THE BEYOND OBITER LAW BLOG: Legal News
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The Supreme Court has reiterated that the mere existence of an arbitration clause in an agreement does not oust the jurisdiction of consumer fora, holding that a consumer complaint alleging deficiency in service must be adjudicated under the Consumer Protection Act on its merits.
A Bench of Justice Vikram Nath and Justice V. Mohana set aside the orders of the District Forum, State Commission and National Consumer Disputes Redressal Commission (NCDRC), which had referred a dispute concerning delayed possession of a residential flat to arbitration solely on the basis of an arbitration clause contained in the agreement between the parties.
The case arose from a consumer complaint filed by a flat allottee alleging deficiency in service due to delay in handing over possession of a residential unit. Although the complaint had been admitted by the consumer forum, the dispute was subsequently referred to arbitration at the instance of the respondent on the ground that the agreement contained an arbitration clause. The State Commission and the NCDRC affirmed that view.
Allowing the appeal, the Supreme Court emphasised that the Consumer Protection Act, 1986 is a beneficial legislation intended to provide consumers with a simple, inexpensive and expeditious remedy. Referring to Section 3 of the Act, the Court observed that the remedy under consumer law is in addition to, and not in derogation of, any other remedy available under law.
Relying on a consistent line of precedents, including Fair Air Engineers Pvt. Ltd. v. N.K. Modi, Secretary, Thirumurugan Cooperative Agricultural Credit Society v. M. Lalitha, National Seeds Corporation Ltd. v. M. Madhusudhan Reddy, and Emaar MGF Land Ltd. v. Aftab Singh, the Court reiterated that an arbitration agreement cannot, by itself, divest consumer fora of their statutory jurisdiction.
The Bench observed that the Consumer Protection Act creates a special adjudicatory mechanism for consumer disputes and that once a complaint is validly instituted and admitted, the consumer cannot be compelled to pursue arbitration merely because the parties had agreed to such a clause contractually.
The Court held:
“The 1986 Act creates a special adjudicatory mechanism for consumer disputes. Once that mechanism is validly invoked and the complaint is admitted, the consumer cannot be driven out of that forum merely because the agreement between the parties contains an arbitration clause. A private contractual clause cannot be permitted to defeat the continued operation of a statutory remedy which Parliament has expressly made additional to other remedies under Section 3 of the 1986 Act.”
The Court further noted that Section 12(4) of the Consumer Protection Act reflects a clear legislative intent that once a complaint is admitted, it should ordinarily be decided by the consumer forum itself and not transferred to another adjudicatory mechanism.
The Supreme Court also found fault with the NCDRC's reasoning that the complainant had ceased to be a consumer because possession of the flat had already been delivered before the complaint was filed. Rejecting this approach, the Court clarified that the complaint was not for possession of the flat but for compensation arising from the alleged delay in handing over possession.
The Bench observed:
“The appellant’s complaint was not for delivery of possession simpliciter. His grievance was that there had been delay in handing over possession of the flat and that he was entitled to compensation for such delay. A claim for compensation for delayed possession necessarily arises from the period prior to the actual delivery of possession. The subsequent receipt of possession cannot, by itself, extinguish the right of the allottee to seek adjudication of a claim for compensation for the alleged delay.”
The Court emphasised that important issues, including whether there was any delay, whether the delay was attributable to the respondent, whether possession was accepted unconditionally, and whether compensation was payable, had never been examined on merits by any forum.
Holding that these questions could not be decided at the threshold, the Court restored the consumer complaint for adjudication on merits and directed that both parties be given a full opportunity to lead evidence. All issues relating to deficiency in service, delay, waiver, acceptance of possession and entitlement to compensation were left open for determination by the competent consumer forum.