The Supreme Court in a recent decision in the case of M Hemalatha Devi & Ors Vs B Udayasri, has reiterated that consumer disputes under the present Indian dispute resolution regime are non-arbitrable. In doing so, the apex court upheld the orders passed by the Telangana High Court in May and subsequently in November last year. This was in a set of appeals filed by a builder challenging the decision of the High Court rejecting a review by the same appellants of the an application by them under Section 11 of the Arbitration and Conciliation Act, 1996.
Brief Facts
The genesis of this dispute begins with an agreement for sale (AFS) executed between the purchaser, who is the respondent in this case and the appellant builders for the development and sale of a villa on a certain plot of land. Due to a termination notice having been issued by the builder to the purchaser, in respect of the aforementioned AFS, the purchaser filed a consumer complaint under the Consumer Protection Act, 2019 before the applicable District Consumer Disputes Redressal Commission (Consumer Forum). On the other hand, the builders filed an application under section 11 of the Arbitration Act before the High Court pleading for an arbitrator to be appointed for the resolution of disputes between the parties, citing the arbitration clause in the AFS.
In on order dated May 19, 2022 the High Court ejected such application for appointment of an arbitrator on the ground that the dispute was pending before a Judicial Authority (i.e., the consumer forum). Therefore, the appellants sought to exercise their option under Section 8 of the Arbitration Act before the Consumer Forum. Accordingly, the appellants preferred such an application under section 8 of the Arbitration Act before the consumer forum. The consumer forum dismissed such application stating that an arbitration clause between parties will not oust the jurisdiction of a consumer forum.
Thereafter, the appellants sought a review of the order dated May 19, .2022 before the High Court. However, the same was dismissed by an order dated November 25, 2022 stating that the appellants had already acted upon the earlier order and as such they were now hit by the doctrine of estoppel. Aggrieved by this latest rejection, the appellants decided to move this appeal before the Supreme Court.
SC’s Judgement
While relying upon various judgments passed by Supreme Court from time to time, Justice Sudhanshu Dhulia held that consumer disputes are non-arbitrable in nature. Court observed-
“All disputes are not capable of being referred to arbitration. The nature of certain disputes may be such that they should never be sent near an arbitration table. To give an illustration, there would be certain types of criminal matters, matters involving public corruption, etc. This aspect has been well considered by this Court in Booz Allen and Hamilton Inc. v. SBI Home Finance Limited and Others.
The exclusion of a dispute from arbitration may be express or implied, depending again upon the nature of the dispute, and a party to a dispute cannot be compelled to resort to arbitration merely for the reason that it has been provided in the contract, to which it is a signatory. The arbitrability of a dispute has to be examined when one of the parties seeks redressal under a welfare legislation, in spite of being a signatory to an arbitration agreement.”
The Apex Court further explained that The Consumer Protection Act is definitely a piece of welfare legislation with the primary purpose of protecting the interest of a consumer. Moreover, consumer disputes are assigned by the legislature to public fora, as a measure of public policy. Therefore, by necessary implication such disputes will fall in the category of nonarbitrable disputes, and these disputes should be kept away from a private fora such as ‘arbitration’, unless both the parties willingly opt for arbitration over the remedy before public fora, the bench opined.
Judicial Authorities, which would include consumer forums and any other courts where applications for appointment for arbitrators are made, ought to reject any such applications in relation to consumer disputes. Finally, the consumer is the primary beneficiary of the 1986 and 2019 Acts. Thereby, consumers cannot be compelled to forego their remedies under the 2019 Act, even in a scenario where they have executed a valid arbitration agreement, Court held.
This decision will be extremely helpful for consumers in India who are always at liberty to exercise their rights to appoint an arbitrator if they so choose to. However, consumers are also protected from the service provider in terms of being compelled by them to submit to arbitration against their wishes.
Contributors : Deepak Deshmukh, Anisha Nair