No Arbitration in Consumer and Real Estate Disputes

[Ajar Rab is a Partner at Rab & Rab Associates LLP, Dehradun]

In an earlier post, I had discussed the decision of the National Consumer Disputes Redressal Commission (“NCDRC”) in Aftab Singh v. Emaar MGF Land Limited & Anr, which had held that consumers disputes are not arbitrable under section 2(3) of the Arbitration and Conciliation Act, 1996. The post had referred to the possibility of the decision being appealed before the Supreme Court.

On February 13, 2018, the Supreme Court dismissed the appeal against the judgment of the NCDRC in a non-reasoned order, stating that the Court does not find any reason to interfere with the order passed by the NCDRC. While the dismissal would have furthered the jurisprudence on the issue if the Supreme Court had offered reasons, the effects of the dismissal are nonetheless far-reaching.

First, the position with respect to the non-arbitrability of consumer disputes is now crystalized. Therefore, all arbitration clauses in consumer matters would now be rendered invalid. Therefore, the only recourse to consumers now is to approach the consumer fora under the Consumer Protection Act, 1986.

Second, since the decision of the NCDRC made reference to the provisions of the Real Estate (Regulation and Development), 2016 (“REA”) holding that real estate disputes are not arbitrable, the dismissal by the Supreme Court impliedly settles the position of law with respect to the arbitrability of disputes under the REA as well. Thus, all builder-buyer agreements, agreements for sale, etc. falling within the scope of the REA containing arbitration clauses would be covered by aforesaid judgments and hence would be invalid.

Third, as a larger consequence, the dismissal also impliedly reaffirms the position of non-arbitrability of disputes where a special legislation or social welfare legislation has been enacted with respect to certain areas such as rent control legislation, insolvency proceedings, debt recovery, etc.

Last, the dismissal is a welcome step in protecting consumer rights and bolstering the development of consumer rights through decisions of the various consumer fora. It will help reduce unnecessary procedural delays on the question of jurisdiction of the consumer fora as against the arbitration tribunal and ensure speedy resolution of consumer disputes.

– Ajar Rab

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