The Supreme Court in its judgment reinforced the principle that consumer disputes should be addressed by Consumer Forums, and such disputes should be kept away from arbitration unless both parties willingly choose arbitration over the remedies provided by public forums.
Brief Facts:
The case involved a dispute between builders/owners and a homebuyer (consumer) over the construction of a villa. The agreement was made in 2013, specifying payment terms and a three-year construction period. However, the builders failed to deliver the villa as agreed and, instead, terminated the agreement in 2020, claiming the buyer had not signed the Construction Agreement.
Subsequently, the builders applied for the appointment of an arbitrator under Section 11 of the Arbitration Act, 1996, citing an arbitration clause in the agreement. In response, the buyer filed a complaint before the District Consumer Forum under the Consumer Protection Act, 2019, a beneficial legislation for consumers. The District Consumer Forum dismissed the builders' application under Section 8 of the Arbitration Act, ruling that the dispute was non-arbitrable. The builders filed a Review Application, which was also dismissed by the High Court.
Contentions of the Appellant:
The main argument presented by the appellants in this case is that the High Court made a significant mistake when it rejected the appellants' application under Section 11 of the Arbitration Act, 1996. The appellants contend that, following the 2016 amendment that introduced sub-section 6A to Section 11, the High Court was legally obligated to refer the dispute to arbitration and did not have the discretion to do otherwise.
Observations of the Court:
The Supreme Court had to examine the validity of the two impugned orders in light of Subsection 6A to Section 11 and Section 8 of the Arbitration Act, 1996. The questions considered were whether the dispute between the parties is arbitrable, especially in cases covered by special beneficial legislation like the Consumer Protection Act, and whether a party can be compelled into arbitration after availing a remedy before a public forum. The court found that consumer disputes, when covered by beneficial legislation, remain non-arbitrable, and such disputes should be resolved through public forums unless both parties willingly choose arbitration over the remedies provided by public forums.
The Supreme Court made note of its judgment in the case of Emaar MGF Land Ltd. v. Aftab Singh (Emaar III). This judgment dealt with the issue of whether the existence of an arbitration clause in an agreement would oust the jurisdiction of Consumer Forums to entertain complaints. The Supreme Court had held that an arbitration clause in an agreement does not automatically bar the jurisdiction of Consumer Forums to hear consumer complaints. The Court emphasized that proceedings under the Consumer Protection Act are special proceedings and that they will continue under the Act, irrespective of the presence of an arbitration agreement. This judgment established that consumer disputes are not automatically arbitrable solely because of the existence of an arbitration clause.
Following this, the Supreme Court relied on its judgment in Booz Allen and Hamilton Inc. v. SBI Home Finance Limited and Others (Booz Allen) to elucidate the concept of non-arbitrable disputes. It lays down the principles to determine whether certain disputes are fit for arbitration or should be dealt with by specific fora. The Supreme Court in this case explained that not all disputes are capable of being referred to arbitration. Some disputes, such as criminal matters and those involving public policy, may not be suitable for arbitration. The court recognized that the arbitrability of a dispute should be examined in light of the nature of the dispute, the public policy involved, and the will of the legislature. The judgment underlined the importance of special and beneficial legislation, such as consumer protection laws, and the role of public forums in resolving disputes that fall within their purview. It reinforced the principle that consumer disputes are meant to be resolved through Consumer Forums, and this was in addition to any remedies available through arbitration.
The Decision of the Court:
The Supreme Court upheld the Telangana High Court's decision, emphasizing that consumer disputes, particularly those governed by ‘special beneficial legislation’ like the Consumer Protection Act, had not been automatically subject to arbitration based solely on the existence of an arbitration clause. The matter was left pending before the State Consumer Forum.
Case Title: Smt. M. Hemalatha Devi & Ors. vs. B. Udayasri
Coram: Hon’ble Justice Sanjay Kishan Kaul and Sudhanshu Dhulia
Case No.: Civil Appeal Nos. 6500-6501 of 2023
Citation: 2023 Latest Caselaw 801 SC
Advocate for the Appellants: Mr. Himinder Lal
Advocate for the Respondent: Ms. Bhabna Das
Read Judgment @LatestLaws.com
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