Builders Can’t Force Buyers to Go for Arbitration

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.