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Builders can’t force Buyers to go for Arbitration

Ankur Saha, Head-Legal Desk: Arbitration has been introduced in the legal system to enable speedy resolution of disputes in civil cases. It is common knowledge that litigation in civil cases can go on for years in a trial court as per Civil Procedure Code (CPC). Litigation requires strict adherence to rules of procedure and law of evidence. Mediation and arbitration has been introduced in the Arbitration and Conciliation Act, 1996 to enable amicable resolution of disputes in a speedier manner. As a result most modern contracts include an arbitration clause to facilitate dispute settlement. However, in builder- flat buyer contracts such a clause may work to the detriment of a buyer as s/he can take recourse to Consumer Courts. In 2018 thousands of cases are pending against builders in different states. Builders prefer to have a dispute settled through arbitration while a consumer does not have faith in the arbitration system and prefers Consumer Courts. A number of Builders have challenged the cases filed in Consumer Courts against them on the ground that since the agreement has an arbitration clause the cases should be dismissed and referred to arbitration. This court room battle has recently been settled in favor of consumers. Prof. Sri Ram Khanna, our Managing Editor, answers questions on this subject:

Ankur Saha: Can the builders force buyers to settle their disputes through arbitration by restraining them from approaching consumer forums/ commissions?

Prof Khanna: The law on this point has been recently settled by the Supreme Court. In a case before the National Commission this issue was contested where flat buyers argued that arbitration agreements do not bar the jurisdiction of the National Consumer Disputes Redressal Commission (NCDRC) and other consumer forums. This issue was 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 st August, 2016. In its decision of 13th July, 2017, the NCDRC has once again reiterated that since the Consumer Courts are special courts constituted to serve a social purpose, the Amended Arbitration Act does not apply to them. The Commission held that an arbitration clause in agreements between Builders and Purchasers cannot circumscribe the jurisdiction of a Consumer Forum, notwithstanding the recent amendments made to Section 8 of the Arbitration & Conciliation Act, 1996. Recognizing that the Consumer Act was envisaged as a special social legislation to protect consumer rights and provide a special dispute redressal mechanism, the NCDRC held that disputes governed by statutory enactments established
to serve a particular public policy are not arbitrable.

Ankur Saha: What were the facts of the case under discussion here?

Prof Khanna : 30 individual cases were filed against a Builder Emaar MGF Land Limited and one case against another builder where the Complainants had booked residential villas/flats/plots in project of the builders and accordingly executed the Buyers’ Agreements. Every agreement contained an arbitration clause in it. 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 and thus filed complaints before the Single Member of the NCDRC, seeking directions to the builders for delivery and possession of the villas, etc. and/or, in alternative, refund the amounts deposited by them, along with compensation. On the other hand, the Builders filed an application under Section 8 of Arbitration Act praying for reference to arbitration as the agreement contained a valid arbitration clause.

Considering the vital importance and the far reaching consequence of the legal issue involved in these applications, the Learned Single Member referred the issue to a Larger Bench to hear and decide these applications. The judgement in Aftab Singh v Emaar MGF Land Limited & Anr was delivered in July 2017 by the full bench.

Ankur Saha: Is it not a compulsion for buyers to go for arbitration even if the seller-buyer agreement stipulates that disputes be settled through a private resolution mechanism? Can builders cite the changes made under Section 8 in the Arbitration and Conciliation Act in 2015 to make the point that all cases of flat buyers be referred to arbitration?

Prof Khanna: The remedies provided by the Consumer Protection Act 1986 ('Consumer Act') are in addition to and not in exclusion/ derogation 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 NCDRC judgment in Aftab Singh v Emaar MGF Land Limited & Anr case has explained these issues in a crystal clear manner.

Ankur Saha: Does the amended Section 8 of the Arbitration and Conciliation Act override Section 3 of the Consumer Protection Act, 1986?

Prof Khanna:  The Consumer Protection Act, 1986 is a beneficial legislation and, therefore, the intention behind its enactment ought to be advanced. Therefore, a consumer complaint can be filed before the consumer forum taking aid of Section 3 under CPA, despite presence of an arbitration clause as per Arbitration & Conciliation Act, 1996. The amended Section 8 does not override any other law in force. The aforesaid amendment was intended solely to curtail the scope of enquiry by courts into issues of existence of arbitration agreement in applications filed under Section 11 and Section 8 of the Arbitration & Conciliation Act. It did not alter nor affect the interplay between Section 3 of the CPA and the Arbitration & Conciliation Act. The remedies under CPA are in addition to and not in derogation of other laws.

