Builders Can’t Force Buy­ers to Go for Ar­bi­tra­tion

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It is a well-set­tled law that ar­bi­tra­tion agree­ments do not bar the ju­ris­dic­tion of the Na­tional Con­sumer Dis­putes Re­dres­sal Com­mis­sion (NCDRC) and other con­sumer fo­rums. How­ever, in view of the amend­ments to the Ar­bi­tra­tion and Con­cil­i­a­tion Act 1996 (‘Amended Act'), this is­sue was re­con­sid­ered at length by a full bench of the NCDRC in Af tab Singh ver­sus Em a ar MG FL and Lim­ited& Anr( Con­sumer Case No .701 of 2015). The full bench was con­sti­tuted pur­suant to a re­fer­ral by the sin­gle bench on 31 Au­gust 2016. In its de­ci­sion of 13 July 2017, 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. Recog­nis­ing that the Con­sumer Act was en­vis­aged as a spe­cial so­cial leg­is­la­tion to pro­tect con­sumer rights and pro­vide a spe­cial dis­putes re­dres­sal mech­a­nism, NCDRC held that dis­putes gov­erned by statu­tory en­act­ments es­tab­lished to serve a par­tic­u­lar pub­lic pol­icy are not ar­bi­tra­ble.

In 30 in­di­vid­ual cases filed against Emaar MGF Land Lim­ited and an­other case against an­other builder, the com­plainants had booked res­i­den­tial vil­las/flats/plots in projects 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 sub­se­quently they filed com­plaints be­fore the sin­gle mem­ber of NCDRC, seek­ing di­rec­tions to the builders for de­liv­ery and pos­ses­sion of the vil­las, etc., or al­ter­nately 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 far­reach­ing con­se­quence of the le­gal is­sue in­volved in these ap­pli­ca­tions, the sin­gle mem­ber re­ferred the is­sue to a larger bench to hear and de­cide these ap­pli­ca­tions.

Con­tentions of the Par­ties

The buy­ers con­tended that the reme­dies pro­vided by Con­sumer Pro­tec­tion Act 1986 (‘Con­sumer Act’) were in ad­di­tion to, and not in ex­clu­sion/dero­ga­tion of, other laws in force. Even un­der the Amended Act, the in­tent of the leg­is­la­ture was not to bar the ju­ris­dic­tion of the con­sumer courts where an ar­bi­tra­tion clause ex­isted. The ex­ist­ing in­ter­play be­tween the Con­sumer Act and the Amended Act re­mained un­af­fected.

The com­plainants re­lied upon the de­ci­sion of the Supreme Court in Na­tional Seeds Cor­po­ra­tion Lim­ited ver­sus M Mad­husud­han Reddy ([2012] 2 SCC 506) where it had ruled that con­sumer dis­putes could not be re­ferred to ar­bi­tra­tion. It was also ar­gued that the Con­sumer Act was a ben­e­fi­cial leg­is­la­tion and, there­fore, the in­ten­tion be­hind its en­act­ment ought to be ad­vanced. There­fore, a con­sumer com­plaint could be filed be­fore the con­sumer fo­rum tak­ing aid of Sec­tion 3 un­der CPA, de­spite pres­ence of an ar­bi­tra­tion clause as per Ar­bi­tra­tion & Con­cil­i­a­tion Act 1996. The court fur­ther said that the amended Sec­tion 8 did not over­ride any other law in force. The afore­said amend­ment was in­tended solely to cur­tail the scope of en­quiry by courts into is­sues of ex­is­tence of ar­bi­tra­tion agree­ment in ap­pli­ca­tions filed un­der Sec­tion 11 and Sec­tion 8 of the Ar­bi­tra­tion & Con­cil­i­a­tion Act. It did not al­ter nor af­fect the in­ter­play be­tween Sec­tion 3 of CPA and Ar­bi­tra­tion & Con­cil­i­a­tion Act.

On the other hand, the builders con­tended that the con­sumer courts were a ‘ju­di­cial au­thor­ity’ within the mean­ing of Sec­tion 8 of the Amended Act. There­fore, they were re­quired to re­fer par­ties to ar­bi­tra­tion if a valid clause ex­isted. Un­der the Amended Act, the ju­di­cial au­thor­ity was re­quired to re­fer dis­putes to ar­bi­tra­tion, and side­step

de­ci­sions of the High Court or the Supreme Court of In­dia. There­fore, the judge­ment in Na­tional Seeds Cor­po­ra­tion Ltd ceased to be a valid prece­dent.

