In this article, Priyadarshini Sinha, pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses whether arbitration clauses can oust the jurisdiction of consumer courts or not.

Arbitration clauses cannot oust the jurisdiction of Consumer Courts

It is a well-established legal principle that the presence of arbitration agreements cannot bar the jurisdiction of consumer courts such as the National Consumer Disputes Redressal Commission (NCRDC) and other similar consumer fora constituted for the benefit of consumers and for protecting their rights. This stands despite the provisions given in section 8 of the Arbitration Act, which states that, on the basis of the arbitration agreement between the parties, a judicial authority can instruct the parties to go for arbitration.

Let us briefly refer to the Consumer Protection Act. According to the Act, a consumer dispute is one in which the entity against whom there is a complaint denies the allegations that have been cast on it. The Act gives consumers/customers convenient safeguards against various types of exploitation such as faulty goods, bad customer service or unfair trade practices. Prior to the establishment of the Act, the primary piece of legislation related to consumer protection was the Sale of Goods Act, 1930.

The Consumer Protection Act, 1986 safeguards the interests of consumers by setting up a three-tier quasi-judicial consumer dispute redressal machinery at the national, state and district levels, in order to settle consumer disputes. Section 9 of the Consumer Protection Act calls for setting up a three-tier structure of consumer disputes established at the national, state and district levels. These will be referred to as Consumer Fora and they will be bodies of a quasi-judicial nature. It is applicable to the whole of the country except Jammu and Kashmir which is armed with its own Consumer Protection Act. The Dispute Redressal Agencies consist of the District Consumer Disputes Redressal Forum (DCDRF),  State Consumer Disputes Redressal Forum, and National Consumer Disputes Redressal Commission (NCDRC). The NCDRC is the highest forum in the country for resolving consumer disputes. It entertains cases where the value of the claims is more than 1 crore. It consists of both appellate and revision jurisdiction.

Arbitration Clauses and Consumer Protection Act

Let us also take a look at arbitration. Commercial arbitration is quite popular in India, especially with regards to large commercial contracts. The majority of arbitrations in India are related to construction and infrastructure contracts. There are also arbitrations with regards to import-export transactions. Stock exchanges also have provisions for arbitration. In India, the arbitration process has been pretty weak. However, they are considered more convenient than civil suits in India which can take up a huge amount of time, and therefore, arbitration is the preferred mode. They are also considered useful with reference to matters which are technical in nature. Arbitration is also recommended in advanced construction projects. However, some challenges remain as they are considered expensive and time-consuming, and even after an award has been given the parties frequently come up with challenges. The parties can agree regarding the number of arbitrators who will be assigned to the case. However, an odd number must be maintained. In the case there is a failure on the part of parties to finalize the number of arbitrators, the tribunal will have one arbitrator. The parties have full freedom to finalize the nationality and qualifications. Parties can approach the court for interim measures either before, during or after the award is given. If the parties cannot appoint an arbitrator, the court may be approached to nominate one. The arbitral tribunal can request the court for help in collecting evidence with regards to witnesses. The court which has jurisdiction over arbitration applications is the principal civil court of original jurisdiction in a district. The High Court takes over in the case of international arbitrations.

Generally, judicial intervention regarding arbitration is confined to the purposes mentioned in the Act. There have been instances where the courts have approached parties to refer to an existing tribunal. Also, courts have also interfered in cases of independence or impartiality of arbitrators.

Can a consumer complaint be filed despite the arbitration clause, specifically restrains the parties from approaching the forum?

In the case of Aftab Singh v Emaar MGF Land Limited & Anr, this issue of how far Section 8 of the Arbitration Act can be stretched with respect to various consumer forums that have been established by the Consumer Protection Act 1986 was examined by a Full Bench of the NCDRC (dated 13.07.2017). It was emphasized that the provisions of the Arbitration Act do not apply to Consumer Courts which are special acts that have been established for a public purpose. This case had its origins in a set of complaints brought by a group of home-owners before the NCDRC against Emaar MGF Land Private Limited (Builder) who did not deliver the plots to the purchasers according to the timeline which had been set down in the Buyers’ Agreement. The Builder retorted by filing applications under Section 8 of the Arbitration Act and argued that the Commission is a judicial authority according to Section 8 of the Arbitration Act. As a result, it is acceptable to refer the parties to arbitration on the basis of the arbitration agreement mentioned in the Buyers’ Agreement which had been executed by the home-owners and the builders.

The prime argument made by the petitioners was that the remedies given by the Consumer Protection Act are not in exclusion of other existing laws and are in addition to it. The basis of this was derived from the ratio set down in National Seeds Corporation Limited v M Madhusudhan Reddy [(2012) 2 SCC 506]. Additionally, it was argued that the Act is a piece of legislation intended to confer benefits and therefore, this purpose should be advanced. As a result, a consumer complaint can be brought before the consumer forum taking the assistance of Section 3 of the Act. This is regardless of the existence of an arbitration clause mentioned in the Arbitration Act. It was argued that the intention of the legislation was never to do away with the jurisdiction of the Consumer Courts.

The builder asserted that the Consumer Courts are a ‘judicial authority’ within the meaning of section 8 of the Act. As a result, if a valid clause exists, they are required to refer the parties to arbitration. Furthermore, according to the Act, the judicial authority was required to bring forth disputes to arbitration, irrespective of the High Court’s or Supreme Courts’ decisions.

The Full Bench of the NCRDC ruled that the Arbitration Act did not bar the jurisdiction of Consumer Courts. The Full Bench relied on the Supreme Courts’ judgments which have provided disputes that are non-arbitrable. In Booz Allen Hamilton Inc v SBI Home Finance Ltd [(2011) 5 SCC 532], the Supreme Court put forth 7 categories of disputes which are non-arbitrable. The Court referred to this. The Court also referred to Vimal Kishore Shah v Jayesh Dinesh Shah [(2016) 8 SCC 788], which put down that cases under the Trust Act 1882 are considered non-arbitrable.

The Commission also took support from the Supreme Court judgment in A. Ayyasamy v A Paramasivam [(2016) 10 SCC 386], where the Court had observed that a dispute would not be arbitrable if the jurisdiction of the ordinary civil court is done away with by giving exclusive jurisdiction to a tribunal or special court.

The Consumer Courts were established to create a system for disputes between players who are unequal in terms of power. There is public policy involved as we are referring to consumers and large corporations.

Additionally, the Commission made reference to Section 2(3) of the Arbitration Act where special categories of disputes are protected from being referred to arbitration. It was ruled by the Full Bench that under this provision, consumer disputes were protected. The Commission finally stated that if the builder in the aforementioned case was to win, it would lead to a defeat of the goals and purpose of the Consumer Act.

This topic is especially relevant to the question of whether arguments which involve serious fraud allegations will continue to be non-arbitrable under the Arbitration Act. This matter is pending before the Supreme Court of India. It is quite established principle of law that the jurisdiction of consumer courts such as the National Consumer Disputes Redressal Commission and other similar fora related to the interests of consumers is not barred by the presence of arbitration agreements.

This stands despite the stipulations given in section 8 of the Arbitration Act which contains that a judicial authority can communicate to the parties to go for arbitration. We can safely say that the presence of an arbitration clause does not oust the jurisdiction of Consumer Courts. As we can see, the Consumers Court can act as they would and their functions cannot be cut short by an arbitration clause. The Consumer Courts continue to hold and enjoy jurisdiction, despite the presence of an arbitration clause mentioned anywhere in the relevant agreement.