Arbitration in Consumer-Related Disputes and Its Impact on Consumers

ABSTRACT

This Article shows the study of Arbitration in consumer-related disputes, with a special focus on how its impact has shaped consumers. It explores how Arbitration entered into consumer disputes and all the legal provisions related to the same. Different case laws have been researched to justify the same and to make it more clear about whether Arbitration is better and time-saving than the consumer court proceedings.

INTRODUCTION

Arbitration refers to the solving of disputes outside the court by a third neutral party appointed as an Arbitrator, where there is no intervention of the court. It is one of the modes of Alternative Dispute Resolution Centre specifically mentioned under section 89 of CPC[1] which reads as settlement of disputes outside the court.

English judgment named Collins v. Collins,[2] the court gave a wide definition to the concept of Arbitration which reads as follows: “An arbitration is a reference to the decisions of one or more persons either with or without an umpire, a particular matter in difference between the parties”

Arbitration processes may also have more streamlined procedures and guidelines, and they are usually not public records, which is another advantage over court proceedings. These factors might be helpful for those who want to settle a conflict swiftly while maintaining confidentiality.

In its 129th Report, the Law Commission promoted the need for parties to resolve their differences amicably, and the Malimath Committee suggested that courts be required to refer disputes for resolution through alternative channels rather than litigation or trials once the parties had framed their issues.[3]

WHO IS A CONSUMER?

A consumer is someone who uses the product or goods and buys the same from the seller or someone who is selling the goods or manufacturing the same. According to the Consumer Protection Act, of 1986[4], a consumer means any person, who buys any product or hires/avails of any service for consideration. It also covers anybody who uses the products or benefits from the services offered, as long as the customer gives permission to do so.

However, it does cover someone who purchases such things to resell or use for any other kind of business. The usage of products purchased and used by a consumer only for the aim of supporting himself through self-employment is not considered a commercial purpose.

“The interest of the consumer has to be kept in the forefront and the prime consideration that an essential commodity ought to be made available to the common man at a fair price must rank in priority over every other consideration.” – Y.V. Chandrachud, J. in Prag Ice & Oil Mills v. Union of India.[5]

According to Section 2(7) of the Consumer Protection Act, 2019,[6] “CONSUMER” means any person who:

1. purchases any goods for consideration that have been paid for, promised, partially paid, partially promised, or under any deferred payment plan; this includes any user of the goods other than the person who purchases them for consideration that has been paid for, promised, partially paid, partially promised, or under any deferred payment plan, provided that the use of the goods is done with the consent of the buyer; it excludes anyone who purchases the goods for resale or any other commercial purpose; or
2. hires or uses any services for consideration that have been paid, promised, partially paid and partially promised, or under any deferred payment system; this includes any beneficiary of such services who is not the person hiring the services for consideration that has been paid, promised, partially paid and partially promised, or under any deferred payment system, provided that the services are used with the first person’s consent.

In Anant Raj Agencies v. TELCO,[7] the company purchased a car for the private use of a director of the company. The automobile had many flaws and eventually stopped functioning. The complainant requested a price refund with interest or a replacement automobile. It was decided that the car had not been bought primarily for the company’s profit-making endeavors. There was no nexus between the purchase of the car and the profit-making activity of the company. The complainant was a consumer and the complaint was admissible under the C.P.A.

Hence, with these, we can understand who is a consumer and through the respective provisions and cases, it is crystal clear that someone purchases the goods for his own use.

HOW DOES ARBITRATION COME INTO CONSUMER-RELATED DISPUTES?

In India, it’s not uncommon to witness customers threatening to take vendors to court for seemingly insignificant matters. As a result of this mindset, Indian customers are under the impression that they can negotiate better prices with merchants. Contrary to popular belief, traders frequently hold the upper hand in these situations.

 All of this is made feasible by the dealers’ cunning use of the conventional contract form to include an exclusive jurisdiction or mandatory arbitration clause. The sad sight of customers attempting to thwart the enforcement of such clauses is frequently witnessed, as the majority of consumers give their consent to the same without carefully reading the terms.[8]

The kind of remedy sought in the dispute, i.e., whether it is in rem or person, and whether it can only be granted by a special court or tribunal or by an arbitral tribunal, i.e., a private forum, are the two main factors that determine whether the dispute can be resolved through arbitration.[9]

In a recent review petition involving a disagreement between a builder and a villa buyer that was scheduled for arbitration, the Supreme Court[10] declined to send the case to arbitration. For the purposes of the CPA, the Court considered the buyer to be a consumer. The Court holds that issues involving consumers cannot be arbitrated. This is based on the argument that some types of disputes are not arbitrable because they are governed by statutory enactments that were created for a specific public purpose to further a particular public policy, and that Section 2(3) of the Arbitration and Conciliation Act, 1996 recognised this scheme.The Court accordingly ruled that the presence of an arbitration clause contained in the buyer’s agreement between the builder and the purchaser would not oust the jurisdiction of the consumer court.

