SC: Arbitration Clause Does not Bar Filing of Complaint with Consumer Forum


March 10, 2018

In a recent case M/S Emaar MGF Land Limited & Anr. v. Aftab Singh, the Two-Judge Bench of the Supreme Court agreed with NCDRC’s holding in July 2017 whereby, the National Commission ruled that an Arbitration Clause in Buyer’s Agreement cannot circumscribe the jurisdiction of a Consumer Fora, notwithstanding the amendments made to Section 8 of the Arbitration Act.


The NCDRC’s order in the case is encapsulated below:

Brief Facts of the case: In the case, the National Consumer Dispute Redressal Commission (NCDRC) took up a batch of petitions wherein the subject matter pertained to complainants who had booked residential villas/flats/plots in Projects of the Builder to be developed in Gurgaon/Mohali and accordingly executed Buyers’ Agreements. The cause of action in the case arose when Complainants approached the Consumer Forum alleging that the Builder had failed to deliver possession of these villas/flats/plots under the Project by the date committed in the Buyers Agreement and hence, sought directions to the Builder for delivery and possession of the villas, etc. along with compensation.

However, the Builder in the case filed a set of applications under Section 8 of the Arbitration Act praying therein that the parties be referred to Arbitration as per the Buyers’ Agreements executed between them.

The Builder relied upon Section 8 (1) of the Arbitration Act, as amended by the Arbitration & Conciliation (Amendment) Act, 2015 to make their claim for a reference to Arbitration.

Section 8 before and after Amendment of 2015In the pre-amendment era, only a party to the Arbitration Agreement could seek reference to Arbitration; however, as a result of the amendment, even persons claiming through such parties may seek reference to Arbitration.

The issue before the NCDRC was whether the newly inserted Sub-Section (1) of Section 8 of the Arbitration Act mandates Consumer Forums, constituted under the Consumer Act, to refer parties to Arbitration in terms of valid Arbitration Agreement, notwithstanding other provisions of the Arbitration Act and the provisions of the Consumer Act?

NCDRC made the following observations in the case:

  • That prior to the amendment, the Hon’ble Supreme Court had resolved and settled that the Consumer Forums were not bound to refer disputes to Arbitration under Section 8 of the Arbitration Act. In other words, an Arbitration Clause in a contract could not circumscribe the jurisdiction of the Courts and the Tribunals, especially those which are constituted to achieve a particular purpose and objective.
  • Arbitrability of Disputes– In this context, NCDRC made reference to Supreme Court’s decision in the case of Booz Allen and Hamilton Inc. v. SBI Home Finance Limited & Ors.[1], which delineates the conceptual framework behind making only some kinds of disputes arbitrable. The NCDRC accordingly observed that disputes are not characterized as arbitrable and non-arbitrable at the whim and fancy of the Legislature. The classification is based on the crucial distinction, repeatedly explained by the Hon’ble Supreme Court.
  • Jurisprudence on Arbitrability of Consumer Disputes– the NCDRC in view of catena of decisions of Supreme Court on this aspect held that existence of an Arbitration Clause will not be a bar for the entertainment of the Complaint by a Consumer Fora. Heavy reliance was placed on the case of Skypak Couriers Ltd. Vs. Tata Chemicals Ltd., whereby the Supreme Court inter alia observed that even if there exists an arbitration clause in an agreement and a complaint is made by the consumer, in relation to a certain efficiency of service, then the existence of an arbitration clause will not be a bar to the entertainment of the complaint by the Redressal Agency, constituted under the Consumer Protection Act, since the remedy provided under the Act is in addition to the provisions of any other law for the time being in force.

In view of the afore-going discussion, NCDRC made the following conclusions in the case:

  • the disputes which are to be adjudicated and governed by statutory enactments, established for specific public purpose to sub-serve a particular public policy are not arbitrable;
  • there are vast domains of the legal universe that are non-arbitrable and kept at a distance from private dispute resolution;
  • the subject amendment was meant for a completely different purpose, leaving status quo ante unaltered and subsequently reaffirmed and restated by the Hon’ble Supreme Court;
  • Section 2(3) of the Arbitration Act recognizes schemes under other legislations that make disputes non-arbitrable
  • In light of the overall architecture of the Consumer Act and Court-evolved jurisprudence, amended sub-section (1) of Section 8 cannot be construed as a mandate to the Consumer Forums, constituted under the Act, to refer the parties to Arbitration in terms of the Arbitration Agreement.

In view of the aforesaid findings and observations, the NCDRC held that an Arbitration Clause in the afore-stated kind of Agreements between the Complainants and the Builder cannot circumscribe the jurisdiction of a Consumer Fora, notwithstanding the amendments made to Section 8 of the Arbitration Act.


[1] (2011) 5 SCC 532