Consumer VOICE

Supreme Court Reiterates That Builders Can’t Force Buyers To Go For Arbitration Even After 2015 Amendment

The Supreme Court has upheld the National Consumer Dispute Redressal Commission (NCDRC) order rejecting a plea seeking reference to the arbitrator in a consumer complaint despite there being arbitration clause in the agreement entered between buyer and the builder.

Facts of the case-

30 individual cases were filed against a Builder Emaar MGF Land Limited and one case against another builder where the Complainants had booked residential villas/flats/plots in project of the builders and accordingly executed the Buyers’ Agreements. Every agreement contained an arbitration clause in it. The grievance of the Buyers was that the Builder failed to deliver possession of the real estate within the time stipulated by the agreement between them and thus filed complaints before the Single Member of the NCDRC, seeking directions to the builders for delivery and possession of the villas, etc. and/or, in alternative, refund the amounts deposited by them, along with compensation. On the other hand, the Builders filed an application under Section 8 of Arbitration Act praying for reference to arbitration as the agreement contained a valid arbitration clause.

Considering the vital importance and the far reaching consequence of the legal issue involved in these applications, the Learned Single Member referred the issue to a Larger Bench to hear and decide these applications.  

In its decision of 13 July 2017, the NCDRC has once again reiterated that since the Consumer Courts are special courts constituted to serve a social purpose, the Amended Act does not apply to them. The Commission held that an arbitration clause in agreements between Builders and Purchasers cannot circumscribe the jurisdiction of a Consumer Forum, notwithstanding the amendments made to Section 8 of the Arbitration & Conciliation Act, 1996. Recognizing that the Consumer Act was envisaged as a special social legislation to protect consumer rights and provide a special dispute redressal mechanism, the NCDRC held that disputes governed by statutory enactments established to serve a particular public policy are not arbitrable.

This order of NCDRC was not welcomed by the Builder and he preferred filing an appeal to the Supreme Court.  However, the Apex Court, dismissing the appeals filed by builders, had upheld the NCDRC order that held that arbitration clause in the agreements cannot circumscribe the jurisdiction of consumer fora, notwithstanding the amendments made to Section 8 of the Arbitration Act. Aggrieved with the order of the apex court, the builder again filed a revision petition.

Contentions of the Parties-

The Buyers contended that the remedies provided by the Consumer Protection Act 1986 ('Consumer Act') are in addition to and not in exclusion/ derogation of other laws in force.  Even under the Amended Act, the intent of the legislature is not to bar the jurisdiction of the Consumer Courts, where an arbitration clause exists. The existing interplay between the Consumer Act and the Amended Act remains unaffected.  

On the other hand, the builders contended that with the enactment of the Arbitration and Conciliation (Amendment) Act, 2015, the judicial authority which includes a consumer fora is mandated to refer a dispute for arbitration if there is a valid arbitration agreement and parties apply not later than the date of submitting his first statement on the substance of the dispute.

Judgment

The Apex Court after analyzing the Amendment Act said that the words “notwithstanding any judgment, decree or order of the Supreme Court or any Court” added by amendment in Section 8 were with intent to minimise the intervention of judicial authority in context of arbitration agreement. As per the amended Section 8(1), the judicial authority has only to consider the question whether the parties have a valid arbitration agreement? The Court cannot refuse to refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists. The amended provision, thus, limits the intervention by judicial authority to only one aspect, i.e. refusal by judicial authority to refer is confined to only one aspect, when it finds that prima facie no valid arbitration agreement exists. The court said that the legislative intent and object were confined to only above aspects and was not on those aspects, where certain disputes were not required to be referred to arbitration.

While dismissing the review petition, the court clarified in the event a person entitled to seek an additional special remedy provided under the statutes does not opt for the additional/special remedy and he is a party to an arbitration agreement, there is no inhibition in disputes being proceeded in arbitration. It is only the case where specific/special remedies are provided for and which are opted by an aggrieved person that judicial authority can refuse to relegate the parties to the arbitration.

The importance of remedies available under the CPA and the special object and purpose of a beneficial legislation such as the CPA in protecting interests of consumers.  Allowing Section 8 to oust the jurisdiction of consumer forum would set at naught the entire purpose and object of the Consumer Act, which was to ensure speedy, just and expeditious resolution and disposal of consumer disputes. Exposure of such disputes to the Arbitration Act could invite application of portions of the Arbitration & Conciliation Act that are enforceable only through Civil Courts. This would be repugnant to the manifest purpose underlying the enactment of the CPA.  

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