The Supreme Court has held that the mere presence of an arbitration clause in an agreement does not take away the jurisdiction of consumer forums to adjudicate disputes on their merits.

A Bench of Justices Vikram Nath and V. Mohana set aside concurrent orders of the District Forum, State Consumer Commission and the National Consumer Disputes Redressal Commission (NCDRC), which had referred a homebuyer’s complaint to arbitration solely because the flat purchase agreement contained an arbitration clause.

“An arbitration clause does not, by itself, oust the jurisdiction of the consumer forum,” the Court observed.

The case arose from a consumer complaint filed by a homebuyer alleging deficiency in service due to a delay in handing over possession of a residential flat. Although the District Forum had admitted the complaint and issued notice to the respondent, it subsequently referred the matter to arbitration because of the arbitration clause in the agreement.

That decision was later upheld by both the State Commission and the NCDRC, prompting the appellant to approach the Supreme Court.

Allowing the appeal, the Court relied on its earlier decision in Emaar MGF Land Ltd. v. Aftab Singh and reiterated that consumer protection laws provide an additional statutory remedy that cannot be overridden by private contractual agreements.

“The 1986 Act creates a special adjudicatory mechanism for consumer disputes. Once that mechanism is validly invoked and the complaint is admitted, the consumer cannot be driven out of that forum merely because the agreement between the parties contains an arbitration clause. A private contractual clause cannot be permitted to defeat the continued operation of a statutory remedy which Parliament has expressly made additional to other remedies under Section 3 of the 1986 Act,” the Court said.

The Bench further clarified that the existence of an arbitration clause alone is insufficient to deny a consumer access to the consumer forum.

It also highlighted that once a complaint is admitted, the consumer forum is legally required to decide it in accordance with the Consumer Protection Act. Referring to the proviso to Section 12(4) of the Consumer Protection Act, 1986, the Court noted that an admitted complaint cannot be transferred to another court, tribunal or authority established under any other law.

Accordingly, the Supreme Court allowed the appeal and directed the District Forum to adjudicate the dispute on merits, preferably within one year.

Case Title: T.K.A. Padmanabhan v. Abhiyan Cooperative Group Housing Society Ltd.