Can the Consumer Forum refer consumer disputes to Arbitration?

Under Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter, “the Arbitration Act”), a “judicial authority” before whom a dispute has been brought, has to refer the matter to arbitration if the said dispute is the subject matter of an arbitration agreement. Now, the question that arises for consideration is whether the Consumer Forum (hereinafter, “The Forum”) should refer consumer disputes to arbitration if such disputes are a subject matter of an arbitration agreement?

This question has been answered by the Supreme Court in various decisions like Fair Air Engineers v. N.K. Modi (AIR 1997 SC 533) and Virender Jain v. Alaknanda Coop. Group Housing Society Ltd., [(2013) 9 SCC 383] among others. The reasoning behind those decisions is that the remedy provided under the Consumer Protection Act (hereinafter, COPRA) is in addition to and not in derogation to other remedies. Moreover, the fact that COPRA is a welfare legislation has also tilted the scales in favor of allowing consumer forums to adjudicate disputes which are a subject matter of arbitration agreement. Thus, since the decision in N.K. Modi, it has been a settled position of law that invoking arbitration clause does not oust the jurisdiction of the Forum.

THE 2015 AMENDMENT TO THE ARBITRATION AND CONCILIATION ACT, 1996

This “settled position of law” was unsettled by the 2015 Amendment to the Arbitration Act, which modified Section 8 of the Arbitration Act, 1996 to further reduce the discretion given to courts as it stipulated that a judicial authority has to refer the matter to arbitration, “notwithstanding any judgment, decree or order of the Supreme Court or any Court.” The Amendment brought a ray of hope to habitual litigants like Builders and developers who had incorporated boilerplate arbitration clauses in their agreements/contracts/invoices etc., as the words, “notwithstanding any judgment, decree or order of the Supreme Court or any Court” could be interpreted to mean that all the Supreme Court judgements on the subject question would be null and void. Moreover, it could also be argued that the legislature was aware of the said judgments and intended even consumer disputes to be referred to arbitration.

On the other hand, even if the judgements of the Supreme Court are rendered nugatory, the Consumer can always rely on the proverbial, “Section 3” of COPRA and new judgements can be delivered reiterating the old position that Consumer Forums can adjudicate disputes irrespective of any amendment as “the remedy available under COPRA is only in addition to and not in derogation to any other remedy.”

EXPERIMENTS WITH THE 2015 AMENDMENT

Pinning our hopes on the 2015 Amendment, we filed a Section 8 Application before the Consumer Forum in a Builder-buyer dispute. However, the Forum rejected our Application without uttering a single word about the 2015 Amendment in the entire order. On the other hand, it discussed archaic provisions like Section 34, Arbitration Act, 1940 and related judgments which were rendered prior to the Amendment.

ABSURD INTERPRETATION BY THE STATE COMMISSION

In a similar dispute between the Builder and Flat buyers, the same issue came up before the Karnataka State Consumer Disputes Redressal Commission in Krishnan Parameswaran v. Sovereign Developers (unreported). Since the Agreement to Sell between the parties had an arbitration clause, the Builder had filed a Section 8 Application on the strength of the 2015 amendment. As is usual, the Commission rejected the application on the ground that all the requirements of Section 8 were not met apart from relying on Section 3, COPRA. However, instead of stopping there, the Commission unnecessarily took up the challenge of interpreting the amended Section 8. The Commission interpreted the words, “notwithstanding any judgment, decree or order of the Supreme Court or any Court” to mean judgments of the Supreme Court or any court in cases between the same parties, with respect to the same disputes. The Commission held,

“Thus, in cases where there is any dispute or litigation on the very same subject matter, earlier decided by the Supreme Court or any other court, even then if the matter is again before any other judicial authority…………… the said judicial authority may refer the matter to the Arbitration, if rest of the conditions in the said sections are fulfilled.”

FAULTY REASONING

  1. The interpretation adopted by the Commission defeats the whole purpose of amending Section 8 as the intent was to reduce the judicial discretion in referring matters to arbitration. The Consumer Forum stretched the words too far in assuming that a “subject matter” which has earlier been decided by the Supreme Court would come up once again before a judicial authority and the parties at that juncture would invoke the arbitration clause. Instead of performing such interpretational gymnastics, the Commission could have simply relied on Section 3, COPRA to dismiss the application.
  2. The Commission once again reiterated the reasoning that the remedy available under COPRA is in addition to and not in derogation to any other remedies. Hence, it held that the arbitration initiated by the builder could proceed simultaneously with the dispute before the Forum. However, the Commission has failed to take into consideration the fact that such an interpretation would lead to a multiplicity of litigation and possibly, result in the arbitrator and the Commission arriving at different conclusions. For instance, if the commission holds in favor of the consumer and the Arbitrator holds in favor of the Builder, then what is the option available before the parties? Should the compensation payable by the Builder be set off against the award of the arbitrator?

THE WAY FORWARD

The Consumer Forum, instead of resorting to a convoluted and far-fetched interpretation of statutory provisions, should look into the unconscionability of the contract as done by courts in other jurisdictions like the U.S.A, U.K., and  Australia. For instance, the Courts in the US have referred even Consumer Disputes to arbitration on finding that both the parties to the agreement had equal bargaining powers and that the contract was not unconscionable. Similarly, the Consumer Forum should look at the bargaining power of the parties and if the contract is not unconscionable, refer the matter to arbitration. For instance, a builder may have more bargaining power than a buyer but in the case of an individual interior designer and consumer, both the parties have equal bargaining power and if they have decided to resolve their disputes through arbitration, such intention must be honored. The Consumer Forum should thus, restrain itself from usurping jurisdiction where it has none on the pretext of the COPRA being a welfare legislation.

Published by Hemanth Rao

I am an Advocate practicing in the High Court of Karnataka at Bangalore.

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