The Supreme Court of India has reaffirmed that the presence of an arbitration clause in an agreement does not override a consumer’s right to seek redressal in a consumer forum. The ruling, delivered in the case of Citicorp Finance (India) Limited v. Snehasis Nanda, emphasizes that arbitration cannot be imposed on a consumer against their will.A bench comprising Justice Sudhanshu Dhulia and Justice Ahsanuddin Amanullah observed that a consumer retains the exclusive right to decide whether to pursue arbitration or approach the Consumer Forum for resolution of disputes. The court reiterated:
"A party to a dispute cannot be compelled to resort to arbitration merely because it is mentioned in the contract."
This ruling aligns with previous judgments, including M. Hemalatha Devi v. B. Udayasri (2024) and Emaar MGF Land Ltd. v. Aftab Singh (2019), which established that consumer disputes are inherently non-arbitrable unless the consumer explicitly chooses arbitration.
Read Also:- Supreme Court Clarifies 'Consumer' Definition: No Relief Without Privity of Contract
Case Background
The case originated from a financial dispute involving a tripartite agreement. The complainant, Snehasis Nanda, had purchased a flat with a housing loan of Rs. 17,64,644 from ICICI Bank. Later, Mubarak Vahid Patel, a borrower, sought to buy the flat for Rs. 32,00,000. A loan agreement was executed between Patel and Citicorp Finance for Rs. 23,40,000.
Since the flat was already mortgaged with ICICI Bank, Patel requested Citicorp Finance to disburse Rs. 17,80,000 directly to ICICI Bank for loan clearance. However, Nanda alleged that Citicorp Finance failed to pay the balance sale consideration of Rs. 13,20,000, prompting him to file a consumer complaint with the National Consumer Disputes Redressal Commission (NCDRC).
The NCDRC ruled in favor of Nanda, directing Citicorp Finance to refund Rs. 13,20,000 with an annual interest of 12% and Rs. 1,00,000 as litigation costs. Citicorp Finance challenged the decision in the Supreme Court, arguing:
- Nanda was not a ‘consumer’ under the Consumer Protection Act.
- The alleged tripartite agreement was not valid, and the arbitration clause should apply.
- The borrower was a necessary party and should have been included in the proceedings.
The Supreme Court, however, upheld the NCDRC ruling, emphasizing that the choice of forum rests with the consumer.
Key Observations by the Supreme Court
Consumer Protection Takes Precedence:“The Consumer Protection Act is a welfare legislation designed to safeguard consumer interests, making disputes non-arbitrable unless the consumer willingly opts for arbitration.”
Lack of Privity of Contract Between Citicorp and Nanda: The court found that there was no direct contractual obligation for Citicorp Finance to pay the remaining amount to Nanda, as the agreement was primarily between Nanda and Patel.
Burden of Proof on the Consumer: The complainant must establish the existence of an agreement imposing liability on the financial institution. In this case, the purported tripartite agreement was disputed and lacked sufficient proof.
Right to Public Redressal Over Private Arbitration: The court reaffirmed that consumer disputes should be adjudicated in public forums unless the consumer explicitly opts for arbitration.
The Supreme Court ultimately ruled in favor of Citicorp Finance, setting aside the NCDRC’s order. The court held:
“As the appellant is not a consumer under the Act and the existence of the Tripartite Agreement is doubtful, the arbitration clause cannot be enforced against the consumer.”
Also From Judgment: Supreme Court Clarifies 'Consumer' Definition: No Relief Without Privity of Contract
Case Title: M/S CITICORP FINANCE (INDIA) LIMITED VERSUS SNEHASIS NANDA
