Consumers Cannot Be Forced into Arbitration as the consumer disputes are Non-Arbitrable : Supreme Court
The Supreme Court, in the case of M. Hemalatha Devi & Ors v. B. Udayasri, underscored that consumer disputes fall under the category of non-arbitrable disputes, emphasizing that parties cannot be compelled into arbitration solely based on an arbitration agreement. Justices Sanjay Kishan Kaul and Sudhanshu Dhulia elucidated that the Consumer Protection Act serves as welfare legislation, dedicated to safeguarding consumer interests.
The court clarified that the legislature, as a measure of public policy, designates consumer disputes to public fora, making them inherently non-arbitrable unless both parties willingly opt for arbitration over remedies provided by public fora. The judgment authored by Justice Dhulia emphasized that a party seeking redress under welfare legislation prompts a necessary examination of the arbitrability of the dispute.
The case revolved around a consumer complaint filed by a home buyer against a builder. The builder, the appellant before the Supreme Court, challenged two orders of the Telangana High Court that refused to appoint an arbitrator. The High Court rejected the builder's application for arbitration, citing a pending dispute before the District Consumer Disputes Redressal Forum. Despite the builder's application under Section 11 of the Arbitration & Conciliation Act and Section 8 for referring the dispute to arbitration, the District Consumer Forum dismissed the application, deeming the dispute non-arbitrable. The builder's subsequent review application was also dismissed by the High Court.
The court emphasized that the nature of the dispute determines the appropriate forum for redressal. In a consumer dispute, the consumer can choose either the consumer forum or arbitration. The court noted that this choice is unavailable to the builder, as they are not 'consumers' under the 2019 Act. The court rejected the notion that the builder's approach under Section 11 of the Arbitration Act ousts the jurisdiction of Consumer Courts, emphasizing that jurisdiction is determined by the nature of the dispute, public policy, legislative intent, and the consumer's choice.
The court cited numerous judgments affirming that the remedy under the Consumer Protection Act cannot be denied to a consumer, even with an arbitration agreement between the parties. Legislative intent behind amending Sections 8 and 11 of the Arbitration Act was interpreted to limit judicial intervention. The court concluded that a valid arbitration agreement warrants referral, but matters that are non-arbitrable or covered by special legislation, such as the Consumer Protection Act, do not mandate arbitration. The court referred to the case of Emaar MGF Land Ltd. v. Aftab Singh, highlighting that the reasoning in the judgment is equally applicable to Section 11 applications before the High Court. Ultimately, the court upheld the High Court's refusal to interfere with the two orders rejecting the appointment of an arbitrator.