Court says consumers not obliged to seek arbitration

By Karthik Somasundram and Sneha Jaisingh, Bharucha & Partners
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Section 8 of the Arbitration and Conciliation Act, 1996 (act), requires judicial authorities to refer parties to arbitration. The Supreme Court in the P Anand Gajapathi Raju (2000) and Sukanya Holdings (2003) cases prescribed a number of conditions that had to be satisfied for a judicial authority to refer parties to arbitration. This led to delays and the objective of quick disposal via arbitration was lost.

The 246th Law Commission Report (report) took note of such delays and recommended that for the purposes of section 8, judicial authorities must restrict their scrutiny to the prima facie existence and validity of an arbitration stipulation. Section 8(1) was amended to provide that notwithstanding any judgment, decree or order of the Supreme Court or any court, a judicial authority must refer parties to arbitration unless it, prima facie, found that no valid arbitration agreement existed. Section 11 of the act was also amended after the report.

Karthik-Somasundram-id
Karthik Somasundram
Partner
Bharucha & Partners

Before the report and amendment of the act, the Supreme Court had held that a consumer could have recourse under the Consumer Protection Act, 1986 (COPRA), irrespective of the agreement. COPRA provides an additional remedy to consumers to refer disputes to arbitration. In Emaar MGF Land Ltd v Aftab Singh (2018), the question was whether earlier rulings of the Supreme Court held the field, notwithstanding the amendments to the act.

Singh had approached the National Consumer Dispute Redressal Commission (NCDRC) as Emaar had breached the agreement by failing to deliver a built-up villa in a timely manner. Emaar opposed the complaint and asked NCDRC to refer the dispute to arbitration. The issue was referred to a larger bench of the NCDRC, which ruled against Emaar. Delhi High Court rejected Emaar’s appeal on a technicality and the Supreme Court also rejected the appeal.

Emaar applied to the Supreme Court for a review, and considering the importance of the issue, it granted the review application but concluded that section 8 of the act did not deprive the consumer courts of jurisdiction under COPRA.

Sneha-Jaisingh-id
Sneha Jaisingh
Managing associate
Bharucha & Partners

The Supreme Court noted that the object and purpose of COPRA was to protect the interest of consumers. COPRA offered a remedy over and above the existing but more cumbersome options of redressal by courts or through arbitration. The Supreme Court also noted that in the National Seeds Corporation (2012) case it had ruled that arbitration was an optional remedy but that did not prevent consumers from opting for redressal from consumer courts as the remedy under COPRA was in addition to and not in derogation of any other law.

The Supreme Court also noted that this position prevailed when the Law Commission made its report. A note in the report regarding the proposed amendment to section 8 clarified that the amendment was proposed to redress the position that emerged after the decision in the Sukanya Holdings case. The statement of objects and reasons to the bill to amend the act also clarified that the judicial authority shall refer the parties to arbitration unless it finds that prima facie no valid arbitration exists. Further, sub-section 6A was introduced in section 11 of the act to limit judicial scrutiny when the court is asked to constitute an arbitral tribunal. On such an application, the court would not undertake a detailed inquiry and must be prima facie satisfied that an arbitration agreement exists. The amendment to the act was not intended to, nor did it result in preventing consumers from pursuing remedies under COPRA.

The court noted that Emaar’s contention, if accepted, would result in consequences that the legislature never intended, i.e. of depriving the consumer courts of jurisdiction by amending the act. COPRA is a special legislation to redress consumer complaints.

It would be impermissible, by giving an expansive interpretation to the amended section 8 of the act as contended by Emaar, to hold that authorities under special statutes were bound to refer parties to arbitration rather than pursue remedies under such statutes. It is well settled that certain disputes are non-arbitrable either because a statute provides so expressly or that was the necessary implication. Illustratively, in the Booz Allen and Hamilton (2011) case it was held that rights in rem could not be determined by arbitration. Similarly, in the Vimal Kishore Shah (2016) case it was held that the Indian Trusts Act, 1882, dealt with all matters pertaining to private trusts and arbitration was barred by necessary implication.

Consumers had the option but not the obligation to arbitrate. If they chose not to arbitrate, they could not be compelled to do so. Consumer preference or party autonomy could not prevail over the statute.

Karthik Somasundram is a partner and Sneha Jaisingh is a managing associate at Bharucha & Partners.

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