[Keshab Roy Choudhury is a third-year student at Jindal Global Law School, Sonipat.]
As of 24th March 2021, there are nearly 852 vacancies across the District and State Consumer Commissions in India. The lack of adequate staffing in the consumer fora, an over reliance on advocates and intricate procedures have failed to achieve efficient disposal of complaints. Recently, the Supreme Court (‘SC’) held that the pecuniary jurisdiction under the new Consumer Protection Act (‘COPRA’) 2019 was to have prospective application, otherwise it would result in a widespread transfer of cases across fora and inordinate delays. Yet, this has not helped address the issue of delays in terms of widespread structural issues in the operation of the consumer fora. As per the latest statistics published by the NCDRC, there are a total of 5,44,398 cases pending across all the consumer commissions, with 3,98,566 cases pending in the District Commissions alone.
As a result of administrative inefficiency, consumers lose a great deal of money and time in pursuing litigation. In this context, an arbitration agreement offers an attractive solution to the consumer in terms of the expenses and time saved in resolving the complaint. The SC has firmly resolved the question of consumer arbitrability in Emaar MGF Land Limited v Aftab Singh, (‘Emaar’). The Court herein held that consumer disputes could not be the subject matter of arbitration proceedings. This being the position, I argue that, while the Court was correct in looking out for the interests of the consumers, its lack of reasoning to arrive at the holding constraints the scope of arbitration in India and burdens the consumer fora.
This piece will be divided into two parts. First, where the author examines the decision in Emaar and argues that the Court’s decision ought to be revisited by a larger bench of the SC. The author will further discuss case law concerning consumer arbitrability prior to the Court’s decision in Emaar. Second, the author argues that a balanced approach to consumer arbitration ought to be preferred which can protect consumer rights and achieve efficient disposal of claims.
II. The decision in Emaar
The SC in Emaar held consumer disputes to be inarbitrable. In this case, the SC was concerned with, inter alia, determining whether consumer disputes were arbitrable, and if they were, whether they should be referred to arbitration by the consumer forum under the amended Section (‘S’) 8(1) of the Arbitration and Conciliation Act (‘Arbitration Act’) 1996 in light of a mandatory arbitration clause. It largely premised its holding on the ground that the jurisdiction of a private arbitration tribunal was to be ousted if the Legislature had enacted a special legislation to impart special remedies. It reiterated that the consumer fora envisioned under the COPRA 1986, intended to relieve consumers of cumbersome arbitration or civil proceedings. Yet, there are glaring issues with the Court’s justification which go against the established precedents, such as National Seeds Corporation Limited v Madhusudhan Reddy(‘National Seeds’). This will be elaborated upon shortly. Furthermore, the Court relied primarily on Booz Allen and Hamilton Inc v SBI Home Finance Limited (‘Booz Allen’) to arrive at its conclusion. The Court in Booz Allen laid down a test of arbitrability of disputes. It held that the arbitral tribunal would not be competent to entertain the dispute if the ‘adjudication of certain categories of proceedings are reserved by the legislature exclusively for public fora as a matter of public policy’, or if the dispute concerned adjudication of rights in rem.
a. Consumer arbitrability prior to Emaar
S.3 of the COPRA 1986 and S.100 in the new COPRA 2019 provide that the provisions of the Act are ‘in addition to, and not in derogation of’ any other law being in force at the time. The SC, in a catena of cases prior to Emaar, had to determine the scope of the former section with respect to S.8(1) of the Arbitration Act 1996. Relying on Skypak Couriers Ltd v Tata Chemicals, the SC in National Seeds held that a consumer could file a complaint before the consumer forum notwithstanding an arbitration clause. It reasoned that the Legislature had intended such a provision to provide a remedy in addition to arbitration and civil action under the Arbitration Act and the Code of Civil Procedure 1908 respectively. A consumer court is not bound to send a dispute for arbitration and thus a consumer could not be forced into arbitration. However, National Seeds made it clear that once a consumer opted to settle the dispute through arbitration, he may be estopped from approaching the consumer courts. Thus, the Court gave a choice to the consumer to pursue the remedy that would be the most suited for him.
b. The inconsistencies of Emaar
There is a huge difference between a court not being bound to send a dispute for arbitration, and a court having exclusive jurisdiction to entertain a dispute. The former does not necessarily imply the latter, as was shown in National Seeds. In Emaar, no case cited by the SC held that the consumer forum under the COPRA 1986 had ‘exclusive’ jurisdiction to the exclusion of other remedies. The Court in Emaar effectively closed the door on consumer arbitration by determining the exclusivity of consumer courts to adjudicate consumer disputes.
