Hemalatha Vs. B. Udayas
2023 Latest Caselaw 801 SC

Hemalatha Vs. B. Udayas

Civil Appeal Nos. 6500 ­ 6501 oF 2023

(Arising Out SLP (C) NOS.4849­4850 OF 2023)

Sudhanshu Dhulia, J.

1. Leave granted.

2. The appellants before this Court have challenged two orders of the Telangana High Court. The first is the order dated 19.05.2022, dismissing the application of the appellants filed for the appointment of an arbitrator under Section 11 of the Arbitration & Conciliation Act, 1996 (for short ‘Arbitration Act, 1996’). It was dismissed by the High Court on the ground that the dispute was pending before a Judicial Authority, which is the District Consumer Disputes Redressal Forum (for short ‘District Consumer Forum’), where a complaint has been filed by the other party to the agreement, who is a consumer and therefore the appellants have the option to move an application under Section 8 of the Arbitration Act, 1996 for reference before Arbitration. Consequently, the appellants moved an application for referring the dispute for arbitration. The District Consumer Forum dismissed this application on the ground that the complainant
has invoked a public law remedy before a “Judicial Authority”, under a beneficial legislation for consumers, which is the Consumer Protection Act, 2019 (hereinafter referred to as ‘The 2019 Act”) and therefore under the facts and circumstances of this case, the dispute is non­arbitrable. Consequent to the dismissal of their application under Section 8 of the Arbitration Act, 1996, the appellants filed a Review Application before the High Court for review of its earlier order dated 19.05.2022. This Review Application was dismissed vide the second order of the High Court dated 25.11.2022, (which is again impugned before this Court), on the ground that the appellants had already acted upon the order dated 19.05.2022, and therefore is now estopped from seeking review of the order dated 19.05.2022. It is these two orders which are under challenge before this Court.

3. The facts as they stand today are that the complaint filed by the consumer (the sole respondent before this Court), has already been allowed by the District Consumer Forum and the builders (i.e., the appellants before this Court), have been directed to handover the possession of the plot along with the constructed villa and pay a compensation of Rs.15,00,000/­ (Rupees Fifteen Lakh Only) and a cost of Rs.1,00,000/­ (Rupees One Lakh Only) with default stipulation. The findings given by the District Consumer Forum disclose the reasons as to why the builder backed out of its promise and made a default:

“ ....., the opposite party no. 3 had chosen to send the termination notices and sought for execution of cancellation deed knowing that the value of the plot had escalated to more than 10 times from the date of agreement and the opposite parties wanted to take the benefit of such rise in price value. The opposite party no. 3 did not fix any reasonable time for performance of his obligation though time for handing over the possession was agreed by the opposite party no.3 in the agreement of sale. The opposite party no. 3 had issued termination notice in the year 2020 though he failed to keep his promise of handing over the possession of the Villa by March, 2017.

The failure of the developer, who is also land owner in the present case, to hand over the possession of the residential property to the complainant- purchaser within the contractually stipulated time count as a deficiency.There exists fault, shortcoming or inadequacy in the nature and manner of the action which has been undertaken to be executed in the implementation of the contract with regard to the service to be provided by the opposite parties. The terms of the agreement of sale have been drafted keeping in mind the interest of the developer (opposite party no. 3). The trade practice which tends to bring about restrictive trade practice, manipulation of price or its conditions of delivery or to affect now of supplies in the market relating to goods or services in such a manner as to impose on the consumers unjustified costs or restrictions and shall include delay beyond the period agreed to by a trader in supply of such goods or in providing the services which has led or as is likely to lead to rise in the price is nothing but restrictive practice by the opposite parties. Further, the act of the opposite parties amounts to deficiency of service and unfair trade practice. Hence, point no. a is answered in favour of the complainant.

10. Point No. b:

Homebuyers put their hard­earned savings into the real estate projects with a hope that they will own their dream house one day. However, their dreams get shattered when the builders fail to deliver the possession of their houses even after a prolonged delay.

