Updated: Jul 31
The Procedure of Arbitration In Consumer Disputes
About the Author:
Final Year Student B.B.A LL.B.,
New Law College, BVP, Pune
India is a socialist country, therefore, aims to arrive at a balance wherein all the parties have equal opportunities and no party exercises a dominant position over the other. Indian legislation, therefore, provides for the Consumer Protection Act, 1986 which has been repealed by the newly enforced Consumer Protection Act, 2019 on 20th July 2020. The Indian legislation at every stage prefers to uphold the principle of the consumer being the king of the market. Arbitration on the other hand as a means of dispute resolution is being opted by various parties around the world for speedier and cheaper settlement. But is arbitration worth it in resolving disputes when the remedy to seek redressal from consumer commissions is available to the parties? And what are the laws provided by other nations related to the same and how are Indian laws in comparison to them?
Consumer Protection Act, 1986
The long title of the Act says that an Act to provide for better protection of the interests of consumers and for that purpose to make provision for the establishment of consumer councils and other authorities for the settlement of consumer disputes and for matters connected therewith which means that there were remedies that were available to the consumer even before the specialized consumer act was passed.
Sections facilitating arbitration
Section 3 of the Act provision provides that the Act is not in derogation to any other law and merely aims to provide a supplementary remedy. In simpler words, the Act will provide an additional remedy for any other remedy that is available to the parties like arbitration proceedings, approaching the civil courts, outside court settlement etc. Additionally, the Act will not be disparaging to any other existing law.
Two rules of interpretation are followed while deciding what law will prevail over the other:
· Special law V. general law: the law which is a special law will prevail over a general law.
· Latter law will have an overriding effect: this means that the law which came into force later will prevail.
Rules under Arbitration and Conciliation Act, 1996
The Arbitration and Conciliation Act, 1996 laid down rules and procedures for arbitration and conciliation.
Section 8 provides that a judicial authority shall, based on the arbitration agreement between the parties, refers to the arbitration case. It also lays down precedent based upon which the reference must be made.
1. Whether the dispute can be made applicable to a civil dispute. However, further details were provided by the Supreme Court in the case of H. Srinivas Pai and Anr. v. H.V. Pai (D) thr. L.Rs. and Ors, the court held that the same provisions apply to domestic arbitration, international commercial arbitrations, and conciliations. The important point to be considered is whether there is an arbitration agreement, if yes then the reference can be made in non-commercial civil disputes also.
2. There must exist an arbitration agreement between the parties as per section 7 of the Arbitration and Conciliation Act, 1996 and then the reference must be made by the courts. The same was held by the apex court in Smt. Kalpana Kothari v. Smt. Sudha Yadav and ors.
3. Concerning the disputability of arbitration clause, the Supreme Court held in the case India Household and Healthcare Ltd. v. LG Household and Healthcare Ltd , that the court should interpret the agreement in such a manner to uphold the validity of the agreement.
4. The subject matter of the matter in court must be the same as the subject matter of dispute mentioned in the arbitration agreement.
5. The application made under section 8 of the Act for reference of the matter to arbitration must be accompanied by an original arbitration agreement or certified copy of the same.
From the above discussion, it can be inferred that if the consumer and the manufacturer/seller have entered into an arbitration agreement/ arbitration clause then the same could be referred by the court for arbitration.
However, in the case of Booz Allen and Hamilton Inc. vs. SBI Home Finance Limited and others, the Supreme Court held that section 8 cannot be given very expansive meaning and it was never the intention to completely oust the remedies available under special legislations.
Consumer Protection Act, 2019
This new legislation is enforced to make consumers more powerful. The bill to repeal the 1986 Act was passed by the parliament on 6th August 2019 and received the assent of the president on 9th August 2019. As notified by the central government the Act will be in force from 20th July 2020. This Act seeks to address the entire lacuna in the 1986 Act and is the most celebrated Act as it provides more power and protection to the consumers.
The Act is passed to keep up with the changes brought because of E-commerce which the previous Act failed to address. The Act provides rules and regulations for E-commerce which were not provided under the previous Act. The purpose of this Act is to protect the right and interests of the consumers by establishing authorities for effective settlement of consumer disputes.
Section 100 of the Act is similar to section 3 of the 1986 Act.
Mediation provision under the new Act
The new Act introduced mediation as a statutory provision under the act which means that a mediation cell will be attached in the district, state as well as national consumer forum. This implies that the parties would first be asked to mediate their dispute and if settlement or part-settlement is reached at then it would be passed as order or attached with the order of the commission respectively.
This is a step towards inculcating ADR practices by the court and the legislations and making the procedures easier for the parties and putting fewer burdens on the courts at the same time.
Skypay couriers Ltd V. Tata Chemical Ltd., the Supreme court held that even though there exists an arbitration agreement or clause, the complainant is not barred from seeking redressal for any deficiency of services from consumer forum constituted under Consumer Protection Act, 1986.
Kishore Lal V. chairman, Employees State Insurance Corporation , the Apex Court held that the jurisdiction of the consumer forum should not and would not be curtailed unless there is an express provision prohibiting the consumer forum to take up the matter which falls within the jurisdiction of civil court or any other forum as established under some enactment.
