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  • Writer's pictureRoyzz & Co

Can Consumer disputes be arbitrated upon?

The Hon’ble Supreme Court vide its order dated 5th October 2023, in the matter between Smt. M. Hemalatha Devi & Ors. as Appellants and B. Udayasri as Respondent [CIVIL APPEAL NOS. 6500 6501OF 2023 (ARISING OUT OF SLP (C) OS.48494850 OF 2023)] held that even if there is an Arbitration clause between the parties,  that itself will not oust the jurisdiction of  a Consumer Court.

The facts of the case

The Appellants are Builders/Developers and the Respondent is a home buyer and a Consumer as defined under the Consumer Protection Act, 2019.

The Respondent entered into an Agreement for Sale with the Appellants. According to the terms of the Agreement the Appellants were to hand over a fully constructed villa to the Respondent, within 3 years of signing of the agreement, with a grace period of 6 months.

At the time of signing the Agreement in the year 2013, the Respondent had handed over the first instalment of the total consideration to the Appellants. The remaining consideration was to be paid at the time of registration of Sale Deed and upon possession of the constructed villa from the Appellants.

However, the Appellants did not complete the construction as contemplated in the Agreement for Sale and instead in 2020 sent a “Termination Notice” to the Respondent, ostensibly on the ground that the Construction Agreement” had not been signed.

The Respondent, thereafter, filed a complaint before the District Consumer Forum, while the Appellants moved an application under Section 11 of the Arbitration and Conciliation Act, 1996 before the High Court for appointment of an Arbitrator, as per the terms of the arbitration agreement between the parties.

The Respondent appeared before the Hon’ble High Court and stated that she being a Consumer has moved a complaint before the District Consumer Forum, where the Appellants are at liberty to file an application under Section 8 of the Arbitration Act, 1996 for appointment of Arbitrator.

The Hon’ble High Court dismissed the Application of the Appellants and the Appellants were directed to move an application under Section 8 of the Arbitration Act, 1996 before the District Consumer Forum, for appointment of an Arbitrator.

The District Consumer Forum dismissed the Application on the ground that as the Legislature had purposely provided a remedy in addition to any other remedy which may be available to the consumer, the Arbitration clause will not oust the jurisdiction of a Consumer Court, especially as it is a remedy in a public fora.

After the dismissal of Application, the appellants moved an application before the Telangana High Court seeking review of the order of the District Consumer Forum, which was also dismissed.

The Appellants, then preferred the present Appeals before the Hon’ble Supreme Court who observed that the exclusion of a dispute from arbitration may be express or implied, depending again upon the nature of the dispute, and a party to a dispute cannot be compelled to resort to arbitration merely for the reason that it has been provided in the contract, to which it is a signatory.

The Court opined that the arbitrability of a dispute has to be examined when one of the signatories to the Arbitration Petition, seeks redressal under a welfare legislation. As the ‘Consumer Protection Act’ is a piece of welfare legislation and consumer disputes are assigned by the legislature to public fora, as a measure of public policy, it is necessary implication that such disputes will fall in the category of non-arbitrable disputes, and these disputes should be kept away from a private fora such as ‘Arbitration’, unless both the parties willingly opt for arbitration over the remedy before public fora.

The Hon’ble Supreme Court held that it is the Respondent here who has to make a “choice” between submitting before the private fora i.e., the Arbitration Tribunal or to make a complaint before the Consumer Forum, which is a public fora and as the Respondent has chosen to go to as a Consumer before the District Consumer Forum, which is a ‘Judicial Authority’, even though the builder had approached a Court first (under Section 11 of the Arbitration Act, 1996) it will itself not oust the jurisdiction of the Consumer Courts.

The Hon’ble Supreme Court held that the Sec 11 Application filed by the Appellant was not maintainable and observed that the complaint filed by the Consumer/Respondent had already been allowed by the District Consumer Forum in favour of the Respondent and the Appellants have filed their statutory appeal before the State Consumer Commission which is presently pending. As the order of the District Forum has been stayed, the Hon’ble Supreme Court did not pass any further orders but dismissed the Appeals while upholding the impugned orders dismissing the Arbitration Application filed by the Appellants/Builders.

Analysis and Conclusion

The present judgement lays to rest any questions that may arise for a consumer while considering pursuing his remedy before Consumer Forums as against going for ‘arbitration’, even though he may be a signatory to an Arbitration Agreement. The Consumer Protection Act, is considered as being a special and beneficial legislation and the remedies provided therein are special remedies. It is a remedy provided to the consumer where the consumer finds a defect in either goods or services provided to him and therefore seeks a redressal of his grievances before the consumer forum provided to him by the legislature.

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