[Pavitra Naidu & Shreya Jain are 4th year B.B.A., LL.B. (Hons.) students from Jindal Global Law School, Sonipat]
The case of Emaar MGF v Aftab Singh was a landmark in the issue of arbitrability of consumer disputes. However, with India striving towards a pro-arbitration regime, delving into the possibility of arbitration of consumer disputes in India becomes imperative. This post will explore whether the Emaar case was a missed opportunity for India to align itself with global approaches to consumer dispute arbitration. It will explore how other common law jurisdictions have addressed this issue and how India can adapt moving forward.
In Emaar, the parties entered into a buyer’s agreement containing an arbitration clause per section 7(2) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). Aftab filed a complaint before the National Consumer Disputes Redressal Commission (“NCDRC”) under Consumer Protection Act, 1986 (“CPA”) when Emaar failed to uphold its end of the contract. In response, Emaar filed an application under section 8 of the Arbitration Act, referring the matter to arbitration. The NDRC held consumer disputes to be non-arbitrable. The decision was appealed before the Supreme Court – which affirmed the order of the NDRC. Emaar subsequently filed a review petition before the Supreme Court.
The Court observed that section 2(3) of the Arbitration Act gives predominance to any act providing specific relief, by virtue of which certain disputes may not be submitted to arbitration. The Court cited the precedent of Booz Allen and Hamilton Inc. v. SBI Home Finance Limited, and emphasised that the jurisdiction of arbitral tribunals is either expressly or by necessary implication excluded in certain categories of disputes. The Court enlisted the different categories of subject matters which have been reserved by the legislature for adjudication in the public fora, due to public policy concerns – such as (i) criminal offences; (ii) matrimonial disputes; (iii) insolvency etc.
The Court discussed the rationale behind the categorization of these subject matters through the rights in rem v. rights in personam test. The Court held that subject matter relating to rights in rem (which is a right exercisable against the whole world) are non-arbitrable, whereas subject matter relating to rights in personam (which is a right exercisable against specific individuals) are considered fit for resolution through arbitration. They further addressed the caveat of certain disputes relating to subordinate rights in personam (which arise from rights in rem) can be considered for arbitration.
Finally, it has held that the remedy provided under the CPA is in addition to the provisions of any other law for the time being in force. Thus, if an individual chooses to file a complaint in the first instance before the competent consumer forum, then such individual cannot be denied relief by invoking section 8 of Arbitration Act.
Analysing the Judgment – A Missed Opportunity?
The judgment in Emaar case attempted to balance the objectives of the CPA with those of the Arbitration Act. However, the Court missed the opportunity to move a step further and recognise the possibility of arbitration in consumer disputes. Interestingly, the Arbitration Act does not contain any specific provisions, which effectively excludes categories of disputes from arbitration. This sentiment was echoed in the case of A. Ayyasamy v. A. Paramasivam, wherein it was suggested that no provision in the CPA indicates a legislative intent whereby all consumer disputes must be deemed to be non-arbitrable. It established that in cases of serious public policy concerns, the matter cannot usually be referred to arbitration as these make for actions in rem.
While older tests rested mainly on the nature of rights in question, newer cases have brought to light several factors that may be considered when determining arbitrability of a dispute. Recently, the Supreme Court has shown a greater acceptance of arbitrability of previously non-arbitrable subject matter. In the case of Vidya Drolia vs. Durga Trading Corporation, the Court held tenancy disputes under the Transfer of Property Act, 1882 (“ToP Act”) as arbitrable. The reasoning applied in this judgment may be extended to the issue of consumer disputes as well.
