Can you still approach the Consumer Court if you have an Arbitration Clause, post Amendment, 2015?

-Gunjan Chhabra,

Partner, Litigation & Dispute Resolution

With the 80’s witnessing the Industrial Revolution and with a rapid development in the International Trade & Commerce, there has been a substantial increase of business and trade globally. This resulted in a variety of consumer goods and services which appeared in the market to cater to the needs of the consumers.

The modernized method of advertisement in media (and now even social media), influence the mind of the consumers and notwithstanding the manufacturing defects or the imperfections in the quality, consumers are often lured and tempted to purchase the goods.

It was with this evolution that the long standing motto of “Caveat Emptor” (Buyer beware) changed to “Caveat Venditor” (Seller Beware) and for the welfare of such consumers and to protect the consumers from the exploitation to the Parliament enacted the Consumer Protection Act, 1986.

With the increase in trade and commerce, another thing which has been on the rise is the popularity of arbitration globally. What is even more interesting is the interference of the two. Can you avail consumer remedies, if you’ve agreed to arbitration and vice versa? This article aims to trace and analyze the evolution of the law in this respect and also the effect of the Arbitration & Conciliation (Amendment) Act, 2015 (Amendment Act) on this regime with a special focus on the recent judgment of the Supreme Court of India, (M/s Emaar MGF Land Ltd. V. Aftab Singh, 10th December, 2018) in this regard.

PRE-AMENDMENT SCENARIO

In the pre-amendment scenario, the Courts were following a uniform route by holding that remedies under the Consumer Protection Act, 1986 were in addition to and not in derogation of any other laws which meant that an arbitration clause in the agreement could not bar a consumer court remedy.

One of the first few cases, in which this question had arisen before the Supreme Court was Fair Air Engineers Pvt. LTd. & Anr. Vs. N.K. Modi [(1996)6SCC385], where the Supreme Court had held,

“we are of the considered view that it would be appropriate that these forums (read: Consumer Forums) created under the Act (Consumer Protection Act, 1986) are at liberty to proceed with the matters in accordance with the provisions of the Act rather than relegating the parties to an arbitration proceedings pursuant to a contract entered into between the parties. The reason is that the Act intends to relieve the consumers of the cumbersome arbitration proceedings or civil action unless the forums on their own and on the peculiar facts and circumstances of a particular case, come to the conclusion that the appropriate forum for adjudication of the disputes would be otherwise those given in the Act.”

Thereafter in Skypak Courier Ltd. v. Tata Chemical Ltd (2000) 5 SCC 294, the Supreme Court again held,

“Even if there exists an arbitration clause in an agreement and a complaint is made by the consumer, in relation to certain deficiency 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.”

This was reiterated in National Seeds Corporation Ltd. v. M. Madhusudhan Reddy (2012) 2 SCC 506. In this case the government was selling seeds to farmers as part of a welfare initiative. The agreements between the government and the farmers had an arbitration clause. One of the many arguments raised was that in view of the arbitration clause contained in the agreements entered between the parties, the consumer forums should have non-suited the farmers, in view of Section 8 of the Arbitration and Conciliation Act, 1996. The Supreme Court in this case held that,

“The remedy of arbitration is not the only remedy available to a grower. Rather, it is an optional remedy. He can either seek reference to an arbitrator or file a complaint under theConsumer Act. If the grower opts for the remedy of arbitration, then it may be possible to say that he cannot, subsequently, file complaint under the Consumer Act. However, if he chooses to file a complaint in the first instance before the competent Consumer Forum, then he cannot be denied relief by invoking Section 8 of the Arbitration and Conciliation Act, 1996 Act. Moreover, the plain language of Section 3 of the Consumer Act makes it clear that the remedy available in that Act is in addition to and not in derogation of the provisions of any other law for the time being in force.”

The Supreme Court upholding the findings of the National Commission and nullifying the order of the State Commission, had held in Secretary,Thirumugugan Cooperative Agricultural Credit Society Vs. M. Lalitha (through LRs) & Ors., (2004) 1 SCC 305,

“having regard to all aspects we are of the view that the National Commission was right in holding that the view taken by the State Commission that the provisions under the Act relating to reference of disputes to arbitration shall prevail over the provisions of the 1986 Act is incorrect and untenable.”

Similarly the Court followed suit in Rosedale Developers Pvt. Ltd. v. Aghore Bhattacharya (2015)1 WBLR (SC) 385 .

THE AMENDMENT ACT & SECTION 8

The Amendment Act was passed in 2016 and has been made effective from 23rd October, 2015. It is no important to understand what happened post the Amendment Act and what were the amendments brought about specifically to Section 8.

