Squelch Will Of Parties In Consumer Welfare Issues: Supreme Court Of India

The SC has been of the view that, adjudication of certain categories of matters have been reserved by the legislature exclusively for public fora as a matter of public policy whereas for certain other categories, which though not expressly reserved, may, by necessary implication stand excluded from the purview of private fora. [Booz Allen and Hamilton Inc. v.SBI Home Finance Limited & Ors., (2011) 5 SCC 532]

The consumer is to be 'protected'

The purpose of a specific legislation, the Consumer Protection Act, 1986 (“1986 Act”), is for protection of consumers' interests to curb the helplessness that consumers face against powerful businesses. [Lucknow Development Authority v. M.K. Gupta, (1994) 1 SCC 243]

Subsequently, in Secretary, Thirumurugan Cooperative Agricultural Credit Society v. M. Lalitha, (2004) 1 SCC 305, it was highlighted that the purpose of 1986 Act is for providing a 'better', 'cheaper', 'easier', 'expeditious' and 'effective' redressal mechanism to the consumers. Thus, the provisions thereunder are to be interpreted 'broadly', 'positively' and 'purposefully', especially in light of the additional jurisdiction accorded to the Consumer forum by virtue of Section 3 of 1986 Act. The forums set up under the 1986 Act are quasi-judicial in nature, equipped with power to grant specific reliefs, award compensation and impose penalty on non-compliance.

Therefore, it is fairly evident that the current legal landscape with respect to protection of consumers' interests, be it under the 1986 Act or the current Consumer Protection Act, 2019, both, are special and beneficial legislation. Remedies provided therein above are special remedies and a consumer cannot be deprived of them, should the consumer choose to avail such a remedy.

Non-Arbitrability of Consumer Disputes

The SC in various judgments has held that the nature of consumer disputes is non-arbitrable, albeit there being existence of an arbitration agreement between the parties. Adjudication before the Consumer forum operates in rem, which should not be easily relegated to civil suits and alternate dispute redressal mechanism, unless there is explicit consent of the consumer regarding the same.

The SC delved in deliberation regarding the conflict caused due to the interplay between the 1980 Act and arbitration proceedings in Fair Air Engineers (P) Ltd. v. N. K. Modi, (1996) 6 SCC 385 wherein SC noted that, considering the purpose of the 1980 Act which is for relieving the consumer from the “cumbersome arbitration proceedings or civil action”, Consumer forums are at liberty to proceed as per its procedure under 1986 Act rather than relegating for arbitration proceedings pursuant to a contract between the parties.

Thereafter, in National Seeds Corporation Limited v. M. Madhusudhan Reddy & Anr., (2012) 2 SCC 506 the SC held that since the remedy available to the consumer is in addition to and not in derogation of any other law as per Section 3 of the 1986 Act, the availing remedy through arbitration is not the only remedy but is rather an optional one. Further, if the consumer files a complaint before the Consumer forum at the first instance and thereafter, seeks reference for arbitration the same can be allowed, but not the vice-versa.

The stand of judiciary has been clear that once a consumer brings a proceeding before the Consumer forum by lodging a complaint, the Consumer forum cannot refer the matter for arbitration unless such reference for arbitration is sought by the consumer itself. However, the present iteration of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) witnessed significant changes in light of the amendments made through the Arbitration and Conciliation (Amendment) Act, 2015 (“Arbitration Amendment Act”) which restricted the Reference Court's jurisdiction, at preliminary stage i.e., only to the existence of arbitration agreement between the parties.

Considering the Arbitration Amendment Act, a significant question was posed before the judiciary i.e., – whether the Arbitration Amendment Act restricting the jurisdiction of referral court to only examining the existence of a valid arbitration agreement would, in effect, mean that a case involving consumer dispute must necessarily be referred to arbitration.

The SC answered this question in Rosedale Developers Pvt. Ltd. v. Aghore Bhattacharya & Ors., (2018) 11 SCC 337 wherein it was held that the position regarding existence of arbitration agreement excluding the Consumer forum's jurisdictions is no more res integra considering the National Seeds Corporation case. It was further held that the mandatory nature of reference, brought through Arbitration Amendment Act, in Section 8 of Arbitration Act cannot lead to an inference that the Consumer forum is bound to make such reference for arbitration.

Subsequently, this again arose before the SC in Emaar MGF Land Ltd. v. Aftab Singh, (2019) 12 SCC 751 wherein the SC took note of the fact that the proceedings under 1986 Act are special proceedings which would continue despite the presence of an arbitration agreement. The SC undertook an extensive analysis of the background and scope of the Arbitration Amendment Act, especially the words “notwithstanding any judgment, decree or order of the Supreme Court or any court” appearing in the amended Section 8 of the Arbitration Act, to come to the conclusion, that the meaning of those words are only with respect to those precedents which entitled the Referral court to look into various facets of the arbitration agreement and nothing further. Considering the fact that arbitration related to consumer disputes are barred by implication, the SC gave away very little scope on the issue, to only to those cases wherein consumer willingly does not opt for special/additional remedy under the Consumer Protection Act but proceeds for arbitration.

Thereafter, in a recent judgment in Hemalatha Devi case, the SC restated the same ratio regarding arbitrability of consumer disputes. However, unlike previous cases wherein reference to arbitration under Section 8 of Arbitration Act was questioned, in the aforesaid case, the appellants challenged the dismissal of application under Section 11 of the Arbitration Act for appointment of arbitrator. The SC while affirming the earlier precedents clarified that similar reasoning, as given in relation to Section 8 of the Arbitration Act, shall be equally applicable to Section 11 of the Arbitration Act.

The SC's stance underscores that consumer disputes involve public interest and are distinct from private contractual matters, thereby necessitating specialized adjudication rather than arbitration. Despite, amendments being introduced streamlining arbitration procedure and limiting judicial intervention, the SC has clarified that these amendments cannot override the very nature of non-arbitrability of consumer disputes.

Authors:Tannishtha Singh (Partner) and Vibhor Victor (Associate) at MCO Legals. Views are personal.