This article is written by Shreya Bhargava. Here he has discussed on overriding effect of consumer forum over the arbitration.
With the passage of time, the population of the country is on hike and so are their opinions. Their opinion forms the basis for their interpretation, it may be a good or a bad interpretation. What would happen in the situation where people starting interpreting the laws? We might be flooded with several interpretations. The interpretations will be in such huge number that the laws will become unclear. This is the reason why lawmakers, while making the law, formulate it in accordance with the aim, set out by them, before penning down the legislation. The aim of any legislation defines the basis of the act. It becomes the grundnorm of the act, based upon which the judiciary interprets the disputed texts.
The aim of any act forms the indispensable element because it acts as the cord that delivers the real intention of the legislators behind the act. Whenever there is a clash between two legislations, it is the aim of the legislation which makes the judges to derive at the endpoint in deciding which law has the superseding effect. It is through the doctrine of pith and substance that judges are able to derive at the major inclination towards one act over another act. This inclination is decided on the basis of the aim/goal of the act and the facts of that particular case.
Somewhat similar situation aroused in front of Supreme Court in the case of Aftab Singh and Others v. Emaar MGF Land Limited and Another. In this case, the Supreme Court cleared out the battle between arbitration and the statutory remedy when it comes upon solving the consumer disputes, which also upheld the decision of the National Consumer Disputes Redressal Commission (NCDRC). In this case, the apex body for the consumer dispute in India (NCDRC) ruled in favor of the statutory remedy over the arbitration.
Consumer Protection Act (CPA)
The beneficial legislation of Consumer Protection Act aims at reducing the grievances of all classes of customers by providing them with the preferential treatment. According to the Consumer Protection Act, the consumer dispute is the entity where the consumer/customers have been given the convenient safeguards against ample exploitation like bad customer service, faulty goods or any unfair trade practices. The interest of the customers is protected by setting up, the three-tier quasi-judicial consumer Redressal machinery which is at national, state and district levels as per section 9 of Consumer Protection Act. The Consumer Protection Act, 1986 (CPA) has been enacted in light of certain concerns related to public policy and the benefit of the consumer.
Relationship between Arbitration Act and CPA
In India, people are least aware of the consumer’s rights and lags behind having a low general understanding of arbitration as dispute resolution mechanism. The arbitration clause can curtail the grounds on which the consumers can raise the disputes, whereas on the other side the consumer protection act may grant the consumer various grounds on which he can file the complaint which may not be otherwise permitted in the standard form agreement having the arbitration clause.
Arbitration has equal bargaining powers and the resources at hand which makes it private, efficacious, and timely form of dispute resolution. Whereas in case of consumer disputes, the case is different, where they are exposed to the standard form agreements making them submit to the unfair or the repressive terms. They are several times made part of the one-sided arbitration clause, which is drafted keeping in mind the interest of one party only.
These days Indians are shifting to the online purchasing platform and being ignorant of not checking the agreements which makes them covered under the blanket provision and end up being the party to the arbitration. This makes less options opened for the consumer to resort to the statutory remedies which in turns endangers the interest of the consumers. This may also build a hostile market against e-commerce in India. It may have an adverse effect not only on the Indian economy but also on the e-commerce giants who aims to invest in the growing market.
Consumer Court as a Special Court
It was held in the case of Aftab Singh v Emaar MGF Land Limited & Anr. , that the provisions of the arbitration act does not apply to the consumer courts, as they are the special courts set up for the public purpose. In this case, the group of the homeowners filed the complaint against Emaar MGF Land Private Limited (Builder) before NCDRC. The complaint was filed for the non-delivering the plots to the buyers as per the Buyers’ Agreement. The builder filed the application under section 8 of the Arbitration and Conciliation Act, on the basis of the arbitration agreement made between the parties which were mentioned there in the Buyer’s Agreement.
It was argued by the petitioner that the remedies provided under the Consumer Protection Act are not in exclusion of the existing laws, but are in addition to it, which has been sated in the case of National Seed Corporation Limited v M. Madhusudhan Reddy. It was also argued that the consumer protection act is the piece of the legislation which intends to confer the benefits and it is the, for which the purpose should be advanced. Therefore, regardless of having entered into the arbitration clause, the consumer can invoke section 3 of the Consumer Protection Act and bring the complaint to the consumer forum.
The builder pleaded that the Consumer Courts act as the ‘judicial authority’ within the scope of section 8 of the Arbitration and Conciliation Act and therefore if there is any valid clause entered between the parties, then the consumer courts can refer the parties to the arbitration. And hence according to the Act, the consumer courts are obliged to bring the case for the arbitration, irrespective of the High Court and Supreme Court decisions. The NCRDC’s full bench ruled that the arbitration act does not bar the consumer court’s jurisdiction relying on the Supreme Court’s judgement in the case of Booz Allen Hamilton Inc v. SBI Home Finance Ltd, which provided the country with the disputes that are not arbitrable. In this case, the Supreme Court came with the 7 categories of the disputes that are not arbitrable.
