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 [Hereinafter referred to as "CPA"].
The second reason being that the remedy provided under CPA acted as an additional remedy which lied with consumers. In India, the later legislations override the earlier, on the reasoning that the legislature would have had the knowledge of all the existing laws when they come up with any new legislation and thus, would have the intention of giving it an overriding effect in case of a conflict between the two laws. Moreover, the CPA being a lexspecialisgives it an upper hand over the Arbitration Act for it is meant for arbitration proceedings in general, making it a lexgeneralis.
The Arbitration Act, 1940, considers consumer forums as a ‘judicial authority’, the court has long relied upon the literal interpretation rule to analyse interference of court in this regard, the courts have held in number of cases that the words of Section 3 of the CPA provide that the act is in addition and not against or derogation of any existing law. By literally construing the provision, the courts have observed that the Arbitration Act, 1940, cannot diminish any additional remedies that lie with a consumer under CPA.
The courts have paid heed to the intention of the legislature to provide better protection to consumers through the CPA, to take further this objective, consumer courts and other supplementing authorities were established. Moreover, the fact that the Indian Contract Act, 1872 and Arbitration Act, 1940 existed together before the CPA has been used to conclude that the legislature had the intention to provide additional and alternative remedies even in the backdrop of remedies provided in the earlier acts. The Apex Court has been relying on this reasoning and has given its’ views with regard to compulsory arbitration under Section 8 of the 1996 Act and has held:-
“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.”
Beneficial Legislations and their Interpretation
There is a species of legislations which exist for the purpose of promoting general welfare or are targeted for the benefit for a specific group. In India, the CPA is one such legislation that has the aim of protecting the consumers by curbing the abuse that they face while pursuing any other remedy. In this light, the CPA receives the broadest construction possible by the way of being construed by the rule of beneficial interpretation. The ongoing trend of the consumer courts following such interpretation has come to see arbitration as an unacceptable position.
The unwelcoming of arbitration by the consumer courts is based on the ground that by giving way to mandatory arbitration, the mechanisms and forums created under the CPA would become useless and redundant. The CPA provides for a platform for dispute resolution between unequal players i.e. consumers and corporate entities, unlike other legislation which provide for adjudication of disputes between players of the same level. The case of M. Lalithawhile relying on the intention of the legislature, holds that the scheme of CPA reflects the intention of protecting consumers from being played unequally in arbitration or civil court proceedings before other courts.
Subsequently, this ruling diluted the effect of Section 8 of the 1996 Act and established the overriding effect of consumer proceedings over arbitration. The samereasoning has been followed by the Apex Court in the year 2017 as well, in the case of National Insurance Company Limited v. Hindustan Safety Glass Works Limited., holding that:-
“In a dispute concerning a consumer, it is necessary for the courts to take a pragmatic view of the rights of the consumers principally since it is the consumer who is placed at a disadvantage vis-à-vis the supplier of services or goods. It is to overcome this disadvantage that a beneficent legislation in the form of the Consumer Protection Act, 1986 was enacted by Parliament.”
On the same lines, it was held in the case of Vimal Kishor Shah and Others v. Jayesh Dinesh Shah, that an arbitrator does not hold the power to grant reliefs that are essentially provided under the welfare legislations such as CPA. On the same lines, it has been cleared by the Apex Court that if the arbitral tribunal is allowed to give effect to such remedies, it shall be against public policy.
Seizing the Opportunity: The Case of Aftab Singh v. Emaar MGF Land Limited
The Respondent in the instant case, Aftab Singh raised a consumer dispute under the CPA, before the National Consumer Disputes Redressal Commission [Hereinafter, referred to as “NCRDC”] on grounds of failure of the Appellant, M/s. Emaar MGF Land Limited to deliver timely possession of the residential villa being developed by it in Mohali among other reliefs. The Appellant submitted an application under Section 8 of the 1996 Act before the NCDRC referring to an arbitration clause in the buyer’s agreement and praying for a reference accordingly. The appellant referred to Clause 43 of the Buyer's agreement, which according to the appellant constituted a valid arbitration agreement in terms of Section 7(2) of Arbitration Act.
The larger bench of the NCDRC dismissed the application of the Appellant on the ground that certain disputes are governed by statutory enactments, such as consumer disputes. Such enactments, the NCRDC held, are established for a specific public purpose to sub-serve a particular public policy which is thus not arbitrable. The NCDRC further observed that Section 2(3) of the Arbitration Act clearly envisaged that there are areas of law that are not amenable to private dispute resolution. The Appellant preferred an appeal before the Supreme Court, which was dismissed without any findings. The Appellant thus filed a
The Appellant contested that words “notwithstanding any judgment, decree or order of the Supreme Court or any Court” in Section 8 of the Arbitration Act with effect from 23rd October 2015, the Parliamentary intendment is clear that after the said amendment, the judicial authority is mandated to refer a dispute for arbitration if there is a valid arbitration agreement and parties apply not later than the date of submitting his first statement on the substance of the dispute. The appellant submitted that the above words cannot be treated as redundant while interpreting the amended Section 8.
