Arbitration Is The Consumer's Choice: Hon'ble Supreme Court Of India On Non-Arbitrability Of Consumer Disputes

Arbitration is often regarded as the crown jewel of commercial contracting — efficient, enforceable, and private. Global tech giants, insurance companies, banks, and e-commerce platforms routinely tuck arbitration clauses into their user agreements and service contracts. However, when such clauses are embedded in contracts with consumers, the question arises: can party autonomy override statutory consumer protections? In India, the answer is an unequivocal no.

Recently, the Hon'ble Supreme Court of India, in Citicorp Finance (India) Ltd. v. Snehasis Nanda [2025 SCC OnLine SC 594], has reiterated the position taken in M. Hemalatha Devi and Others v. B. Udayasri [(2024) 4 SCC 255] that a consumer cannot be forced into arbitration. The right to arbitrate must be freely and consciously exercised by the consumer alone. A powerful message in an era of algorithmic consent and digitally accepted clickwrap contracts.

The Clause That Keeps Coming Back

We've all seen it. A clause buried in the fine print, somewhere between pages of the Contract— "All disputes shall be resolved through final and binding arbitration under [say, ABC Rules] seated in [say, XYZ City]." A consumer may have just clicked "I Agree" to purchase a phone, download an app, or get a haircut, and unknowingly signed up for arbitration before an unknown arbitrator, possibly several time zones away.

In the commercial world, such an agreement to arbitrate is gospel. But, in the Indian consumer world, it's judicially void, unless the consumer opts otherwise.

Welfare Legislation, not a Waivable Right

In India, the Consumer Protection Act, 1986 (as amended in 2019) ("Consumer Protection Act") is a welfare legislation enacted to provide for protection of the interests of consumers and for the said purpose, establishes authorities for timely and effective administration and settlement of consumers' disputes. This statutory framework is particularly significant because, unlike commercial contracts between sophisticated entities, consumer transactions often involve an inherent inequality in bargaining power. Arbitration clauses in such contexts, especially when imposed via boilerplate terms, can function as procedural roadblocks rather than dispute resolution tools.

Indian courts in several cases as comprehensively noted in M. Hemalatha Devi (supra), have consistently recognized that:

1. The Consumer Protection Act is in addition to, not in derogation of, other laws, meaning its remedies are optional add-ons, not subordinate alternatives.
2. Consumer forums offer remedies like punitive damages or penalties, which are not available in arbitration.

Thus, consumer protection is more than just a procedural option; it is a public policy requirement that no contract can waive.

A Trail of Consistency

The Supreme Court of India has long accepted what authors on arbitration cautioned against decades ago: not all disputes are arbitrable. Certain disputes, by their very nature or statutory design, are meant to stay far away from the arbitration table. The consumer protection regime is one such domain.

In 1996, the Supreme Court of India in Fair Air Engineers (P) Ltd. v. N.K. Modi [(1996) 6 SCC 385] held that the Consumer Protection Act, provides a special statutory remedy that cannot be waived by private contract. This view was reiterated in National Seeds Corporation Ltd. v. M. Madhusudhan Reddy [(2012) 2 SCC 506], wherein the Court emphasized that statutory rights under consumer law are non-negotiable and cannot be ousted by arbitration clauses. However, the arbitration landscape in India shifted in 2015. The Arbitration and Conciliation Amendment Act 2015 ("2015 Amendment") introduced Section 8(1) of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") in a new form, directing courts to refer parties to arbitration "notwithstanding any judgment, decree or order of the Supreme Court or any court."

This change signaled a pro-arbitration push. Unsurprisingly, many corporations read this as a green light to resurrect arbitration clauses in consumer contracts — assuming that once a valid clause was found, courts had no discretion but to refer the matter to arbitration.

But the Supreme Court read it differently.

In Emaar MGF Land Ltd. v. Aftab Singh [(2019) 12 SCC 751], the Supreme Court decisively clarified that the 2015 Amendment was not intended to override legislations like the Consumer Protection Act. The Hon'ble Court relied on the decision of the National Consumer Disputes Redressal Commission ("NCDRC") in Aftab Singh v. Emaar MGF Land Ltd. [2017 SCC OnLine NCDRC 1614]. The objective of the amendment, it noted, was to reduce judicial intervention where the dispute was otherwise arbitrable, not to compel arbitration in cases governed by special public welfare statutes. The Court therefore held that a valid arbitration clause does not override statutory non-arbitrability. Consumer disputes, being grounded in public policy, are meant to be adjudicated before public fora, unless the consumer willingly agrees to arbitrate after the dispute arises.

