Consumer Arbitration: Arbitration in consumer-related disputes and its impact on consumers.

Abstract:

The Article dwells deeply into the phenomenon of consumer arbitration and how the clause of arbitration provided by the Arbitration and Conciliation Act, 1996  if mentioned in the agreement, can be used very conveniently for a very expeditious dispute resolution. This study also deals with when either of the parties wants resolution of the disputes through consumer courts, even after the presence of the arbitration clause in the given agreement, then the Consumer Protection Act, 1986 can come in handy for them. While scrutinizing the history of arbitration in India and the how Consumer Protection Act, of 1986 and the Arbitration and Conciliation Act, of 1996 both work jointly in resolving consumer disputes we will further talk about the future of Consumer Arbitration in India.

Introduction:

Consumer arbitration refers to the process of resolving conflicts between consumers and businesses outside of the court system. Instead of going through a public trial, both parties agree to have their dispute heard by an arbitrator, who acts as a private judge. The decision made by the arbitrator is usually binding, meaning it cannot be appealed in court.

In today’s consumer landscape, the resolution of disputes between individuals and businesses has increasingly shifted from traditional courtrooms to arbitration rooms. Consumer arbitration, a method where a neutral third party, known as an arbitrator, adjudicates disputes outside of the public judicial system, has become a common feature in many contracts for goods and services.

History of Arbitration in India

The 1^st Arbitration Act in India was introduced on 1st July 1899.  The English Arbitration Act of 1889 served as the foundation for this Act, while the Indian Arbitration Act of 1899 only applied to the presidential towns of Bombay, Calcutta, and Madras.  A uniqueness of this Act was that the names of the arbitrators had to be mentioned in the agreement and the arbitrator could also be a sitting judge then. The Indian Arbitration Act, of 1889 was very complex, bulky, and needed reforms so a formal law, a more specific arbitration Act came into force in 1940, during the British regime itself. It applied to the whole of India but had many disputes, and criticisms, and lacked in quite a lot of areas when it came to its implementation. Yet it can be credited for bringing uniformity in law across the country. The Arbitration Act, 1940 had a provision for protecting the agreement between the parties from being debased and diluted by the mere presence of some lacuna in it.

The Act had a provision to distinguish between an application for setting aside an award and also for a decision that the award is a nullity. One major setback was that the rules for filing awards differed from one high court to another. Another major drawback was that if the court-appointed arbitrator died during the arbitration proceedings, there was no other provision in the 1940 Act for the appointment of a new arbitrator. The Act was also silent about the shortcomings built into individual private contracts. There was no provision in the Act to prohibit an arbitrator from resigning at any time in the course of the arbitration proceedings subjecting the parties to heavy losses, especially where the arbitrators acted mala fide. It did make provision for arbitration without court intervention but it failed to achieve the desired objective and the entire process then became more litigation-oriented.^[1]

The Arbitration and Conciliation Act, 1996

The Arbitration and Conciliation Act, of 1996, is an important law in India that regulates arbitration and conciliation proceedings. It was created to bring together and modify the laws concerning domestic arbitration, international commercial arbitration, and enforcement of foreign arbitral awards. The Act is influenced by the United Nations Commission on International Trade Law (UNCITRAL)

Impact of The Arbitration and Conciliation Act, 1996 –

The Arbitration and Conciliation Act, of 1996, is pivotal in consumer dispute resolution in India due to its numerous advantages over traditional court litigation. This legislation provides a framework for resolving disputes quickly and cost-effectively. This is especially beneficial for consumers. They often seek timely resolutions to their grievances. The arbitration process under the Act is designed to be less formal and more flexible. It allows parties to customize procedures according to their needs. They can choose the time. They can also choose the place and language of the arbitration.

One of the key features of the Act is the confidentiality it affords. Arbitration and conciliation proceedings are private ensuring that sensitive information is not disclosed publicly, which is often a concern for consumers. Additionally the outcomes of these proceedings—whether arbitral awards or conciliation settlements—are binding. They are enforceable like court decrees, providing consumers with a definitive and enforceable resolution to their disputes.

The Act also allows for the appointment of arbitrators or conciliators with specific expertise relevant to the dispute. This ensures a knowledgeable and fair adjudication process. This expertise can lead to more accurate and satisfactory resolutions. It is crucial in technical or specialized consumer disputes. Moreover, conciliation under the Act promotes amicable settlements. It fosters better relationships between consumers and service providers. Or sellers. This can be particularly beneficial in ongoing business relationships.

