Supreme Court reaffirms consumers' right to avail consumer forum despite arbitration clause, says no bar on it.

Introduction

The Supreme Court in a noteworthy judgment has made it clear that the existence of an arbitration clause in a contract does not divest a consumer forum of its jurisdiction to entertain and decide a consumer complaint and reiterated the fact that consumer protection law is of paramount importance in India. The twin-judge bench headed by Justice Vikram Nath and Justice V. Mohana has restored a consumer's right to take a case for statutory remedy without being forced to go through the private machinery of arbitration at the contracting party's behest.

The case ?The T.K.A. Padmanabhan vs. Abhiyan Cooperative Group Housing Society Limited case is just another sad case in a growing list across Indian cities of a buyer paying the agreed consideration for a residential flat and waiting for the developer or housing society to honor the terms of the contract. The Appellant, T.K.A. Padmanabhan, had filed a consumer's complaint before the District Forum for the deficiency in the service in respect of delayed handing over of his flat. The District Forum admitted the complaint and served notice on the Respondent, but nonetheless did not rule it on its merits but instead referred it to arbitration pursuant to an arbitration clause in the purchase agreement between the parties.

The State Commission upheld the District Forum's decision and the National Consumer Disputes Redressal Commission (NCDRC) did the same. The case was then referred to the Supreme Court where the Appellant appeared personally. The apex court, in allowing the appeal, not only set aside all three concurrent orders but directed the District Forum to decide the dispute on merits ?preferably within one year.

The Core Legal Question

The issue before the Court was very simple but of practical consequence: Once a consumer complaint is validly admitted by a consumer forum, whether can the forum remove from itself the jurisdiction?

The Supreme Court said, emphatically no!

The Court ruled that by virtue of an arbitration clause alone, the jurisdiction of a consumer forum is not excluded. This is not just a judicial whim, but is a direct result of the statutory provisions of consumer protection laws in India.

The Statutory Framework: why consumer law prevails?

The Consumer Protection Act, 1986 (Act 153 of 1986) provides the basis for this ruling in that it expressly provides that the provisions of the Act shall be in addition to, and not in derogation of, the provisions of any other law for the time being in force, subject to the exception in Section 3(2) of that Act. This does not stand for regulatory jargon – it represents an intentional policy of the legislature that the consumer should have a separate forum that is accessible and affordable, even if any private forum for dispute-resolution may be mentioned in a contract.

As the Supreme Court has said in Secretary Thirumurugan Cooperative Agricultural Credit Society v. M. Lalitha (2004), there is an attempt to create a mechanism for redressal which is "better, cheaper, easier, expeditious and effective" in the form of consumer forums. The forums are quasi-judicial forums with powers to provide specific relief, compensation and penalties for non-compliance. They can counterbalance the inherent power imbalance that exists between large developers, service providers, and individual consumers.

Significantly, the Court in the present case highlighted the proviso to Section 12(4) of the 1986 Act which is clearly a legislative restriction: if a complaint is admitted by the District Forum, it shall not be transferred to any other court, tribunal or authority established by or under any other law. The Consumer has the right to proceed in the Consumer Forum after the jurisdictional gate of the Consumer Forum is crossed, that is to say, when the Consumer gets his complaint admitted in the forum. A forum cannot, at that time, delegate the matter to an arbitral tribunal in accordance with a clause of a private contract.

Reaffirming the Emaar MGF Precedent

The judgement relies heavily on the Supreme Court's landmark decision in Emaar MGF Land Ltd. v. Aftab Singh, (2019) 12 SCC 751, which has been described as the 'definitive' decision on the non-arbitrability of consumer disputes in India. The Supreme Court in Emaar MGF found that the Consumer Protection Act proceedings are special proceedings that are independent of any arbitration agreements. The right of a consumer to approach the consumer forum is not barred by a contract to settle disputes by arbitration.

The Court in the present case followed Emaar MGF to highlight that the Consumer Protection Act provides for a special adjudicatory mechanism for consumer issues. The consumer may not be ejected from that forum simply because there is an arbitration clause in the agreement between the parties. The Court ruled that a private contractual clause cannot be allowed to preempt the ongoing existence of a statutory remedy expressly stated by Parliament as being in addition to other remedies.

