International and National Perspective on the Conundrum of Consumer Disputes

As Georg Wilhelm Friedrich Hegel said, Tragedy was not the conflict between right and wrong but right and right, a dilemma none of us who wanted to participate in history could escape.

- Viet Thanh Nguyen, The Sympathizer

This article has been written by Apeksha Joshi and Syed FahadSaeed, 4th year Students pursuing B.A. LL.B (Hons) from Institute of Law Nirma University, Ahmedabad.


It is a common scenario in India to see consumers dragging traders to court for trivial issues. Due to the presence of such an attitude, it has created an ideology among the consumers of having a higher bargaining power. However, running counter to this ideology is the reality of traders providing a compulsory arbitration or specific jurisdiction clause in the standard form of contract. Due to the naïve ignorance of the consumers, they fall prey to providing assent without diligently going through the terms of a contract, this manifests in the form of sights of consumers fighting and resisting the enforcement of such contracts.

The incoming digital era has made e-commerce as the hub of shopping today, it has been seen in this realm that consumers spend mere seconds to read detailed terms and conditions to get acquainted with them, this has created more serious problems in the consumer protection regime. Due to existence of such circumstances, the courts and the forums have taken a closer look at Section 8 of the Arbitration and Conciliation Act, 1996 [Hereinafter referred to as “1996 Act”], which acts as a legal command on the courts to refer matters to arbitration, where the contract or the agreement subjects the issue to be adjudicated by the way of arbitration.

Even the Supreme Court in a 2009 ruling held that the presence of an agreed upon and valid arbitration agreement, the Court shall refer the matter to arbitration, this precedent has lost its grip over the course of time. Subsequently, it has become a trend to resist the arbitrability of a subject matter because of the acknowledgement of ‘arbitrability doctrine’. The preliminary issue raised in such situations is whether the matter it is fit to be referred to arbitration or not.

The Arbitrability Test: Defining the Boundaries of Arbitration.

It is not easy to define the boundaries of arbitration and hence, difficult to determine whether a dispute can be referred to arbitration, the element of arbitrability is a precondition for the enforcement of an arbitration agreement. International forums have given out many precedents with regard to this issue. However, the 1996 Act does not provide the subject matters that can only be adjudicated upon by the statutory forums. The UNCITRAL Model Law on International Commercial Arbitration is also silent on this issue [Hereinafter referred to as "UNICITRAL Model Law"].

In this regard, it only provides for setting aside an award on the ground of inarbitrability of a dispute. The 1996 Act is mostly based on the scheme of UNCITRAL Model Law, one such similarity is found under Section 342)(b)(i) of the 1996 Act. This provision allows the courts to set aside awards on the ground of inarbitrability of dispute or being opposed to public policy. Even after the presence of such a provision, there is an absence of stipulated disputes that are not to be adjudicated upon by the way of arbitration. This seems to be a deliberate act of leaving open ends by the legislature.

In order to fill the gaps left by an absence of express law defining boundaries of arbitration, the Apex Court has paid heed to it and has devised the ‘arbitrability test’. The court expounded that disputes shall be termed as non-arbitrable when they are a subject-matter to be governed or tried exclusively by a Court, and outlined for the first time, matters which would be outside the ambit of Arbitration, such as cases relating to matrimonial and guardianship issues.

The deft reasoning behind it is that certain issues are exclusively subjected to adjudication by the public fora i.e. the national courts, either by express letter of law or impliedly. Disputes which are exclusively to be governed by public fora form a part of the public policy, and hence, a private forum cannot be entrusted with the power to adjudicate upon it. Another, masterful reasoning given by the Court is that matters in private fora usually involves a right in personam i.e. directed toward a particular person, and not of a right in rem i.e a right available against the whole world. The court held that rights in rem cannot be governed by a private forum and has to be exclusively dealt with by national courts or public fora.

These findings became the touchstone for testing arbitrability of a dispute. Therefore, if any agreement provides for arbitration or any alternative dispute resolution mechanism, it should not come under the ambit of matters exclusively to be resolved by the national forums or courts. In principle, an arbitral tribunal cannot override the jurisdiction of a special court. This is backed up with the reasoning that, several forums and courts are a creation of special statutes such as consumer courts, company tribunals etc., these bodies do not fall within the ambit of ‘Civil Court' as defined under Section 2(1)(e) of the 1996 Act.

These forums have exclusive jurisdiction as a matter of public policy, therefore resolving a dispute which belongs to these forums by the way of arbitration is not a reasonable play. Specifically, the consumer forums which are exclusively entrusted with the function of resolving consumer disputes, introduce an obstruction for arbitration as the trader is left at the mercy of the consumer for referring the dispute to arbitration, an alternative remedy is no bar for the consumer.

The Advent of Consumers disputes being culled out from the Realm of Arbitration: Following the trail of Supreme Court.

The era of giving importance to ‘welfare legislations’ and overriding the effect of arbitration on consumer disputes goes back to the year 1996. Before this era, the issue of a valid arbitration clause in a consumer dispute was settled with the effect of giving significance to consumer legislation over the compulsory provisions of the Arbitration Act of 1940. The reasoning behind it is that existence of exclusive statutory forums for consumers is for the reason of providing them quick remedies as opposed to lengthy and taxing proceedings of arbitration and civil courts.

It was seen as a result that even in the presence of a mandatory obligation to refer the dispute to arbitration as according to a valid arbitration clause, the courts gave effect to the consumer court proceedings, which ultimately over the course of time diminished the legislative mandate. In such cases, the courts opined that there should be an availability of alternative remedies for the consumer, it should be open to him to pursue any remedy he deems fit. The court came to this conclusion based on two reasons. The first reason being that the legislature being fully aware of the Arbitration Act, 1940, passed The Consumer Protection Act, 1986 [H