In the present case, the obligation of the opposite party no. 3 (who is the land owner and developer) to deliver the Villa on the time mentioned in the agreement of sale was not fulfilled despite receipt of payment of amount as per the said agreement. The receipt of part payment towards transfer of the plot by the opposite parties without discharging their obligations for the construction of the Villa and finally cancelling the agreement of sale unilaterally on the pretext that the prices have gone up for the subject property is nothing but commission of deficiency of service and adoption of unfair trade practice on the part of the opposite parties.”

The builders, who are the appellants before this Court, have already filed their statutory appeal before the State Consumer Commission which is presently pending and the order of the District Forum has been stayed.

4. The essential argument of the appellants before this Courtis that the High Court committed a gross error in dismissing the application of the appellants under Section 11 (sub­sections 5 & 6) of the Arbitration Act, 1996 for the reasons that under the amended provision of Section 11 of the Arbitration Act, 1996 i.e., after insertion of sub­section 6A to Section 11, by way of an amendment in 20161, the High Court had no choice but to refer the matter for arbitration. The provision which has been pressed into service reads as under:

“11. Appointment of arbitrators: ­

XXX XXX XXX

6A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub- section (4) or sub­section (5) or sub- section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the mexistence of an arbitration agreement.

5. The validity of the two orders impugned before us, therefore, have to be examined in light of sub­section 6A to Section 11 and Section 8 of the Arbitration Act, 1996. We will thus also be examining whether the dispute between the parties is arbitrable, and once a party has availed the remedy before a public forum under a special beneficial legislation, can it be compelled to go for arbitration?

In order to arrive at a conclusion, we will first have to refer to the nature of the dispute between the parties. The respondent before this Court is a home buyer who had entered into an Agreement for Sale with the present appellants on 27.08.2013. The present appellants will hereinafter be referred to as the builders/owners and the respondents as buyer/consumer. The builders/owners are three in number. They are:

(a) M/s R.G. Prime Spaces Private Limited
(b) Smt. M. Hemalatha Devi
(c) M/s Legend Estates Private Limited

They are the joint owners of the land on which they had agreed to construct a residential house/villa for the buyer/consumer Smt. B. Udayasri. The terms of agreement dated 27.08.2013 stipulate that the project will be developed by M/s Legend Estates Private Limited who is one of the owners of the property. The total area of the land on which the residential house/villa was to be constructed was 357 sq. yards in Kokapet Village, Rajendra Nagar Mandal, Ranga Reddy District, Telangana, and the total construction was 4,000 sq. feet for a total sale consideration of Rs.49,42,000/­ (Rupees Forty Nine Lakhs and Forty Two Thousand Only).

6. As per the agreement, the mode of payment was to be done as per clauses 9.1, 9.2 and 9.3 which read as under:

“9.1 Mode: The purchaser paid to the Developer, the total consideration mentioned in Clause 8.1 above, in the following manner:

9.2 The balance of Rs.44.47,800/­ (Rupees Forty Four Lakhs Seven Thousand Eight Hundred Only) shall be paid by the vendee at the time of registration of sale deed in favour of purchaser or her nominee/s.

9.3 Essence: timely payment of the total consideration is the essence of this contract.”

The possession of the house was to be given as per clauses

10.1 and 10.1.1 of the agreement which reads as under:

“10.1 Possession: Vacant and peaceful possession of the said plot along with constructed villa shall be delivered by the Developer to the Purchaser simultaneously with the full payment of
 the Total Consideration as mentioned in the Sale deed and the Construction Agreement and registration of Sale Deeds in favour of the purchaser shall be done after completion of Villa.

10.1.1 The Developer agrees to hand over possession of the said Villa within period of three years and six months grace period from the date of agreement of sale. That in case of the developer is unable to hand over the possession of Villa in stipulated time then the developer is liable to pay the purchaser compensation Rs.5/­ per sq. ft., per month for any delay in completing the construction of the Villa.”

