JURISDICTION OF CONSUMER COURTS IN ARBITRATION AGREEMENT CASES

(Impact of amendment in section 8 of Arbitration & Conciliation Act)

Jurisdiction of consumer courts in arbitration matters has been time and again decided in number of cases by the Apex court and Apex commission ,

Recently two cases have been decided by the Hon’ble Supreme Court wherein the impact of section 8 of Arbitration and Conciliation Act 1996 as amended in 2015 has been discussed and court has reached to the conclusion that amendment to section 8 of the Arbitration &Conciliation Act 1996 as amended 2015 has not changed the theory of earlier judgments by the Supreme Court that consumer court has the jurisdiction in the cases where arbitration clause exists in the agreement  executed  between the parties .

 

BACKGROUND OF THE CASE

A special leave petition had been filed against the order of the National Consumer Dispute Redressal Commission in the case of Aftab Singh and others vs. Emaar MGF Land Limited and others. challenging the order of National Commission on the basis of the amended Section 8(1) of the Arbitration and Conciliation Act 1996. The given section provides the mandate to the judicial authority to refer parties to arbitration if there exists a valid arbitration agreement. A three member bench of National Consumer Dispute Redressal Forum presided by its President Justice DK Jain held that such disputes are to be governed by the statutory laws and are non-arbitrable.

The SC bench of Justices AK Goel and U Lalit stayed the NCDRC Judgment and posted the matter for final hearing and disposal in February, 2018

Hon'ble.Justice Adarsh Kumar Goel Hon'ble Justice Uday Umesh finaly heard the appeal case of builders and agreed with the order passed by the National Commission in favour of consumers dismissing appeal by builders and inter alia held that consumer disputes are not capable of being settled by arbitration..

“We do not find any ground to interfere with the impugned order(s). The appeals are accordingly dismissed.Pending applications, if any, shall also stand disposed”

FACTS OF THE CASE

The matters arose out of certain complaints filed before the NCDRC by individual allottees of villas/flats/plots in a residential project in Gurugram/Mohali. The complainants alleged that the Builder had failed to deliver possession of the villas/flats/plots by the dates committed in the Agreement and had sought delivery of possession, or in lieu thereof, refund of the amounts deposited by them along with compensation. The Builder, in response, referred to the existence of an arbitration agreement in the Flat-Buyers Agreements with the individual allottees and sought reference to arbitration, relying upon the amended sub-Section (1) of Section 8 of the Arbitration and Conciliation Act, 1996

The larger Bench framed the issue for adjudication as under:

 “Whether the Arbitration Act mandates Consumer Forums, constituted under the Consumer Protection Act, 1986 to refer parties to arbitration in terms of a valid arbitration agreement, of the Arbitration Act?”  

The Bench held that

1.      The 246th Report of the Law Commission of India - amending Section 8 (1) of the Arbitration Act, along with a similar amendment to Section 11 of the said Act to curtail the nature and scope of enquiry to be undertaken in terms of Sections 8 and 11 of the Arbitration Act, there is no intention to alter the interplay between the provisions of the Arbitration Act and the Consumer Act as settled by the Hon’ble Supreme Court of India through various judgments on the issue.

2.      The Arbitration Act excludes from its purview certain disputes under Section 2(3)which fall within the public law regime. –

“8. Power to refer parties to arbitration where there is an arbitration agreement.—

(1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.”

“2(3)This Part shall not affect any other law for the time being in force by virtue of which certain disputes may not be submitted to arbitration.”

 

Russel on Arbitration (22nd Edition pp. 28 Para 2.007) famously stated, “not all matters are capable of being referred to arbitration.” He observed that as a matter of law,certain matters are reserved for Courts alone and if a Tribunal purports to deal with them the resulting award will be unenforceable

 In other words, while determining whether a consumer dispute ought to be referred to arbitration, the Consumer Forum would have to focus on the nature of dispute brought before it.

Hence in spite of having arbitration clause ,consumer court may go ahead and enjoys the jurisdiction on matters related to the subjects under its domain i.e. purchase of goods and hiring of services.

3.      The Consumer Act is a special social legislation enacted to protect consumer rights against large Corporations, hence issues covered under this act are not arbitrable neither they are  intended to be covered by the amendment to Section 8 of the Arbitration Act 

4.      To accept the plea of the Builder would be to set at naught the entire purpose and object of the Consumer Act, viz. to ensure speedy, just and expeditious resolution and disposal of consumer disputes.

THEORY OF ALTERNATE DISPUTE RESOLUTION SYSTEMS ;

So far as reference of a dispute to arbitration if no arbitration agreement exists between the parties referring the parties to arbitration under Section 89 Code of Civil. the same can be done only when parties agree for settlement of their dispute through arbitration in contradistinction to other methods of alternative dispute dispute through arbitration by a joint application or a joint affidavit before the Court which is the resolution mechanism stipulated in Section 89 Code of Civil Procedure. Oral consent given by the counsel without a written memo of instructions does not fulfill the requirement as held by the supreme court in the matter of Kerala State Electricity Board and Anr. v. Kurien E. Kathilal Date of Judgement: March 09, 2018

APPLICATION OF SECTION 3 OF CONSUMER PROTECTION ACT 1986

 Referred Cases-Hon’ble Supreme Court -

!)Skypack Couriers Ltd. (Through order by Dr. D.Y. Chandrachud J.)

!!) National Seeds Corporation Limited v. M. Madhusudhan Reddy & Anr. (2012) 2 SCC 506

!!!)Rosedale Developers Pvt. Ltd. Vs. Aghore Bhattacharya [(2015) 1 WBLR 385 (SC)],

!V)Lt. Col. Anil Raj & Anr. Vs. M/s. Unitech Ltd., Consumer Complaint No. 346 of 2013, decided on 02.5.2016,

V)Secretary, Thirumugugan Cooperative Agricultural Credit Society Vs. M. Lalitha (through LRs) & Ors. (2004) 1 SCC305

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