Furthermore, by diverting disputes from the overburdened court system the Act helps reduce judicial backlog. This allows courts to focus on more complex and serious cases. This, in turn, contributes to a more efficient judicial system overall. The Act’s alignment with international standards, specifically the UNCITRAL Model Law also ensures that foreign arbitral awards are recognized and enforceable in India, providing a robust mechanism for resolving cross-border consumer disputes.

–Arbitration and Conciliation Act, 1996 v. Consumer Protection Act, 1986

Arbitration, as a method of dispute resolution, has its distinct legal framework in India, primarily governed by the Arbitration and Conciliation Act, of 1996. The relationship between arbitration and the Consumer Protection Act, of 1986, is complex and has been subject to judicial scrutiny and interpretation.

Many consumer contracts include arbitration clauses, mandating that any disputes arising out of the contract be resolved through arbitration rather than through the consumer courts established under the Consumer Protection Act. This can potentially limit the consumer’s ability to approach the consumer forums for redress.

Indian courts have addressed the interplay between arbitration clauses and the Consumer Protection Act. In some cases, courts have held that the presence of an arbitration clause does not oust the jurisdiction of the consumer forums, allowing consumers to choose between arbitration and approaching the consumer forums. This interpretation seeks to uphold the consumer’s right to seek redress under the specialized mechanisms provided by the Consumer Protection Act.

• The Hon’ble Supreme Court on December 10, 2018, passed a judgment in the matter of  Emaar Mgf Land Ltd. v. Aftab Holding that the arbitration clause does not oust the jurisdiction of the Consumer Court even after the amendment to Section 8 of the Arbitration Act.^[2]

Section 8 – Power to refer parties to arbitration where there is an arbitration agreement.—1 [(1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.]^[3]

 Facts of the Case: Emaar MGF Land Ltd. v. Aftab Singh

Background –

Aftab Singh a consumer who had entered into an agreement with Emaar MGF Land Ltd. for the purchase of real estate. The agreement contained an arbitration clause, which stipulated that any disputes arising from the agreement would be resolved through arbitration.        Aftab Singh filed a complaint with the National Consumer Disputes Redressal Commission (NCDRC) alleging deficiencies in service by Emaar MGF Land Ltd. related to the delivery of the apartment. The complaint sought redressal under the Consumer Protection Act, of 1986.

Emaar MGF Land Ltd. filed an application under Section 8 of the Arbitration and Conciliation Act, 1996, seeking a reference of the dispute to arbitration based on the arbitration clause in the buyer’s agreement.

Issues involved –

The central issue was whether a consumer dispute could be referred to arbitration when the agreement between the parties included an arbitration clause. Additionally, the case raised a very important question about the jurisdiction of the consumer forum in relation to arbitration proceedings. 

The argument focused on whether the presence of an arbitration clause could be used to reject or cancel the statutory rights provided under the Consumer Protection Act, of 1986.

• The NCDRC held that consumer forums have exclusive jurisdiction to adjudicate consumer disputes and that the presence of an arbitration clause does not preclude a consumer from seeking redressal under the Consumer Protection Act, of 1986. The Commission emphasized that the Consumer Protection Act was designed to provide a simpler and quicker remedy for consumers.

• The NCDRC highlighted the importance of protecting consumer rights and ensuring access to the remedies provided by the Consumer Protection Act. The Commission concluded that allowing arbitration clauses to supersede consumer forums would undermine the purpose of the Act.

• Emaar MGF Land Ltd. appealed the NCDRC’s decision to the Supreme Court of India, seeking a ruling that the dispute be referred to arbitration as per the agreement.

Supreme Court’s Ruling –

The Supreme Court upheld the NCDRC’s decision, affirming that consumer disputes are not arbitrable and should be resolved through consumer forums. The Court emphasized that the Consumer Protection Act, of 1986, provides a special remedy for consumers, which cannot be negated by an arbitration clause.

The Supreme Court reiterated that the purpose of the Consumer Protection Act is to protect consumer rights and provide a simple, inexpensive, and timely redressal mechanism.

It stated that arbitration clauses in consumer agreements cannot override the jurisdiction of consumer forums. The Court noted that forcing consumers into arbitration would defeat the purpose of the Act, which is to ensure that consumers have an accessible and effective forum for grievance redressal.

