2023 (10) TMI 1510 - SC - Indian Laws

Dismissal of application of the Appellants filed for the appointment of an arbitrator Under Section 11 of the Arbitration Conciliation Act 1996 - 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. 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? HELD THAT - It is 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 . 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 non-arbitrable 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. This Court in a series of decisions while considering both the provisions in the Consumer Protection Act 1986 and the Arbitration Act 1996 has held that the Consumer Protection Act being a special and beneficial legislation the remedies provided therein are special remedies and a consumer cannot be deprived of them should he choose to avail such a remedy in spite of an arbitration agreement between the parties. It is a remedy provided to the consumer where the consumer finds a defect in either goods or services provided to him and therefore seeks a redressal of his grievances before the consumer forum provided to him by the legislature. Conclusion - 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. The application Under Section 11 of the Arbitration Act 1996 for appointment of an arbitrator was not maintainable in the present case - appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the dispute between the parties is arbitrable under the Arbitration & Conciliation Act, 1996, given the existence of an arbitration clause in the agreement.
• Whether the Telangana High Court erred in dismissing the application for appointment of an arbitrator under Section 11 of the Arbitration Act, 1996.
• Whether the consumer, having opted for a remedy under the Consumer Protection Act, 2019, can be compelled to arbitrate the dispute.
• The impact of the 2016 amendment to the Arbitration Act, particularly the introduction of Section 6A to Section 11, on the arbitrability of consumer disputes.

2. ISSUE-WISE DETAILED ANALYSIS

Arbitrability of the Dispute

• Relevant Legal Framework and Precedents: The Arbitration & Conciliation Act, 1996, particularly Sections 8 and 11, and the Consumer Protection Act, 2019. Key precedents include Booz Allen and Hamilton Inc. v. SBI Home Finance Limited and Emaar MGF Land Ltd. v. Aftab Singh.
• Court's Interpretation and Reasoning: The Court examined whether consumer disputes are arbitrable, considering the nature of the dispute and the existence of a special remedy under the Consumer Protection Act. It referenced the Emaar III decision, which held that consumer disputes are non-arbitrable due to the public policy and protective nature of consumer law.
• Key Evidence and Findings: The agreement between the parties contained an arbitration clause, but the consumer opted to file a complaint under the Consumer Protection Act, which was allowed by the District Consumer Forum.
• Application of Law to Facts: The Court applied the principles from Emaar III and other precedents, affirming that consumer disputes fall within the category of non-arbitrable disputes.
• Treatment of Competing Arguments: The appellants argued that the High Court should have referred the matter to arbitration under the amended Section 11, while the respondent contended that the consumer protection remedy was valid and should not be overridden by arbitration.
• Conclusions: The Court concluded that the dispute was non-arbitrable and upheld the High Court's decision to dismiss the application for appointment of an arbitrator.

Impact of the 2016 Amendment to the Arbitration Act

• Relevant Legal Framework and Precedents: The 2016 amendment to the Arbitration Act, particularly the introduction of Section 6A to Section 11, which restricts judicial intervention to examining the existence of an arbitration agreement.
• Court's Interpretation and Reasoning: The Court interpreted the amendment as limiting judicial intervention but not affecting the non-arbitrability of certain disputes under special legislation like the Consumer Protection Act.
• Key Evidence and Findings: The Court referred to the legislative intent behind the amendment, which aimed to streamline arbitration proceedings without overriding special consumer protections.
• Application of Law to Facts: The Court found that despite the amendment, consumer disputes remain non-arbitrable due to the specific protections afforded under consumer law.
• Treatment of Competing Arguments: The appellants argued that the amendment mandated referral to arbitration, while the Court emphasized the continued non-arbitrability of consumer disputes.
• Conclusions: The Court held that the amendment did not alter the non-arbitrability of consumer disputes and upheld the High Court's decision.

3. SIGNIFICANT HOLDINGS

• Core Principles Established: The Court reaffirmed that consumer disputes are non-arbitrable due to the protective nature of consumer law and the public policy considerations underlying the Consumer Protection Act.
• Final Determinations on Each Issue: The Court upheld the High Court's orders dismissing the application for appointment of an arbitrator and the review application, affirming that the consumer dispute was non-arbitrable.
• Verbatim Quotes of Crucial Legal Reasoning: "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."