Principally four amendments were introduced to Section 8(1):

1. The relevant “party” that is entitled to apply seeking reference to arbitration has been clarified/amplified to include persons claiming “through or under” such a party to the arbitration agreement;
2. Scope of examination by the judicial authority is restricted to a finding whether “no valid arbitration agreement exists” and the nature of examination by the judicial authority is clarified to be on a “prima facie” basis;
3. The cut-off date by which an application Under Section 8 is to be presented has been defined to mean “the date of” submitting the first statement on the substance of the dispute; and
4. The amendments are expressed to apply notwithstanding any prior judicial precedent.

Apart from Section 8 (1), a proviso to Section 8(2) has been added to allow a party that does not possess the original or certified copy of the arbitration agreement on account of it being retained by the other party, to nevertheless apply under Section 8 seeking reference, and call upon the other party to produce the same.

The object of bringing about the amendment in Section 8 is elucidated in the 246th Law Commission Report, Para 33, wherein the Commission has recommended amendments to sections 8 and 11 of the Arbitration and Conciliation Act, 1996.

“The scope of the judicial intervention is only restricted to situations where the Court/Judicial Authority finds that the arbitration agreement does not exist or is null and void. In so far as the nature of intervention is concerned, it is recommended that in the event the Court/Judicial Authority is prima facie satisfied against the argument challenging the arbitration agreement, it shall appoint the arbitrator and/or refer the parties to arbitration, as the case may be. The amendment envisages that the judicial authority shall not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement or that it is null and void. If the judicial authority is of the opinion that prima facie the arbitration agreement exists, then it shall refer the dispute to arbitration, and leave the existence of the arbitration agreement to be finally determined by the arbitral tribunal.”

 

POST AMENDMENT ACT: M/S EMAAR MGF LAND LTD. V. AFTAB SINGH, 10TH DECEMBER, 2018

This is the first case before the Supreme Court of India, wherein the issue of the interface between the amendment to Section 8 and the Consumer remedies under the laws of the Country has arisen.

The primary issue and argument raised was regarding the intendment and the effects of the words “notwithstanding any judgment, decree or order of the Supreme Court or any Court” in Section 8 of the Arbitration Act w.e.f. 23.10.2015. Do these words mean that Judgments of this Court interpreting Section 8 prior to 2016 amendment, have become wholly irrelevant and have to be disregarded while deciding the application under Section 8 filed after 2016 amendment?

It was argued on behalf of Emaar that the Parliamentary intendment was that after the said amendment, a 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 the first statement on the substance of the dispute.

It was also an argument that since it is settled law by the Constitution Bench of the Supreme Court, that consumer fora are covered by the term “judicial authority” for the purposes of Section 8 of the 1996 Act, hence, it was obligatory for the State Commission to refer the dispute to arbitration in view of the arbitration clause between the parties.

To proceed, it now becomes important to understand, what do the words, “notwithstanding any judgment, decree or order of the Supreme Court or any Court”,mean?

The Supreme Court in Court, in Duro Felguera, S.A. Vs. Gangavaram Port Limited, (2017)9 SCC, had interpreted the words “notwithstanding any judgment, decree or order of the Supreme Court or any Court” as occurring in newly added Section 11(6A). It was held in that case that, from a reading of Section 11(6-A), the intention of the legislature is crystal clear i.e. the court should and need only look into one aspect—the existence of an arbitration agreement.

The Supreme Court in the case of Emaar MGF, relied on Duro Felguera as well as  Ameet Lalchand Shah and Others Vs. Rishabh Enterprises and Another, AIR 2018 SC 3041, and held,

“Amendments under Section 8, were aimed to minimise the scope of judicial authority to refuse reference to arbitration and only ground on which reference could have been refused was that it prima facie finds that no valid arbitration agreement exists. Notwithstanding any prior judicial precedents referred to under Section 8(1) relates to those judicial precedents, which explained the discretion and power of judicial authority to examine various aspects while exercising power under Section 8.”

Even a review of the 246th Law Commission Report makes it evident, that the intention of the amendment was never to make even non-arbitrable disputes referable to arbitration.

In effect, the Supreme Court held that while carrying out amendment under Section 8(1) of Act, 1996, the statutes providing additional remedies/special remedies were not in contemplation. The fact that the amendment was aimed to do away with special or additional remedies was also not decipherable from any material.

Therefore, a consumer complaint is very much maintainable despite there being an arbitration clause, and despite the amendments brought about in Section 8 of the Arbitration & Conciliation Act, 1996 by way of the Amendment Act.

Denoument

While giving more autonomy to parties is important, but to assume that mere presence of an arbitration clause can do away with statutory remedies cannot be accepted. Incase such an interpretation would have been accepted, it would lead to the collapsing of entire jurisprudence of not only consumer disputes, but also jurisprudence relating to trusts, tenancy disputes, industrial disputes, telecom disputes, intellectual property disputes and other non-arbitral disputes.

The Supreme Court, reiterating the words of the NCDRC has correctly held,

“the ripples of the amendment to Section 8(1) cannot be so large as to inundate the domains of other legislations and jurisprudence, painstakingly built by the Legislators and Courts, especially without any engagement, debate and critique with the foundations of these related laws.”