Judge­ment

NCDRC re­jected the con­tention of the builders and held that the Amended Act did not bar the ju­ris­dic­tion of the con­sumer courts. The full bench of the NCDRC re­lied on judge­ments of the Supreme Court which had laid down cat­e­gories of dis­putes that were con­sid­ered non-ar­bi­tra­ble. The court re­ferred to Booz Allen Hamil­ton Inc. ver­sus SBI

Home Fi­nance Ltd ([2011] 5 SCC 532) where the Supreme Court had said that the ar­bi­tral tri­bunals were a pri­vate fo­rum cho­sen vol­un­tar­ily by the par­ties to the dis­pute, to ad­ju­di­cate their dis­putes in place of courts and tri­bunals, which were pub­lic fo­rums con­sti­tuted un­der the laws of the coun­try. Ev­ery civil or com­mer­cial dis­pute, whether con­trac­tual or non-con­trac­tual, which could be de­cided by a court was in prin­ci­ple ca­pa­ble of be­ing ad­ju­di­cated and re­solved by ar­bi­tra­tion un­less the ju­ris­dic­tion of the ar­bi­tral tri­bunals was ex­cluded ei­ther ex­pressly or by nec­es­sary im­pli­ca­tion.

The Supreme Court had laid down seven cat­e­gories of non-ar­bi­tra­ble dis­putes and said that ad­ju­di­ca­tion of cer­tain cat­e­gories of pro­ceed­ings were re­served by the leg­is­la­ture ex­clu­sively for pub­lic fo­rums as a mat­ter of pub­lic pol­icy. Con­sid­er­ing the spe­cific case of the In­dian Trusts Act, 1882, NCDRC re­lied on the Supreme Court rul­ing in Vi­mal Kishore Shah ver­sus

Jayesh Di­nesh Shah where it was held that “since suf­fi­cient and ad­e­quate rem­edy was pro­vided un­der the Trusts Act for de­cid­ing the dis­putes in re­la­tion to trust deed, trustees and ben­e­fi­cia­ries, the rem­edy pro­vided un­der the Ar­bi­tra­tion Act for de­cid­ing such dis­putes was barred by im­pli­ca­tion.”

Fur­ther, NCDRC re­it­er­ated that pub­lic pol­icy re­quired that par­ties could not be per­mit­ted to con­tract out of the leg­isla­tive man­date which re­quired cer­tain kinds of dis­putes to be set­tled by spe­cial courts con­sti­tuted by the Act. Ref­er­ence was also made to Sky­pak Couri­ers Ltd ver­sus Tata Chem­i­cals Ltd, where the Supreme Court said that even if there ex­isted an ar­bi­tra­tion clause in an agree­ment and a com­plaint was made by the con­sumer, in re­la­tion to a cer­tain de­fi­ciency in ser­vice, then the ex­is­tence of an ar­bi­tra­tion clause would not be a bar to the en­ter­tain­ment of the com­plaint by the re­dres­sal agency, con­sti­tuted un­der Con­sumer Pro­tec­tion Act, since the rem­edy pro­vided un­der the Act was in ad­di­tion to the pro­vi­sions of any other law for the time be­ing in force. NCDRC also cited the SC judge­ment in Sec­re­tary, Thiru­mugu­gan Co­op­er­a­tive Agri­cul­tural Credit So­ci­ety ver­sus M Lalitha (through LRs) & Ors, where it was held that the CPA ap­plied in ad­di­tion to, and not in dero­ga­tion of, other laws.

Last but not the least, NCDRC un­der­lined the im­por­tance of reme­dies avail­able un­der CPA and the spe­cial pur­pose of a ben­e­fi­cial leg­is­la­tion such as CPA in pro­tect­ing the in­ter­ests of con­sumers. In this con­text, NCDRC reasoned that al­low­ing Sec­tion 8 to oust the ju­ris­dic­tion of the con­sumer fo­rum would set at naught the en­tire pur­pose and ob­jec­tive 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 which were en­force­able only through civil courts. This would be re­pug­nant to the man­i­fest pur­pose un­der­ly­ing the en­act­ment of CPA.

The NCDRC finally held that in light of the over­all ar­chi­tec­ture of the CPA and court-evolved ju­rispru­dence, the amended sub-sec­tion (1) of Sec­tion 8 could not be con­strued as a man­date to the con­sumer fo­rum, con­sti­tuted un­der CPA, to re­fer the par­ties to ar­bi­tra­tion in terms of the ar­bi­tra­tion agree­ment. The ap­pli­ca­tions of builders were dis­missed and each of the cases was re­ferred back to the re­spec­tive NCDRC benches for ad­ju­di­ca­tion.

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