Consumer Disputes to be Non-Arbitrable: SC Lays to Rest the Controversy

[Nidhisha Garg is a 3^rd year student at NLIU Bhopal]

The Supreme Court observed in Emaar MGF Land Limited v. Aftab Singh (10 December 2018) that consumer disputes are non-arbitrable, thus putting to rest the ongoing debate on the same. Aftab Singh, in the present matter was aggrieved due to the delayed delivery of possession by the Emaar MGF upon purchase of property. The buyer’s agreement had an arbitration clause. When Aftab Singh approached the National Consumer Disputes Redressal Commission (“NCDRC”), Emaar MGF sought to invoke the arbitration clause. The NCDRC rejected Emaar MGF’s contention and the matter was taken up on appeal to the Supreme Court. Emaar MGF Ltd then filed a review petition which was admitted by the Supreme Court on account of involvement of substantial question of law.

Background

Until recently, the problem, if any, which came in the way of conclusive settlement of the above question of law was the presence of two contradictory positions. The first was section 8(1) of the Arbitration and Conciliation Act, 1996 (the “Act”) as amended by the Arbitration and Conciliation (Amendment) Act, 2015 (the “Amendment Act”); and the second being the ratio of the Supreme Court in two landmark judgments, A. Aiyyasamy v. A. Paramasivan & Ors (2016) and Booz Allen & Hamilton Inc. v. S.B.I Home Finance Ltd (2011). The Supreme Court in these judgments was of the view that matters that involved an element of public policy fell outside the purview of arbitration. The judiciary was reluctant in permitting resort to private means of resolution for disputes related to insolvency, succession, inheritance, crime, etc. By extension of the same logic, even consumer disputes were believed to be non-arbitrable; hence, the decision of the NCDRC.

The effect of the Amendment Act on section 8 of the Act is that it gives power to judicial authorities to refer any matter for arbitration, except in those cases where there is prima facie lack of a valid arbitration agreement. Section 8, as it now stands following the amendment, contains a non-obstante clause that states: “notwithstanding anything contained in any judgment decree of order passed by the Supreme Court or any Court…”.

Ratio of the Ruling

The Amendment Act also sought to amend section 11 of the Act, as a result of which section 11(6A) was inserted. Emaar MGF contended that a construction was given to the amendment in the case of Duro Felguera, S.A. v. Gangavaram Port Ltd (2017), which can well be adopted to interpret the amended section 8 as well. The Court in Duro Felguera held that under section 11(6A) of the Act, the enquiry of the court was to be restricted only to ascertaining whether there existed a valid arbitration agreement or not.

This contention was rejected by the Supreme Court, as accepting it would effectively amount to departing from the approach adopted in in Ayyasamy and Booz-Allen. Also, the interpretation given to the amended section 11(6A) cannot be extended to the amended section 8(1), notwithstanding the fact that both sections have been amended by virtue of the same Amendment Act. Instead, the Court gave its own interpretation to the amended section 8. It held that the non-obstante clause present in section 8 must be construed in a very limited sense. The phrase ‘any judgment, decree or order’ refers not to all judgments, decrees and orders, but only to those judgments, decrees and orders which permitted the courts to make other kinds of inquiries, for example, the existence of the subject-matter relating to arbitration, seat of arbitration, qualification of arbitrator, etc. The effect of the amendment brought about to section 8 is to reduce the scope of judicial authority only to questions concerning the existence of a valid arbitration agreement.

Reasoning

The inclination of the Supreme Court not to overrule Ayyasamy and Booz Allen is evident. Public policy arguments are usually insurmountable as they involve rights in rem. An analogy may be drawn with criminal cases. All crimes of a particular gravity need to be necessarily dealt with on an equal footing, lest the offenders allege violation of Article 14 of the Constitution of India on grounds of differential treatment of similarly situated people. The rule of precedents applies with utmost rigor in such cases. Likewise, in consumer cases also, grievances of like nature need to be dealt with similarly in order to set a uniform standard of reparation.

Additionally, the Consumer Protection Act, 1986 is a special legislation, which provides for an elaborate mechanism for dealing with consumer grievances. The legislation was enacted in the first place to aid consumers who were aggrieved by the product they had purchased or the service they had received in return for valuable consideration, and where remedies under the Civil Procedure Code, 1908 were either unavailable or inefficient. The Consumer Dispute Resolution Commission aimed to provide customer-specific remedies which also happened to be easily accessible, speedy and effective. Therefore, the Supreme Court must have thought it fit to bar the alternative remedy on account of availability of specific remedy under the Consumer Protection Act, 1986.

Analysis

This is not to say that the judiciary has disrespected the arbitration clause, as the ruling does not impose a general prohibition on arbitration of consumer disputes. It is only in those instances wherein the consumer has first approached the NCDRC that this judgment shall apply.

This judgment needs to be read in light of the Consumer Protection Bill (the “Bill”) which was passed by the Lok Sabha on 20 December 2018, about a week after this judgment was pronounced. The Bill provides for an even more elaborate mechanism for dispute resolution. Apart from the Consumer Dispute Resolution Commissions at the district, state and national levels, it provides for a Central Consumer Protection Authority, apart from Consumer Protection Councils also constituted at the three federal levels. The Bill itself provides for reference of the matters to mediation by the members of the Commission.

An important point to be noted is that if the Bill gets enacted, the contradiction between Booz Allen and the Amendment Act would be resolved. This is because the Amendment Act uses the phrase ‘judicial authority’, whereas the Bill does not intend to retain the Commissions as judicial authority. It does not prescribe any qualification for members of the Commission. Also, the Central Government has been given the power to appoint the members of the Commission. The terminology used by the Bill is ‘members’ and not judges, whereas the amendment uses the phrase ‘judicial authority’. Even though the NCDRC is currently a quasi-judicial authority, the position may not remain the same once the Consumer Protection Act, 1986 is replaced by the Bill, as the NCDRC would then be more in the nature of an executive authority, with no qualification prescribed for the members whatsoever and with the strings of their appointment lying with the Central Government.

Conclusion

The Supreme Court attempted to give a harmonious construction to the two contradictory positions in law referred to above. While it did not set aside the rulings in Ayyasamy and Booz-Allen, it gave a restricted interpretation to the Amendment Act. The reasoning given by the judges seems to be convincing. The Consumer Protection Act, 1986 is a welfare legislation, with primary objective of protection of aggrieved consumers, who are more often than not in a more vulnerable position than their corresponding vendors or service providers. Therefore, the Court thought it fit to concur with the opinion of the NCDRC in order to protect the main object of the Consumer Protection Act.

– Nidhisha Garg