Introduction 

• This is a landmark judgment where the Court laid down that the existence of Arbitration clause in the agreement would exclude the jurisdiction of the Consumer Courts as Consumer Protection Act is welfare legislation. 
• The Judgment was delivered by a 2- judge Bench consisting of Justice Sanjay Kishan Kaul and Justice Sudhanshu Dhulia. 

Facts   

• The Appellants have challenged two orders of the Telangana High Court related to a dispute with a home buyer. 
• The first order (dated 19th May 2022) dismissed the appellants' application for appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 (A & C Act). 
• The High Court dismissed this application because the dispute was already pending before the District Consumer Disputes Redressal Forum, where the appellants could file an application under Section 8 for referral to arbitration. 
• Following the High Court's suggestion, the appellants filed an application before the District Consumer Forum to refer the dispute to arbitration. 
• The District Consumer Forum dismissed this application, holding that the consumer had invoked a public law remedy under beneficial legislation (Consumer Protection Act, 2019 (CPA)) making the dispute non-arbitrable. 
• The Appellants then filed a Review Application before the High Court to review its earlier order, which was also dismissed (on 25th November 2022). 
• The case concerns a property transaction where the respondent (a home buyer) entered into an Agreement for Sale with the appellants (builders/owners) on 27th August 2013. 
• The agreement was for construction of a residential house/villa on 357 sq. yards of land with 4,000 sq. feet of construction for Rs.49,42,000/-. 
• The buyer paid the first installment of Rs.4,94,200/- at the time of agreement, with the remaining amount to be paid at the time of registration and possession. 
• The builders were required to hand over the fully constructed house within three years from the agreement date (with six months grace period), meaning by 27th February 2017. 
• Instead of delivering possessions, the builders sent a "Termination Notice" to the buyer in 2020, three years after the deadline, allegedly because the buyer had not signed "the Construction Agreement." 
• The District Consumer Forum has already ruled in favor of the consumer, directing the builders to hand over possession of the property along with compensation of Rs.15,00,000/- and costs of Rs.1,00,000/-. 
• The builders have filed an appeal against this order before the State Consumer Commission, which is pending, and the District Forum's order has been stayed. 

Issues Involved  

• Whether existence of Arbitration clause in the agreement would exclude the jurisdiction of the Consumer Courts and whether the Consumer Court is bound to refer the matter for reference to arbitration? 

Observations 

• The Court observed that the arbitrability of a dispute has to be examined when one of the parties seeks redressal under welfare legislation, in   spite   of   being   a   signatory   to   an   arbitration agreement. 
• It was held by the Court that the law gives choice to the consumer to either avail a remedy under the CPA by filing a complaint before judicial authority or go for arbitration. 
• The Court however, held that in the present facts this option is available not to the builder as they are “consumers” under the CPA. 
• It is thus, the respondent in the present facts who has the choice between submitting the dispute before private forum i.e. the Arbitration Tribunal or to making the complaint before the Consumer Forum which is public fora.’ 
• The Court also observed that merely because the builder approached the Court first under Section 11 of A & C Act, it will not itself oust the jurisdiction of Consumer Courts.  
  • The jurisdiction of the Court is determined by the nature of dispute, public policy in the matter, the will of the legislature, the election or choice of the consumer amongst various factors. 
• The Court discussed that the Consumer Protection Act, 1986 was enacted to provide better protection to the interest of consumers and for providing an effective redressal mechanism which is easier, effective and expeditious. 
  • For this purpose several quasi judicial authorities have been set up at  district, state and national level with a wider range of powers   vested   in   these   Judicial   Authorities.   
  • These   Judicial Authorities were vested with the powers to give relief of a specific nature and to award compensation to the consumer wherever it was felt necessary to impose penalty for non­compliance of their orders,   and   the   judicial   authorities   were   vested   with   such powers. 
  • This can be compared with the power of the arbitrator who does not have power to impose penalty. 
• It was ultimately held by the Court that the main purpose of bringing an amendment to Section 8 and 11 of A & C Act was  to  minimise   the   scope   of   judicial authority, which was to refuse reference to arbitration only on the ground when it  prima facie  finds that there was no valid arbitration agreement. 
• This however does not mean that where the matter itself is non arbitrable or is covered by a special legislation such as the Consumer Protection Act, it still has to be referred for arbitration. 
• Thus, the Court held that the Telengana High Court had adopted the correct approach where it declined to interfere in the matter and appoint an arbitrator.     

Conclusion 

• The Court in this case laid down that the choice is ultimately with the consumer to either avail a remedy under the Consumer Protection Act by filing a complaint before judicial authority or go for arbitration.