Developer’s claims outside a consumer dispute can go to arbitration despite buyer’s consumer case, Calcutta High Court rules

The parties entered into an Agreement for Sale dated 23 July 2014, later substituting the agreed plot and revising the consideration.

A dispute arose when the respondents sought a refund; the petitioner maintained that the agreement entitled it to deduct 40% as service charges, while the respondents alleged that the petitioner had cancelled the agreement and undertaken to refund the full amount.

The petitioner invoked the arbitration clause in October 2020, but the respondents did not consent to its nominated arbitrator. The petitioner filed this application under Section 11 in 2021.

During its pendency, the respondents obtained an ex parte District Consumer Commission order directing the petitioner to refund Rs. 18,41,000 with interest, compensation and costs; review was rejected, and execution was pending.

1. Whether the respondents’ election to pursue and obtain relief before the consumer forum barred appointment of an arbitrator under Section 11 for disputes arising from the agreement.

2. Whether, at the Section 11 stage, the Court could determine which claims were consumer disputes and which were independently arbitrable claims of the petitioner.

3. Whether the arbitration agreement remained enforceable despite the parties’ failure to agree on an arbitrator and the clause giving the petitioner the right to appoint one unilaterally.

Under Section 11(6A) of the Arbitration and Conciliation Act, 1996, as explained in In re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899 and SBI General Insurance Co. Ltd. v. Krish Spinning, the referral court’s inquiry is confined to the prima facie existence of the arbitration agreement and whether the Section 11 application is timely; other questions, including arbitrability, accord and satisfaction, and the effect of prior adjudication, are ordinarily for the arbitral tribunal under Section 16.

Under Emaar MGF Land Ltd. v. Aftab Singh, M. Hemalatha Devi v. B. Udayasri and Citicorp Finance (India) Ltd. v. Snehasis Nanda, a consumer’s statutory remedy cannot be defeated by an arbitration agreement, and the choice to arbitrate a consumer dispute rests with the consumer.

That protection does not extend to independent claims of a developer that the consumer forum has no jurisdiction to adjudicate.

A unilateral appointment of a sole arbitrator by an interested party is impermissible under Perkins Eastman Architects DPC v. HSCC (India) Ltd. and Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV), without invalidating the arbitration agreement itself.

The agreement and its arbitration clause were admitted, the petitioner had invoked the clause, the respondents had refused the proposed appointment, and the application was filed within time.

The Court held that the consumer-forum election protected the respondents’ consumer claims from being referred to arbitration at the petitioner’s instance.

However, the petitioner could have claims that were not consumer disputes and that the Commission could not adjudicate. Identifying those claims, and determining their overlap with the Commission’s order, required an inquiry into the claims and prior adjudication that the referral court should not undertake; those matters were left to the tribunal under Section 16.

The consumer order and its execution were expressly preserved.

The pending criminal proceedings did not, by themselves, bar arbitration of contractual civil disputes.

Because the petitioner’s unilateral appointment right could not be given effect, the Court itself appointed the arbitrator.

The tribunal was directed to make the required disclosure and fix remuneration under the Act or as agreed by the parties.

Questions concerning the claims’ merits and arbitrability were left open, but the appointment was not to suspend, dilute or affect the District Commission’s final order or its execution.