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Rosedale Developers Private Limited v. Aghore Bhattacharya and Ors.
Factual and Procedural Background
The respondents filed a consumer complaint before the National Consumer Disputes Redressal Commission (NCDRC) alleging deficiency of service by the appellant and sought compensation of Rs. 17,41,09,000/- along with costs of Rs. 1,00,000/-. The appellant, while contesting the complaint on merits, moved an application under Section 8 of the Arbitration and Conciliation Act, 1996, requesting that the dispute be referred to arbitration pursuant to an arbitration clause in the parties’ agreement.
A two-member Bench of the NCDRC referred the question to a larger Bench, which, after examining statutory provisions and prior judgments, held that consumer forums constituted under the Consumer Protection Act, 1986 are not obliged to refer disputes to arbitration. Aggrieved, the appellant filed the present appeal before the Supreme Court. The Supreme Court first condoned the delay and then proceeded to decide the appeal on merits.
Legal Issues Presented
- Does the existence of an arbitration clause and the filing of an application under Section 8 of the Arbitration and Conciliation Act, 1996, mandate that a consumer forum refer the dispute to arbitration?
- Whether the remedy available under the Consumer Protection Act, 1986 is excluded or remains concurrent when an arbitration agreement exists between the parties.
Arguments of the Parties
Appellant's Arguments
- Relied on SBP & Co. v. Patel Engineering Ltd. (2005) 8 SCC 618, Agri Gold Exims Ltd. v. Sri Lakshmi Knits and Wovens (2007) 3 SCC 686, and Branch Manager, Magma Leasing & Finance Ltd. v. Potluri Madhavilata (2009) 10 SCC 103 to contend that Section 8 of the 1996 Act is mandatory and obliges any judicial authority, including consumer forums, to refer the matter to arbitration when so requested.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| National Seeds Corporation Ltd. v. M. Madhusudhan Reddy (2012) 2 SCC 506 | Consumer forums are not bound to refer disputes to arbitration; remedy under the Consumer Protection Act is additional. | Treated as governing authority; quoted extensively and followed to reject the appellant’s plea for mandatory reference. |
| Fair Air Engineers (P) Ltd. v. N.K. Modi (1996) 6 SCC 385 | Arbitration clause does not bar consumer forum jurisdiction; Section 34 of Arbitration Act, 1940 confers discretion, not compulsion. | Relied upon to reinforce that consumer forums may proceed notwithstanding an arbitration clause. |
| Skypak Couriers Ltd. v. Tata Chemicals Ltd. (2000) 5 SCC 294 | Confirmed concurrent jurisdiction of consumer forums despite arbitration agreements. | Cited as supporting precedent for the same proposition. |
| Trans Mediterranean Airways v. Universal Exports (2011) 10 SCC 316 | Recognised consumer forums’ autonomy vis-à-vis arbitration clauses. | Referenced to bolster the view adopted in National Seeds Corporation. |
| SBP & Co. v. Patel Engineering Ltd. (2005) 8 SCC 618 | Section 8 of the 1996 Act is mandatory once pre-conditions are met. | Relied on by appellant; Court held it inapplicable as it did not consider the Consumer Protection Act interface. |
| Agri Gold Exims Ltd. v. Sri Lakshmi Knits and Wovens (2007) 3 SCC 686 | Mandatory nature of Section 8 of the 1996 Act. | Advanced by appellant; distinguished for the same reason as SBP & Co. |
| Branch Manager, Magma Leasing & Finance Ltd. v. Potluri Madhavilata (2009) 10 SCC 103 | Mandatory reference to arbitration under Section 8. | Advanced by appellant; likewise distinguished. |
Court's Reasoning and Analysis
The Supreme Court observed that the precise issue—whether an arbitration clause ousts consumer forum jurisdiction—had already been “extensively considered” in National Seeds Corporation Ltd. v. M. Madhusudhan Reddy, which held that:
- Arbitration is only an optional remedy; the complainant may choose arbitration or the consumer forum.
- Section 3 of the Consumer Protection Act expressly provides that its remedies are “in addition to and not in derogation of” other legal remedies.
- Compelling parties to arbitrate would defeat the Act’s objective of providing speedy and inexpensive redress to consumers.
