Recently, the Supreme Court held that the presence of an arbitration clause in an agreement does not restrict a consumer’s right to seek redressal through the consumer forum for dispute resolution.

The Court emphasized that merely having an arbitration clause in an agreement does not compel a consumer to resolve disputes through arbitration. It further stated that the consumer holds the exclusive right to choose between arbitration and the Consumer Forum for adjudication.

The case was heard by a bench comprising Justice Sudhanshu Dhulia and Justice Ahsanuddin Amanullah, where the disputed tripartite agreement included an arbitration clause.

Case Brief:

The respondent (complainant before the NCDRC) had purchased a flat using a housing loan of ₹17,64,644 from ICICI Bank. Subsequently, one Mubarak Vahid Patel (borrower) expressed interest in purchasing the flat for ₹32,00,000. To facilitate the transaction, the borrower and the appellant, Citicorp Finance, entered into a loan agreement for ₹23,40,000.

Since the flat was already mortgaged with ICICI Bank, the borrower requested the appellant to directly disburse ₹17,80,000 to the respondent’s ICICI Bank account to secure the release of the flat.

The respondent filed a consumer complaint before the NCDRC, seeking a direction for the appellant to pay him the remaining sale consideration of ₹13,20,000. He contended that a tripartite agreement existed between him, the appellant, and the borrower, under which the appellant was obligated to deposit the full sale amount.  

The NCDRC ruled in favor of the respondent, directing Citicorp Finance to refund ₹13,20,000 with interest and additionally pay ₹1,00,000 as litigation costs.

The appellant challenged the NCDRC's ruling by filing an appeal before the Supreme Court.

The Court noted that the so-called tripartite agreement included an arbitration clause stipulating that disputes should be resolved through arbitration.

Citing the case of M. Hemalatha Devi v. B. Udayasri (2024), the Court observe that consumer disputes are non-arbitrable unless the consumer voluntarily chooses arbitration.

In this case, while the Tripartite Agreement contained an arbitration clause, the Court observed that the very existence of the agreement was in dispute. Additionally, the consumer (respondent) had opted to approach the Consumer Forum.  

The Court held that the arbitration clause could not be enforced against the consumer, emphasizing that the choice of forum rests solely with the consumer.

Case Title: M/S CITICORP FINANCE (INDIA) LIMITED VERSUS SNEHASIS NANDA

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