Surprisingly, the Court in Emaar goes on to affirm that parties who did not seek additional or special remedies under statutes (such as approaching a specialized tribunal) can opt for arbitration, provided a valid arbitration agreement exists. It rejects the position laid down in National Seeds due to its poor reasoning and yet, at the same time extends the prior cases’ holdings to an absurdity to involve different statutes. In this vein, it has been argued that the affirmation made in Emaar creates hurdles when disputes are taken to specialized tribunals first as the latter will always be bound to adjudicate disputes despite the presence of an arbitration clause.
Thus, there is an urgent need to revisit the decision in Emaar by a larger bench of the SC due to the fallacious foundations. Nonetheless, ought consumer disputes to be arbitrable at all, especially in a country like India with little legal literacy?
III. The need for a middle path
In this regard, there are a few reasons for advocating a balanced approach as was propounded in cases like National Seeds instead of adopting a blanket embargo on consumer arbitrability. First, it helps consumers with substantially lower bargaining power from being subjected to mandatory arbitration agreements. Such consumers can approach the consumer forums which have wide ranging powers to accord reliefs that include awarding punitive damages, and can also appeal such decisions on several grounds vis a vis an arbitration award which can only be challenged on narrow grounds. In the United States, a report stated that consumers who were forced into arbitration were less likely to win in cases, and even when they did, the quantum of damages awarded would be much less vis a vis a litigation in court. While similar analyses have not been undertaken in India, the situation would be similar due to the poor legal literacy among the consumers and the limited powers of the arbitral tribunal in determining awards vis a vis consumer courts.
The object of having consumer tribunals with substantive powers is to ensure that a consumer is not left powerless in the face of powerful producers. It has been observed that consumer forums often hold in favor of the consumer. Such fora also help hold big businesses accountable by subjecting them to the rigors of consumer protection law.
Second, it is capable of respecting party autonomy which is one of the cornerstones of a successful arbitration regime in a country in two distinct ways. Briefly, party autonomy means that the parties to a contract are free to agree on the application of 1) the law governing the substantive aspects of the contract; 2) the law of the arbitration agreement and; 3) the law governing the conduct of arbitration. The bargaining power of a party to a contract is determined by their relative economic strength which can significantly influence how party autonomy is exercised. First, it is not always necessary for the consumer to have a lower bargaining power vis a vis the producer/service provider. If a consumer and a producer can conclude a valid arbitration agreement as per S.7 of the Arbitration Act, and if the consumer is able to exercise meaningful consent, the Court must be willing to respect the parties’ consent in the matter and enforce the preexisting arbitration agreement. Thus, a wealthy consumer would not be forced to take their dispute to the consumer courts. Second, it leaves the possibility open for the parties to negotiate an arbitration agreement even after a dispute has arisen. It has been noted that due to the SC’s declaration of holding consumer disputes ‘non arbitrable’, the status and enforcement of arbitration awards in consumer disputes is now thrown into question.
A balanced approach has been implemented in the EU. The EU does not recognize pre-dispute arbitration clauses in consumer contracts, as such clauses have not been negotiated individually and are void due to the reason that the EU regards the right to access court for parties with weaker bargaining power as a fundamental right. However, it still allows consumers to enter post-dispute arbitrations with producers on the basis of meaningful consent that is exercised by the former. Such a bar on unilateral pre-dispute arbitration clauses has been enforced in States like the UK (which centers its focus around unconscionability) and France.
By holding all consumer disputes to be inarbitrable, the SC has taken a step back. In the absence of structural reform, the consumer fora has effectively contributed to burgeoning dockets by mandating all consumer disputes to be heard by such courts. While the Court is right to be concerned about consumer welfare, this may be achieved in several other ways such as improving their access to quality legal aid. There is a scope for arbitration in consumer disputes by taking cues from SC precedents in India and the EU that emphasize the rights of consumers. There is no need to view the issue of consumer arbitrability in binaries, and if India has to truly become a global hub for arbitration, it is essential for the SC and the Legislature to urgently revisit this issue.