The Court reiterated the ratio of Fair Air Engineers and Skypak Couriers that consumer forums possess discretion to entertain complaints even in the face of arbitration clauses. The precedents cited by the appellant, while affirming the mandatory language of Section 8, were distinguished on the ground that none dealt with the special statutory scheme of the Consumer Protection Act, 1986.
Concluding that the NCDRC correctly held it was not obligated to refer the matter to arbitration, the Court characterised the appeal as “frivolous and vexatious,” noting that the Section 8 objection had delayed adjudication for nearly three years.
Holding and Implications
Holding: The appeal is dismissed with exemplary costs of Rs. 1,00,000/-, to be deposited with the Supreme Court Legal Services Committee within one month.
Implications: The judgment reaffirms that arbitration clauses do not divest consumer forums of jurisdiction and that Section 8 of the Arbitration and Conciliation Act, 1996, does not override the consumer’s statutory right to approach forums under the Consumer Protection Act, 1986. It discourages litigants from using arbitration objections as a tactic to delay consumer proceedings and underscores the judiciary’s commitment to the Act’s goal of expeditious dispute resolution.
1. Delay condoned. This appeal filed against order dated 13.5.2013 passed by the National Consumer Disputes Redressal Commission (for short, 'the National Commission') whereby the Appellant's prayer for making a reference to the arbitrator was rejected can appropriately be termed as a frivolous piece of litigation which merits nothing but dismissal at the threshold with exemplary cost.
2. The Respondents filed complaint alleging deficiency in service on the Appellant's part and claimed compensation to the tune of Rs. 17,41,09,000/- with cost of Rs. 1,00,000/-.
3. On being noticed by the National Commission, the Appellant filed a written statement to contest the complaint. It also filed an application Under Section 8 of the Arbitration and Conciliation Act, 1996 (for short, 'the 1996 Act') for making a reference to the arbitrator.
4. A two Member Bench of the National Commission referred the matter to the larger Bench. After considering the relevant statutory provisions and adverting to several judgments including the judgments in Fair Air Engineers (P) Ltd. v. N.K. Modi (1996) 6 SCC 385; Skypak Couriers Ltd. v. Tata Chemicals Ltd. . (2000) 5 SCC 294; National Seeds Corporation Limited v. M. Madhusudhan Reddy and Anr. (2012) 2 SCC 506, the larger Bench of the National Commission held that the consumer forums constituted under the Consumer Protection Act, 1986 (for short, 'the 1986 Act') are not bound to refer the dispute raised in the complaint to an Arbitral Tribunal in terms of the arbitration clause contained in the agreement entered into between the parties.
5. Shri Sanjay Ghose, learned Counsel for the Appellant relied upon the judgment of the Constitution Bench in SBP & Co. v. Patel Engineering Ltd. (2005) 8 SCC 618 as also the judgments in Agri Gold Exims Ltd. v. Sri Lakshmi Knits and Wovens and Ors. (2007) 3 SCC 686 and Branch Manager, Magma Leasing and Finance Limited and Anr. v. Potluri Madhavilata and Anr. (2009) 10 SCC 103 and argued that once an application is filed Under Section 8 of the 1996 Act, the consumer forum is duty bound to make a reference to the arbitrator because that section is mandatory in character.
6. In our opinion, there is no merit in the submission of the learned Counsel. The question whether the existence of an arbitration clause contained in the agreement executed between the parties excludes the jurisdiction of the consumer forum and on an application made by either party, the consumer forum is duty bound to make a reference to the arbitrator was extensively considered in National Seeds Corporation Limited v. M. Madhusudhan Reddy and Anr. (supra) and it was observed:
"According to the learned Counsel for the Appellant, if the growers had applied for arbitration then in terms of Section 8 of the Arbitration and Conciliation Act the dispute arising out of the arbitration clause had to be referred to an appropriate arbitrator and the District Consumer Forums were not entitled to entertain their complaint. This contention represents an extension of the main objection of the Appellant that the only remedy available to the farmers and growers who claim to have suffered loss on account of use of defective seeds sold/supplied by the Appellant was to file complaints with the Seed Inspectors concerned for taking action Under Sections 19 and/or 21 of the Seeds Act.