Additionally, the Court, relying on its earlier decision in Booz Allen and Hamilton Inc. vs. SBI Home Finance Limited and others,[11] reiterated the restricted categories of matters that are not ordinarily amenable to arbitration viz,

1. criminal cases;
2. matrimonial quarrels;
3. guardianship contests;
4. insolvency and winding-up petitions;
5. testamentary contests;
6. tenancy disputes;
7. competition law disputes and
8. disputes relating to trust, trustees and beneficiaries arising out of trust deed. Under Section 8 of the Arbitration Act, a court authority confronted with such conflicts is not obligated to send the parties to arbitration.[12]

The Court made it clear that provided both parties had specifically agreed to arbitrate such matters, it would not prohibit consumer disputes from being sent to arbitration. The party that was wronged could choose to pursue specific remedies granted to it by statute before a tribunal or court, in which case the court would merely decline to send the parties to arbitration.[13]

In the Emaar MGF Land Limited v. Aftab Singh[14] case, the Supreme Court of India ruled that consumers should not be compelled to submit their disputes to an arbitral tribunal in order to resolve their disputes under the 1996 Act; rather, they should be permitted to utilize the advantageous remedy offered by the 1996 Act.

 Furthermore, in the case of Hemalatha Devi & Ors. v. B. Udayasri I (“Hemalatha”),[15] the Indian Supreme Court held that consumer disputes can only be subject to arbitration if the consumer opts for it after the dispute arises, notwithstanding any pre-existing arbitration agreements between them. Hence no one can force the consumer to opt for Arbitration, if he/she wants to go to Consumer Courts, they can.

The attribute that made the 2012 ruling in the National Seeds Corporation case stand out in consumer arbitration jurisprudence, was that it provided the best possible way to balance the consumer’s interest. Because it gave the customer the option of choosing which forum to have the issue settled in, it gave them a stand that was the ideal balance of flexibility and rigidity.[16]

The options that are available to the consumers in the disputes they face are vast and Arbitration being one of them gives many benefits as compared to Consumer Courts, though the power of the Consumer Court is more. Some of the benefits of Arbitration have been mentioned below.

BENEFITS OF ARBITRATION FOR CONSUMERS:

1. Cost Effective- Arbitration, being an alternative to Court proceedings costs less than judicial appeals. Consumers can opt for arbitration in cases of any disputes regarding any grievances or illegal acts from the side of the seller.
2. Time-saving- As compared to judicial proceedings and trials, arbitration is time-saving and helps the grievance holder solve it within a limited time period. As mentioned in the Arbitration and Conciliation Act, of 1996, the matter in the Arbitration proceeding needs to be solved within a few months and only extendable to two more months and not more than that. However, in Courts, the proceedings could go from date to date and can be very tiring and long-lasting.
3. Quick and easy to access- Arbitration is more feasible for consumers as it is quick and can be understood in better ways than the courts. It is less complicated and can be easy for even the illiterate to understand the same.
4. Confidentiality- The arbitrator, who is appointed to solve the dispute is obliged to keep the information confidential and not to share the same with anybody as that harms the goodwill of the company and the seller. Confidentiality helps to keep the going of the company without it facing to survive in the market again due to the charges they got indulged into.
5. Enforceability and Finality- Arbitration, like Consumer Courts, gives the finality of the proceedings, and the parties to it, have to follow the same. Hence, it is enforceable just like any Court proceedings.

CONCLUSION

With the advent change in the justice providing among the disputers, Alternative Dispute Resolution has grown. Arbitration being one of them, has solved many cases related to disputes in all the sectors. Consumer disputes are not left behind and has boom in the solving disputes between the parties. The courts, in many judgments, have shown how arbitration is overruling the Consumer Courts. However, it is not mandatory to opt for arbitration as Consumer Courts as it has more power. The Indian courts, and most conspicuously, the Supreme Court in Aftab Singh, had the golden opportunity to analyze the global trend and decide if there should be a mandatory reference to arbitration.[17] Hence, it is the duty of the Court to make it mandatory as it is beneficial for the parties to go for arbitration rather than Consumer Courts tiring dates.

SUGGESTION

• There should be a mandatory clause in the contract between the parties.
• There should be more power vested in arbitration as well, like the Consumer Courts to protect the privacy of the Companies.
• Arbitration saves time hence the matters that are not of that big issue should be directly referred to the Arbitration process rather than going for dates and dates in the Consumer Courts.

REFERENCE(S):

[1] The Code of Civil Procedure, 1908

[2] Collins v. Collins, 1858 28 LJ Ch 184: 53 ER 916

[3] Malimath Committee Report, Chapter VIII, pg. 112

[4] Consumer Protection Act, 1986.

[5] Prag Ice & Oil Mills v. Union of India, (1978) 3 SCC 459.

[6] Consumer Protection Act, 2019.

[7] Anant Raj Agencies v. TELCO (1996) C.P.J 268 (Delhi).

[8] National Seeds Corpn. Ltd. v. M. Madhusudhan Reddy, (2012) 2 SCC 506 (hereinafter “National Seeds Corpn.”); Aftab Singh v. Emaar MGF Land Ltd., 2017 SCC OnLine NCDRC 1614. Emaar MGF Land Ltd. v. Aftab Singh, 2017 SCC OnLine Del 11437 FAO 395/2017, Nov. 7, 2017.

[9] Booz Allen and Hamilton Inc. vs. SBI Home Finance Limited and others, (2011) 5 SCC 532.

[10] M/s Emaar MGF Land Limited v Aftab Singh decided on 10 December 2018 in Review Petition (C) Nos. 2629- 2630 of 2018

[11] Supra note 9.

[12] The Arbitration and Conciliation Act, 1996.

[13] Supra note 8.

[14] Idbi.

[15] Hemalatha Devi & Ors. v. B. Udayasri, (Civil Appeal nos. 6500 6501 of 2023).

[16] National Seeds Corpn. Ltd. v. M. Madhusudhan Reddy, (2012) 2 SCC 506.

[17] Emaar MGF Land Ltd. v. Aftab Singh, 2017 SCC OnLine Del 11437.