India: Arbitration As An Alternative Dispute Resolution For Consumer Disputes

 The preamble of the consumer protection act, 1986 declares that the act had been enacted to protect the interest of the consumers from exploitation and to present the consumer complaints in appropriate consumer court so that the objective of the Act is achieved and justice is done to the consumers. "The importance of the Act lies in promoting welfare of the society by enabling the consumer to participate directly in the market economy. It attempts to remove the helplessness of a consumer which he faces against powerful business, described as, 'a network of rackets' or a society in which, 'producers have secured power' to 'rob the rest' and the might of public bodies which are degenerating into storehouses of inaction where papers do not move from one desk to another as a matter of duty and responsibility but for extraneous consideration leaving the common man helpless, bewildered and shocked"8. On the other hand, Arbitration as an alternative dispute resolution has been on boom between the large corporations as well as private individual parties. The reason for such a change in trend has been its fast mechanism of redressal of the disputes, which has been major concern for the judiciary as long pending cases in court has been of concern for the disputing the parties. According to section 7 of the arbitration and conciliation act, 1996, "arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

National consumer disputes redressal commission, in its judgment Aftab singh v emaar mgf land limited & anr9, discussed in length the issue "Whether the Arbitration Act mandates Consumer Forums, constituted under the Consumer Protection Act, 1986 ("the Consumer Act"), to refer parties to arbitration in terms of a valid arbitration agreement, notwithstanding other provisions of the Arbitration Act and the Consumer Act?"

In A. Ayyasamy vs A. Paramasivam10, Justice D.Y Chandrachud had held that certain category of disputes as a matter of public policy are assigned to the public fora and those are excluded from public fora and authoritively opined that forum will not be barred to entertain complaint under the consumer act, has observed as under:-

"Hence, in addition to various classes of disputes which are generally considered by the courts as appropriate for decision by public fora, there are classes of disputes which fall within the exclusive domain of special fora under legislation which confers exclusive jurisdiction to the exclusion of an ordinary civil court. That such disputes are not arbitrable dovetails with the general principle that a dispute which is capable of adjudication by an ordinary civil court is also capable of being resolved by arbitration. However, if the jurisdiction of an ordinary civil court is excluded by the conferment of exclusive jurisdiction on a specified court or tribunal as a matter of public policy such a dispute would not then be capable of resolution by arbitration".

Section 3 of the consumer protection act states that "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"11, the act protects the right of the consumers and the remedy provided under the act is in addition to the provisions of any other law.

In many other leading cases it has been the object to understand the preamble of the act, as the act is social legislation to protect the rights of the consumer, it becomes necessary for the court to interpret the act in same sence. The arbitrary nature of the consumer dispute will nullify the main object of the act as consumer will have to fight for its right in arbitration which is pro corporate and it ends the meaning of the formation of the consumer redressal commissions. From the preamble of the Consumer protection act, 1986, it is apparent that the main objective of the act is to protect the rights and interest of the consumer by providing mechanism through which cheaper, expeditious, easier and effective redressal is made available to the consumers. Supreme court held and observed that "The preamble of the Act declares that it is an Act to provide for better protection of the interest of consumers and for that purpose to make provision for the establishment of Consumer Councils and other authorities for the settlement of consumer disputes and matters connected therewith"12.

As per the amended section 8 (1) of the Arbitration and conciliation act, 1996, the forum should be "Judicial Authority" before which the parties applies for arbitration, should refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement agrees. The language of the amended section clearly states that the dispute should be referred to the arbitration if a party applies to a judicial authority unless the judicial authority finds that no valid agreement exists. The Supreme Court of India in Fair Air Engineers Pvt Ltd & Anr vs. N.K. Modi13, while holding that the consumer forum were judicial authority, inter alia observed that "It is seen that Section 3 envisages that the provisions of the Act are in addition to and are not in derogation of any other law in force. It is true, as rightly contended by Shri Suri, that the words 'in derogation of the provisions of any other law for the time being in force' would be given proper meaning and effect and if the complaint is not stayed and the parties are not relegated to the arbitration, the Act purports to operate in derogation of the provisions of the Arbitration Act. Prima facie, the contention appears to be plausible but on construction and conspectus of the provisions of the Act we think that the contention is not well founded. Parliament is aware of the provisions of the Arbitration Act and the Contract Act, 1872 and the consequential remedy available under Section 9 of the Code of Civil Procedure, i.e. to avail of right of civil action in a competent court of civil jurisdiction. Nonetheless, the Act provides the additional remedy".

Any dispute between the private parties can be adjudicated by arbitration as per the choice of the parties as long as disputes are not barred by legislation. The Supreme Court of India in the case of Booz Allen and Hamilton Inc. v SBI Home Finance Limited14 explained the conceptual framework of what kinds of disputes are arbitrable and non arbitrable. "Adjudication of certain categories of proceedings are reserved by the Legislature exclusively for public fora as a matter of public policy. Certain other categories of cases, though not expressly reserved for adjudication by a public fora (courts and Tribunals), may by necessary implication stand excluded from the purview of private fora. Consequently, where the cause/dispute is inarbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration, under Section 8 of the Act, even if the parties might have agreed upon arbitration as the forum for settlement of such disputes." The courts are required to draw a line between what is arbitrable and what is not arbitrable by ensuring that sensitive matters of public interest falls within the principle jurisdiction of the Courts and disputes between private parties can be freely choose to do arbitration rather than litigating their differences. Supreme court in its various decisions has interpreted section 3 of the consumer protection act and held that the act is enacted with the object to provide for better interest of the consumers and for this purpose consumer councils has been established so that the interest of the consumer can be protected by providing for better redressal, mechanism through which cheaper, easier, expeditious and effective redressal is made available to consumers. The court in Aftab Singh (Supra), further held that consumer act was envisaged as a special social legislation to protect consumer rights. Unlike other legislations that create dispute resolution mechanism between level players, this legislation established a level-playing field between unequal players i.e consumers and large Corporations.

The Larger Bench of NCDRC while deciding the issue held that, if Arbitration is allowed, it would prove to be against the entire purpose and object of the act i.e to protect the interest of the consumers by ensuring speedy, just and expeditious resolution and disposal of the consumer disputes. Exposure of consumer disputes to the arbitration will invite application of the arbitration act which is enforceable through civil court, which would be against the purpose of the consumer act. The court further concluded that the statutory enactments which are established with a specific purpose to adjudicate and govern specific disputes, are not arbitrable as there are vast domains of the legal universe that are non-arbitrable and kept distance at a distance from private dispute resolution.

Presently, the case has been taken up by the Hon'ble Supreme Court of India to examine the correctness of the decision of the Larger bench of NCDRC in Aftab singh v emaar mgf land limited & anr, which has held that the consumer disputes cannot be settled by Arbitration. The Hon'ble Supreme Court should find a balance towards the applicability of both the acts so that the legislature philosophy and social objective of consumer protection act, 1986 and Arbitration and Conciliation act, 1996 could be achieved while protecting the interest and rights of the parties.


8 Lucknow development authority v. M.K

9 III(2017)CPJ270(NC)

10 (2016) 10 SCC 386

11 Section 3, Consumer Protection Act, 1986 12 The Secretary, Thirumurugan Co-operative Agricultural Credit Society Vs. M. Lalitha (Dead) through Lrs. and Ors., AIR2004SC448

13 AIR 1997 SC 533

14 (2011) 5 SCC 532

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