[This article is authored by Kartikey Singh, a Final Year Law Student at NLU, Delhi.]
Keywords: Consumer Protection, Right in Rem, Right in Personam.
The issue of arbitrability of consumer disputes has been debated since the genesis of the Consumer Protection Act, 1986. This debate becomes even more crucial when we see it in the backdrop of India representing itself as a “pro-arbitration” state. The recent case of M/S Emmar MGF Land Limited v. Aftab Singh ("Emmar MGF") has put an end to this debate as it has impliedly ruled out consumer disputes from the ambit of arbitration proceedings under the Arbitration and Conciliation Act, 1996 ("A&C Act"). Before we come to the analysis of the Supreme Court’s latest ruling, it would be pertinent to observe the judicial precedents in this respect to get a holistic view of the issue at hand.
Initial Stance of the Judiciary
The apex court, for the first time, settled the dispute of the arbitrability of the consumer disputes in the case of Fair Engineering Pvt Ltd and Anr v. NK Modi ("Fair Engineering"). Prior to this case, the courts were obligated to mandatorily refer the parties to arbitration in the presence of a valid arbitration agreement under Section 8 of the A&C Act. However, Fair Engineering diluted this precedent and gave the consumers an option to either settle for arbitration proceedings or go to the consumer forum. This was reasoned on the principle that the later law superseded the earlier one, on the grounds that the legislators of the later Consumer Protection Act ("COPRA") would have given due heed to the provisions of the earlier law (A&C Act) and hence would have intended to give it a predominant effect. The court thus held the remedy under COPRA as an additional remedy available to the consumers as mentioned in Section 3 of the COPRA. In cases like National Seed Corporation Ltd. and Rosedale Developers Private Limited [i], the court laid down that under Section 8 of the A&C Act; it is not mandatory upon the consumer forum to refer the dispute to the Arbitration Tribunal. In the case of Secretary Thirumurugan v. M Lalitha, it was observed that COPRA was enacted to resolve disputes between two unequal parties, and therefore it is intended to alleviate consumers from being played against by large corporations in arbitration and civil proceedings.
Then came the case of Booz Allen and Hamilton v. SBI ("Booz Allen"), in which the court chalked out a test on the basis of which the arbitrability of a dispute can be tested. In this case, the court held that adjudication of certain categories of proceedings is reserved by the legislature exclusively for public fora as a matter of public policy. On this basis, the courts can refuse to refer the parties to arbitration under Section 8 of the A&C Act even if the parties have agreed to do so. The Court listed a number of examples of non-arbitrable disputes such as matrimonial disputes, testamentary matters, insolvency and winding-up matters and then categorized these cases as relating to the right in rem. The Court then held that disputes relating to the right in personam (interests protected solely against specific individuals) are amenable to arbitration and those relating to the right in rem (right exercisable against the world at large) as unsuited for private arbitration and thereby are to be adjudicated by courts and public tribunals. However, the disputes relating to subordinate rights in personam arising from rights in rem are considered arbitrable and hence, are an exception to the above rule.
In light of the above rule, the Court in the case of A Ayyasamy v. A Paramasivam and Ors ("A. Ayyasamy") listed consumer disputes as a case relating to the right in rem and thus held it to be unarbitrable. It held that since the jurisdiction of the ordinary civil court is excluded by the conferment of exclusive jurisdiction on a consumer court, matters pertaining to consumer disputes become unarbitrable as a matter of public policy as well. It was noted that parties are prohibited from contracting out of the legislative mandate when it is a matter governed by welfare legislation. The Court, therefore, held consumer disputes to be completely unarbitrable.
After Emmar MGF Case
In the case of Emmar MGF, the main issue to be decided by the Supreme Court was that whether after the insertion of the words "notwithstanding any judgement, decree or order of the Supreme Court or any Court" in Section 8 by the Arbitration and Conciliation (Amendment) Act 2015, the legislature made it mandatory for the judicial authority to refer a consumer dispute to arbitration proceedings in the presence of an arbitration clause. Against this backdrop, the next issue before the court was whether such an amendment was intended to do away with the judgments of the Supreme Court laying down that the Consumer Protection Act, being a special remedy, can be initiated and continued despite being any arbitration agreement between the parties.
The apex court inquiring into the above contentions held that the words "notwithstanding any judgement, decree or order of the Supreme Court or any other Court" were added by amendment in Section 8 with an intent to minimise the intervention of judicial authority in the context of an arbitration agreement. The court can only made a prima facie inquiry into the validity of the arbitration agreement, and it is in this respect the amendment seeks to restrict the judicial intervention. It held that: “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. The Legislative intent and object were confined to only above aspects and was not on those aspects, where certain disputes were not required to arbitration.”
The court upheld the judicial precedents relating to the categorization of certain disputes as non-arbitrable and observed that a legislative intendment to reverse such precedents was not present. Thus the judicial approach laid down in the cases of Booz Allen and A Ayyasamy was adopted by holding that disputes dealing with matters related to public policy, which also include consumer disputes, fall outside the purview of arbitration. The court also realized the special nature of the Consumer Protection Act, which aims to provide a specific remedy to a consumer who is placed at a lower bargaining power with respect to the large corporates.
In light of projecting India as a pro-arbitration country, the cases of A. Ayyasamy and the Emmar MGF come as a setback and offer a rigid approach to arbitration of consumer disputes. If we look at the global trends, the legal systems of the US and European Union provide for arbitration in consumer contracts. In order to cater to the concerns of the Indian judiciary regarding the unequal barging power and non-consensual arbitration disputes, the method of prohibition of pre-dispute binding arbitration agreements as adopted by the EU legislation can be adopted by the Indian legislators. It requires the courts to presume the arbitration agreement to be unfair if the parties did not individually negotiate the same after the arousal of the dispute. Once a party submits to a consumer forum, it has to abide by its set proceedings which hider party autonomy. On the other hand, arbitration provides for party autonomy along with protection by including measures like power to remove the Arbitrator if his/her work is not satisfactory.[ii] Further, for cases relating to cross-border consumer disputes, platforms like Online Consumer Dispute Resolution might prove to be very handy. Such measures can be adopted only when arbitration of consumer disputes can be made permissible by the courts. In such a scenario, the case of National Seeds Corporation holds great significance as it allows a consumer to choose the forum for the resolution of disputes. This flexibility is balanced by the rigidity as after a consumer makes such a choice, the same cannot be reverted, thereby giving equal opportunity to both processes.