Citation: 2018 SCC Online SC 2771
Coram: R.F. Nariman, Vineet Saran
Date: February 28th, 2019
This case deals with the arbitrability of consumer disputes and whether having an arbitration clause can oust the jurisdiction of the consumer forum. In this particular instance, the Court held that consumer disputes could not be referred to for arbitration as they dealt with rights in rem as well as analysing Section 8 of the Arbitration and Conciliation Act both before and post the 2015 amendment in order to understand whether arbitration could be given preference.
A consumer dispute around the delivery of possession of a flat by Emaar MGF Land Limited (Appellant) was brought before a Single Bench of the NCDRC by Aftab Singh (Respondent). The Appellant thereafter filed an application before the Single Bench of the NCDRC under Section 8(1) of the Arbitration Act to refer the dispute to arbitration since there was an arbitration clause in the agreement. This was grouped with several other similar disputes and sent to a three-member bench of the NCDRC since the single bench was of the opinion that these were related to a question of law regarding the arbitrability of consumer disputes. The three-member bench held that consumer disputes could not be arbitrable as the Consumer Protection Act’s objective was to benefit consumers.
Can consumer disputes be arbitrable under Section 8 of the Arbitration and Conciliation Act?
The Supreme Court analysed Section 8 of the Act both before and post the 2015 amendment with regards to referring consumer disputes for arbitration. Here the court looked at various precedents such as that of Fair Air Engineeringto establish that the consumer’s right to file a complaint before a consumer forum cannot be taken away by the existence of an arbitration agreement. The Court held that even though the 2015 Amendment restricted the scope of the judiciary to refuse to refer a matter for arbitration, that due to Section 2(3) of the Act, no other Act would be affected for which the matter cannot be referred to for arbitration.
In the present case, the Court upheld the decision of the NCDRC and stated that the Consumer Protection Act is a beneficial legislation which provides for economical remedies to consumers. Moreover, since consumer disputes pertain to rights in rem, they cannot be referred to for arbitration. However, the Court also clarified that this does not bar all consumer disputes from being submitted to arbitration in general but only served as a bar against arbitration in instances where a consumer filed a consumer complaint.
In this particular case, the Court looked into the objective of the Consumer Protection Act in order to determine whether consumer disputes could be arbitrable or not. Moreover, the Court also analysed Section 8 both prior and post the 2015 amendment as well as Section 2 of the Act in order to identify whether arbitration would be given preference over the consumer forum. Lastly, the Court also looked at precedents regarding consumer disputes and their arbitrability and upheld those as well as identified the fact that in consumer disputes, rights in rem are involved and therefore, they cannot be referred to for arbitration.
 Fair Air Engineering Pvt. Ltd & Anr v N K Modi (1996) 6 SCC 385