Parnika
Battle Between Arbitration Act and Consumer Protection Act
Parnika Agnihotri 4 Apr 2018

Battle Between Arbitration Act and Consumer Protection Act

Battle Between Arbitration Act and Consumer Protection Act

In the present case there is conflict between the builder (complainant) and people who had purchased the flat . Here both the party entered into the contract and in that contract there was a clause which says that-“party shall enter into arbitration in case there is any kind of conflict arises between builder and flat owner (respondent).  The builder failed to give the flats/villa/plot on time as a result flat owners went to district court against the delay of time took place on the part of builder.The complaint was decided in the favor of respondent in the district forum as well as in the state commission  now the complaint consequential reference to a larger Bench are triggered by the amendment to Sub-Section (1) of Section 8 of the Arbitration and Conciliation Act, 1996 (for short the “Arbitration Act”) by Act 3 of 2016, with retrospective effect from 23.10.2015. The question for consideration before larger Bench is profound, having seminal ramifications for the entire adjudicatory mechanism envisaged for settlement of consumer disputes, falling within the ambit of the Consumer Protection Act, 1986 (for short the “Consumer Act”).

Initially the respondent had filled the defense that section 8 of the arbitration Act says that-

8. Power to refer parties to arbitration where there is an arbitration agreement.—

(1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.

(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.

(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.

The crux of this reference revolves around these last few words of amended Section 8(1) of the Arbitration Act. The complainants argue that the said words leave the ability of Consumer Forums to hear such cases, such as the captioned ones that triggered this reference, unaffected, notwithstanding any Arbitration Clauses in the Agreements, while the Builder believes that the said amendment was enacted primarily to oust the jurisdiction of the Courts and Tribunals, and limit the resolution of these cases solely through Arbitration. As a result, there is a need to understand the legal position on Applications under Section 8 of the Arbitration Act for referral to Arbitrations in light of the amendment, and resolve whether status quo ante persists, or if a new regime has been ushered that ousts the jurisdiction of Tribunals/Commissions etc. completely in case of valid Arbitration Clauses.

Now the question before the larger bench of honorable National commission lies that-

“Whether the newly inserted subsection(1) of section 8 of Arbitation and Concilliation Act mandates consumer forum constituted under the consumer Act to refer parties to Arbitration in term of valid “Arbitration Agreement” notwithstanding  the provision of the Arbitatrion Act and the provision of Consumer Act?

The complainant in the present case contented on his part that-

1.Section 8 cannot nullify the effect of judgement given by Honorable  Supreme court in “National Seeds Corp.Ltd v/s M.Madhusudhan Reddy  (2012),where it was contented that consumer forum would not be bound to refer parties to arbitration even if the contract between the parties contained an arbitration agreement.

2. Section 3 of the consumer protection act states that “Act not in derogation of any other law.—The provisions of this Act shall be in addition to and not in derogation of the provisions of any other law for the time being in force.” which causes interplay between section 3 and section 8 of Consumer Protection Act and Arbitration Act respectively.

3. The Complainants point to the legislative history and intent of the amendment in question, gathered from the Statement of Objects and Reasons of the Amendment Act, as well as the 246th Report of the Law Commission of India on which, the said Amendment Act was substantially based, to argue that altering the legal position settled by the aforementioned judgments of the Hon’ble Supreme Court (including the National Seeds Corporation Case) was not even a matter in contemplation or consideration.

4. They further contend that a bare reading of the amended Section 8(1) shows that the operative words of the provision [“shall … refer the parties to arbitration”] have not been amended or altered, except for the addition of the words “unless it finds that prima facie no valid arbitration agreement exists”. These added words make no material difference to the issue at hand as Section 3 of the Consumer Act remains completely un-amended and unaffected

5. Later in the nutshell the complainant contented that ,the consumer Act is a beneficial legislation enacted to protect the interest of consumer.It is evident from the preamble that if we accept the provision of sec 8(1) strictly then that shall cause a grave injustice to the complainant and also defeat the purpose of Consumer Act.

·         Further the builders contentions were totally based upon the authority given by section 8(1),section 11 (6A) of the Arbitration act which clearly states that-

“The expression used by the Legislature –“notwithstanding anything contained in any other law for the time being in force”– not only includes other Acts/Laws including the Consumer Act but also includes law as laid down by the Hon’ble Supreme Court; under Article 141 of the Constitution of India, its judgment is the law.”

·         Arbitation Act and Consumer protection Act are two different Acts and thus no interplay lies between section 3 of Consumer Protection Act and section 8 of Arbitatrion Act.

·         In the course the respondents further rebutted the authority of National Seeds Corp.Ltd case but stating that there was no option with the party . But in the present case there are clearly two option available with the parties and when both party entered in to one option with consent then they should abide with that option.

 

The arbitration agreement between the parties also contented that the Sole Arbitrator which shall be appointed will be related with the respondent.

The court presented the view in the present case as-

“It is clear 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.” Also discussed the issues which are arbitral and non arbitral.

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. This division has been taken into account and entrenched into different legislations with a clear and distinct public policy objective. The Legislature and Judiciary have built this jurisprudence with consensus and harmony.

