Will an arbitration clause exclude a consumer forum?

Persons and companies who claim to be “consumers” of goods or services (such as real estate, insurance, etc.) can approach the National Consumer Disputes Redressal Commission (NCDRC). Indian courts have held that companies can do so even where their contract contains an arbitration clause, as the NCDRC provides a parallel remedy. In a recent decision of the NCDRC, upheld by the Supreme Court, it has been held that this position will hold even in light of far-reaching amendments to the Arbitration and Conciliation Act, 1996 (arbitration act).

In the case of Aftab Singh v Emaar MGF Land, the NCDRC was hearing a matter related to amendments made to section 8(1) of the arbitration act. Home buyers approached the NCDRC after the builder failed to deliver possession. The builder relied on arbitration clauses in the buyers’ agreement to seek reference to arbitration. The question that arose was whether the legislature’s intention was to relegate the consumer disputes in that case only to arbitration notwithstanding the existence of the Consumer Protection Act, 1986 (COPRA), and its social welfare purpose. The NCDRC, by way of an order of 13 July 2017, held that the NCDRC continued to offer a parallel remedy (in keeping with an earlier line of judgments).

Section 8(1) mandates that a judicial authority “shall” refer the parties to arbitration, “notwithstanding any judgment, decree or order of the Supreme Court … unless it finds that prima facie no valid arbitration agreement exists”. The buyers argued that irrespective of an arbitration clause, consumer forums could hear cases. The builder argued that the arbitration act was amended to oust the jurisdiction of courts.

Trinath Tadakamalla is a partner and Manvi Adlakha is an associate at the New Delhi office of Phoenix Legal.