Introduction

The Consumer Protection Act, 1986 (CPA) confers exclusive jurisdiction to designated consumer courts to determine by summary procedure any dispute entailing a 'deficiency of service' between a consumer and a service provider. The speedy disposal of such proceedings incentivises many litigants to dress up commercial disputes as one warranting consumer protection and attracting the jurisdiction of the consumer courts. This inevitably gives rise to tensions between the jurisdiction of the consumer courts and the requirement to arbitrate contained in commercial contracts with nice questions as to which prevails.

The Supreme Court in a recent review petition involving a dispute between a builder and a purchaser of a villa, which dispute provided for arbitration, refused a reference to arbitration1. The Court regarded the purchaser as a consumer for the purposes of the CPA. In the Court's view, consumer disputes are non- arbitrable. This is on the reasoning that certain categories of disputes that are governed by statutory enactments, established for specific public purpose to sub-serve a particular public policy, are not arbitrable and that such a scheme was recognised by Section 2(3) of the Arbitration and Conciliation Act, 1996, (Arbitration Act).2 The Court accordingly ruled that the presence of an arbitration clause contained in the buyer's agreement between the builder and the purchaser would not oust the jurisdiction of the consumer court.

Background

The complainants in this dispute had booked residential villas in a township project being constructed by the builder. The purchase agreement contained an arbitration clause for settlement of disputes. Disputes having arisen, the purchasers invoked the jurisdiction of the consumer court seeking compensation for deficiency in service and a direction for delivery of possession of the allotted villas.
The builder's application to refer the dispute to arbitration was rejected by the consumer court by holding consumer disputes to be non-arbitrable. The builder's appeal to the Supreme Court was summarily dismissed. On the appeal being rejected, a revision petition was filed by the builder which was entertained but eventually dismissed by a speaking order of the Supreme Court.

Ruling

The Supreme Court's judgement was motivated by the benevolent objective underlying the CPA. The legislative intent of the CPA, according to the Supreme Court, was to provide consumers a special remedy, which is expeditious and cost effective. More significantly, the Supreme Court in order to ensure that the CPA is not abused, helpfully clarified that the CPA does not extend to entertaining disputes relating to goods or services used for commercial purposes. The Court observed that upholding the arbitrability of genuine consumer disputes would result in a grave injustice, as consumers would be forced to submit disputes to arbitration, which is more expensive and cumbersome than approaching the consumer courts. In the circumstances, a referral to arbitration would deprive consumers of a beneficial remedy, statutorily conferred on them under the CPA.

The judgement also clarified the meaning and scope of the referral to arbitration clause found in Section 8 (1) of the Arbitration Act. The Court held that Parliament while amending Section 8 of the Arbitration Act had taken into consideration the 246th Law Commission Report (Report). The reasoning underlying the amendment as reflected in the Report, was to minimise judicial intervention in arbitration. The Court reaffirmed that the scope of judicial intervention under this provision was limited to ascertaining the prima facie existence of a valid arbitration agreement. The referral to arbitration provision was not intended to override special remedies provided under specific statutes or long-standing body of case law that determined the arbitrability of disputes.

Additionally, the Court, relying on its earlier decision in Booz Allen and Hamilton Inc. vs. SBI Home Finance Limited and others3 reiterated the restricted categories of matters that are not ordinarily amenable to arbitration viz, i) criminal cases (ii) matrimonial quarrels (iii) guardianship contests (iv) insolvency and winding-up petitions (v) testamentary contests (vi) tenancy disputes (vii) competition law disputes and (viii) disputes relating to trust, trustees and beneficiaries arising out of trust deed. A judicial authority seized with such disputes is not required to refer the parties to the dispute to arbitration under Section 8 of the Arbitration Act.

The Court clarified that it would not prevent consumer disputes from being referred to arbitration, if both parties had expressly agreed to arbitrate such matters. The Court would only refuse to refer the parties to arbitration where the aggrieved party had opted to exercise special remedies, statutorily conferred on it before a tribunal or court.

Conclusion

The judgement apart from being helpful to home buyers and other consumers has a wider resonance, to the law on arbitrability of disputes. The ruling is a useful contribution to the jurisprudence on the interplay and impact of special remedies conferred by specific statutes on arbitration agreements between parties to certain disputes. The Supreme Court has struck the right balance between protecting the interests of consumers whilst providing adequate safeguards to ensure that a contractually agreed right to arbitrate is not circumvented.

Footnotes

1 M/s Emaar MGF Land Limited v Aftab Singh decided on 10 December, 2018 in Review Petition (C) Nos. 2629- 2630 of 2018.

2 Section 2 (3): This Part shall not affect any other law for the time being in force by virtue of which certain disputes may not be submitted to arbitration.

3 (2011) 5 SCC 532.

Originally published August 19, 2020.

The above is a generic analysis and should not be regarded as a substitute for specific advice based on the facts of a client's objectives and specific commercial agreements reached. Please do reach out to us at mail@zba.co.in for any queries.