JURISPRUDENTIAL VIEW ON ARBITRATION  IN CONSUMER CASES-

  1. In the context of Consumer Jurisprudence, the Hon’ble Supreme Court has not disturbed its earlier opinion regarding the arbitrability of Consumer disputes rendered in the pre-amendment era.Rather, it has affirmed the protection granted to the Consumers from private resolution.
  2. National Commission also took a similar view in Lt. Col. Anil Raj & Anr. Vs. M/s. Unitech Ltd., Consumer Complaint No. 346 of 2013, decided on 02.5.2016relying upon the decisions of the Hon’ble Supreme Court in Secretary, Thirumugugan Cooperative Agricultural Credit Society Vs. M. Lalitha (through LRs) & Ors. (2004) 1 SCC 305 Skypak Couriers Ltd. (supra) and National Seeds Corporation (supra), to hold that the existence of an Arbitration Clause will not be a bar for the entertainment of the Complaint by a Consumer Fora. 
  3. The above observations are based on entrenched ideals surrounding consumer jurisprudence, honed and built by the Apex Court. Therefore, it is imperative to dwell on the foundation of the

 

Consumer Act to understand the kind of rights it seeks to protect, the statutory provisions that it lays out for the same, and accordingly, if by virtue of the amendment to Section 8 (1) of the Act, the erstwhile scheme has been set at naught. 

  1. In Skypak Couriers Ltd. Vs. Tata Chemicals Ltd. (supra), the Hon’ble Supreme Court inter-alia observed as under:

“ 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”.                                                    

 

  1. In M. Lalitha (Supra) the Hon’ble Supreme Court inter-alia observed and held as under:

“  The preamble of the Act declares that it is an Act to provide for better protection of the interest of consumers and for that purpose to make provision for the establishment of Consumer Councils and other authorities for the settlement of consumer disputes and matters connected therewith.  In Section 3 of the Act in clear and unambiguous terms it is stated that the provisions of the 1986 Act shall be in addition to and not in derogation of the provisions of any other law for the time being in force.

ARBITATION AND CIVIL PROCEDURE CODE

It is the general perception that the Arbitration Law is a separate Law and complete in itself, but the Civil Procedure Code is applicable in the Arbitration Matters referred before the Civil Courts under the Arbitration and Conciliation Act 1996.

Section 19 of the Act 1996 states that Arbitration Tribunal shall not be bound by the Civil Procedure Code 1908 (hereinafter the Code 1908) or the Indian Evidence Act.

However, Civil Procedure Code provides an exception to Section 19 of the act. Section 39 (2) of the act, states that on the refusal by the Arbitration Tribunal to deliver the award except on payment of the costs demanded by it, the court may, on an application in this behalf, order that the arbitral tribunal shall deliver the arbitral award to the applicant, on payment into court by the applicant of the costs demanded, and shall, after such inquiry, in any, as it thinks fit. The court can, further order that out of the money so paid into Court there shall be paid to the arbitral tribunal by way of costs such sum as the Court may consider reasonable and that the balance of the money, if any, shall be refunded to the applicant; though this is not the only exception. For the conduct of Arbitration Proceedings, the parties may agree to make the tribunal rely on specific provisions of the Code. Furthermore, a party may, before, or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to a court under the provisions of the Code, 1908, for certain matters; such as

  • for the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings; or
  • for an interim measure of protection in respect of any of the following matters, namely:

(a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;

(b) securing the amount in dispute in the arbitration;

(c) the detention, preservation or inspection of any property or thing which is a subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence; (d) interim injunction or the appointment of a receiver;

(e) such other interim measure of protection as may appear to the court to be just and convenient, and the court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.

Further sub-section (3) of Section 37 of the Act 1996 denies the right to second appeal against the order passed under sub-sections (1) and (2) of the Act, which does not fulfil the objective of section 115 of the Code, 1908.

It was held in the case of Anup kumar Biswas vs. Baul Kumar Biswas that,

Unless a specific provision is provided for a specific procedure to be followed, a normal procedure of a High Court or Forum to which the appeal lies becomes applicable, and the jurisdiction of the Court concerned to deal with such appeal is a procedure under which it is governed, and the same cannot be excluded.

Order 41 rule 11:

The application of Order 41 rule 11 of the Code, 1908 cannot be excluded in respect of an appeal preferred under s. 37 (1) (a) of the Act 1996.

In India, the Code of 1908, governs the execution of decrees whether foreign or domestic. If the award is not performed by the losing party, the successful claimant can enforce it ‘in the same manner as if it were a decree of the court under the CPC. This provision includes the enforcement in the case of Arbitration award also.

In India, the courts do not review the merits of an award in arbitration, unless it is at the request of a party and only if it is under restricted grounds of challenge laid down in the Act 1996.

The Code of 1908, laid down that cases must be encouraged to go in for ADR under section 89(1) There are various schedules in the Code that places duty on the court to provide for settlement between the parties,

Under the First Schedule, Order XXXII A, Rule 3 a duty is cast upon the courts to make an endeavour to assist the parties in the first instance, in arriving at a settlement in respect of the subject matter of the suit.

The second schedule is related to arbitration in suits while briefly providing arbitration without the intervention of a court. Order I, Rule 1 of the schedule says that where in any suit, all the parties agree that any matter in difference between them shall be referred to arbitration, they may, at any time before judgment is pronounced; apply to the court for an order of reference. This schedule, in a way, supplemented the provisions of the Arbitration Act of 1899. The general principle is unquestionable that the arbitration is governed by the law of the seat of arbitration.

CRITICISM ON WHETHER ARBITRATION ACT APPLIES IN CONSUMER CASES

When there are two remedies present in any dispute then it is possible that one party may go for one remedy and other party may approach the second remedy,inorder to have one conscience it is mostly witnessed that people opt the middle way of going with the contract which they had signed with the mutual consent. In this case also arbitration agreement was signed that in the case of any dispute parties shall refer to arbitration . But the consumers approached to “consumer protection district redressal forum” as there was delay in giving ht flats. Although they may be right on there part as in the arbitration agreement it was also  contented that the”Sole Arbitrator shall be in relation with the builder”. But by approaching to the court the complainant had questioned the basis of section 8(1)  . Again if we see the another part then complainant is consumer and if any of the right is violated as a consumer or he experienced any kind lack of service then he can approach to consumer forum.

 

 

 

 

 

 

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