From Complaints to Consensus: The Evolution of Consumer Arbitration

Introduction

A structured procedure known as "consumer arbitration" allows customers and companies to settle disagreements outside of court by using an impartial, independent arbiter. The arbitration mechanism allows the parties to choose the location, the laws that will be applied in the arbitration, and the confidentiality of the arbitration process. Since the Consumer Protection Act of 2019 was created, the rights of consumers are safeguarded. A regulatory body has been established to look into the disputes between the Consumer and the Business or Consumer and Consumer. Here the disputes are redressed in the court with the requisite jurisdiction whereas consumers can only opt for the arbitration only if they mention it prior to making an action in furtherance to buy any goods or services. Under the Indian Arbitration Conciliation Act, 1996, a court can refuse to appoint an arbitrator if the dispute in question is non-arbitrable. The aim of this article is to explain the legal provisions and the regulatory framework for the Arbitration and allied themes.

What the Indian Law states

The word Consumer is defined under Section 2(7) of the Consumer Protection Act, 2019 which defines an agreement of contract between two individuals as one buys the good against some amount which indirectly becomes a contract and Arbitration is the word defined under Section 2(1)(a) any arbitration which is either administered or not by a permanent arbitral institution. The Indian Contract Act of 1872 recognised the contracts involved in arbitration and allowed the courts to enforce the arbitration contracts, but it did not explicitly address the arbitration process or contain any laws pertaining to it. The arbitrator's decision, also referred to as the arbitration award, is legally binding on both parties and enforceable in court if everyone agrees that the process and result are non-binding. This method of resolving disputes between consumers and issues has existed since the beginning, but there has never been an institution that would prefer to handle disputes amongst itself without the involvement of the court.

The person assigned to resolve the conflicts in this case is an arbitrator, generally someone who has been officially designated to arbitrate a dispute between two parties. Put another way, an arbitrator is a person who mediates disputes between participants in a conflict by acting as a neutral third party. In the arbitration procedure, the arbitrator assumes the role of a judge and functions as the highest authority. As a result, he must behave justly and in accordance with natural justice principles in order to give the parties justice. The term Arbitrator is also defined under Section 11 of the Indian Arbitration Conciliation Act, 1996. The parties can decide on the number of Arbitrators they want keeping it in mind that it should not be an even number. The Act states that an individual may only be appointed as an arbitrator if he is of legal age and mental capacity. In India, arbitrators are chosen by arbitral associations and institutions, which comprise an expert panel that selects arbitrators based on their expertise. 

The process of Arbitration is held outside the boundaries of the court in the form of ADR which is also known as Alternate Dispute Redressal. Here two parties combine together to get the solution of their problem with the help of a third person who is Arbitrator. Arbitration can be done like this whereas some parties seek to make this a clause during the formation of the agreement between each other.  

An Individual only thinks of a court when they hear any such conflict but with the evolution the concept of Consumer Arbitration came into existence with the landmark case of  Emaar MGF v Aftab Singh. It was a seminal case concerning the arbitrability of consumer disputes. Nonetheless, as India is working to establish a pro-arbitration legal framework, it is necessary to investigate the potential for consumer dispute arbitration in India. We will examine whether India lost out on the Emaar case as a chance to harmonise with international standards for consumer dispute arbitration. It will examine how this issue has been handled by other common law jurisdictions and how India can change the future.

Judicial Precedents

According to section 7(2) of the Arbitration and Conciliation Act, 1996 (Arbitration Act), the parties in Emaar agreed into a buyer's agreement that included an arbitration clause. Aftab brought a complaint under the Consumer Protection Act to the National Consumer Disputes Redressal Commission (NCDRC). Emaar violated the Consumer Protection Act of 1986 (the CPA) because it didn't fulfill its end of the bargain. Emaar responded by submitting an application for arbitration under section 8 of the Arbitration Act. According to the NCDRC, consumer issues cannot be arbitrated. The Supreme Court heard an appeal of the decision and upheld the NCDRC's ruling. After that, Emaar petitioned the Supreme Court for a review. The Court noted that any measure granting special relief has precedence under section 2(3) of the Arbitration measure, meaning that some issues cannot be filed to arbitration. The Court underlined that arbitral tribunals have either expressly or implicitly been rejected in certain types of disputes by citing Booz Allen and Hamilton Inc. v. SBI Home Finance Limited  as a judicial precedent. The Court listed the several topics that the legislature had designated for public forums for decision-making because they presented issues of public policy, including criminal crimes, divorce disputes, insolvency, etc.

The Court deliberated on the reasoning underlying the classification of these topics using the rights in personam v. rights in rem test. The Court determined that issues pertaining to rights in personam—a right that can be used against particular people—are suitable for arbitration, while issues relating to rights in rem—a right that can be used against the entire world—are not. They also discussed the restriction that some disagreements involving subordinate rights in persona (which result from rights in rem) may be submitted for arbitration. In conclusion, the ruling states that the remedies offered by the CPA supersede any existing legal restrictions. So, section 8 of the Arbitration Act cannot be used to deny redress to someone who chooses to submit a complaint with the appropriate consumer forum in the first place. 

