Recently, the division bench comprising Justice Sanjay Kishan Kaul and Justice Sudhanshu Dhulia held that consumers disputes cannot be subjected to arbitration.

The Court emphasizing that individuals who have signed arbitration agreements cannot be forced into arbitration for such matters.

During the course of hearing, the Court observe that the Consumer Protection Act is 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,” the judgment authored by Justice Dhulia stated.

The Supreme Court noted that a party engaged in a dispute should not be obligated to pursue arbitration solely based on their status as a signatory to a contract. 

Further, the Court held that cases in in which one of the parties is seeking resolution under a welfare legislation, it becomes essential to evaluate whether the dispute is suitable for arbitration.

In the said matter, the consumer initiated complaint against a builder. The builder challenged the orders of Telangana High Court refusing to appoint an arbitrator on the ground that the dispute was pending before the District Consumer Disputes Redressal Forum. The builder had also moved an application under Section 8 of the Arbitration Act for referring the dispute to arbitration. The District Consumer Forum dismissed the application on the ground that the dispute was non-­arbitrable. The builder challenged this in the High Court in a review application, which was also subsequently dismissed.

The Court emphasized that the choice of the dispute resolution forum is contingent upon the nature of the dispute. In the context of a consumer dispute, the consumer possesses the flexibility to either seek recourse through the consumer forum or opt for arbitration. In the specific case under consideration, the consumer had elected to pursue redressal through the consumer disputes forum, as noted by the Court.

“The law gives this choice to the consumer to either avail a remedy under the Consumer Protection Act, by filing a complaint before the Judicial Authority, or go for arbitration. This option is not available to the builder, as they are not ‘Consumers’, under the 2019 Act. “

The Court made it clear that the mere fact that the builder had invoked Section 11 of the Arbitration Act did not undermine the jurisdiction of Consumer Courts

The Court said that a plethora of judgments of the Apex Court have held that the remedy under the Consumer Protection Act cannot be deprived to a consumer despite an arbitration agreement between the parties.

During the course of hearing, the Supreme Court referred to the case of Emaar MGF Land Ltd. v. Aftab Singh, (2019) where the Court had examined the scope of sub­section (1) to Section 8 ( Power to refer parties to arbitration where there is an arbitration agreement.)

The Court thus concluded that the High Court had adopted the right approach and refused to interfere with the two impugned orders refusing to appoint an arbitrator.

Case Title: M. Hemalatha Devi & Ors V. B. Udayasri