The Calcutta High Court clarified the limited scope of a referral court's inquiry under Section 11(6A) of the Arbitration and Conciliation Act, 1996, holding that while consumer forums' orders bind parties regarding consumer disputes, developers may still refer their independent contractual claims to arbitration. The Court emphasized that the consumer's election of statutory remedy does not oust arbitration for non-consumer disputes arising from the same transaction, reinforcing the principle that arbitral tribunals must determine arbitrability.
Background & Facts
The Transaction and Agreement
The petitioner, Leisure Country Club and Resorts Private Limited (a developer), entered into an Agreement for Sale dated 23.07.2014 with the respondents, Asim Kumar Ray and another (purchasers), for Plot No. B-42 measuring approximately 5 cottahs 5 chittacks 15 sq. ft. situated at Mouza Dharsa Moktarpur, District North 24 Parganas. The total consideration was Rs. 42,50,000/-, with Rs. 23,00,000/- paid at execution and the balance payable in monthly instalments. The agreement contained Clause 7 providing for refund of the deposited amount subject to deduction of 40% towards service charges, and Clause 18 containing an arbitration clause granting the petitioner the right to appoint the sole arbitrator.
The Substitution and Payment
Subsequently, the parties agreed to substitute the original plot with a plot situated at Mouza Jagadishpur under R.S. and L.R. Dag No. 1106, measuring approximately 6 cottahs 6 chittacks 30 sq. ft., and the consideration was revised to Rs. 43,31,250/-. The petitioner claims the substitution was made at the respondents' request, while the respondents contend the petitioner was unable to transfer the original plot. According to the petitioner, the respondents paid the entire revised consideration of Rs. 43,31,250/- in instalments between July 2014 and November 2017. The respondents also deposited Rs. 5,98,475/- towards stamp duty and registration charges on the petitioner's advice.
The Dispute and Proceedings
In or about November 2018, after payment of registration charges, the respondents declined to proceed with the transaction on the ground that the substituted plot was situated within a Government declared planning area and sought a refund of the amount paid. The petitioner states it refunded Rs. 19,90,250/- to the respondents between 09.11.2018 and 08.06.2020. The respondents, however, allege that the petitioner informed them its title to the substituted plot was doubtful and that it was unable to register the plot or deliver possession, further contending that by an email dated 09.11.2018, the petitioner unilaterally cancelled the agreement and offered to refund the entire amount in instalments.
Procedural History
- 09.11.2018: Email allegedly sent by petitioner accepting cancellation and offering refund (respondents' contention)
- January 2020: Respondents initiated criminal proceedings by filing complaint under Section 156(3) CrPC before CJM, Barasat
- 06.02.2020: Rajarhat Police Station Case No. 47 of 2020 registered
- 18.08.2020: Interim protection granted subject to deposit of Rs. 5,00,000/- (anticipatory bail proceedings)
- 15.09.2020: Anticipatory bail granted upon compliance with stipulated conditions
- 05.10.2020: Petitioner invoked arbitration clause via letter nominating Mr. Anjan Chakraborty as sole arbitrator
- 05.11.2020: Respondents declined consent to proposed arbitrator appointment
- 2021: Present application (AP 406 of 2021) filed before High Court seeking appointment of arbitrator under Section 11(6)
- 22.04.2025: District Consumer Disputes Redressal Commission, North 24 Parganas, Barasat passed final order in C.C. No. 245 of 2022 directing refund of Rs. 18,41,000/- with 9% interest, Rs. 50,000 compensation, Rs. 5,000 costs
- 15.09.2025: Petitioner's review application rejected by reasoned order
- 15.10.2026: Judgment delivered in present application
Relief Sought
The petitioner sought appointment of a sole arbitrator to adjudicate disputes arising out of the Agreement for Sale dated 23.07.2014, together with consequential reliefs. The respondents opposed the application on grounds of settlement via emails, consumer forum adjudication, election of statutory remedy, and pending criminal proceedings.
The Legal Issue
The central question was whether, in an application under Section 11 of the Arbitration and Conciliation Act, 1996, the referral court could refuse to appoint an arbitrator on the ground that the respondents, as consumers, had pursued their remedy before the District Consumer Disputes Redressal Commission and obtained a final order there, particularly when the dispute potentially contained elements independent of the consumers' grievances.
