Consumer Disputes Are Non-Arbitrable, Consumers Can't Be Compelled Into Arbitration : Supreme Court

The Supreme Court recently held that consumer disputes are non arbitrable disputes and a party cannot be compelled into arbitration just because they are a signatory to an arbitration agreement.

A bench of Justice Sanjay Kishan Kaul and Justice Sudhanshu Dhulia observed that the Consumer Protection Act is 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 judgment authored by Justice Dhulia stated.

The Apex Court observed that a party to a dispute cannot be compelled to resort to arbitration merely because it has been provided in the contract, to which the party is a signatory. When one of the parties seeks redressal under a welfare legislation, the arbitrability of the dispute needs to be considered, the Court said.

“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 matter under consideration of the Apex Court pertained to a consumer complaint filed by a home buyer against a builder. The builder (Appellant before the Apex Court) had challenged two orders of the Telangana High Court refusing to appoint an arbitrator. The High Court had rejected the application filed by the builder for appointment of an arbitrator under Section 11 of the Arbitration & Conciliation Act, 1996 on the ground that the dispute was pending before the District Consumer Disputes Redressal Forum. The builder had also moved an application under Section 8 of the Arbitration Act for referring the dispute to arbitration. The District Consumer Forum dismissed the application on the ground that the dispute was non-­arbitrable. The builder challenged this in the High Court in a review application, which was also subsequently dismissed.

The Court observed that the nature of the dispute, determines the forum for its redressal. In a consumer dispute, the consumer has the option to either approach the consumer forum, or choose arbitration. In the case at hand, the consumer chose to the approach the consumer redressal forum, the Court observed.

“The law gives this choice to the consumer to either avail a remedy under the Consumer Protection Act, by filing a complaint before the Judicial Authority, or go for arbitration. This option is not available to the builder, as they are not ‘Consumers’, under the 2019 Act. “

Merely because the builder had approached the Court under Section 11 of the Arbitration Act, the jurisdiction of Consumer Courts is not ousted, the Court observed.

“The jurisdiction of a Court is not determined by the fastest finger first, but the nature of the dispute, the public policy in the matter, the will of the legislature, the election or choice of the consumer amongst various factors,” the Court said. 

The Court said that a plethora of judgments of the Apex Court have held that the remedy under the Consumer Protection Act cannot be deprived to a consumer despite an arbitration agreement between the parties.

“This Court in a series of decisions, while considering both the provisions in the Consumer Protection Act, 1986 and the Arbitration Act, 1996, has held that the Consumer Protection Act being a special and beneficial legislation, the remedies provided therein are special remedies and a consumer cannot be deprived of them should he choose to avail such a remedy, in spite of an arbitration agreement between the parties. “

The Court observed that the legislative intent behind amending S8 and S11 of the Arbitration Act was confined to limiting judicial intervention. Once the Court finds that there is a valid arbitration agreement, it has to refer the matter for arbitration. However this does not mean that where the matter itself is non-­arbitrable, or is covered by a special legislation such as the Consumer Protection Act, it still has to be referred for arbitration, the Court observed.

The Apex Court also referred to the case of Emaar MGF Land Ltd. v. Aftab Singh, (2019) 12 SCC 751 where the Court had examined the scope of sub­section (1) to Section 8 ( Power to refer parties to arbitration where there is an arbitration agreement.)

“..the reasoning given in the above judgment would be equally applicable to Section 11 application before the High Court. Both the provisions incorporated in Section 8 and Section 11 of the Arbitration Act, 1996 [i.e., sub­section (1) and sub­section 6A respectively], seemingly restrict the scope of the examination by the concerned courts, in their reference to arbitration, or appointment of arbitrator, as the case might be, and the language being common, “notwithstanding any judgment, decree or order” places a similar question before the two courts” the Court observed.

The Court thus concluded that the High Court had adopted the right approach and refused to interfere with the two impugned orders refusing to appoint an arbitrator.

Case Title: M. Hemalatha Devi & Ors V. B. Udayasri, Civil Appeal Nos.6500 ¬-6501 of 2023

Citation : 2023 LiveLaw (SC) 902

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