In the case of MM Aqua Technologies Ltd. v. Wig Brothers Builders Ltd. (2001)     95(2002) DLT818, 2002(61) DRJ682^[4] the Supreme Court of India addressed the issue of enforcing an arbitral award under the Arbitration and Conciliation Act, 1996. The dispute arose from a commercial transaction where MM Aqua Technologies Ltd. had supplied goods to Wig Brothers Builders Ltd Leading to a disagreement over payment. The matter was initially resolved through arbitration. This resulted in an award favoring MM Aqua Technologies Ltd. It directed Wig Brothers Builders Ltd. to pay the outstanding amount. Wig Brothers Builders Ltd. challenged the arbitral award in court and questioned its validity. The Supreme Court in its judgment, upheld the arbitral award. It emphasized the principles of minimal judicial intervention in arbitration matters. The court reinforced that arbitral awards should be respected and enforced unless there are substantial grounds to set them aside under the provisions of the Arbitration and Conciliation Act 1996. The decision highlighted the judiciary’s support for the finality of arbitral awards and the efficacy of arbitration as an alternative dispute resolution mechanism.

Thus, the Supreme Court’s judgment affirmed the enforceability of the arbitral award in favor of MM Aqua Technologies Ltd. This decision underscored the importance of upholding contractual obligations. It also highlighted the significance of arbitration agreements. In commercial disputes, these elements are crucial.

Future of consumer arbitration in India.

The future of consumer arbitration in India looks promising. It is shaped by legal reforms judicial interpretation and institutional support. The Consumer Protection Act, 2019 emphasizes consumer rights. It also introduces mediation. The Arbitration and Conciliation (Amendment) Acts of 2015 and 2019 aimed at making arbitration faster. These Acts are also meant to make arbitration more efficient. They lay the groundwork for increased use. This increase applies to arbitration in consumer disputes. The judiciary’s cautious yet growing pro-arbitration stance ensures that arbitration clauses in consumer contracts are fair. They are also balanced. Institutional support through the development of specialized arbitration institutions can enhance the credibility and accessibility of arbitration. The integration of Online Dispute Resolution (ODR) platforms in particular adds to this potential. However, addressing challenges such as power imbalances, cost accessibility and enforcement of awards is crucial for widespread acceptance of arbitration. With increased consumer awareness and perception of fairness, arbitration could become trusted. It may become an efficient method for resolving consumer disputes in India.

Conclusion:

The Act has been amended several times to address various issues and improve arbitration and conciliation processes in India. Notable amendments occurred in 2015 2019 and 2021. These amendments aimed at making arbitration more user-friendly. They also intended to make it cost-effective and efficient.

The case of Emaar MGF Land Ltd. v. Aftab Singh is a landmark decision that clarified the jurisdictional boundaries between arbitration clauses in consumer contracts. It also clarified statutory remedies available under the Consumer Protection Act 1986. The ruling reinforced the principle. Consumer rights and protections provided by the Act cannot be undermined by private arbitration agreements. This decision has significant implications. Consumer protection in India benefits. It ensures that consumers retain their rights. They can seek redress through dedicated consumer forums regardless of any arbitration clauses in their contracts.

The case of  MM Aqua Technologies Ltd. v. Wig Brothers Builders Ltd. (2001) is significant in the context of arbitration. It illustrates the judiciary’s approach to upholding arbitral awards. It also shows the principles governing the enforcement. The challenge of such awards under the Arbitration and Conciliation Act 1996, is also highlighted.

The future of consumer arbitration in India is likely to be influenced by continued legal reforms and judicial decisions that balance the interests of consumers and businesses. One must also consider the development of efficient, fair arbitration institutions. As the legal landscape evolves arbitration could become a more prominent method. It might also grow into a trusted way of resolving consumer disputes in India.

Overall Arbitration and Conciliation Act, of 1996 empowers consumers. It provides them with accessible mechanisms for dispute resolution. These mechanisms are efficient and fair. They complement the traditional judicial system. This enhances consumer protection.

Reference(s):

^[1] Sneha Mahawar, ‘Evolution of Arbitration in India and the Lack of Professionalism’ (iPleaders, 9 October 2021) <https://blog.ipleaders.in/evolution-arbitration-india-lack-of-professionalism/> accessed 27 June 2024.

^[2] ‘Emaar Mgf Land Ltd. vs Aftab Singh’ <https://www.argus-p.com/updates/updates/emaar-mgf-land-ltd-vs-aftab-singh/> accessed 27 June 2024.

^[3] ‘The_arbitration_and_conciliation_act,_1996.Pdf’ <https://www.indiacode.nic.in/bitstream/123456789/11799/1/the_arbitration_and_conciliation_act%2C_1996.pdf> accessed 27 June 2024.

^[4] ‘M.M. Aqua Technologies Ltd. vs Wig Brothers Builders And Anr. on 28 November 2001’ <https://indiankanoon.org/doc/360869/> accessed 28 June 2024.