The Supreme Court has observed that a consumer could not be forced to get the dispute adjudicated through arbitration just because an arbitration clause was mentioned in an agreement.
The Bench of Justice Sudhanshu Dhulia and Justice Ahsanuddin Amanullah ruled that a consumer had the exclusive right to decide on whether to pursue arbitration or approach the Consumer Forum, noting that the arbitration clauses in an agreement could not override the consumer’s choice to approach the consumer forum for adjudication of the dispute.
The Bench of Justice Sudhanshu Dhulia and Justice Ahsanuddin Amanullah recently passed the order on a case related to a disputed tripartite agreement containing an arbitration clause.
As per the case, the respondent (complainant before the NCDRC) had purchased a flat with a housing loan of Rs 17,64,644 from the ICICI Bank. One Mubarak Vahid Patel (borrower) expressed interest in buying the said flat for an amount of Rs 32,00,000.
The borrower and the appellant (Citicorp Finance) entered into a loan agreement for an amount of Rs 23,40,000 As the flat was already mortgaged with ICICI Bank, the borrower requested the appellant to disburse an amount of Rs 17,80,000 directly to the respondent’s ICICI Bank account, in order to secure the release of the flat.
The respondent filed a consumer complaint in the NCDRC seeking to direct the appellant to pay him the balance sale consideration of Rs 13,20,000. The respondent claimed that there was a tripartite agreement between him, the appellant and the borrower, whereby the appellant was required to deposit the entire sale consideration.
The NCDRC allowed the complaint, directing the appellant – Citicorp Finance to refund Rs 13,20,000 with interest and pay Rs 1,00,000 as litigation costs.
The Appellant challenged the NCDRC verdict in the Supreme Court.
The Bench noted that the so-called tripartite agreement mentioned the arbitration clause, stating that the disputes be adjudicated through arbitration.
Referring to the case of M. Hemalatha Devi v. B. Udayasri (2024), the top court of the country ruled that consumer disputes were non-arbitrable unless the consumer voluntarily opted for arbitration.
It said in the present case, the tripartite agreement contained an arbitration clause. The Bench, however, noted that the existence of the agreement itself was disputed, and the consumer (respondent) had chosen to approach the Consumer Forum.
It said the arbitration clause could not be enforced against the consumer, as the choice of forum would lie exclusively with the consumer.
Citing Emaar MGF Land Ltd. v Aftab Singh, (2019) 12 SCC 751 and M Hemalatha Devi (supra), the Bench noted that even in a consumer dispute under the Act, or for that matter, the Consumer Protection Act, 2019, arbitration, if provided for under the relevant agreement/document, could be opted for/resorted to, however, at the exclusive choice of the ‘consumer’ alone.
As the appellant was not a ‘consumer’ in terms of the Act and the existence of the Tripartite Agreement was doubtful, there was no need to dwell further, it added.
In the case M. Hemalatha Devi v. B. Udayasri, the top court of the country had ruled that the exclusion of a dispute from arbitration may be expressed or implied, depending on the nature of the dispute. A party to a dispute could not be compelled to resort to arbitration merely for the reason that it has been provided in the contract, to which it was a signatory.
The arbitrability of a dispute had to be examined when one of the parties sought redressal under a welfare legislation, in spite of being a signatory to an arbitration agreement.
It called the Consumer Protection Act a piece of welfare legislation with the primary purpose of protecting the interest of a consumer. Since consumer disputes were assigned by the legislature to public fora as a measure of public policy, by necessary implication, such disputes would fall in the category of non-arbitrable disputes. These disputes should be kept away from a private fora such as arbitration, unless both the parties willingly opt for arbitration over the remedy before public fora, the Apex Court had added.
The post Arbitration clause in agreement cannot override consumer’s choice to approach consumer forum for adjudication of dispute: Supreme Court appeared first on India Legal.