Consumer Can Approach Consumer Forum Even If Agreement Provides For Arbitration: Supreme Court

Posted On - 2 April, 2025 • By - Anshu Singh

Introduction

In a case of emphasized importance, the Indian Supreme Court has persisted that consumers have an unqualified right to seek redress from any consumer forum they wish to resolve any disputes even where contracts contain an arbitration clause. This rests on the previous conclusions that disputes pertaining to consumers and their dealings are non-arbitrable except where the consumer overtly opts for an arbitration proceeding. Such rulings provide wider protection for consumers by ensuring that contractual rights do not override defined legal rights under the Consumer Protection Act.

Factual Background of the Case

The respondent herein (the complainant before National Consumer Disputes Redressal Commission- NCDRC) was sanctioned a housing loan of Rs. 17,64,644/- by ICICI bank. Later, one M. Vahid Patel, the borrower, wanted to buy the flat for Rs. 32,00,000/-. He and the appellant (Citicorp Finance) made a loan contract of Rs. 23,40,000/- of which Rs. 17,80,000/- was paid by Citicorp Finance directly to ICICI bank for the release of the flat.

The dispute arose form a trilateral agreement regarding the acquisition of a property. Subsequently, the respondent moved a complaint against Citicorp Finance is NCDRC stating that Citicorp did not fulfil the payment of remaining sale consideration which was ¥ 13,20,000/-. The NCDRC ordered the respondent to pay the complainant ¥ 13,20,000/- along with costs that were incurred during the lawsuit which amounts to ¥ 100,000/-. Aggrieved by the decision the appellant moved to the Supreme Court because of the undetermined dispute as far as arbitration was concerned which was not in accordance with the terms and conditions of the tri-party agreement.

Supreme Court’s Observations

The Supreme Court bench, ruled in favor of the consumer, holding that the arbitration clause does not bar the consumer from seeking relief before a consumer forum. The key observations of the Court include:

  1. Consumer’s Right to Choose the Forum: The Court emphasized that a consumer has the sole prerogative to decide whether to pursue arbitration or file a complaint before the consumer forum. The presence of an arbitration clause in an agreement does not preclude the consumer from seeking statutory remedies under the Consumer Protection Act.
  2. Precedent from Emaar MGF Land Ltd. v. Aftab Singh (2019) 12 SCC 751: The Court relied on this case to assert that arbitration clauses in agreements do not override statutory rights under consumer protection laws.
  3. Consumer Protection Act as Welfare Legislation: Citing M. Hemalatha Devi v. B. Udayasri (2024), the Court reiterated that the Consumer Protection Act is welfare legislation designed to protect consumers from exploitation. Consumer disputes are assigned to public forums as a matter of public policy, ensuring accessibility and fairness.
  4. Non-Arbitrability of Consumer Disputes: The Court restated that consumer disputes are inherently non-arbitrable unless both parties mutually agree to arbitration over the statutory remedy provided by consumer courts.

The Supreme Court’s ruling aligns with the jurisprudence that arbitration agreements do not automatically oust the jurisdiction of statutory forums unless the law explicitly provides otherwise. The rationale is based on the principle that consumer protection laws are designed to safeguard weaker parties in contractual relationships. The following key legal principles underpinned the judgment:

  1. Doctrine of Non-Arbitrability of Certain Disputes:
    • Consumer disputes, being matters of public policy and social welfare, are classified as non-arbitrable.
    • The Supreme Court, in Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1, outlined that disputes involving statutory rights, such as consumer rights, cannot be ousted by arbitration clauses.
  2. Statutory Supremacy Over Contractual Obligations:
    • The Consumer Protection Act, 1986 (now replaced by the Consumer Protection Act, 2019) provides a dedicated forum for consumer grievances.
    • Section 3 of the Consumer Protection Act, 2019 states that the provisions of the Act are in addition to and not in derogation of any other law. This means that an arbitration clause cannot override statutory consumer rights.
  3. Freedom of Choice for Consumers:
    • The Court stated that consumers cannot be forced into arbitration simply because an arbitration clause exists in the agreement.
    • If the consumer prefers to approach a consumer forum, the arbitration clause becomes irrelevant.

Implications of the Judgment

This ruling has significant implications for consumer rights and business practices in India:

  1. Reinforcing Consumer Rights: The ruling solidifies the perception that consumer rights must be superior to and not infringed upon by contractual stipulations that compel arbitration.
  2. Future Consumer Cases: The judgment is a powerful precedent for protecting consumers by ensuring businesses will not use arbitration provisions to disqualify them from seeking statutory remedies.
  1. Promoting Equitable Business Practices: Companies might have to revisit the enforceability of arbitration agreements in consumer contracts and make contractual transactions transparent.
  2. Less Scope for Forum Shopping by Companies: The judgment bars firms from forcing consumers to agree to arbitration, thus deterring attempts to avoid consumer forums.

Conclusion

This ruling of the Supreme Court in this instance moves towards protecting more consumers in India. It ensures that no consumer will be obliged to arbitrary protect clauses denying cover under consumer protection legislation and policies. The judgment grants the consumers power to choose the appropriate forum therefore, reinforcing the essence of the Consumer Protection Act which guards the consumers against unfavourable contractual terms. As such, we expect these developments in case law will ensure balance between freedom to contract and statutory rights given to consumers as the primary focus remains on the adjudication of the law from the interests of the consumers.

King Stubb & Kasiva,
Advocates & Attorneys

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