The amendment to Section 8, which mandates any judicial authority to refer the parties to arbitration in respect of an action brought before it, which is the subject matter of arbitration agreement. The sub-section(1) has been amended envisaging that notwithstanding any judgment, decree or order of the Supreme Court or any court, the judicial authority shall refer the parties to the arbitration unless it finds that prima facie no valid arbitration agreement exists. A provision has also been made enabling the party, who applies for reference of the matter to arbitration, to apply to the Court for a direction of production of the arbitration agreement or certified copy thereof in the event the parties applying for reference of the disputes to arbitration is not in the possession of the arbitration agreement and the opposite party has the same.
Deducing the intention of the Parliament the amendment to Section 8(1) of the Arbitration Act by Act 3 of 2016 was never intended to interfere with the jurisdiction of Consumer Forum to decide consumer disputes. He submits that amendment in Section 8(1) is being read in a manner which was never the intention of the Parliament. The Apex Court held that
“The National Commission did not commit any error by holding that the remedy of arbitration available to the complainant does not bar the jurisdiction of the consumer forums and the consumer forums are not under an obligation to refer the matter to the Arbitral Tribunal.”
Moreover, it held that the remedy under the CPA is confined to the complaint by the consumer as defined under the Act for defect or deficiencies caused by a service provider, the cheap and a quick remedy has been provided to the consumer which is the object and purpose of the Act. The court while relying on Booz Allen case, the Supreme Court explained that actions in rem refer to actions determining the title to the property and the rights of the parties, not merely among themselves but also against all persons at any time claiming an interest in that property.
Generally and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration.
Drawing from the 246th Report of the Law Commission of India, “Amendments to the 1996 Act, the Court observed that the amendment was intended to curb judicial intervention and limit the scope of the judicial authority to a prima facie determination of whether an arbitration agreement exists.
The Court while discarding the previous rulings on Section 8 of the 1996 Act held that after the amendment of Section 8, the law laid down by this Court in reference to Section 2(3), where a large number of categories have been held to be non-arbitrable has been reversed. Neither any such Legislature intendment was there nor was any such consequence predicted by the courts.
It came to the final conclusion that the legislative intent is clear that judicial discretion to refuse arbitration was minimalized in respect of jurisdiction exercised by a judicial authority in reference to Section 8. While relying on the Law Commission 246th Report, the Apex Court held that the Statement and Objects of Bill and the notes on clauses do not indicate that amendments were made for overriding special/additional remedies provided under different statutes.Consequently, the court that the jurisdiction of consumer forums and commissions is not barred by the presence of an arbitration clause.
Taking Lessons: What India can learn from other jurisdictions to have a balanced approach to consumer disputes?
The most important lessons that India can take from the global trends on arbitration, is that it should dilute the exclusive jurisdiction given to consumer courts to adjudicate upon consumer disputes. Europe is the most matured country with respect to arbitration, provides a Consumer Online Dispute Resolution and the Directive on Consumer Alternative Dispute Resolution. These legislations provide mechanisms for solving consumer disputes outside the courts, the former provides for an online platform and mechanism to resolve disputes and the latter provides for outside the court settlement mechanisms through statutory forums.
Two major things can be imported to our country, first being that India needs to pay heed to consumer disputes arising out of e-commerce transactions and provide a cheap and effective mechanism for resolving the same. This can be done by drawing inspiration from adopting the European Model on Online Dispute Resolution. The second thing which could be of great learning for India is that the courts should recognize the unfair terms in consumer contracts, in this light, there is a need for a negative presumption against pre-dispute arbitration agreements.
Looking at the law of USA on the same subject, two inferences can be drawn.
First, that the results of not providing for a uniform regime on consumer law can be devastating.
The second thing is that courts need to acknowledge the fact that consumers rarely read the terms of conditions stated in the agreement, the same cannot be made to have a binding effect on the consumer based on having a mere far-fetched knowledge of the terms.
The exclusion of consumer disputes from the ambit of arbitration is one of the darkest blots in the history of arbitration law. It is true that balancing the concerns of consumer protection laws and arbitration is a mentally taxing task, however, it is has become imperative of the courts to determine the clear boundaries of the two conflicting laws. There is an ever-increasing number of consumer disputes, which fall prey to fruitless civil court proceedings due to lack of alternative remedies available to the consumer. The availability of alternative remedies which are faster and cost saving in nature such as arbitration can be a blessing for the consumers.
The Apex Court in Emaar MGF Land v. Aftab Singh has seized the opportunity to come at par with international standards of arbitration. This can be seen as a beginning of a new era with regards to arbitration in India, where the reach of arbitration will be expanded to newer realms. However, the courts missed the opportunity of holding that in case of an arbitration agreement which is made after the dispute, the same must act as a mandatory arbitration agreement. Moreover, arbitration which is based on the consent of the parties must be given effect while upholding the basic principles of contract. Now, the duty of taking forward the march of achieving international standards in the field of arbitration law rests largely in the hands of the legislature.