Here, the Court set out a four-fold test to determine arbitrability of a dispute. Accordingly, a subject matter would not be considered arbitrable when – (1) it pertains to rights in rem and not rights in personam (that arise from rights in rem); (2) the dispute affects third party rights, has erga omnes effect, requires centralized adjudication and mutual adjudication; (3) the subject matter relates to sovereign and public interest functions of the State; (4) the dispute is expressly or by necessary implication non-arbitrable as per a mandatory statute. Thus, the Supreme Court reasoned that tenancy disputes are not actions in rem – they relate specifically to subordinate rights in personam. This was justified by the fact that not only do tenancy disputes do not have an erga omnes effect but also that the ToP Act does not expressly or impliedly bar arbitration of disputes arising under it.
In the Emaar case, the blanket categorization of all consumer disputes as non-arbitrable fails to recognise the nature of the rights in question. Instead, a categorisation such as the four-fold test used in Vidya Drolia would have enabled a better understanding of the nature of the dispute in question and its effects on the rights of the parties. The CPA provides for filing of consumer complaints under two categories. First, individual consumer complaints (such as those under section 12(1)(a) of the Act) may be filed in relation to goods sold or delivered or any service provided or agreed to be provided. Second, in cases where numerous consumers have an interest in the same matter, the consumers or the government may initiate a representative suit (as under section 12(1)(c) and (d) of the CPA). While in the second category of consumer disputes, an action in rem may arise, given a public interest in the matter, such a situation is not likely in the first category of disputes (which focuses mainly on actions in personam). Furthermore, the dispute in question in the Emaar case does not seem to have any implications on the rights of third parties or the public interest at large. Thus, to categorize all consumer disputes as non-arbitrable may not reflect the true spirit of the CPA – which does not expressly or impliedly consider consumer disputes non-arbitrable.
Comparative Jurisdictional Analysis and the Way Forward
The European Union (“EU”) has addressed the issue through legislation on the protection of consumers’ rights in arbitration agreements. EU prohibits pre-dispute binding arbitration agreements and adopts an assumption that all premeditated arbitration agreements in consumer contracts are unfair, if not negotiated by the parties after the dispute arises. Several EU countries have adopted an ‘opt-in’ system as a standard in consumer class actions, which allows parties to opt for arbitration after the consumer dispute, has arisen.
The USA has also witnessed the menace of multimillion-dollar corporations secretively adding arbitration clauses in boilerplate agreements with the consumers and forcing them into arbitration instead of giving them an option to opt-out of the process. The approach adopted by the USA is different from the EU as it does not assume each arbitration clause as inherently unfair. They have created a provision in law for consumer arbitration by introducing an Arbitration Fairness Act, similar to the law prevailing in the EU, which prohibits pre-dispute arbitration agreements in consumer rights disputes. The USA follows an ‘opt-out’ system in consumer dispute cases, which allows parties to opt-out of pre-existing arbitration agreements and bring the matter before conventional courts.
India has also witnessed recent developments in the jurisprudence around consumer disputes in arbitration and is not far behind its western counterparts. Previously the Indian courts have dealt with such disputes in cases, which held that an arbitration clause alone does not oust the authority of consumer forums. However, if a consumer opts for arbitration before filing a complaint they will be bound by the award. However, there remains a lack of clarity as these post dispute solutions are not supported by legislative framework. By analysing the jurisdictions mentioned above, it is observed that both EU and the USA are not averse to the idea of arbitration of consumer disputes, majorly because of the immense benefits of the arbitration process, However, they have safeguarded the rights of consumers in the arbitration process by extensively legislating on the issue.
The Court’s rigid approach towards arbitration agreements in the Emaar case does not provide India with the flexibility to align itself with global trends that provide for arbitration in consumer contracts. India should also produce legislations that include an arbitration process for consumer disputes and outline the protections awarded to a consumer. The Consumer Protection Act, 2019 was a welcomed initiative by the legislature as it included mediation as a form of dispute resolution for consumer disputes. Hence, one can hope that with increasing awareness about the importance of arbitration, the legislature will include arbitration as a form of dispute mechanism in Consumer Protection Act, 2019 as well.
– Pavitra Naidu and Shreya Jain