Arbitration V. consumer commission
· Cheaper: the ADR techniques are chosen by the parties for its low cost but arbitration is a costlier process and the stronger party can take advantage of its power in arbitration or the consumer may not be able to afford the cost of the arbitrator which is usually very high.
· Independence and impartiality: the consumer usually does not opt for the arbitration process because they think that the arbitrator will be influenced by the dominant position of the seller/manufacturer. But section 12 of the Arbitration Act and schedule 3 and 5 of the Act strictly provides for impartiality and independence of the arbitrator.
· Speedier resolution: earlier the consumer commission used to resolve cases taking on an average 4-5 years but now with the mediation cell attached to the commission, consumers can expect a faster resolution. Also, section 29A of the Arbitration Act provides for the time limit of 18 months under which the case must be resolved in case of domestic Arbitration.
· Representation: in arbitration proceedings, the consumer is required to be represented by a counsel whereas in consumer commissions the consumer can fight his case thereby making it cheaper and easier.
Autonomy exercised by the consumers internationally
Most of the laws of India are borrowed from different countries, that is why it becomes pertinent to look at the state of consumer laws of other countries.
Section 91 of the Arbitration Act, 1996 along with Unfair Terms in Consumer Contracts Regulations 1999, in the UK provides that if the claim amount of any arbitration agreement that does not exceed £5,000 will be considered unfair and non-arbitrable. Also, as per section 91 of the Arbitration Act,1996 a compulsory arbitration clause with claim amount less than £5,000 will be legally ineffective and parties have a right to choose between arbitration and other means of resolving the dispute. Previously mentioned steps are inculcated to provide greater autonomy to the consumers against misleading and malicious acts of the manufacturers and sellers. The unfair terms in Consumer Contract Regulation, 1999 specifically defines unfair terms and injunctions to prevent such unfair terms.
Directive 93/13 on Unfair Terms in Consumer Contracts provides under Article 3 that if any contractual agreement has not been individually negotiated will be regarded as unfair. Article 6-8 of this directive provides that all member states must abide by this directive and provide for remedies to consumers and prevent such unfair practices. The consumer also has the choice of whether he/she wants to arbitrate the matter or not.
Uber Technologies Inc. V. Heller
The Canadian Supreme Court held that the inequality in the bargaining power of parties can make a contract unenforceable. Improvident bargain could be easily identified by the court which made it incapable to maintain equal bargaining power amongst the parties. The standard arbitration agreement required dispute resolution through ICC rules which Heller was incapable to afford, this clearly emphasis the undue power exercised by Uber technologies against Heller.
Federal Trade Commission is an independent body that works primarily for the protection of consumer interests and rights. FTC is a body that acts as a watchdog for all the unfair practices taking place against the consumers. It has both jurisdictions to initiate cases against the offenders and punish them. The FTC can make recommendations to the legislature for any shortcomings in the law. It is a central body that has its regional offices across the country.
The FTC in 2012 alleged Facebook for deceiving the customers by taking their private information for advertising purposes rather than using it for security reasons. The FTC imposed $5 billion penalties on Facebook and asked Facebook that it must take the consent of the customers before sharing their information.
Chapter III of the 2019 act provides for the establishment of the Central Consumer Protection Authority (CCPA), which is very similar to the FTC in the US. CCPA is a central regulatory body with its primary purpose to regulate, protect, and enforce consumer rights. It majorly deals with matters relating to a class of consumers, unfair trade practices, and a misleading advertisement. In India, there was no law or body which could address the issue of misleading advertisement without any suffering caused to any consumer. The CCPA is backed with many powers which are as follows:
1. The CCPA could initiate the proceeding against any manufacturer, seller, service provider, advertiser, or advertising agency on any complaint received from the consumer, suo-moto, or directions from the central government.
2. If the prima facie case is proved, then CCPA has the power to inquire, investigate, search, and seizure and can pass orders.
3. The CCPA can make recommendations to the legislature for any shortcomings in the current law.
4. The CCPA is empowered to punish the offender with the injunction, compensation, and complete withdrawal of good from the market.
5. The CCPA can impose a penalty for misleading advertisements as well as on the endorser.
The Consumer Protection Act, 2019 addresses Unfair terms under section 49(2) and 59(2) due to which the state commission and the national commission can render any contract to be null and void if such terms can be identified in such agreement.
The Indian legislation seeks to strike a balance so that no dominant position is exercised by any party. Seeking redressal from the consumer commission is available to the parties even if there exists an arbitration agreement. It is possible to resolve a consumer dispute through arbitration but the consumer protection Act will not fail to govern the same. India is coming at par with other nations in providing maximum protection to the consumers and the introduction of CCPA is a big step towards achieving it.
Disclaimer: Kindly note that the views and opinions expressed above are of the author, and not Law Colloquy.
(2010) 12 SCC 521 (2002) 1 SCC 203 (2007) 5 SCC 510 (2011) 5 SCC 532 Appeal (civil) 2500 of 1994 (2007) 4 SCC 579 ONGC Petro Additions Limited V. Ferns Construction Co. Inc, OMP(MISC) (COMM) 256/2019, I.A. 4989/2020 2020 SCC 16 https://www.ftc.gov/news-events/press-releases/2012/08/ftc-approves-final-settlement-facebook