In M. Hemalatha Devi(supra), the Supreme Court considered whether a consumer dispute could be referred to arbitration solely because the underlying contract contained an arbitration clause. The determinative factor, the Court emphasized, is not who files a Petition first under the Arbitration Act, but whether the consumer voluntarily consents to waive statutory protections. The judgment reaffirmed that consumer disputes form a special class governed by public policy and cannot be diverted to private dispute resolution mechanisms without the consumer's express choice. This view has now been carried forward in Citicorp Finance (India) Ltd. (supra), where the Supreme Court reiterated that in a consumer dispute, arbitration, if provided for under the relevant agreement/document, can be opted for/resorted to, however, at the exclusive choice of the 'consumer' alone.

India vs. The World: A Comparative Peek

While India takes a firmly protective stance, the global picture is mixed. In many jurisdictions, especially those with advanced economies having very liberal pro-arbitration regimes, courts have upheld arbitration clauses in consumer agreements, even where they appear in standard-form or non-negotiated contracts. Other legal systems, however, take a more cautious approach, subjecting such clauses to scrutiny for fairness and informed consent. (discussed, here)

1. For instance, the United States of America offers the most aggressive pro-arbitration regime. In AT&T Mobility LLC v. Concepcion, [563 U.S. 333 (2011)], the U.S. Supreme Court upheld mandatory arbitration with class-action waivers, effectively sidelining state-level consumer protections.

• According to a report published by the American Association for Justice in December 2023 titled "Forced Arbitration by Corporations Surges to Unprecedented Levels", the number of forced arbitration cases in the US skyrocketed 467% in 2022, with only a 0.7%-win rate for consumers in such forced arbitrations.

• On the other hand, under the EU Directive 93/13/EEC, arbitration clauses in consumer contracts are often presumed unfair unless individually negotiated. The Court of Justice of the European Union ("CJEU") in Elisa María Mostaza Claro v. Centro Móvil Milenium SL, [CJEU, Case C-168/05], held that domestic courts must strike down such clauses if deemed unfair, even if the consumer failed to object during arbitration. In Asturcom Telecomunicaciones SL v. Cristina Rodríguez Nogueira, [CJEU, Case C-40/08], the CJEU further clarified that courts must review the fairness of arbitration clauses ex officio and refuse enforcement of arbitral awards based on unfair terms. These rulings affirm that consumer protection under the Directive is a matter of EU public policy, overriding procedural formalities in favor of substantive fairness.

• India goes a step further: Despite the validity of the arbitration clauses, the choice to arbitrate of the consumer must be deliberate, informed, and most importantly, optional.

What India's Stand means for Global Businesses

For global tech giants, multinational corporations, insurance providers, banks, and e-commerce platforms operating in India, Supreme Court's position on consumer dispute arbitrability could necessitate a significant recalibration. Boilerplate arbitration clauses, once a go-to technique for streamlining dispute resolution across jurisdictions, are no longer adequate protection against India's public consumer fora. Such clauses, whether embedded in standard terms and conditions, digital clickwrap agreements, or service contracts, do not prohibit consumer forums from exercising jurisdiction.

This has two key implications. First, businesses must prepare to defend consumer claims in public forums, where proceedings are often more pro-consumer, and less private than arbitration. Second, there is an urgent need to reinvest in internal grievance redressal frameworks, which can offer faster, practical resolutions and reduce the likelihood of escalations to statutory fora. Going forward, compliance with Indian consumer law must be central to contract design and dispute strategy, not merely a footnote at the end of global T&Cs.

Conclusion

While party autonomy is fundamental to arbitration, in India, it is limited by consumer protection laws. In consumer disputes, arbitration clause is not binding and is valid only if the consumer voluntarily agrees to it after the dispute arises. In our view, this protective approach adopted by India reflects both principled reasoning and practical considerations. While some might suggest that this could affect India's pro-arbitration stance, we believe that such concerns may be overstated. For consumer disputes, especially in a country like India, with lower per capita income levels, arbitration may not always be the ideal forum having cost considerations and greater procedural complexity. Additionally, given the inherent imbalance in information and bargaining power between consumers and large corporations arbitration may not always serve the interest of justice effectively.