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Arbitration Final

-By Divya Sharma, Associate, New Delhi Office

There has been a considerable debate surrounding the presence of an arbitration clause in a Builder Buyer Agreement/ Apartment Buyer Agreement; and the consumers right to approach the consumer court in cases where the delay caused by a developer/ builder is unpardonable. Whilst the presence of an arbitration clause in an agreement mandates the parties to refer all disputes to arbitration, before approaching a court, but can we draw an inference that the consumer can under no circumstances approach the consumer court if the agreement is subject to arbitration.

Section 8 of the Arbitration and Conciliation Act, 1996 seems to be of pertinence here and is reproduced hereunder:

Power to refer parties to arbitration where there is an arbitration agreement.

(1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.
The elucidation of the above section was done by the Honble Supreme Court in P. Anand Gajapathi Raju Vs. P.V.G. Raju in the following words:

The language of section 8 is peremptory in nature. Therefore, in cases where there is an arbitration clause in the agreement, it is obligatory for the court to refer the parties to arbitration in terms of their arbitration agreement and nothing remains to be decided in the original action after such an application is made except to refer the dispute to an arbitrator

This makes it abundantly clear that the Courts are under an obligation to refer the parties to arbitration if it has been established that there is an arbitration clause/ agreement in existence.

An ethical dilemma arises at this point. In cases where the consumer especially a buyer, is already agonized by the inexplicable delay caused in the completion/ delivery of possession, should the consumers be compelled toproceed with arbitration which he knows would be prejudicial to his interests; or should the buyer place his hopes on the efficacious and impartial legal system and file a complaint against the errant developer before the consumer forum.

Before answering this question, it becomes essential to understand the context in which a consumer can approach a consumer forum; and the underlying objective of adding an arbitration clause in an agreement.

The Consumer Protection Act (hereinafter referred to as Act) was enacted in the year 1986 for addressing consumers concerns against defect in goods and/or deficiency in services. The virtuous objective behind this legislation was inter alia, to protect the consumers against unfair trade practices and or against unscrupulous exploitation of consumers. The Act accords upon consumers the right to be heard and to be assured that consumer interests will receive due consideration at appropriate forums. Hence, it can be said that the Act is a pro-consumer piece of legislation which shall at every step ensure consumers interests holds precedence over all other rights.

On the other hand, an arbitration clause in an agreement is added to give the parties an opportunity to settle their disputes one last time amicably. It is a mode of alternate dispute resolution and is often appreciated as a pre-emptive step to a full-fledged litigation.

Addressing the ethical dilemma faced by the courts when entertaining petitions by troubled buyers, the Supreme Court has come to the aid of such buyers. In cases where a vulnerable consumer is being suffering on account of inexplicable and unreasonable delay in the delivery of possession of flats/ apartments, on which the consumers have invested their hard earned monies, the Honble Supreme Court has come down heavily on all errant builders. In the case of Rosedale Developers Private Limited Vs. Aghore Bhattacharya & ors. , the Honble Supreme Court thwarted the attempt of the appellant to challenge the NCDRC ruling that the remedy of arbitration available to the complainant does not bar the jurisdiction of the consumer forums and that the consumer forums are not under an obligation to refer the matter to Arbitration Tribunal. The Honble Supreme Court termed the case challenging NCDRCs relief to consumers, as a frivolous piece of litigation which merits nothing but dismissal at the threshold with exemplary cost.

Placing reliance on the case ofNational Seeds Corporation Limited Vs. M. Madhusudhan Reddy & anr.andFair Air Engineers (P) Ltd. Vs. N.K. Modi, the Honble Supreme Court held that the National Commission did not commit any error by holding that the remedy ofarbitration available to the complainant does not bar the jurisdictionof the consumer forums and the consumer forums are not under an obligation to refer the matter to the Arbitral Tribunal.

Now with this ruling of Rosedale Developers, the Honble Supreme Court has effectively over ruled its ruling in Re: P. Anand Gajapathi Raju. The bar on consumer courts while entertaining petitions where there is an arbitration agreement subsisting, has been removed. The consumers can as a matter of right approach the consumer courts for redressal of their grievances.

By a recent order dated 02.05.2016, the NCDRC reaffirmed the position laid down by the Supreme Court in Re: Rosedale Developers, and made the following observations:
In so far as the question of a remedy under the Act being barred because of the existence of Arbitration Agreement between the parties, the issue is no longer res-integra. In a catena of decisions of the Hon’ble Supreme Court, it has been held that even if there exists an arbitration clause in the agreement and a Complaint is filed by the consumer, in relation to certain deficiency of service, then the existence of an arbitration clause will not be a bar for the entertainment of the Complaint by a Consumer Fora, constituted under the Act, since the remedy provided under the Act is in addition to the provisions of any other law for the time being in forceIt has thus, been authoritatively held that the protection provided to the Consumers under the Act is in addition to the remedies available under any other Statute, including the consentient arbitration under the Arbitration and Conciliation Act, 1986.”


With the coming of the Real Estate (Regulation and Development) Act, 2016, concerns of buyers/ allottees have been addressed to a larger extent. The Act has been enacted with the prime objective of regulating the hitherto unregulated real estate industry.It has been expressly laid down under Section 86 which states:
88. Application of other laws not barred

The provisions of this Act shall be in addition to, and not in derogation of, the provisions of any other law for the time being in force.
Proviso to Section 71 of the Real Estate Act lays down as follows:

Provided that any person whose complaint in respect of matters covered under sections 12, 14, 18 and section 19 is pending before the Consumer Disputes Redressal Forum or the Consumer Disputes Redressal Commission or the National Consumer Redressal Commission, established under section 9 of the Consumer Protection Act, 1986, on or before the commencement of this Act, he may, with the permission of such Forum or Commission, as the case may be, withdraw the complaint pending before it and file an application before the adjudicating officer under this Act.

It can be said that the Real Estate Act is a proactive enactment and recognizes the current scenario where many petitions/ complaints are pending before the Consumer Forum. Therefore a transitory provision has been provided in the Act to transfer cases from the Consumer forum to theadjudicating officer under this Act.The Act also clarifies that it shall be in addition to other Acts and shall not affect in general, their area of operation.


After examining the above decisions and a plethora of other rulings on the subject matter at hand, it can be concluded that the courts are following a consumer friendly approach. All attempts are being directed towards creating a positive environment for consumers, especially the buyers, who have long been entangled in the cobweb of circumlocutory agreements. The courts are encouraging more and more of consumers to come up and raise their voice against delinquent builders who exercising their dominant position often subdue the buyers powerless voices. Now a consumer can approach a Consumer Forum, even in cases where an arbitration clause exists in an agreement. Furthermore, the Real Estate Act has not changed the scenario much. The redressal mechanism of approaching an Adjudicating Officer is in addition to other remedies available to a consumer. It does not in any manner bar the consumers right to approach Consumer courts.

However, viewed from a different perspective, decisions like these are sure to dishearten the cause of genuine builders where lapses are caused not by their deliberate oversights, but by reasons beyond their control.

Disclaimer: The views and opinions expressed in this article are derived from very limited and open source information. These should not be treated as an advice and are only for information. The client/ user may or may not utilize the same subject to their prudent discretion.