Introduction

The Supreme Court, in a recent judgment1 was tasked with considering: -

  1. whether a judicial authority namely, the consumer courts under the Consumer Protection Act, 2019 (Consumer Protection Act) is bound to refer the parties to arbitration in view of an application made under Section 8 of the Arbitration and Conciliation Act 1996 ("Arbitration Act");
  2.             whether the High Court ought to have referred the parties to arbitration considering Section 11(6A) of the Arbitration Act mandates the court to consider an application under Section 11 by confining its examination only the existence of an arbitration agreement.

Facts

The Respondent (home buyer/ consumer) had entered into an Agreement for Sale with the Appellants (builders) whereby the builders had agreed to construct a residential house/ villa for the home buyer. Pending the handover, the builders sent a termination notice to the buyer terminating the Agreement for Sale.

Following the termination of the Agreement for Sale, the builders filed an application under Section 11 of the Arbitration Act before the Telangana High Court seeking appointment of an arbitrator in terms of the arbitration clause present in the Agreement for Sale. Subsequently, the buyer filed a complaint before the District Consumer Forum.

The High Court dismissed the builders' application under Section 11 of the Arbitration Act and granted them liberty to move a Section 8 application under the Arbitration Act before the District Consumer Forum (first order). The District Consumer Forum dismissed the Section 8 application filed by the builders on the ground that the legislature had provided a remedy under the Consumer Protection Act in addition to any other remedy available to a consumer and therefore, an arbitration clause in the Agreement for Sale will not oust the jurisdiction of a Consumer Court.

In light of the dismissal of its application under Section 8 of the Arbitration Act by the District Consumer Forum, the builders filed a Review Application before the Telangana High Court for review of the first order. The Review Application was dismissed on the ground that the builders had acted upon the first order and is now estopped from seeking a review (second order). Being aggrieved by the first and second orders, the builders filed a civil appeal before the Supreme Court.

Judgment

In dismissing the Appeal, the Supreme Court held that the Consumer Protection Act is a welfare legislation with the primary purpose of protecting the interest of a consumer, which is a measure of public policy. Such disputes can only be referred to arbitration if the consumer elects to have the dispute resolved through arbitration over the legal remedies available under the Consumer Protection Act.

The Supreme Court relied upon its judgment in Emaar MGF Land Ltd. v. Aftab Singh2 where the Court was tasked with the responsibility of deciding whether post the 2016 amendment of Section 8 of the Arbitration Act, on an application being filed under Section 8, the consumer even had the option of not referring the dispute to arbitration. However, the Supreme Court in the Emaar case held that the amended Section 8 of the Arbitration Act cannot be given such a wide meaning and intent so as to refer all matters having an arbitration agreement to arbitration so as to inundate an entire regime of special legislations where such disputes were previously held to be not arbitrable. The Supreme Court also clarified that in the event, a person entitled to seek a 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. However, 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 arbitration.

The Supreme Court held that the law gives the choice to the consumer to either avail a remedy under the Consumer Protection Act by filing a complaint before the consumer forum or to go for arbitration and this option is not available to the builder as they are not consumers. The Supreme Court held that the consumer, i.e. the home buyer in the instant case has to make a choice between submitting before the private fora, i.e. arbitration or make a complaint before the consumer court, which is a public fora.

Conclusion

The position adopted by the Supreme Court in giving the choice to the consumer to adopt the remedy available is in the correct direction. Usually, consumers are constrained by their limited negotiating powers to enter into agreements with certain clauses, including arbitration clauses. Very often, while entering into agreements, the consumers do not have knowledge of the statutory legal remedies available in the event a dispute arises later, and uninformedly consent to an arbitration clause in the agreement. Allowing consumers to select the fora to adjudicate the dispute ensures that the consumers' interest is well protected in enabling a consumer to seek a statutory remedy available to it as well as avail an affordable mechanism, namely approaching the consumer court for redressal of the dispute.

Footnotes 

1 Smt. M. Hemalatha Devi & Ors. Vs. B. Udayasri (Civil Appeal Nos. 6500-6501 of 2023)

2 (2019) 12 SCC 751

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