The consideration of this issue needs to be prefaced with an observation that the grievance of a farmer/grower who has suffered financially due to loss or failure of crop on account of use of defective seeds sold/supplied by the Appellant or by an authorised person is not remedied by prosecuting the seller/supplier of the seeds. Even if such person is found guilty and sentenced to imprisonment, the aggrieved farmer/grower does not get anything. Therefore, the so-called remedy available to an aggrieved farmer/grower to lodge a complaint with the Seed Inspector concerned for prosecution of the seller/supplier of the seeds cannot but be treated as illusory and he cannot be denied relief under the Consumer Protection Act on the ground of availability of an alternative remedy.
The remedy of arbitration is not the only remedy available to a grower. Rather, it is an optional remedy. He can either seek reference to an arbitrator or file a complaint under the Consumer Protection Act. If the grower opts for the remedy of arbitration, then it may be possible to say that he cannot, subsequently, file complaint under the Consumer Protection Act. However, if he chooses to file a complaint in the first instance before the competent Consumer Forum, then he cannot be denied relief by invoking Section 8 of the Arbitration and Conciliation Act, 1996. Moreover, the plain language of Section 3 of the Consumer Protection Act makes it clear that the remedy available in that Act is in addition to and not in derogation of the provisions of any other law for the time being in force."
(Emphasis supplied)
7. For taking the aforesaid view (paragraph 66), the Court relied upon earlier judgments in Fair Air Engineers (P) Ltd. v. N.K. Modi (supra), Skypak Couriers Ltd. v. Tata Chemicals Ltd. . (supra) and Trans Mediterranean Airways v. Universal Exports and Anr. (2011) 10 SCC 316.
8. In the case of Fair Air Engineers (P) Ltd., this Court considered the provisions of the 1986 Act, the Arbitration Act, 1940 and held:
"It would, therefore, be clear that the legislature intended to provide a remedy in addition to the consentient arbitration which could be enforced under the Arbitration Act or the civil action in a suit under the provisions of the Code of Civil Procedure. Thereby, as seen, Section 34 of the Act does not confer an automatic right nor create an automatic embargo on the exercise of the power by the judicial authority under the Act. It is a matter of discretion. Considered from this perspective, we hold that though the District Forum, State Commission and National Commission are judicial authorities, for the purpose of Section 34 of the Arbitration Act, in view of the object of the Act and by operation of Section 3 thereof, we are of the considered view that it would be appropriate that these forums created under the Act are at liberty to proceed with the matters in accordance with the provisions of the Act rather than relegating the parties to an arbitration proceedings pursuant to a contract entered into between the parties. The reason is that the Act intends to relieve the consumers of the cumbersome arbitration proceedings or civil action unless the forums on their own and on the peculiar facts and circumstances of a particular case, come to the conclusion that the appropriate forum for adjudication of the disputes would be otherwise those given in the Act."
(Emphasis supplied)
9. The judgments relied upon by Shri Ghose do not have any bearing on the issue raised in this appeal. In neither of those cases, this Court has interpreted the provisions of the 1996 Act in the light of the provisions contained in the 1986 Act. Therefore, the propositions laid down in those judgments that Section 8 of the 1996 Act is mandatory cannot lead to an inference that the consumer forum is bound to make a reference to the Arbitral Tribunal.
10. In view of the above stated legal position, the National Commission did not commit any error by holding that the remedy of arbitration available to the complainant does not bar the jurisdiction of the consumer forums and the consumer forums are not under an obligation to refer the matter to the Arbitral Tribunal.
11. With the above observation, the appeal is dismissed. Before concluding, we record our strong disapproval of the mechanism employed by persons like the Appellant to frustrate one of the main objectives of the Consumer Protection Act, 1986, namely, expeditious disposal of the consumer disputes. The record of the case shows that disposal of the objection raised by the Appellant has consumed almost three years' time. If the Appellant had not raised frivolous and vexatious objection, the main petition may have been finally disposed of by now. Therefore, the Appellant is saddled with cost of rupees one lakh which shall be deposited with the Supreme Court Legal Services Committee within a period of one month from today.
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