This chain of authorities is strong. In the case of National Seeds Corporation Ltd. v. M. Madhusudhan Reddy (2012), the Supreme Court had also held that an arbitration clause cannot be made to bar a consumer from approaching the consumer forum. In the case of Rosedale Developers Pvt. Ltd. v. Aghore Bhattacharya (2018), the apex court had rejected a plea by a builder for a reference to arbitration as "frivolous litigation," restating that the issue of an arbitration agreement being contrary to the jurisdiction of consumer forums had been resolved by the law.

Consumer Choice: Significance

The concept of consumer choice is an important attribute of this body of jurisprudence. Consumer disputes are not per se non-arbitrable, it is not that the disputes cannot ever be submitted to arbitration, but the choice lies with the consumer. The law provides a choice of remedies for the consumer: either to go to the consumer forum or to seek arbitration under the law. Importantly, this is not an option for the other party. A consumer is not obliged to waive the right to go to the consumer forum because the contract he drafted also contains an arbitration clause imposed by the builder/developer/service provider.

This is a non-symmetry, and it is the aim of consumer legislation. This will block powerful contracting parties, such as corporations, developers, and financial institutions, from using arbitration provisions in standard-form agreements which individual consumers often cannot negotiate.

How  Lower Forums were Misled.

What is remarkable about the facts of T.K.A. Padmanabhan's case is that the District Forum, State Commission and NCDRC erred in turn. The District Forum did not deny admittance of the complaint – it accepted and gave notice. It only then, apparently based upon the arbitration clause in the flat purchase agreement, referred the dispute to arbitration. This was precisely the kind of action the law forbids.

The Supreme Court has made it very clear that the proviso to Section 12(4) of the Act will commence as soon as the complaint is filed before the District Forum. The forum had no authority to remove or refer the issue to a different forum. The District Forum did so anyway, and both the appellate forums repeated that mistake in affirming the referral.

The need of the Supreme Court was thus both a legal and practical one. In the absence of such a remedy, the Appellant, who appeared before the apex court personally, would have been altogether helpless in a forum which is supposed to be accessible to the masses.

Consequences for home buyers and service consumers.

The victory will have ramifications for the millions of people in India who enter into agreements with developers, housing societies, telecom service providers, insurance companies and financial institutions, the majority of which contain arbitration clauses. Many of these clauses are standard terms and conditions of general use that the consumer seldom knows the true meaning of, and are typically part of the standard contract with which they sign.

The area of real estate has been one of the most fruitful arenas for this sort of battle. The demand for housing has grown as urbanisation has increased and housing projects have proliferated, leading to a huge amount of consumer litigation between buyers and developers. This has often led developers seeking to remove such lawsuits to arbitration, which is more expensive, not as accessible for individual consumers and can be more advantageous to those with greater resources. It was hardly a matter of law and order for consumer forums to be kept open irrespective of whether there is an arbitration clause in the contract, it's a guarantee of access to justice for ordinary homebuyers.

The Broader Picture : Benefit of consumers.

This philosophy of law is reflected in a coherent judicial approach to consumer protection law, which requires that the law be broadly and purposefully interpreted. The Consumer Protection Act, in any of its form 1986 or 2019, is a good Act that protects the public interest. Its terms have been interpreted numerous times by courts in a way which is consistent with its aims and any interpretation which narrows or impedes a consumer's right to a statutory remedy is to be resisted.

T.K.A. Padmanabhan v. Abhiyan Cooperative Group Housing Society Ltd. is a reiteration of this approach. It is a caution to consumers that if a contract is drafted, it cannot eliminate consumers' right to seek relief from a statutory forum. It's a warning to consumer forums that if they are validly called they are entitled to intervene - not withdraw because of a private solution. It takes a step to the District Forum to do what it ought to have done years ago: ruling on case merits.

Conclusion

The Supreme Court's ruling is an opportune and significant decision. The consumer forum is often the only realistic way to get relief in a country where the average individual consumer often has a formidable foe, such as a corporate developer, service conglomerate or large housing society. The Supreme Court has thus upheld the intent and spirit of consumer protection law by holding that an arbitration clause, though placed in the forefront of a contract, does not deprive the jurisdiction of the consumer forum when a complaint is admitted. Now the case goes back to the District Forum who are directed to determine it within 1 year. It is a triumph not only for T.K.A. Padmanabhan but also for thousands of other consumers in similar situations to have the means to hold powerful parties legally accountable.