Now arbitration clause delaying prospects of consumer cases

After a long wait for judgment on section 12(1)(b), consumers are now made to wait endlessly for NCDRC’s larger bench judgment on Arbitration clause. Arbitration clause is a clause defined in builder buyer agreement (or any contract between 2 parties) where the builder (or any service product provider) defines a conflict management means through an arbitrator (think of it as an individual judge). A fair arbitration clause is supposed to have say of both parties in setting up an arbitrator and location for arbitration. However, especially in case of builder, like the agreement, this clause too is one sided and the sole party to form arbitrator is the builder itself in such a case. Previously, the consumer or customer could go to judiciary bypassing such arbitration clauses that have undue influence. However, on 23rd October 2015, an amendment was brought about in section 8 of the Arbitration and Conciliation Act, 1996 (under ARBITRATION AND CONCILIATION AMENDMENT ACT 2015). According to the amendment, the judiciary is supposed to refer the parties to arbitration clause first thereby implicitly blocking the option for the suffering party to directly reach courts for relief.

The amendment of section 8 of Arbitration and Conciliation Act states “(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 to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.”

Since this amendment came into force, builders have submitted applications in consumer/civil courts requesting for rejecting the case and referring them to their arbitrators. This has been opposed by consumers and consumer groups since the arbitration clause in agreements are highly in favor of builder and allows builder to choose an arbitrator and arbitration location of their choice. Consumers requested that such arbitration clauses be considered invalid. In NCDRC, cases where builder had filed such applications (citing the amendment of act), were sent for hearing by larger bench. The larger bench hearing started on 28th October last year and the hearing has been completed on 10th April this year. The judgment has been reserved and is expected to be pronounced by July, 2017.

The Chandigarh state commission has already pronounced one judgment against builder’s application for the rejection of such cases in favor of arbitration thereby indicating the consumer forum’s displeasure towards the application of arbitration amendment act to consumer cases. Go4Reviews anticipate that the court will term such arbitration clauses (usually exercised in builder buyer agreement) as a case of contract with undue influence to a single party and hence the same will be considered invalid. However, for cases where the clause seem balanced, consumers may end up losing option to approach courts as a first measure of relief and might have to end up waiting endlessly for arbitration.

There are currently 30 odd consumer cases that are lingering on this judgment. Till the judgment is pronounced though, this is another pill of harassment for consumers.

Last updated: May 16, 2017 at 13:13 pm

One thought on “Now arbitration clause delaying prospects of consumer cases

  • May 16, 2017 at 3:47 pm
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    It’s well-known that builder buyer agreements are one sided in favour of builders. Arbitration clauses built therein are also totally oblivious of the buyer’s interests. Legal system in India need to tuned properly to give equitable treatment to buyer’s. Otherwise the buyers are sooner or later likely to stop dealing with these unscrupulous builders. If it happens it will crash the realty business.

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