Once Complaint Is Admitted, Arbitration Clause Cannot Oust Consumer Forum Jurisdiction: Supreme Court

The Supreme Court has held that a consumer who has invoked the Consumer Protection Act cannot be forced into arbitration merely because the underlying agreement contains an arbitration clause.

It restored a homebuyer's complaint alleging delayed possession of a flat for adjudication on merits before a consumer forum.

A Division Bench of Justices Vikram Nath and V. Mohana set aside orders of the consumer fora that had referred the dispute between T.K.A. Padmanabhan and Abhiyan Cooperative Group Housing Society Ltd. to arbitration.

"The 1986 Act creates a special adjudicatory mechanism for consumer disputes. Once that mechanism is validly invoked and the complaint is admitted, the consumer cannot be driven out of that forum merely because the agreement between the parties contains an arbitration clause. A private contractual clause cannot be permitted to defeat the continued operation of a statutory remedy which Parliament has expressly made additional to other remedies under Section 3 of the 1986 Act," the court observed.

The dispute arose from a claim for compensation for the alleged delay in handing over possession of Flat No. 232 allotted by the housing society to Padmanabhan.

Padmanabhan became a member of the society in January 2003 and finalised an agreement in February, 2004. Depiste making the full payment, he failed to get posession of his property. Aggreived, he approached the District Consumer Forum in August 2005 seeking delay compensation.

The complaint was admitted and notice was issued to the housing society. The society then invoked Section 8 of the Arbitration and Conciliation Act, 1996. It relied on an arbitration clause contained in the agreement.

After the issue was reconsidered pursuant to directions of the Delhi High Court, the District Forum referred the parties to arbitration. The order was later upheld by the Delhi State Consumer Disputes Redressal Commission. The National Consumer Disputes Redressal Commission also upheld it.

Before the Supreme Court, Padmanabhan argued that once the complaint had been admitted, the consumer forum was required to decide it on merits. He contended that the dispute could not be sent to arbitration solely because the agreement contained an arbitration clause.

The housing society maintained that the arbitration agreement justified reference of the dispute to arbitration.

Accepting the homebuyer's contention, the court reiterated that the remedy under the Consumer Protection Act is additional to other remedies available in law. It held that the existence of another forum does not by itself exclude the jurisdiction of consumer fora.

Referring to earlier decisions, including Emaar MGF Land Ltd. v. Aftab Singh, the court noted that an arbitration clause does not automatically oust the jurisdiction of a consumer forum.

"The existence of another forum or another mode of adjudication, therefore, does not by itself exclude the jurisdiction of the consumer fora," the court held.

Examining the statutory scheme, the court noted that a consumer forum must first decide whether a complaint should be admitted. Once admitted, it must proceed with the complaint under the Act.

"Section 12 of the 1986 Act contemplates a statutory sequence. At the threshold, the District Forum is required to consider whether the complaint deserves to be admitted or rejected. Once the complaint is admitted and allowed to be proceeded with, the forum is required to deal with it in the manner provided under the Act," it observed.

The court further held that the provisions preserving the additional nature of the consumer remedy and prohibiting transfer of an admitted complaint must be read together.

This ensures that a consumer is not compelled to begin afresh before another forum after successfully invoking the statutory mechanism.

The court also found fault with the National Commission's approach. It noted that the central issue before the Commission was whether the consumer complaint had been validly referred to arbitration.

Instead, the Commission dismissed the matter on the ground that Padmanabhan was no longer a consumer because he had already taken possession of the flat.

According to the court, that reasoning could not be sustained. The complaint was not for delivery of possession. It concerned compensation arising from the alleged delay in handing over possession.

"A claim for compensation for delayed possession necessarily arises from the period prior to the actual delivery of possession. The subsequent receipt of possession cannot, by itself, extinguish the right of the allottee to seek adjudication of a claim for compensation for the alleged delay," the court held.

Holding that the consumer complaint had never been examined on merits, the court restored the proceedings. It directed that they be placed before the District Consumer Disputes Redressal Commission at Dwarka for fresh adjudication.

Noting that the dispute has remained pending since 2005, the court requested the Commission to endeavor to decide the complaint within one year.

For Appellant (T.K.A. Padmanabhan): Petitioner-in-person.

For Respondent (Abhiyan Cooperative Group Housing Society Ltd.): Advocates Abhinav Mukerji and Sahil Tagotra.