BUILDERS CAN’T FORCE BUYERS TO GO FOR ARBITRATION

lawzmag.comIt is a well settled law that arbitration agreements do not bar the jurisdiction of the National Consumer Disputes Redressal Commission (‘NCDRC’) and other consumer forums. The issue was, however, reconsidered at length by a Full Bench of the NCDRC, in Aftab Singh v Emaar MGF Land Limited &Anr [Consumer Case No 701 of 2015] in view of the amendments to the Arbitration and Conciliation Act 1996 (‘the Amended Act’). The Full Bench was constituted pursuant to a referral by the Single Bench on 31 August 2016. In its decision of 13 July 2017, the NCDRC has once again reiterated that since the Consumer Courts are special courts constituted to serve a social purpose, the Amended Act does not apply to them.

Facts:

The dispute before the NCDRC was between real estate buyers (‘Buyers’) and a property developer (‘Builder’).  The grievance of the Buyers was that the Builder failed to deliver possession of the real estate within the time stipulated by the agreement between them. The Builder filed an application under §8 of the Amended Act praying for reference to arbitration as the agreement contained a valid arbitration clause.

The Buyers contended that the remedies provided by the Consumer Protection Act 1986 (‘Consumer Act‘) are in addition to and not in exclusion of other laws in force.  Even under the Amended Act, the intent of the legislature is not to bar the jurisdiction of the Consumer Courts, where an arbitration clause exists. The existing interplay between the Consumer Act and the Amended Act remains unaffected.  The decision of the Supreme Court in National Seeds Corporation Limited v M Madhusudhan Reddy [(2012) 2 SCC 506] where the court had ruled that consumer disputes cannot be referred to arbitration, continued to apply.   It was also argued that the Consumer Act is a beneficial legislation and, therefore, the intention behind its enactment ought to be advanced.

The Builder on the other hand submitted that the Consumer Courts are ‘judicial authority’ within the meaning of §8 of the Amended Act. Therefore, they are required to refer parties to arbitration if a valid clause exists. Further, under the Amended Act, the judicial authority was required to refer disputes to arbitration, irrespective of any decisions of the High Court or the Supreme Court of India, as such Article 141 of the Constitution would also be of no assistance to the parties. Emphasis was also laid on §5 of the Amended Act, which requires a judicial authority to refer parties to arbitration, irrespective of anything contained in any other law.

Judgement

While delivering the judgment of Aftab Singh v Emaar MGF Land Limited &Anr [Consumer Case No 701 of 2015], Commission relied on Booz Allen Hamilton Inc v SBI Home Finance Ltd [(2011) 5 SCC 532], where the SC said that the Arbitral Tribunals are private forum chosen voluntarily by the parties to the dispute, to adjudicate their disputes in place of courts and tribunals which are public forum constituted under the laws of the country.

The bench further observed, “the disputes which are to be adjudicated and governed by statutory enactments, established for specific purpose to sub-serve a particular public policy, are not arbitrable.”

The NCDRC finally held that in light of the overall architecture of the Consumer Protection Act and Court-evolved jurisprudence, amended sub-section (1) of Section 8 cannot be construed as a mandate to the Consumer Forum, constituted under the CPA, to refer the parties to arbitration in terms of the Arbitration Agreement. Applications of builders were dismissed and each of the cases referred back to the respective NCDRC benches for adjudication.

The NCDRC stated:

In view of the afore-going discussion, we arrive at the following conclusions: (i) the disputes which are to be adjudicated and governed by statutory enactments, established for specific public purpose to sub-serve a particular public policy are not arbitrable; (ii) there are vast domains of the legal universe that are non-arbitrable and kept at a distance from private dispute resolution; (iii) the subject amendment was meant for a completely different purpose, leaving status quo ante unaltered and subsequently reaffirmed and restated by the Hon’ble Supreme Court; (iv) Section 2(3) of the Arbitration Act recognizes schemes under other legislations that make disputes non-arbitrable and (iv) in light of the overall architecture of the Consumer Act and Court-evolved jurisprudence, amended sub-section (1) of Section 8 cannot be construed as a mandate to the Consumer Forums, constituted under the Act, to refer the parties to Arbitration in terms of the Arbitration Agreement.

Analysis:

Though the judgment may be challenged before the Supreme Court, it is argued that the view is based on sound reasoning. If parties are permitted to contract out of statutory remedies, especially in cases where legislation has been enacted to remedy a specific social problem, it would defeat the purpose of such legislation. Furthermore, in cases where the bargaining power between parties is uneven, such as consumer disputes, real estate disputes, etc., forcing the parties to go to arbitration may not only add substantial litigation costs in some cases and leave the consumers further disadvantaged, but may also serve as a deterrent to seek redressal of their grievances. In addition, there are provisions for time bound dispute resolution and some specific provisions such as refund of the payment along with interest in 45 days from the date of claim under the RERA, which may be incapable of being provided by the arbitration tribunal.

While the view of the NCDRC is restricted to consumer disputes under the COPRA, the reasoning may well be extended to special legislations such as the RERA as well. Though it may be a while before the jurisprudence on the RERA develops, this judgment will certainly benefit consumers and help establish a settled position of law with respect to non-arbitrability of disputes in the presence of specific dispute resolution mechanisms under various legislations.

 

-LawZ Bureau

 

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