7. It is therefore, absolutely clear that the builders/owners had to hand over the fully constructed house/villa to the buyer, within three years from the date of the agreement i.e., 27.08.2013, with a six months grace period. In other words, this constructed house/villa had to be handed over to the buyer/consumer on or before February 27, 2017. This has admittedly not been done. What happened instead is that in 2020, i.e., after three years from the date when the constructed house/villa had to be handed over to the buyer, the builder sends a “Termination Notice” to the buyer and terminates the agreement, ostensibly on the ground that the buyer had not signed “the Construction Agreement”. It is not disputed that at the time of signing the agreement in the year 2013, the buyer interms of the agreement (Clauses 9.1, 9.2 and 9.3) had handed over the first instalment of Rs. 4,94,200/­ (Rupees Four Lakh Ninety Four Thousand and Two Hundred Only) to the builders/ owners. The remaining amount of Rs.44,47,800/­ (Rupees Forty Four Lakh Forty Seven Thousand and Eight Hundred Only) was to be paid at the time of registration of Sale Deed and handingover of the constructed house to the buyer/consumer. This event, as we have already stated above, never took place.

8. Meanwhile, the builders/owners after sending notice to the consumer/buyer moved an application under sub­sections 5 and 6 of Section 11 of the Arbitration Act, 1996 before the High Court for appointment of an Arbitrator, in terms of the arbitration clause which is admittedly there in the agreement.

The buyer, who was also a consumer, as defined under the 2019 Act, moved a complaint before the District Consumer Forum. At the same time, having received notice of Section 11 application, the respondent filed her reply before the Court. In her reply, the respondent apprised the High Court that she being a consumer has moved a complaint before a Judicial Authority, which is District Consumer Forum, where an application under Section 8 of the Arbitration Act, 1996 for appointment of Arbitrator is always available to the appellants. Vide the impugned order dated 19.05.2022, the application of the present appellants was dismissed by the High Court, and the appellants were granted liberty to move a Section 8 application of the Arbitration Act, 1996 before the District Consumer Forum. This application (under Section 8 of the Arbitration Act, 1996), as we have already referred to above, was later dismissed by the District Consumer Forum on the ground that the legislature had purposely provided a remedy under the 2019 Act in addition to any other remedy which may be available to the consumer and although there is an Arbitration clause between the parties but that itself will not oust the jurisdiction of a Consumer Court for the reason that it is a remedy available to the consumer in a public fora. The District Consumer Forum relied upon the Judgment of this Court in Emaar MGF Land Ltd. v. Aftab Singh, (2019) 12 SCC 751 (“Emaar III”) (this seminal decision of the Supreme Court, we would be discussing in detail in a while), wherein it has been held that an Arbitration Clause in the agreement does not bar the jurisdiction of the Consumer Forum to entertain the complaint. After the dismissal of their Section 8 application, the appellants moved an application before the Telangana High Court seeking review of its order dated 19.05.2022. The Review Petition was also dismissed vide order dated 25.11.2022 on the ground that the earlier order had been acted upon by the appellants.

9. Now before this Court, there is a long line of decisions, including the decision which had come up post amendment to sub­section (1) of Section 8 and post insertion of sub­section 6A to Section 11 of the Arbitration Act, 1996, where it has been held that in spite of sub­section (1) to Section 8 the Court has to find out not only whether there is an arbitration clause in the agreement but whether the dispute is arbitrable or not.

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, (2011) 5 SCC 532 and it has been held as under:

“35. The Arbitral Tribunals are private fora chosen voluntarily by the parties to the dispute, to adjudicate their disputes in place of courts and tribunals which are public fora constituted under the laws of the country. Every civil or commercial dispute, either contractual or non- contractual, which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of the Arbitral Tribunals is excluded either expressly or by necessary implication. Adjudication of certain categories of proceedings are reserved by the legislature exclusively for public fora as a matter of public policy. Certain other categories of cases, though not expressly reserved for adjudication by public fora (courts and tribunals), may by necessary implication stand excluded from the purview of private fora. Consequently, where the cause/dispute is inarbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration, under Section 8 of the Act, even if the parties might have agreed upon arbitration as the forum for settlement of such disputes.

36. The well­recognised examples of non- arbitrable disputes are: (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding­up matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.”

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 Consumer Protection Act’ is definitely a piece of welfare legislation with the primary purpose of protecting the interest of a consumer. 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.

In Fair Air Engineers (P) Ltd. v. N.K. Modi (1996) 6 SCC 385, Section 8 of the Arbitration Act, 1996 was considered in light of the provisions of the 1986 Act.

