CONSUMER DISPUTES NOT BOUND BY ARBITRATION AGREEMENT

The Supreme Court, in its recent Order affirmed the order passed by the National Consumer Disputes Redressal Commission (NCDRC) in which the NCDRC held that even though a valid arbitration agreement exists, the NCDRC shall not be bound to refer the parties to a consumer dispute to arbitration, as the Consumer Protection Act, 1986 (Consumer Act) is a beneficial legislation and the remedies provided in the Consumer Act are in addition to and not in derogation of other laws in force.

The facts of the case are detailed below:

• The Complainants had booked residential flats/villas/plots with the Builder and the parties had entered into a Buyers Agreement. The Builder later failed to deliver the possession of these flats/villas/plots to the Complainants on the date committed in the Buyers Agreement. The Complainants therefore filed complaints before the NCRDC seeking delivery and possession of the same from the Builder and/or refund of amounts deposited by them along with compensation.

• The Builder filed an application with the NCDRC under Section 8 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) praying that the parties be referred to arbitration as per the Buyers Agreement executed between them.

• The Complainants relied on the judgement of the Supreme Court in National Seeds Corporation Limited v. M Madhusudhan Reddy & Anr in which the Supreme Court held that the remedies provided under Section 3 of the Consumer Act are in addition to and not in derogation of other laws in force and consequently, consumer fora would not be bound to refer parties to arbitration even if the contract between the parties contained an arbitration agreement. The Complainants further argued that the forums constituted under the Consumer Act, though vested with some powers of a civil court, exercise quasi-judicial powers under the Consumer Act and hence the NCDRC is not a judicial authority, therefore it may not fall within the purview of Section 8 of the Arbitration Act.

• The Builder submitted that the amendment of the Arbitration Act in 2015, with respect to referring the parties to arbitration now reads as ``8. Power to refer parties to arbitration where there is an arbitration agreement. ``A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.``

• The Builder argued that the legislature, through amendment of Section 8 of the Arbitration Act now prohibits a judicial authority to refer to or rely on any judgement even of the Supreme Court which is inconsistent with the intent of the legislature under the Arbitration Act and therefore the above judgement has no relevance. The Builder further relied upon the judgement of the Supreme Court in the case of A Ayyasamy Vs A Paramasivam & Ors wherein the Supreme Court held that the Arbitration Act contemplates and acknowledges that before it can be held that a particular subject-matter is not capable of settlement by arbitration, such a consequence must arise under the law for the time being in force and that one of the grounds for challenge of enforceability of an award is that subject matter of the dispute is not capable of settlement by arbitration under the law for the time being in force. On the basis of the above judgement, the Builder argued that in the present case there is no exclusion of such disputes in the Arbitration Act and there is nothing to show that subject matter of the present dispute is not capable of settlement by arbitration under the law for the time being in force.

• In view of the above, the NCDRC held that even prior to the amendment in the Arbitration Act, the 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 and that 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.

• NCDRC placed emphasis on various Supreme Court judgments wherein it had been authoritatively opined that the existence of an arbitration clause will not be a bar to the entertainment of a complaint by a forum under the Consumer Act and that there are classes of disputes which fall within the exclusive domain of special fora under legislation which confers exclusive jurisdiction to the exclusion of an ordinary civil court. Therefore, such disputes would not be capable of resolution by arbitration.

• NCDRC held that the disputes which are to be adjudicated and governed by statutory enactments, established for a specific public purpose to serve a particular public policy are not arbitrable and in light of the overall architecture of the Consumer Act the amended Arbitration Act cannot be construed as a mandate to the consumer forums, constituted under the Consumer Act, to refer the parties to arbitration in terms of the Arbitration Agreement.

• Thereafter, the Builder appealed to the Supreme Court, which dismissed the appeal. 

MHCO COMMENTS:

The aforesaid Supreme Court order benefits the consumers and reaffirms that the Consumer Protection Act is a social benefit oriented legislation and has to be construed in favour of the consumer to achieve the purpose of such legislation. Further, it shall ensure that builders do not misuse the law by strictly interpreting the intention of the Legislature while amending the Arbitration Act. On the other hand it can be argued that this decision could militate against the image of India as an arbitration friendly jurisdiction.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance

Specific Relief Act 1963 | A Radical Shift

The Lok Sabha has recently passed the Specific Relief (Amendment) Bill 2017 (Bill), proposing to bring about very significant amendments to Specific Relief Act 1963 (Act). The Bill has been introduced by the Legislature so as to bring the Act in tune with the rapid economic growth in India and further, to keep it in tune with the expansion of infrastructure activities that are needed for its overall growth and development.

The following are some of the most significant changes proposed by the Bill vis-a-vis the Act:

• Discretion of the Courts: The power of the Courts to grant specific performance of contract under the Act has always been discretionary. Normally, in the event of breach of a contract, the general remedy available to a person under civil law is to sue for monetary compensation. It is only when such monetary compensation is inadequate that the Courts step in and entertain pleas for and/or grant specific performance of a contract. With the introduction of this Bill, the Legislature intends to make take away such discretion given to the Courts and further intends to make grant of specific performance mandatory.

• Readiness and Willingness: As per Section 16 (c) of the Act, the Party seeking specific performance has to not only aver that he is ready and willing to perform his part of the contract from the date of the contract to the time of hearing the suit, but he also has to prove the same in the event such an averment is controverted. In a catena of judicial pronouncements, the Courts of Law have held that making of such an averment as laid down in Section 16 (c) is mandatory, in the absence of which, the Court has the power to dismiss the suit filed by the party seeking specific performance. As a result thereof, various suits had been dismissed by the Courts in the past. By way of the amendments proposed under the Bill, the Legislature has sought to do away with the harsh implications of the aforesaid condition.

• Infrastructure Projects: After listing down a category of projects and infrastructure, the Bill proposes to restrain Courts from granting injunctions in infrastructure projects. However, such a restriction is imposed on the powers of Courts only in cases where granting injunctions would cause any impediment or delay in the progress or completion of such an infrastructure project. Apart from imposing restrictions on the powers of Courts in granting injunctions, the Bill also proposes to empower one or more Civil Courts as ‘Special Courts’, to exercise jurisdiction and try suits under this Act in respect of contracts relating to infrastructure projects.

• Time lines: The Bill also seeks to fix a time limit of twelve months for disposal of cases under the Act, through the newly proposed Section 20C. However, if one reads the proposed Section 20C with the Statement of Objects and Reasons of the Bill, it may be construed that the provisions of such a time limit of twelve months has been introduced specifically for the purposes of infrastructure projects. However, this still remains to be clarified.

• Concept of Substituted Performance: The Bill proposes to introduce a new concept to the Act, known as ‘substituted performance of contracts’. Where a contract is broken, such a proposed amendment seeks to give the aggrieved party a right to get the contract performed by a third party or by his own agency and to recover expenses and costs, including compensation, from the party who failed to perform his part of contract. Such substituted performance of a contract is supposed to act as an alternative to specific performance and hence, any party opting for substituted performance shall have forfeited his right to specific performance of the contract. 

 MHCO COMMENTS AND OBSERVATIONS:

We are of the opinion that the introduction of this Bill would be a welcome change to the Specific Relief Act. Not only would the proposed amendments bring the Specific Relief Act more in tune with the rapid economic growth in India, but it would also ensure that the aggrieved party to a contract shall now be entitled to receive what he had originally signed up for.

This article was released on 18 April 2018.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance