Q. It is the end of the line for consumer arbitration in India. Explain.

A. The SC held in R.K. Productions Pvt. Ltd. v. M/s N.K. Theatres Pvt. Ltd (2012) the
determination as to the capability of the dispute to be resolved through arbitration hinges on
two factors, first, the nature of the remedy sought in the dispute i.e. whether the remedy sought
is in rem or in personem and second, whether the remedy sought can exclusively be granted by
a special court or tribunal or by an arbitral tribunal i.e. a private forum. These two factors are
the primary determinants that influence considerations of arbitrability and the same has been
reaffirmed in the recent holding of the Supreme Court in A. Ayyasamy v. A. Paramasivam.
(2015). In the evaluation of the arbitrability of consumer disputes, the first factor, namely, the
nature of the remedy sought, does not seem to raise eyebrows. The ships of consumer
arbitration sail seemingly unfettered on this front, as disputes primarily arise out of the
agreement for sale between the consumer and service provider. Accordingly, the arbitrator has
to merely provide remedies against the parties to the dispute itself i.e. in personam and not
against the world at large i.e. in rem. However, evaluation of the second factor has been a
different ball game altogether. The statutory creation of consumer forums as a separate
mechanism dedicated for consumer dispute redressal, presents a major blockade for arbitration
in consumer matters as the merchant is left at the misery of the consumer for a reference to
arbitration. In A. Ayyasamy, the Court opined that since the jurisdiction of the ordinary civil
court is excluded by the conferment of exclusive jurisdiction on a consumer court, matters
pertaining to consumer disputes become inarbitrable as a matter of public policy as well. The
Court noted that parties are prohibited from contracting out of the legislative mandate, when it
is a matter governed by a welfare legislation. Thus, the decision in the A. Ayyasamy case put
the final nail in the coffin and made consumer dispute completely inarbitrable.

In a recent case M/S Emaar MGF Land Limited & Anr. v. Aftab Singh 2018, the Two-Judge
Bench of the Supreme Court agreed with NCDRC’s holding in July 2017 whereby, the National
Commission ruled that an Arbitration Clause in Buyer’s Agreement cannot circumscribe the
jurisdiction of a Consumer Fora, notwithstanding the amendments made to Section 8 of the
Arbitration Act.

In the case, the National Consumer Dispute Redressal Commission (NCDRC) took up a batch
of petitions wherein the subject matter pertained to complainants who had booked residential
villas/flats/plots in Projects of the Builder to be developed in Gurgaon/Mohali and accordingly
executed Buyers’ Agreements. The cause of action in the case arose when Complainants
approached the Consumer Forum alleging that the Builder had failed to deliver possession of
these villas/flats/plots under the Project by the date committed in the Buyers Agreement and
hence, sought directions to the Builder for delivery and possession of the villas, etc. along with
compensation. However, the Builder in the case filed a set of applications under Section 8 of
the Arbitration Act praying therein that the parties be referred to Arbitration as per the Buyers’
Agreements executed between them.

The Builder relied upon Section 8 (1) of the Arbitration Act, as amended by the Arbitration &
Conciliation (Amendment) Act, 2015 to make their claim for a reference to Arbitration. In the
pre-amendment era, only a party to the Arbitration Agreement could seek reference to
Arbitration; however, as a result of the amendment, even persons claiming through such parties
may seek reference to Arbitration.

The issue before the NCDRC was whether the newly inserted Sub-Section (1) of Section 8 of
the Arbitration Act Mandates Consumer Forums, constituted under the Consumer Act, to refer
parties to Arbitration in terms of valid Arbitration Agreement, notwithstanding other provisions
of the Arbitration Act and the provisions of the Consumer Act?

NCDRC made the following observations in the case:

That prior to the amendment, the Hon’ble Supreme Court had resolved and settled that the
Consumer Forums were not bound to refer disputes to Arbitration under Section 8 of the
Arbitration Act. In other words, an Arbitration Clause in a contract could not circumscribe the
jurisdiction of the Courts and the Tribunals, especially those which are constituted to achieve
a particular purpose and objective.

Arbitrability of Disputes– In this context, NCDRC made reference to Supreme Court’s decision
in the case of Booz Allen and Hamilton Inc. v. SBI Home Finance Limited & Ors (2011) 5
SCC 532, which delineates the conceptual framework behind making only some kinds of
disputes arbitrable. The NCDRC accordingly observed that disputes are not characterized as
arbitrable and non-arbitrable at the whim and fancy of the Legislature. The classification is
based on the crucial distinction, repeatedly explained by the Hon’ble Supreme Court.

Jurisprudence on Arbitrability of Consumer Disputes– the NCDRC in view of catena of

decisions of Supreme Court on this aspect held that existence of an Arbitration Clause will not
be a bar for the entertainment of the Complaint by a Consumer Fora. Heavy reliance was placed
on the case of Skypak Couriers Ltd. Vs. Tata Chemicals Ltd., whereby the Supreme Court inter
alia observed 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.

the disputes which are to be adjudicated and governed by statutory enactments, established for
specific public purpose to sub-serve a particular public policy are not arbitrable. There are vast
domains of the legal universe that are non-arbitrable and kept at a distance from private dispute
resolution. the subject amendment was meant for a completely different purpose, leaving status
quo ante unaltered and subsequently reaffirmed and restated by the Hon’ble Supreme Court.
Section 2(3) of the Arbitration Act recognizes schemes under other legislations that make
disputes non-arbitrable

In light of the overall architecture of the Consumer Act and Court-evolved jurisprudence,
amended sub-section (1) of Section 8 cannot be construed as a mandate to the Consumer
Forums, constituted under the Act, to refer the parties to Arbitration in terms of the Arbitration
Agreement.

In view of the aforesaid findings and observations, the NCDRC held that an Arbitration Clause
in the afore-stated kind of Agreements between the Complainants and the Builder cannot
circumscribe the jurisdiction of a Consumer Fora, notwithstanding the amendments made to
Section 8 of the Arbitration Act.

The Indian courts, and most conspicuously, the Supreme Court in Aftab Singh, had the golden
opportunity to analyse the global trend and decide if there should be a mandatory reference to
arbitration. If the Court had grabbed this opportunity with both hands, the fate of consumer
arbitration might have been entirely different. The Court had an opportunity to analyse and
allow for mandatory arbitration in cases where there existed a post-dispute arbitration
agreement. By not acting on the same and taking a tight-lipped approach, the Supreme Court
has made it almost impossible for any kind of ADR mechanism to work successfully in India.