Can a Builder Force Homebuyers Into Arbitration?

Aftab Singh wanted a villa in the integrated township that Emaar MGF Land Limited was developing in District Mohali, Punjab. He submitted an application for allotment of a villa in Sector 106, Mohali. On 06.05.2008 the two sides signed a buyer's agreement. The agreement contained an arbitration clause, Clause 43, under which disputes were to be settled under the Arbitration and Conciliation Act, 1996.

On 27.07.2015, Singh filed Complaint No. 701 of 2015 before the National Consumer Disputes Redressal Commission. He sought possession of the built-up Villa No. 40, adjustment of the excess payment of Rs. 2,63,165, adjustment of the penalty at Rs. 1,500 per month for 55 months totalling Rs. 83,500, refund of the balance with interest at 18% per annum from 6.2.2010, and compensation of Rs. 20,00,000 for deficiency in service, mental agony and harassment.

The builder did not accept the complaint quietly. It filed an application under Section 8 of the Arbitration and Conciliation Act, 1996, asking the consumer forum to refer the matter to arbitration. The NCDRC's Single Member sent the question to a Larger Bench because it was both important and far-reaching. On 13.07.2017, the Larger Bench held that consumer disputes are non-arbitrable and that the arbitration clause could not circumscribe the jurisdiction of the consumer forum. On 28.08.2017, the Single Member rejected the builder's Section 8 application.

The builder then tried the Delhi High Court, which refused to entertain its appeal because it was filed in the wrong court. The builder went to the Supreme Court in Civil Appeal Nos. 23512-23513 of 2017. The Supreme Court dismissed those appeals on 13.02.2018. The builder came back with review petitions. They too were dismissed on 10.12.2018.

The builder's core excuses were these: Section 8, as amended in 2015, made reference to arbitration mandatory unless no valid arbitration agreement existed; the words "notwithstanding any judgment, decree or order" wiped out earlier Supreme Court decisions; and the Consumer Protection Act did not make consumer disputes non-arbitrable. The Supreme Court rejected every one of those arguments.

The legal deadlock came from a collision between two statutes. Section 8(1) of the Arbitration and Conciliation Act, 1996, as substituted by the 2015 amendment, says a judicial authority shall refer parties to arbitration unless it finds that no valid arbitration agreement exists. It also says this applies "notwithstanding any judgment, decree or order of the Supreme Court or any Court."

The builder argued that this language made the consumer forum a mere postbox for arbitration clauses. It said earlier decisions such as National Seeds Corporation Limited v. M. Madhusudan Reddy were dead. The homebuyer's side answered that Section 2(3) of the Arbitration Act preserves other laws that make disputes non-arbitrable, and that the Consumer Protection Act, 1986 is one such special statute.

The Consumer Protection Act is not an ordinary contract remedy. Section 3 says its provisions are in addition to, and not in derogation of, other laws. The Supreme Court had already held in Skypak Couriers Ltd. v. Tata Chemicals and Fair Air Engineering Pvt. Ltd. v. N.K. Modi that an arbitration clause is no bar to a consumer complaint. The question was whether the 2015 amendment had changed that answer. The Supreme Court said it had not.

The Supreme Court refused to read the 2015 amendment as a sledgehammer. The amendment to Section 8 was aimed at reducing judicial interference with arbitration, but it was not meant to flood the regime of special statutes where disputes were already held non-arbitrable. The words "notwithstanding any judgment, decree or order" were aimed only at earlier interpretations of Section 8's procedural conditions, not at the settled law on non-arbitrability under Section 2(3).

Two loopholes were closed. First, the 2015 amendment did not overrule the Supreme Court's earlier holdings that certain disputes are non-arbitrable, and it did not abolish the Consumer Protection Act's special remedy. Second, a consumer who actually files a complaint under the Consumer Protection Act has chosen that special remedy, so the forum cannot be forced to send the dispute to arbitration merely because the sale agreement contains an arbitration clause.

• Gather the allotment/booking letter, the fully signed buyer agreement with the arbitration clause, all payment receipts, bank statements, demand letters for possession or refund, and any correspondence showing delay, deficiency, or harassment.
• File the complaint before the appropriate consumer forum under the Consumer Protection Act, 1986, namely the District Commission, State Commission, or NCDRC, and specifically plead deficiency in service, excess payment, penalty, interest, and compensation.
• If the builder files an application under Section 8 of the Arbitration and Conciliation Act, 1996, oppose it by relying on Emaar MGF Land Ltd. v. Aftab Singh and National Seeds Corporation Ltd. v. M. Madhusudan Reddy; argue that you have chosen the special consumer remedy and the forum cannot be forced to refer the dispute to arbitration.
• Do not make the mistake of assuming an arbitration clause automatically ousts the consumer forum. The Supreme Court closed that loophole; the consumer complaint can proceed even though the agreement contains an arbitration clause.