"SC: Consumers Can Approach Forum Despite Arbitration Clause"

The Supreme Court recently confirmed that consumers can still go to a consumer forum for dispute resolution, even if their agreement includes an arbitration clause. The Court stated that just because an agreement mentions arbitration, a consumer cannot be forced to settle the dispute through arbitration. Consumers have the exclusive right to choose between arbitration and the consumer forum. A Supreme Court bench, including Justice Sudhanshu Dhulia and Justice Ahsanuddin Amanullah, heard a case involving a disputed tripartite agreement that had an arbitration clause. Case Background: The respondent (who filed the complaint with the NCDRC) had taken a housing loan of ₹17,64,644 from ICICI Bank to buy a flat. Later, a buyer named Mubarak Vahid Patel offered to purchase the flat for ₹32,00,000. To finance this purchase, Patel (the borrower) took a loan of ₹23,40,000 from Citicorp Finance. Since the flat was already mortgaged with ICICI Bank, Patel requested Citicorp Finance to pay ₹17,80,000 directly to the respondent's ICICI Bank account. This was done to clear the existing loan and release the flat from the mortgage. The respondent filed a consumer complaint with the NCDRC, requesting that the appellant pay him the remaining sale amount of ₹13,20,000. He claimed that a tripartite agreement existed between him, the appellant, and the borrower, requiring the appellant to deposit the full sale amount. The NCDRC ruled in favor of the respondent, ordering Citicorp Finance to refund ₹13,20,000 with interest and pay ₹1,00,000 as litigation costs. Against the NCDRC's ruling, the Appellant appealed to the Supreme Court. The Court also that so-called tripartite agreement mentioned about the arbitration clause stating that the disputes be adjudicated through an arbitration. Referring to the case of M. Hemalatha Devi v. B. Udayasri (2024), the Court observed that consumer disputes are non-arbitrable unless the consumer voluntarily opts for arbitration. In this case, the Tripartite Agreement contained an arbitration clause. However, the Court noted that the existence of the agreement itself was disputed, and the consumer (respondent) had chosen to approach the Consumer Forum. The Court noted that the arbitration clause could not be enforced against the consumer, as the choice of forum lies exclusively with the consumer. "As vivid from Emaar MGF Land Ltd. v Aftab Singh, (2019) 12 SCC 751 and M Hemalatha Devi (supra), even in a consumer dispute under the Act, or for that matter, the Consumer Protection Act, 2019, arbitration, if provided for under the relevant agreement/document, can be opted for/resorted to, however, at the exclusive choice of the 'consumer' alone. As the appellant is not a 'consumer' in terms of the Act and the existence of the Tripartite Agreement is doubtful, we need not dwell further hereon." In M. Hemalatha Devi v. B. Udayasri, the Court had observed : “The exclusion of a dispute from arbitration may be express or implied, depending again upon the nature of the dispute, and a party to a dispute cannot be compelled to resort to arbitration merely for the reason that it has been provided in the contract, to which it is a signatory. The arbitrability of a dispute has to be examined when one of the parties seeks redressal under a welfare legislation, in spite of being a signatory to an arbitration agreement. “The Consumer Protection Act” is definitely a piece of welfare legislation with the primary purpose of protecting the interest of a consumer. Consumer disputes are assigned by the legislature to public fora, as a measure of public policy. Therefore, by necessary implication such disputes will fall in the category of non-arbitrable disputes, and these disputes should be kept away from a private fora such as “arbitration”, unless both the parties willingly opt for arbitration over the remedy before public fora.”, the court observed. www.legalmeet.in