The commission also relied on the Supreme Court judgement in the case of A. Ayyasamy v. A Paramasivam that the dispute will not be arbitrable if the civil court’s jurisdiction has been exclusively given to a tribunal or the special court. The Consumer Courts were made to create an organized system for dispute between the people who possess the unequal power i.e. the consumer and the large corporations. The commission also pointed out the section 2(3) of the Arbitration and Conciliation Act which refers to the situations where the special categories of disputes are protected from being referred to the arbitration. Therefore, this provision protects the Consumer disputes. The court concluded that if the court allows the party to go for the arbitration and being in favour of the builder, it will defeat the goals and the main purpose of the Consumer Protection Act.
The Conditions prior and post 2015 amendment to section 8 of Arbitration and Conciliation Act
Section 8 of the Arbitration and Conciliation Act states that the judicial authority can instruct the parties to go for arbitration in the case when there exists the arbitration clause in the arbitration agreement. It does not bars oust the jurisdiction of the Consumer Court, it will continue to hold and enjoy the jurisdiction irrespective of the presence of an arbitration clause in the agreement.
The Supreme Court contended that there was no legislative intent of the amended provisions of section 8(1) in the Arbitration and Conciliation Act, so as to override the other statutes which have the specific remedies. Neither it intends to make disputes related to trusts, criminal law, tenancy, telecom, family law, IPR, etc, as the arbitrable subject and to against the judgement of A Ayyasamy v A Parasivam & Ors and Booz Allen Hamilton Inc. v SBI Home Finance Limited & Ors.
Supreme Court analyzed the situations prior to 2015 Amendment, related to referring the consumer disputes to arbitration. Supreme Court referred to the judgments prior to 2015 which had the settled law in cases of Fair Air Engineering Pvt. Ltd & Anr V N K Modi, National Seeds Corporation Limited v Madhusudhan Reddy & Anr and Rosedale Developers Private Limited V Aghor Bhattacharya & Ors. These cases held that even if the dispute arise from the contract having the arbitration clause, it will not impede the parties to resort to file a complaint before the consumer forum under the Consumer Protection Act. All of the judgements had the rationale that provision of section 3 of Consumer Protection Act states that “the provision is in addition to, and not in the derogation of any other law for the time being in force.”
The Supreme Court acknowledged the 2015 amendment which restricted the power of any judicial authority to refuse to refer the dispute to arbitration under section 8(1) and appointment of arbitrator under section 11(6A) and also acknowledged the fact that it invalidated the earlier precedent in the case of Sukanya Holding (P) Ltd v Jayesh H Pandya & Anr. Supreme Court considering section 2(3) of the arbitration act, states that the Part I of the arbitration act shall not affect any other law for the time being in force, by virtue of which certain disputes may not be submitted to the arbitration. Supreme Court stated that the legislative intent of 2015 Amendment was never to override section 2(3) of the Arbitration Act and other statutes which offers the public remedy like that of CPA. The Supreme Court in 1994 already held that CPA is a beneficial legislation which provides the economical and expeditious remedies to the aggrieved consumer in the case of Lucknow Development Act V M K Gupta.
Referring to all of the above cases, the Supreme Court, in this case, affirmed that the decision given by NCDRC is valid and stated that the consumer dispute are the subject matter where the dispute cannot be referred to arbitration as it pertains to rights in rem (public rights). It comes under the ambit of the non-arbitrable dispute defined under Booz Allen and Ayyasamy case. The disputes are non-arbitrable in disputes related to criminal laws, tenancy, trusts, family law, telecom, IPR, insolvency and winding up, and in certain cases, fraud.
Conclusion and Critics of the Case
It can be ensured with the judgement that consumers who have lesser bargaining power than that of the service providers shall not be pushed towards the relatively cumbersome process of the arbitration where there can be other more affordable and efficacious low public law remedies available. The CPA is special legislation which has the public law remedies dealing with the rights under the umbrella of “right in rem” which has been espoused by Booz Allen. The case had many critics for it, as it was delivered during the course of time when India has been continuously focusing upon the survival and the supremacy of the arbitration proceeding over litigation in the Indian dispute resolution. And it was the major reason that it appeared for some of the people as a diversion from the object of the Indian arbitration system to be an arbitration-friendly hub. This also draws our attention towards the fact that the arbitration shall be made a more consumer-friendly method of dispute resolution. It is because of this judgement that people were able to depict the heightened element of the public interest consumer dispute in India.
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