Making Arbitration More Consumer Friendly – The Way Forward in India

[Chandni Ghatak is a 4th year student at National Law University-Jodhpur.

A related post on the topic is available here.]

The Supreme Court of India has finally clarified  as to what prevails in the battle between statutory remedy and arbitration in relation to resolving consumer disputes by upholding the decision earlier rendered by the National Consumer Disputes Redressal Commission (“NCDRC”). The NCDRC, which is the apex body for consumer disputes in the country, had ruled in the case of Aftab Singh and Others v. Emaar MGF Land Limited and Another in favour of statutory remedy over arbitration. The Supreme Court analysed the correctness of the NCDRC’s ruling, through an appeal filed before it by the builders. The NCDRC case broadly dealt with the dispute emerging on account of non-completion of construction and hand-over of villas and plots by a builder company to several consumers who had rightfully made payments and completed other formalities. While there was a valid arbitration clause in the agreement between the parties for the resolution of any kind of dispute emerging from the agreement, the NCDRC did not allow the presence of such a clause to debar the complainants from pursuing statutory remedies available to them through the Consumer Protection Act, 1986 (“CPA”).

This case, therefore, is significant because it brings up the vital issue that has, in several other forms and occasions, arisen in India with respect to the survival and supremacy of arbitration as a resort over litigation in Indian dispute resolution. Although some may view this decision of the NCDRC as a diversion from the object of making India an arbitration-friendly hub, the decision evokes the right sense of judgment due to the heightened element of public interest consumer disputes in India carry. It also directs our attention to the growing need of making arbitration a more consumer-friendly method of dispute resolution.

Why arbitration is not currently the way for majority of consumers

Arbitration in most instances proves to be a private, timely and efficacious form of dispute resolution. However, this would arguably be in instances wherein both parties have equal bargaining powers and resources at hand, which in consumer disputes is largely not the case. More often than not, consumers are subjected to standard form agreements, which invariably make them submit to unfair or repressive terms including a one-sided arbitration clause, which may not be drafted keeping the interests of both parties. In a country like India, wherein the awareness of consumer’s rights and the general understanding of arbitration as a dispute resolution mechanism is low amongst the common population, allowing the unbridled submission to arbitration in such instances proves extremely unfair. Furthermore, in arbitration, the clause can be of a manner which curtails the counts on which a consumer can raise a dispute. The provisions of the CPA, however, allows for complaints made on several counts which may not be necessarily envisaged or even permitted in a standard form agreement consisting such an arbitration clause. Therefore, the beneficial treatment usually meted out to consumers arguably declines in an arbitration model.

Resorting to arbitration sets a harmful precedent to e-commerce consumers

It is common knowledge that e-commerce sales and other transactions occur in a pre-meditated manner. Both the general terms and conditions as well as final terms of sale largely are mandated through the use of standard forms of contract which contain arbitration clauses. For an Indian consumer, who is not accustomed to online sales and gives into ignorance of not checking such agreements when they do emerge, permitting a blanket approach to resort to arbitration if the agreement envisages such process would also prove harmful. By not keeping the option open to revert to statutory remedies would further endanger the interests of consumers as well as in the long term build a hostile market in general against e-commerce in India, which is adverse to the interests of not only the Indian economy but also e-commerce giants seeking to make a foothold in India’s growing market.

Fear of curtailing the popularity of arbitration as a dispute redressal mechanism is misguided

Several commentators perceive the NCDRC’s ruling and the possibility of the Supreme Court’s agreement with it as a step towards reducing the prominence of arbitration as a sought-after method of dispute redressal. This, in the author’s opinion, is an incorrect view since the judgment does not have a sweeping effect to nullify the validity of arbitration clauses in every consumer agreement entirely. What it only does is empower the consumer to choose her own form of remedial mechanism, i.e. the statutory one or in accordance with the arbitration clause, with the motive that, by allowing her this liberty, all of her grievances are sufficiently and suitably addressed. There is no denying the fact that beneficial legislation such as the CPA which aim to redress grievances of consumers of all classes need to be afforded preferential treatment, especially in a country such as India wherein a huge section of its citizenry still grapples with problems of adulteration etc. To say that the judgment compromises on the autonomous foundations of arbitration and furthers court intervention is misplaced in this context.

Possible amendments in sight as a step toward welcoming arbitration in consumer disputes

Aside from the ramifications of the judgment, it is pertinent at this point to consider making arbitration a more consumer-friendly process in the given circumstances. For instance, earlier this year Bulgaria underwent some laudable changes in its arbitration and consumer laws, which allowed for arbitration to be a more transparent and egalitarian process. Recognising that consumers are often more in need of protection, when put up against large companies, the Bulgarian laws call for more consensual decisions taken by both parties with respect to appointment of arbitrators, which in such cases is usually decided by the companies by way of  the unfair wording of the regulating agreement, making the process highly suspect. This is curtailed in light of the new Bulgarian laws which impose eligibility criteria for arbitrators. If some such criteria would be specifically designed for the adjudication of such disputes, the consumer parties and the companies can act as a check on one another in terms of appointing arbitrators.

Indian law makers must instead focus on making suitable changes to both the CPA and the Arbitration and Conciliation Act, in order to ensure protection of consumers and still pursue its stand of emerging as a pro-arbitration jurisdiction. This shall not only further the above objective but also keep a check on the court’s discretionary powers keeping the fears of hostility at bay.

Concluding remarks

The NCDRC’s verdict has been subject to applause as well as scepticism. However, considering the current stature of the Indian consumer, this is the most reasonable approach. While , the Supreme Court has also upheld this stance, it is also important that legislators endeavour to make arbitration a process which can be accessed and trusted by the population at large, rather than let its continuing image of being an elitist form of dispute resolution press on any further.

– Chandni Ghatak