India: Arbitration And Conciliation Act, 1996 - Arbitration Clause Cannot Oust The Jurisdiction Of Consumer Courts

Last Updated: 18 December 2018
Article by AMLEGALS  

IN THE SUPREME COURT OF INDIA
M/S. EMAAR MGF LAND LIMITED V. AFTAB SINGH
(REVIEW PETITOIN (C) Nos. 2629-2630 OF 2018)
(ARISING OUT OF CIVIL APPEAL NOS. 23512-23513 OF 2017)
DATED: 10.12.2018

FACTS

The appellant (hereinafter referred to as Emaar MGF) is a company which has acquired and purchased land to develop an integrated township in District Mohali, Punjab. The respondent (Aftab Singh) was the buyer of a villa in the project of Emaar.

A Buyer's agreement was entered dated 06.05.2008 between Emaar MGF and the respondent. In the Buyer's agreement, there was an arbitration clause providing for settlement of disputes between the parties under the 1996 Act.

When a dispute arose between the parties, the respondent approached NCDRC (National Consumer Dispute Redressal Commission) and filed a complaint.

Emaar MGF appeared and made an application for extension of time for filing the written statement. Appellant also opposed the complaint and filed an application under Section 8 of the Arbitration Act for referring the matter to arbitration as per clause 43 of the Buyers Agreement.

Single Member bench of NCDRC observed that the matter involved legal issues of vital importance and far reaching implications and thus referred the matter to a larger bench of NCDRC.

Consequently, a Three-member Bench of NCDRC was constituted to hear the applications. This bench held that an arbitration clause in a contract cannot circumscribe the jurisdiction of a Consumer Forum.

The NCDRC observed that there are disputes which are to be adjudicated and governed by specific public purpose statutory enactments which are established for to sub-serve a particular public policy, and thus these are not Arbitrable notwithstanding the amendments made to Section 8 of the Arbitration Act.

Based upon this reference, the single member bench of NCDRC took up the consumer complaint and other applications; and, consequently rejected the Section 8 Application by Emaar MGF.

Emaar MGF filed application in Delhi H.C challenging the above order, however, the H.C held that appeals filed by the appellant under Section 37(1)(a) of the 1996 Act have been wrongly brought before it, and refused to entertain the appeals and returned them to be presented before the appropriate Appellate Court.

Consequently, Emaar MGF filed Civil Appeal challenging the judgment of Larger Bench of NCDRC as well as the consequential order of NCDRC Single bench in S.C. However, both the appeals were dismissed by S.C.

Emaar MGF thus filed review petitions to review the judgment of S.C.

ISSUES BEFORE SC

Following were the principal issues which arose for consideration in these petitions:

  1. Whether the NCDRC committed an error in rejecting the application of the appellant filed under Section 8 of 1996, Act praying for reference to the arbitrator as per Arbitration clause in the builders agreement.
  2. Whether after the amendments made in Section 8 by the Arbitration and Conciliation (Amendment) Act, 2015 the application filed under Section 8 by the appellant could not have been rejected in view of the substantial changes brought in the statutory scheme by inserting the words "notwithstanding any judgment, decree or order of the Supreme Court or any Court" in sub-section (1) of Section 8.
  3. Whether NCDRC as well as this Court committed an error in not adverting to the above statutory amendment which completely changed the legal position as was earlier-existing prior to the aforesaid amendment?
  4. Whether by the insertion of words "notwithstanding any judgment, decree or order of the Supreme Court or any Court" under Section 8(1) by the (Amendment) Act, 2015 legislature intended to do away with the decision of judgments of Supreme Court laying down that Consumer Protection Act being special remedy can be initiated and continued despite there being any arbitration agreement between the parties?

OBSERVATION

The Court firstly elaborated on the evolution of Consumer Protection law in the Country.

The Court then took note of the provisions of Arbitration act with reference to Consumer Protection Act.

On reading the provisions in consonance with each other, it held that the complaint under Consumer Protection Act being a special remedy, despite there being an arbitration agreement the proceedings before Consumer Forum have to go on and no error was committed by Consumer Forum in rejecting the application.

The Court, with reference to the Arbitration Act and Consumer Protection Act had finally held that:

There is reason for not interjecting proceedings under Consumer Protection Act on the strength an arbitration agreement by Act, 1996.

The Court further noted that:

"......Not only the proceedings of Consumer Protection Act, 1986 are special proceedings which were required to be continued under the Act despite an arbitration agreement, there are large number of other fields where an arbitration agreement can neither stop or stultify the proceedings."

&

"......The complaints filed under the Consumer Protection Act can also be proceeded with despite there being any arbitration agreement between the parties which have been well settled by the catena of decisions as noticed above."

The Court while addressing the issue of 'effect and consequence of above position of law' after the 2015 amendment of Sec. 8 of "the Act" in relation to proceedings under Consumer Protection Act, noted that:

"......While carrying out amendment under Section 8(1) of Act, 1996, the statutes providing additional remedies/special remedies were not in contemplation."

CONCLUDING VIEW

In the instant review petition, the Supreme Court  stated that:

In the event, the interpretation as put by the learned counsel for the petitioner is accepted, Section 8 has to be read to override the law laid down by this Court in reference to various special/additional jurisdictions as has been adverted to and noted in judgment of this Court in Booz Allen and Hamilton Inc. vs. SBI Home Finance Limited and others, (2011) 5 SCC 532 which was never the intent of amendment in Section 8.

The Supreme Court concluded that:

The amendment in Section 8 cannot be given such expansive meaning and intent so as to inundate entire regime of special legislations where such disputes were held to be not Arbitrable"

However, Supreme Court also 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. It is only the case where specific/special remedies are provided for and which are opted by an aggrieved person that judicial authority can refuse to relegate the parties to the arbitration."

In conclusion, S.C dismissed the review petition, and noted that they did not find that any error has been committed by the NCDRC in rejecting the application filed by the appellant under Section 8.

S.C thus held that no exception can be taken to the dismissal of the appeals by this Court against the judgment of NCDRC.

AMLEGALS REMARKS

In this case, Supreme Court's judgement clearly expounds that Arbitrability has to be based on jurisprudence built by the Supreme Court in harmony with the legislature and keeping in mind the public policy objective.

This judgement will prove to be especially relevant to future instances where arguments are put forth regrading 'serious allegations in contravention to public-policy' for which there are dedicated statutes enacted by the legislature.

This content is purely an academic analysis under "Legal intelligence series".

© Copyright AMLEGALS.

Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion, advice or any advertisement. This document is not intended to address the circumstances of any particular individual or corporate body. Reade should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a particular situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.

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