The Emaar case ruling made an effort to strike a compromise between the CPA and the Arbitration Act's goals. But the Court passed up the chance to go one step farther and acknowledge that consumer conflicts may be resolved through arbitration. It's interesting to note that certain types of conflicts are essentially excluded from arbitration because the Arbitration Act lacks any particular restriction. This view was supported by the ruling in the A. Ayyasamy v. A. Paramasivam case, which held that no CPA clause suggests that lawmakers intended for all consumer disputes to be considered non-arbitrable. It was recognised that arbitration is typically not appropriate in matters involving significant public policy issues since such cases give rise to lawsuits in rem. 

While earlier tests primarily focused on the type of rights at issue, more recent cases have highlighted a number of other elements that could be taken into account when evaluating whether a dispute can be arbitrated. Lately, the Supreme Court has demonstrated a heightened recognition of the arbitrability of formerly non-arbitrable matters. The Court determined that tenancy issues covered by the Transfer of Property Act, 1882 (the "ToP Act") might be arbitrated in the Vidya Drolia v. Durga Trading Corporation decision. It is possible to apply the same logic used in this ruling to the problem of customer disputes. 

In this case, the Court established a four-part test to ascertain whether a dispute is arbitrable. Therefore, the following circumstances would prevent a subject matter from being deemed arbitrable: (1) it concerns rights in rem rather than rights in personam, which result from rights in rem; (2) the dispute affects the rights of third parties, has an erga-omnes effect, and necessitates both mutual and centralised adjudication; (3) the subject matter relates to the sovereign and public interest functions of the State; and (4) the dispute is explicitly or necessarily impliedly non-arbitrable in accordance with a mandatory statute. Tenancy issues, the Supreme Court reasoned, specifically relate to subordinate rights in personam and are not actions in rem. This was supported by the evidence that tenancy conflicts lack an erga omnes effect, but also that arbitration of disputes originating under the Transfer of Property Act is not prohibited by the Act—either explicitly or implicitly.

The general classification of all consumer disputes as non-arbitrable in the Emaar decision ignores the specifics of the rights at issue. Rather, a classification like the four-fold criteria applied in Vidya Drolia would have made it possible to comprehend the nature of the issue at hand and how it affected the parties' rights. Two categories are available to file consumer complaints under the CPA. First, specific consumer complaints about items sold or delivered, or about any service rendered or agreed to be rendered, may be made under section 12(1)(a) of the Act. Secondly, when multiple consumers are interested in the same case, either the government or the consumers may file a representative lawsuit (as in accordance with CPA 12(1)(c) and (d). Given the public interest in the case, an action in rem may develop in the second category of consumer disputes, but this is not likely to happen in the first category of conflicts (which concentrates mostly on actions in personam). Moreover, it appears that neither the public interest generally nor the rights of third parties are affected by the disagreement at hand in the Emaar case. Consequently, the CPA does not explicitly or implicitly regard consumer conflicts as non-arbitrable, so classifying all of them as such may not represent the real spirit of the law.

Conclusion

However, in certain consumer disputes, arbitration may not be the best course of action for a variety of reasons. For instance, cases involving the provision of potentially hazardous products or services may affect the general welfare. In these situations, Indian arbitration's intrinsic confidentiality may prevent these problems from being revealed. Although confidentiality restrictions established in the rules of various arbitral organisations and Section 42A of the Arbitration Act safeguard arbitration procedures from prying eyes, they are not intrinsically confidential. The option offered to clients in Emaar or Hemalatha to choose arbitration may not be sufficient to safeguard the public's right to know about disputes that have broader societal ramifications.

Rather, the stance adopted by Emaar or Hemalatha focuses mostly on situations where customers' consent to arbitration agreements frequently stems from their weaker negotiating position. These contracts, which are usually standard-form agreements, require arbitration consent from customers in order for them to get products or services. In order to offset the inherent injustices of such agreements, the courts allow consumers to file a consumer court case after a dispute has arisen. By doing this, it is hoped to prevent customers from being permanently obligated to arbitrate disputes that they may have agreed into under coercion or without having the power to bargain for better terms. Certain nations have court ruling that pre-dispute arbitration agreements bind consumers only if they are signed separately and do not restrict the supply of goods or services on the consumer’s consent to arbitrate.

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By Vanisha Gupta

She is a Fourth Year law student from Gitarattan International Business School affiliated to Guru Gobind Singh Indraprastha University, Her interest lies in law, domains of corporate and commercial laws. Beyond law, she shares interest in art, music and in sleeping in the free time.