“16. It would, therefore, be clear that the legislature intended to provide a remedy in addition to the consentient arbitration which could be enforced under the Arbitration Act or the civil action in a suit under the provisions of the Code of Civil Procedure . Thereby, as seen, Section 34 of the Act does not confer an automatic right nor create an automatic embargo on the exercise of the power by the judicial authority under the Act. It is a matter of discretion. Considered from  this perspective, we hold that though the District Forum, State Commission and National Commission are judicial authorities, for the purpose of Section 34 of the Arbitration Act, in view of the object of the Act and by operation of Section 3 thereof, we are of the considered view that it would be appropriate that these forums created under the Act are at liberty to proceed with the matters in accordance with the provisions of the Act rather than relegating the parties to an arbitration proceedings pursuant to a contract entered into between the parties. The reason is that the Act intends to relieve the consumers of the cumbersome arbitration proceedings or civil action unless the forums on their own and on the peculiar facts and circumstances of a particular case, come to the conclusion that the appropriate forum for adjudication of the disputes would be otherwise those given in the Act.”

Again, the question which came up before this Court was whether existence of Arbitration clause in the agreement would exclude the jurisdiction of the Consumer Courts and whether the Consumer Court is bound to refer the matter for reference to arbitration. This was in the case of National Seeds Corporation Limited v. M. Madhusudhan Reddy and Another (2012) 2 SCC 506 and it was answered thus:

“64. According to the learned counsel for the appellant, if the growers had applied for arbitration then in terms of Section 8 of the Arbitration and Conciliation Act the dispute arising out of the arbitration clause had to be referred to an appropriate arbitrator and the District Consumer Forums were not entitled to entertain their complaint. This contention represents an extension of the main objection of the appellant that the only remedy available to the farmers and growers who claim to have suffered loss on account of use of defective seeds sold/supplied by the appellant was to file complaints with the Seed Inspectors concerned for taking action under Sections 19 and/or 21 of the Seeds Act. not entitled to entertain their complaint. This contention represents an extension of the main objection of the appellant that the only remedy available to the farmers and growers who claim to have suffered loss on account of use of defective seeds sold/supplied by the appellant was to file complaints with the Seed Inspectors concerned for taking action under Sections 19 and/or 21 of the Seeds Act.

65. The consideration of this issue needs to be prefaced with an observation that the grievance of a farmer/grower who has suffered financially due to loss or failure of crop on account of use of defective seeds sold/supplied by the appellant or by an authorised person is not remedied by prosecuting the seller/supplier of the seeds. Even if such person is  found guilty and sentenced to imprisonment, the aggrieved farmer/grower does not get anything. Therefore, the so­called remedy available to an aggrieved farmer/grower to lodge a complaint with the Seed Inspector concerned for prosecution of the seller/supplier of the seeds cannot but be treated as illusory and he cannot be denied relief  under the Consumer Protection Act on the ground of availability of an alternative remedy.

66. The remedy of arbitration is not the only remedy available to a grower. Rather, it is an optional remedy. He can either seek reference to an arbitrator or file a complaint under the Consumer Protection Act. If the grower opts for the remedy of arbitration, then it may be possible to say that he cannot, subsequently, file complaint under the Consumer Protection Act. However,  if he chooses to file a complaint in  the first instance before the competent Consumer Forum, then he cannot be denied relief by invoking Section 8  of the Arbitration and Conciliation Act, 1996. Moreover, the plain language of Section 3 of the Consumer Protection Act makes it clear that the remedy available in that Act is in addition to and not in derogation of the provisions of any other law for the time being in force.”

Later,     in    a    similar     matter     before    this     Court     [Rosedale Developers Private  Limited   v.    Aghore  Bhattacharya  and Others   (2018)   11   SCC   337],    the    plea    of    the    builder    for arbitrability was dismissed at the very threshold as a  “frivolous piece of litigation”, relying upon National Seeds Corporation Limited (supra).

10. Another question raised before this Court by the appellants is that since it is the builder who had first  approached  the “Court” by filing an application under Section 11 for appointment of an arbitrator, in terms of the agreement, the consumer in all fairness should have submitted before the jurisdiction of the Arbitration and Conciliation Act, as agreed between the parties (in their agreement), rather than seeking remedy before the Consumer Forum.