The Refusal to Refer to Statutory Arbitration: Another bump in India’s pro-arbitration stance?

*Neil Chatterjee


Recently, the Indian Supreme Court (“Court”) in Vodafone Idea Cellular Ltd. v Ajay Kumar Agarwal (“Vodafone-Idea”) once again revisited the amaranthine battle between a referral to arbitration in the face of an existing alternative statutory remedy, with, however, a slight twist – would a remedy of a statutory arbitration under Section 7B of the Indian Telegraph Act, 1885 (“Telegraph Act”) oust the jurisdiction of a consumer forum under the Consumer Protection Act, 1986 (“Act of 1986”). The Court was of the view that jurisdiction would not stand ousted, which was based on the fact that the nature of the arbitration was irrelevant to the additional remedy provided by the Act of 1986 which a consumer was entitled to opt for. In this blog, an attempt is made to explore this finding and whether statutory arbitrations require greater deference.


The Absence of a Non-Obstante “Overriding Clause”


In Vodafone-Idea, one of the bases for the Court to unsubscribe to a prior judgment of a two-judge bench of the Court in General Manager, Telecom v M. Krishnan & Anr. (“M. Krishnan”) holding that the jurisdiction under the Act of 1986 was impliedly ousted was that the Act of 1986 was a special law protecting vital consumer interests. Section 3 of the Act of 1986 was pressed into service to overrule M. Krishnan. It was further held that even if the Act of 1986 were assumed to be a general law, given the inconsistency between the Act of 1986 and the Telegraph Act (which was a special law), the later general law would prevail.


While the Act of 1986 may be a special law qua consumer disputes, in the absence of a non-obstante “overriding effect” clause in the said Act, it would operate solely “in addition to and not in derogation of” the Telegraph Act. In other words, it could not annul or detract from the provisions of the Telegraph Act. In S. Vanitha v Deputy Commissioner, Bengaluru Urban District & Ors. (“S. Vanitha”), the Court was faced with a relatively similar set of competing remedies between the Protection of Women from Domestic Violence Act, 2005, (“PWDV”) and the Maintenance and Welfare of Parents and Senior Citizens Act, 2007 (“Senior Citizens Act”). While Section 36 of the PWDV Act was similar to Section 3 of the Act of 1986 (being in addition to and not in derogation of), Section 3 of the Senior Citizens Act (a later law) was in the nature of a non-obstante “overriding effect” clause. Speaking through D.Y. Chandrachud J. (who, incidentally, also authored Vodafone-Idea), the Court was of the view that though the Senior Citizens Act was promulgated to provide a speedy and inexpensive remedy, Section 3 therein could not be interpreted such as to preclude all the competing remedies under the PWDV Act. This was solely because of the nature of the two special legislations, which requires a harmonious interpretation by analysing the dominant purpose of the said legislations.


Viewed thus, in the present case, both the Act of 1986 and the Telegraph Act would be considered special legislations and the Act of 1986 could not be read as precluding the competing remedies that are conferred by the Telegraph Act. On a broader issue of harmonization of legislations, the Court, with the utmost respect, could not simply press Section 3 of the Act of 1986 into service without examining the dominant purpose of the two legislations in question and attempting a harmonization so as to preserve the sanctity of the remedy of statutory arbitration. In fact, compared to S. Vanitha and Vodafone-Idea stands on a better footing as neither the Act of 1986 nor the Telegraph Act contain a non-obstante “overriding effect” clause that existed in S. Vanitha and therefore, the Act of 1986 could not simply annul or detract from the statutory remedy under the Telegraph Act simply on account of being a special law for consumer disputes.


Harmonization of the Two Legislations


Given the foregoing, it would be appropriate for a forum under the Act of 1986 to grant such remedies that do not result in obviating competing remedies under the Telegraph Act. For this, it would be crucial for a court to juxtapose the reliefs capable of being granted by a forum under the Act of 1986, i.e., under Section 14 therein, with the reliefs that a statutory arbitral tribunal may grant under the Telegraph Act. To the extent a relief is capable of being granted exclusively by the forum under the Act of 1986 and not the statutory tribunal, for instance, discontinuation of unfair trade practice or restrictive trade practice, desist from offering hazardous services, pay sums where injury or loss has been suffered by a larger number of consumers not conveniently identifiable and issue corrective advertisement to neutralize the effect of misleading advertisement, the Act of 1986 would prevail. However, where the dispute exclusively relates to the telegraph line, appliance, or apparatus of the person for whose benefit it is / has been provided, and the relief claimed is limited to the conditions and restrictions basis which such service is provided and the consequences thereof, it is the statutory arbitral tribunal that would exercise jurisdiction.


In a case of statutory arbitration, Parliament has consciously provided a statutory remedy that exists notwithstanding the existence of an arbitration agreement between the parties. The remedy itself acts as a mandatory arbitration agreement, which is saved by Section 2(4) of the Indian Arbitration & Conciliation Act, 1996 (“Arbitration Act”). (See, M.P. Rural Road Development Authority & Anr. v. L.G. Chaudhary Engineers & Construction (“M.P. Rural”), M.P. Rural Larger Bench Decision and PSEB, Mahipalpur v. Guru Nanak Cold Storage & Ice Factory, Mahipalpur) As a result, where the dispute falls within the scope of the Telegraph Act and the relief claimed can be granted by the statutory arbitral tribunal, the strict mandate of Section 8 of the Arbitration Act ought to be followed which requires that a reference be made to arbitration unless “prima facie no valid arbitration agreement exists” – the existence of a valid arbitration agreement in this case no longer being in contest.


