Consumer Can Approach Consumer Forum Even If Agreement Provides For Arbitration : Supreme Court

The Supreme Court recently reiterated that the arbitration clauses in an agreement would not override the consumer's choice to approach the consumer forum for adjudication of the dispute.

The Court said that a consumer cannot be forced to get the dispute adjudicated through Arbitration just because an arbitration clause is mentioned in an agreement. It added that the consumer has the exclusive right to decide whether to pursue arbitration or approach the Consumer Forum.

The bench comprising Justice Sudhanshu Dhulia and Justice Ahsanuddin Amanullah heard the case where the disputed tripartite agreement contained an arbitration clause. 

Brief factual background

The respondent (complainant before the NCDRC) had purchased a flat with a housing loan of Rs.17,64,644/- from the ICICI Bank. One Mubarak Vahid Patel (borrower) expressed interest in buying the said flat for an amount of Rs.32,00,000/-. The borrower and the appellant (Citicorp Finance) entered into a loan agreement for an amount of Rs.23,40,000/- As the flat was already mortgaged with ICICI Bank, the borrower requested the appellant to disburse an amount of Rs.17,80,000/- (Rupees Seventeen Lakhs Eighty Thousand) directly to the respondent's ICICI Bank account, in order to secure the release of the flat.

The respondent filed a consumer complaint in the NCDRC seeking to direct the appellant to pay him the balance sale consideration of Rs.13,20,000/-. The respondent claimed that there was a tripartite agreement between him, the appellant and the borrower, whereby the appellant was required to deposit the entire sale consideration.

The NCDRC allowed the complaint, directing the appellant-Citicorp Finance to refund Rs. 13,20,000 with interest and pay Rs. 1,00,000 as litigation costs.

Against the NCDRC's ruling, the Appellant appealed to the Supreme Court.

The Court also that so-called tripartite agreement mentioned about the arbitration clause stating that the disputes be adjudicated through an arbitration.

Referring to the case of M. Hemalatha Devi v. B. Udayasri (2024), the Court observed that consumer disputes are non-arbitrable unless the consumer voluntarily opts for arbitration.

In this case, the Tripartite Agreement contained an arbitration clause. However, the Court noted that the existence of the agreement itself was disputed, and the consumer (respondent) had chosen to approach the Consumer Forum.

The Court noted that the arbitration clause could not be enforced against the consumer, as the choice of forum lies exclusively with the consumer.

"As vivid from Emaar MGF Land Ltd. v Aftab Singh, (2019) 12 SCC 751 and M Hemalatha Devi (supra), even in a consumer dispute under the Act, or for that matter, the Consumer Protection Act, 2019, arbitration, if provided for under the relevant agreement/document, can be opted for/resorted to, however, at the exclusive choice of the 'consumer' alone. As the appellant is not a 'consumer' in terms of the Act and the existence of the Tripartite Agreement is doubtful, we need not dwell further hereon."

In M. Hemalatha Devi v. B. Udayasri, the Court had observed :

“The exclusion of a dispute from arbitration may be express or implied, depending again upon the nature of the dispute, and a party to a dispute cannot be compelled to resort to arbitration merely for the reason that it has been provided in the contract, to which it is a signatory. The arbitrability of a dispute has to be examined when one of the parties seeks redressal under a welfare legislation, in spite of being a signatory to an arbitration agreement. “The Consumer Protection Act” is definitely a piece of welfare legislation with the primary purpose of protecting the interest of a consumer. Consumer disputes are assigned by the legislature to public fora, as a measure of public policy. Therefore, by necessary implication such disputes will fall in the category of non-arbitrable disputes, and these disputes should be kept away from a private fora such as “arbitration”, unless both the parties willingly opt for arbitration over the remedy before public fora.”, the court observed 

Also From Judgment: Not 'Consumer' Without Privity Of Contract : Supreme Court Rejects Flat Seller's Consumer Complaint Against Financier Of Buyer

Case Title: M/S CITICORP FINANCE (INDIA) LIMITED VERSUS SNEHASIS NANDA

Citation : 2025 LiveLaw (SC) 332

Click here to read/download the judgment