Arguments Presented
For the Petitioner
The petitioner contended that an arbitration agreement validly existed under Clause 18 of the Agreement for Sale, which had been invoked via letter dated 05.10.2020, and the respondents' failure to consent to the proposed arbitrator satisfied the precondition for recourse to Section 11(6). It argued that the application was filed within time (2021, well within three years of invocation and refusal) and that the referral court's inquiry under Section 11(6A) was confined to examining the prima facie existence of the arbitration agreement and timeliness of the application, per In re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899 (2024) 6 SCC 1 and SBI General Insurance Co. Ltd. v. Krish Spinning (2024 INSC 532). The petitioner maintained that the respondents' pursuit of consumer forum remedies did not affect the arbitrability of its independent claims, which were not consumer disputes, and relied on M. Hemalatha Devi v. B. Udayasri (2024) 4 SCC 255 to assert that consumer disputes are not arbitrable only when the consumer elects the statutory remedy, but this protection does not extend to claims of the developer which are not consumer disputes.
For the Respondents
The respondents argued that the dispute had been settled via emails dated 18.11.2017, 09.11.2018, and 10.12.2018, wherein the petitioner allegedly accepted cancellation and undertook to refund the deposited amount with simple interest. They contended that the District Consumer Forum had already adjudicated the matter via its final order dated 22.04.2025 in C.C. No. 245 of 2022, which had attained finality after rejection of the petitioner's review application on 15.09.2025, and that execution proceedings were pending. The respondents asserted that as consumers, they had elected the statutory consumer remedy under the Consumer Protection Act, 1986, rendering the dispute non-arbitrable, and relied on T.K.A. Padmanabhan v. Abhiyan Cooperative Group Housing Society Ltd. (2026 SCC OnLine SC 1160) and Cicily Kallarackal v. Vehicle Factory (2012) 8 SCC 524 to argue that the existence of an arbitration clause does not oust the jurisdiction of consumer fora. They further highlighted the pendency of criminal proceedings (Rajarhat PS Case No. 47/2020) as a ground to oust arbitration.
The Court's Analysis
The Court began by noting that Section 11(6A) of the Arbitration and Conciliation Act, 1996, inserted by Act 3 of 2016 with effect from 23.10.2015, mandates that the Supreme Court or High Court, while considering an application under sub-sections (4), (5) or (6), shall, notwithstanding any judgment, decree or order of any court, confine itself to the examination of the existence of an arbitration agreement. This gives effect to Section 16, under which the arbitral tribunal may rule on its own jurisdiction. The Court then examined the evolution of jurisprudence post-In re: Interplay (supra). It held that following the seven-Judge Constitution Bench decision in In re: Interplay (supra) and the three-Judge Bench in SBI General Insurance Co. Ltd. v. Krish Spinning (supra), the legal position is that the referral court must confine itself to examining whether an arbitration agreement exists and whether the application under Section 11 has been filed within the period of limitation applicable to it. All other questions, including the arbitrability of the disputes, are ordinarily to be left to the arbitral tribunal under Section 16 of the Act.
The Court specifically addressed the respondents' contention that their recourse to the consumer forum ousted arbitration. It drew a critical distinction between two classes of disputes arising from the agreement: (i) consumer disputes comprising the respondents' grievances which they were entitled to and did agitate before the District Commission; and (ii) claims of the petitioner which are not consumer disputes. The Court held that while consumer disputes cannot be referred to arbitration at the petitioner's instance where the consumer has elected the statutory remedy (relying on Emaar MGF Land Ltd. v. Aftab Singh (2019) 12 SCC 751, M. Hemalatha Devi (supra), and Citicorp Finance (India) Ltd. v. Snehasis Nanda (2025 SCC OnLine SC 594)), the latter class of claims - the petitioner's independent claims - remain arbitrable. It emphasized that the consumer's statutory protection under Section 3 of the Consumer Protection Act, 1986 (and corresponding Section 100 of the Consumer Protection Act, 2019) is a shield for the consumer's claims and does not immunize the consumer against independent claims of the other party which no consumer forum can adjudicate. The Court further held that the question of whether a particular dispute is a consumer dispute falling within the consumers' election or a claim of the petitioner that may be arbitrated is a question of arbitrability for the arbitral tribunal under Section 16, to be decided in accordance with the principle in Emaar MGF Land Ltd. (supra), M. Hemalatha Devi (supra), and Citicorp (supra), which prohibits the tribunal from adjudicating any consumer dispute falling within the respondents' election.