Reconciling with Vidya Drolia


In fact, in Vidya Drolia v Durga Trading Corporation (“Vidya Drolia”), a coordinate bench of the Court went so far as to turn the issue from one of doctrine of election to implicit non-arbitrability. Unfortunately, Vidya Drolia was not brought to the attention of the Court in Vodafone-Idea even though it was rendered prior in time. In Vidya Drolia, the Court was of the view that a review by the courts in a Section 8 reference would be limited and restricted to protecting parties from being forced to arbitrate when a matter is demonstrably non-arbitrable and to cut off the deadwood. Consumer disputes were, as such, held inarbitrable owing to the nature of reliefs that may be granted by a consumer forum. The Court held that a consumer under the Act of 1986 could not waive its right to approach the statutory judicial forum constituted therein by opting for arbitration.


However, when juxtaposed with Vodafone-Idea where the Court states that “it would be open to a consumer to opt for the remedy of arbitration, but there is no compulsion in law to do so and it would be open to a consumer to seek recourse to the remedies which are provided under the Act of 1986, now replaced by the Act of 2019”, the aspect of implicit non-arbitrability stands surpassed. It appears that the Court acknowledges that the arbitrability of consumer disputes is not an issue – merely the prioritization of the conflicting remedies at the hands of the consumer.


In such a case, following the mandate of Vidya Drolia, a judicial authority would have no alternative but to refer the parties to statutory arbitration since the sole caveat under Section 8 of the Arbitration Act - “unless it finds that prima facie no valid arbitration agreement exists” - would not be triggered. The existence of a statutory remedy to arbitration would fulfill the caveat. Given the final finding of Vidya Drolia that “the Arbitral Tribunal is the preferred first authority to determine and decide all questions of non-arbitrability” and that “the court has been conferred power of “second look” on aspects of non-arbitrability post the award in terms of sub-clauses (i), (ii) or (iv) of Section 34(2)(a) or sub-clause (i) of Section 34(2)(b) of the Arbitration Act”, as well as that “rarely as a demurrer the court may interfere at Section 8 or 11 stage when it is manifestly and ex facie certain that the arbitration agreement is non-existent, invalid or the disputes are non-arbitrable, though the nature and facet of non-arbitrability would, to some extent, determine the level and nature of judicial scrutiny”, Section 8 of the Arbitration Act would have to be followed in letter and in spirit.


Thus, it appears that an inconsistency exists between the findings rendered in Vidya Drolia and Vodafone-Idea, which must be viewed in light of the fact that Vidya Drolia holds consumer disputes to be fundamentally inarbitrable owing to reliefs that a consumer forum can award without expounding on whether the particular reliefs can be granted by an arbitral tribunal.


Reconnecting the Dots on Special versus General law


Further, the analysis in Vodafone-Idea that the Act of 1986 is a subsequent special law, and even if assumed to be a general law, yet prevails over the prior special Telegraph Act, may not be in line with the position established by a coordinate bench of the Court in LIC v. D.J. Bahadur (“D.J. Bahadur”), which was affirmed by the Constitution Bench of the Court in Pankajakshi (Dead) through L.R. & Ors. v. Chandrika & Ors. (“Chandrika”) In D.J. Bahadur, the Court was called upon to decide whether the Life Insurance Corporation Act, 1956 (“LIC”), is a special statute qua the Industrial Disputes Act, 1947 (“IDA”) as regards a dispute pertaining to the conditions of service of the employees of the Life Insurance Corporation. The Court was of the view that while the IDA specifically relates to the industrial disputes between workmen and employers, the LIC Act is general statute silent on disputes between management and workmen. Thus, while holding that the special nature of the LIC Act qua regulating takeover of private insurance business would not be relevant to the subject-matter at hand to regard it as prevailing over the IDA, the Court framed a working test in the following words:


52. In determining whether a statute is a special or a general one, the focus must be on the principal subject matter plus the particular perspective. For certain purposes, an Act may be general and for certain other purposes it may be special, and we cannot blur distinctions when dealing with finer points of law. In law, we have a cosmos of relativity, not absolutes – so too in life.


Given the stamp of approval accorded by the Constitution Bench in Chandiraka to the above test, the reliance placed by the Court in Vodafone-Idea on Ajoy Kumar Banerjee v Union of India to consider the Act of 1986 as prevailing over the Telegraph Act simply owing to an “inconsistency” between the two legislations may not, with the utmost of respect, be consistent with precedent.


As such, for the investigation and settlement of telecom disputes relating to the telegraph line, appliance, or apparatus of the person for whose benefit it is / has been provided, the Telegraph Act is a special law. The Act of 1986 is a special law for the resolution of consumer disputes pertaining to all other services and telecom disputes of other natures given the expansive definition of “service” under the Act of 1986. In fact, even taking that telecom services stand covered under the expansive definition of “service” in the Act of 1986, as held by the Court in Vodafone-Idea to extend the reach of the Act of 1986 over telecom disputes, yet the position remains unchanged owing to the working test formulated in D.J. Bahadur. Therefore, there exists a greater need for deference to the remedy of statutory arbitration under the Telegraph Act.


Conclusion


With India’s growing support towards arbitration, especially the limited judicial review that may be exercised in Section 8 or Section 11 reference under the Arbitration Act, Vodafone-Idea poses certain issues that may require ironing out if a clear position on the limits to the country’s pro-arbitration approach is to be established, especially in light of the ruling in Vidya Drolia. On a broader issue, the de-recognition of a remedy of statutory arbitration despite the special nature of the disputes covered within the scope of such arbitration poses certain difficulties, no matter the laudable effort of recognizing the special nature of consumer rights and the remedies provided therein. Hopefully, in an appropriate case, the Court would have the opportunity to revisit some of these issues and clarify the position in law.

 

*Neil Chatterjee is an Advocate, Supreme Court of India | LL.M, MIDS-Geneva.

141 views0 comments