Consumer’s Right to Approach Consumer Forum Prevails Over Arbitration Clauses: Supreme Court

 

Consumer’s Right to Approach Consumer Forum Prevails Over Arbitration Clauses: Supreme Court

Authored by: Abhishek Jat, Advocate

In a significant ruling, the Hon’ble Supreme Court of India has reaffirmed that an arbitration clause embedded in an agreement cannot curtail the consumer's statutory right to seek redressal before a consumer forum. The judgment, delivered in M/S Citicorp Finance (India) Limited v. Snehasis Nanda, has reinforced the principle that consumer disputes, being matters of public policy, are non-arbitrable unless the consumer voluntarily opts for arbitration.

Case Background

The dispute arose when the respondent (complainant before the NCDRC) purchased a flat and availed a housing loan from ICICI Bank. Subsequently, a third party expressed interest in purchasing the flat, leading to an agreement where the buyer secured a home loan from Citicorp Finance. A purported tripartite agreement among the complainant, the buyer, and Citicorp Finance was entered into, which included an arbitration clause.

The complainant approached the National Consumer Disputes Redressal Commission (NCDRC), alleging that Citicorp Finance failed to remit the balance sale consideration, causing financial losses. The NCDRC ruled in favor of the complainant, directing Citicorp Finance to refund the pending amount with interest and pay litigation costs. Aggrieved by this decision, Citicorp Finance challenged the ruling before the Supreme Court.

Key Legal Issues

The Supreme Court considered the following crucial aspects:

1. Consumer Status: Whether the complainant qualified as a ‘consumer’ under the Consumer Protection Act.
2. Privity of Contract: Whether Citicorp Finance was contractually obligated to pay the balance amount to the complainant.
3. Arbitration Clause: Whether the arbitration clause in the tripartite agreement precluded the complainant from approaching the consumer forum.
4. Limitation and Non-Joinder of Necessary Party: Whether the claim was barred by limitation and if the absence of the buyer as a party affected adjudication.

Supreme Court’s Observations and Ruling

1. Arbitration Clause Does Not Override Consumer Rights

Citing precedents, including Emaar MGF Land Ltd. v. Aftab Singh (2019) 12 SCC 751 and M. Hemalatha Devi v. B. Udayasri (2024) 4 SCC 255, the Court reaffirmed that consumer protection laws are special welfare legislations. They provide consumers with a statutory remedy that cannot be nullified by an arbitration clause in a contract.

The Court clarified that while arbitration remains an available recourse, it is at the sole discretion of the consumer. If a consumer chooses to seek relief under the Consumer Protection Act, the arbitration clause cannot be enforced against them.

2. Lack of Privity of Contract

The Supreme Court held that the complainant was not in direct contractual relations with Citicorp Finance. The primary transaction was between the complainant and the buyer, while the financing agreement was between the buyer and Citicorp Finance. The Court ruled that the complainant could not be classified as a ‘consumer’ under the Consumer Protection Act in relation to Citicorp Finance.

3. Limitation and Procedural Lapses

The Court found procedural lapses in the NCDRC’s handling of the case, particularly regarding limitation. The claim was filed almost a decade after the cause of action arose, without a reasoned order condoning the delay. Additionally, the Court noted that the non-joinder of the buyer, who was a central party to the dispute, further weakened the case.

Conclusion

The Supreme Court ultimately set aside the NCDRC’s ruling, stating that:

1. The complainant was not a ‘consumer’ in relation to Citicorp Finance.
2. The absence of a direct contractual obligation negated any deficiency of service claims.
3. The arbitration clause did not restrict the consumer’s choice of forum, but in this case, the complaint was procedurally flawed.

This judgment serves as a crucial precedent, upholding consumer rights while reinforcing the limitations of arbitration in disputes governed by welfare legislations. It clarifies that while arbitration agreements are legally binding, they cannot be used to curtail the remedies available under consumer protection laws.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers are advised to consult qualified legal professionals for specific legal concerns.