Supreme Court says that consumer complaint cannot be referred to arbitration after admission

Overview

In this case, the Supreme Court considered whether a consumer dispute can be referred to arbitration after a consumer complaint has already been admitted by the Consumer Forum. 

The appeal arose from orders passed by the Consumer Fora, directing the parties to resolve their dispute through arbitration on the basis of the arbitration clause contained in their agreement. Those orders were challenged by the appellant, while arguing that once the complaint had been admitted under the Consumer Protection Act 1986, it could not be transferred to arbitration.

The Court also examined whether an allottee loses the status of a consumer after accepting possession of a flat and whether such an acceptance prevents a claim for compensation arising from delayed delivery. 

Facts of the Case

The appellant became a member of the respondent Cooperative Group Housing Society in January 2003 and was allotted a residential flat under an agreement executed in February 2004. According to the appellant, the entire consideration had been paid, but possession of the flat was not handed over within the agreed period.

Claiming deficiency in service and compensation for the delay caused, a consumer complaint was filed by the appellant in August 2005. The District Consumer Forum admitted the complaint and notice was issued to the respondent.

Instead of filing its reply on merits, the respondent invoked Section 8 of the Arbitration and Conciliation Act, 1996, relying upon the arbitration clause in the agreement and sought reference of the dispute to arbitration.

Although the District Consumer Forum initially rejected the application, the matter was reconsidered pursuant to the directions issued by the Delhi High Court. Thereafter, the District Forum referred the dispute to arbitration. The order was affirmed by the State Consumer Commission as well as the National Consumer Disputes Redressal Commission. 

The National Commission also held that, since the appellant had accepted the possession of the flat, he could not be considered as a consumer under the Consumer Protection Act.

Aggrieved by the same, the appellant approached the Supreme Court.

Legal Issues

1. Whether an arbitration clause excludes the jurisdiction of  Consumer Fora under the Consumer Protection Act, 1986.
2. Whether a consumer complaint can be referred to arbitration after it has already been admitted by the Consumer Forum.
3. Whether acceptance of possession results in an allottee ceasing to be a consumer under the Consumer Protection Act, 1986.

Decision

The Supreme Court allowed the appeal and the consumer complaint was restored for being decided on merits.

The Court held that the Consumer Protection Act provides an additional remedy, which cannot be taken away merely because there existed an arbitration agreement between the parties.

It observed that once a consumer complaint has been admitted, Section 12(4) of the Consumer Protection Act, 1986 expressly prohibits its transfer to any other court, tribunal or authority, including an arbitral tribunal.

The Court also disagreed with the finding that the appellant had ceased to be a consumer after taking possession of the flat. It clarified that the complaint related to compensation for the delay in handing over the possession. Only accepting possession does not deprive a consumer of the right to seek compensation for the delay before delivery.

Accordingly, the Supreme Court set aside the orders referring the dispute to arbitration and restored the consumer complaint before the District Commission for a decision on merits. The District Commission was further directed to dispose of the complaint within one year.

Case Reference: - Civil Appeal No(s). 10724/2016 (DB, Before Vikram Nath and V. Mohana, JJ., Delivered by Vikram Nath, J.)