The Court found that the arbitration agreement in Clause 18 existed and had been validly invoked, the parties had failed to agree on an arbitrator despite the petitioner's nomination, and the application was filed within time (2021, well within three years of the invocation and refusal). It concluded that the respondents' objections - whether based on alleged settlement via emails, consumer forum adjudication, election of statutory remedy, or pending criminal proceedings - went beyond the existence of the arbitration agreement and timeliness of the application, and therefore were matters for the arbitral tribunal to examine in determining which disputes were consumer disputes within the respondents' election and whether any claim of the petitioner was barred by res judicata or other grounds. The Court expressly clarified that its order would not suspend, dilute, or affect the final order dated 22.04.2025 passed by the District Consumer Disputes Redressal Commission or the petitioner's obligations thereunder.
The Verdict
The petitioner succeeded in part. The Court held that an arbitration agreement exists between the parties and has been validly invoked; the parties have failed to agree on an arbitrator; the application under Section 11(6) is within time; and the respondents' objections, insofar as they go beyond the existence of the arbitration agreement and timeliness of the application, are matters for the arbitral tribunal and do not justify refusal of the appointment. Accordingly, Mr. Sankar Prashad Dalapati, Advocate (Mob. No. 9836074135) is appointed as the Sole Arbitrator to adjudicate the disputes between the parties (other than consumer disputes) arising out of the Agreement for Sale dated 23.07.2014. The learned Sole Arbitrator shall enter upon the reference after making the disclosure in terms of Section 12(1) of the Act and subject to the provisions of Section 12(5) thereof, and shall fix his remuneration in terms of the Fourth Schedule of the Act or as may be agreed between the parties. It is clarified that all questions relating to the merits of the claims and counterclaims, including limitation, quantum, liability and any claim relating to the Agreement for Sale dated 23.07.2014, are left open to be decided by the learned Arbitrator in accordance with law. No order as to costs was passed.
What This Means For Similar Cases
Arbitration Agreements Survive Consumer Forum Orders for Non-Consumer Claims
This judgment establishes that a consumer forum's final order does not automatically oust arbitration for all disputes arising from a transaction. Developers retain the right to refer their independent contractual claims - such as claims for payment of balance consideration or damages for breach unrelated to the consumers' grievances - to arbitration, even after consumers have pursued statutory remedies. Practitioners must now carefully bifurcate disputes: consumer complaints (e.g., deficiency in service, unfair trade practice) remain within the consumer forum's purview where the consumer has elected that remedy, but developers' standalone claims (e.g., recovery of unpaid sale price, compensation for losses not tied to consumer status) are referable to arbitration. This prevents consumers from using statutory forums as a shield to defeat developers' legitimate contractual rights.
Referral Courts Must Limit Inquiry Under Section 11(6A)
The judgment reinforces that referral courts under Section 11(6A) cannot delve into the merits, arbitrability, or extrinsic facts surrounding the dispute. Their inquiry is strictly confined to: (1) whether a valid arbitration agreement exists; and (2) whether the Section 11 application is filed within the applicable limitation period. Questions of settlement, res judicata from consumer forum orders, or the nature of the dispute (consumer vs. non-consumer) are expressly reserved for the arbitral tribunal under Section 16. This curtails premature judicial interference and aligns with the policy of minimal court intervention in arbitration matters, ensuring that tribunals - not courts - determine the scope of arbitrable claims.
Arbitral Tribunals Determine Arbitrability Post-Election
The arbitral tribunal bears the responsibility of deciding which disputes are consumer disputes falling within the consumers' election of statutory remedy and which are independent claims of the developer that may be arbitrated. Tribunals must apply the principle from Emaar MGF Land Ltd. (supra), M. Hemalatha Devi (supra), and Citicorp (supra): they cannot adjudicate any consumer dispute where the consumer has opted for the statutory remedy, but they must hear and decide the developer's non-consumer claims. This requires tribunals to scrutinize the pleadings and evidence to demarcate the boundary between consumer-related grievances (e.g., allegations of defective possession tied to consumer status) and developer-specific claims (e.g., non-payment of sale consideration), ensuring that statutory consumer protections are not overextended to defeat arbitration agreements for legitimate commercial disputes.
Newsletter Block
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