nor affect the interplay between Section 3 of the CP Act and the Arbitration Act.

Contention of the Respondent

On the other hand, the Respondent contended that the Consumer Courts are 'judicial authority' within the meaning of the amended Arbitration Act, therefore they are required to refer parties to arbitration, if a valid arbitration clause exists. The amended act is clear in its wording that the disputes are required to refer parties to arbitration irrespective of the any decisions pending in Hon'ble High Court, or the Hon'ble Supreme Court, and thereby Article 141will be of no assistance to the parties. The respondent also contended that since the Amended Section 8 of the Arbitration Act mandates any "judicial authority" to sidestep the decisions of the Supreme Court, prior to the amendment. Therefore, the Respondent argued that the judgment in National Seeds is of no use to the petitioner.

CONCLUSION

The commission examined the Law Commission Report in order to gauge the intent behind the amendment to Section 8 of the Arbitration Award, and came to the conclusion that, the purpose of this amendment was dedicated to the scope and nature of the permissible pre-arbitral judicial intervention and clearly did not intend to refer or disturb the view laid down in the National Seeds case with respect to the non arbitrability of the consumer disputes. The Commission 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'. The Hon'ble NCDRC noted that disputes are not characterized as nonarbitrable on the whims and fancies of the legislature but based on jurisprudence built by the Hon'ble Supreme Court in harmony with the legislature and keeping in mind the public policy objective. By the Amended Act, particularly Section 8(1), the legislature could not have intended to undo this entire jurisprudence. In addition to this, the Hon'ble NCDRC also looked into the importance of the remedies available under the CP Act and the special object and the purpose of a beneficial legislation such as CP Act in protecting the interest of the consumers, it came to the reasoning that the entire purpose of the CP Act was to ensure expeditious resolution and disposal of the consumer disputes, reference of such disputes to arbitration would involve the application of the portions of the Arbitration Act that are enforceable only through the civil courts and this would be repugnant to purpose of the CP Act.

Footnotes

30 Act not in derogation of any other law.—The provisions of this Act shall be in addition to and not in derogation of the provisions of any other law for the time being in force.

31 [Consumer Case No 701 of 2015]

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