Supreme Court Upholds Consumer Rights by Ruling Disputes as Non-Arbitrable

LI Network

Published on: October 19, 2023 at 10:30 IST

The Supreme Court of India reaffirmed that consumer disputes cannot be subjected to arbitration, emphasizing that individuals cannot be compelled into arbitration solely based on their status as signatories to an arbitration agreement.

The bench, led by Justice Sanjay Kishan Kaul and Justice Sudhanshu Dhulia, emphasized that the Consumer Protection Act is a crucial piece of welfare legislation primarily designed to protect consumer interests.

The court’s decision reflects the legislative directive that designates consumer disputes for resolution within public forums as a matter of public policy. As a result, these disputes are considered non-arbitrable, and they should not be subject to private arbitration unless both parties willingly choose arbitration as the preferred avenue for resolution. These principles were articulated in the ruling authored by Justice Dhulia.

The Supreme Court clarified that a party involved in a dispute cannot be compelled to resort to arbitration solely because the contract they have signed includes such a provision. The Court stressed the importance of carefully considering whether to arbitrate a dispute, especially when one party seeks relief under a welfare statute, even if they are a signatory to an arbitration agreement.

The case before the Supreme Court revolved around a consumer complaint filed by a homebuyer against a builder. The builder had challenged two decisions by the Telangana High Court that declined to appoint an arbitrator.

The High Court rejected the builder’s request for an arbitrator under Section 11 of the Arbitration & Conciliation Act, 1996, citing that the dispute was pending before the District Consumer Disputes Redressal Forum. The builder had also submitted an application under Section 8 of the Arbitration Act to have the dispute referred to arbitration, which was dismissed by the District Consumer Forum, stating that the dispute was non-arbitrable.

The builder’s subsequent challenge to this decision in a review application before the High Court was also dismissed.

The Supreme Court emphasized that the choice of forum for resolving a dispute depends on the nature of the dispute. In consumer disputes, consumers have the flexibility to approach a consumer forum or opt for arbitration. In this case, the consumer chose to use the consumer redressal forum.

The Court clarified that this choice is available to the consumer, allowing them to seek remedies under the Consumer Protection Act by filing a complaint with the Judicial Authority or opting for arbitration. However, this choice is not available to the builder since they do not qualify as “Consumers” under the 2019 Act.

The Court made it clear that even if an arbitration agreement exists between the parties, the consumer cannot be deprived of the remedies provided by the Consumer Protection Act, as it is special and beneficial legislation.

The Supreme Court also referenced the case of Emaar MGF Land Ltd. v. Aftab Singh, (2019), which examined the scope of Section 8 (Power to refer parties to arbitration where there is an arbitration agreement).

Consequently, the Court concluded that the High Court had correctly declined to intervene with the two challenged orders refusing the appointment of an arbitrator, emphasizing the importance of safeguarding consumer rights and upholding the intent of welfare legislation.

Case title: Matter of Consumer Complaint against a Builder

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