Ankur Saha : Don’t you think that Consumers Courts are ‘judicial authority’ within the meaning of Section 8 of the Amended Arbitration Act therefore, required to refer parties to Arbitration if a valid arbitration clause exists?

Prof Khanna:  In the case of Aftab Singh v Emaar MGF Land Limited & Anr, NCDRC held that the Amended Act did not bar the jurisdiction of the Consumer Courts. The Full Bench of the NCDRC relied on judgments of the Supreme Court which have laid down categories of disputes that are considered non-arbitrable. The court referred to Booz Allen Hamilton Inc v SBI Home Finance Ltd [(2011) 5 SCC 532], where the Supreme Court 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. 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. The Supreme Court had laid down 7 categories of non-arbitrable disputes and said that Adjudication of certain categories of proceedings are reserved by the legislature exclusively for public forum as a matter of public policy. Considering the specific case of the Indian Trusts Act, 1882, the NCDRC relied on the Supreme Court ruling in Vimal Kishore Shah v Jayesh Dinesh Shah where it was held that, since sufficient and adequate remedy is provided under the Trusts Act, 1882 for deciding the disputes in relation to trust deed, trustees and beneficiaries, the remedy provided under the Arbitration Act for deciding such disputes is barred by implication”. The NCDRC reiterated that public policy requires that parties cannot also be permitted to contract out of the legislative mandate which requires certain kind of disputes to be settled by Special Courts constituted by the Act.

Ankur Saha: Given the fact that Consumer Courts are not required to refer the parties Arbitration, but don’t you think that Consumer Protection Act is in derogation of other laws?

Prof Khanna : The Hon’ble Supreme Court in Skypak Couriers Ltd. Vs. Tata Chemicals Ltd., said that even if there exists an arbitration clause in an agreement and a complaint is made by the consumer, in relation to a certain efficiency of service, then the existence of an arbitration clause will not be a bar to the entertainment of the complaint by the Redressal Agency, constituted under the Consumer Protection Act, since the remedy provided under the Act is in addition to the provisions of any other law for the time being in force”. NCDRC also cited the SC judgment in Secretary, Thirumugugan Cooperative Agricultural Credit Society Vs. M. Lalitha (through LRs) & Ors., whereby it was held that the Consumer Protection Act is applied in addition to and not in derogation of other laws.

Ankur Saha : What would be the consequence if the jurisdiction of Consumer Courts were ousted by the amendments in The Arbitration Act , 1996.?

Prof Khanna: The importance of remedies available under the CPA and the special object and purpose of a beneficial legislation such as the CPA in protecting interests of consumers. Allowing Section 8 of Arbitration and Conciliation Act to oust the jurisdiction of consumer forum would set at naught the entire purpose and object of the Consumer Act, which was to ensure speedy, just and expeditious resolution and disposal of consumer disputes. Exposure of such disputes to the Arbitration Act could invite application of portions of the Arbitration &  Conciliation Act that are enforceable only through Civil Courts. This would be repugnant to the manifest purpose underlying the enactment of the CPA.

In light of the overall architecture of the CPA and Court-evolved jurisprudence, The NCDRC held that the amended sub-section (1) of Section 8 of the Arbitration and Conciliation Act, 1996 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.

Ankur Saha: is this the final position of law under the Consumers Protection Act, 1986? Is there a possibility of change in this interpretation of the legal provisions?

Prof Khanna: The judgment in the Aftab Singh v Emaar MGF Land Limited & Anr case was delivered by the full bench of NCDRC on 13 th July, 2017. This was challenged in appeal before the Supreme Court by the builders concerned. The Supreme Court bench consisting of J. Adarsh Kumar Goel and Uday Umesh Lalit heard the arguments of the builders and dismissed the appeals filed by builders. They stated in their brief order “we do not find any ground to interfere with the impugned order(s) passed by the NCDRC on 13 th July, 2017. The appeals are accordingly dismissed “. (Civil appeal nos. 23512-23513 in Emaar MGF Land Ltd and Anr. vs Aftab Singh). With this dismissal the interpretation and ratio on the subject in the NCDRC matter has become the final and binding law on this issue. We feel that it is a milestone in the evolution of consumer jurisprudence in India. Consumer Voice welcomes this development with open arms and great commendation to the three judges of the NCDRC who decided this matter. They are: Justice D. K. Jain, Presiding Judge, J. Ajit Barihoke and J. V. K. Jain. They deserve our appreciation for their well reasoned and learned judgment.

Legal Helpdesk

Divya Patwal


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