Consumer’s forum rights vs. Developers contractual remedies under arbitration: an overview

By – Amisha Rathaur and Riya Parihar

Table of Contents

Introduction

The decision of the Calcutta High Court in Leisure Country Club and Resorts Private Limited v. Asim Kumar Ray and Another, AP 406 of 2021, decided on 15 October 2026, examines the relationship between contractual arbitration and the statutory remedies available to consumers. The judgment addresses a significant question: whether the purchasers’ subsequent election to pursue consumer proceedings, culminating in a final order, precluded the developer from pursuing its pending application under Section 11 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) in respect of its independent contractual claims.
The Court allowed the application under Section 11(6) of the Arbitration  Act, appointing a sole arbitrator to adjudicate disputes other than consumer disputes. The decision is particularly significant for its distinction between the consumer’s statutory protection and the contractual rights of the opposing party.

Factual Background and Issues

The dispute arose from an agreement for sale dated 23.07.2014, under which Leisure Country Club and Resorts Private Limited agreed to sell a plot of land to the respondents for ₹42,50,000. Following disputes concerning the original plot, the parties substituted another plot and revised the consideration to Rs. 43,31,250/- which the respondents allegedly paid in full.

The parties subsequently disagreed over the circumstances surrounding the cancellation of the agreement and the amount to be refunded. The petitioner relied upon a contractual provision permitting a 40% deduction towards service charges, whereas the respondents maintained that the petitioner had agreed to refund the entire consideration.

The respondents initiated criminal proceedings and subsequently obtained an ex parte order from the District Consumer Disputes Redressal Commission, North 24 Parganas, directing the petitioner to refund ₹18,41,000 with interest, compensation and costs. The petitioner’s review application was rejected, and execution proceedings remained pending.

Against this background, the principal issue before the Calcutta High Court was whether the consumer proceedings and the final order prevented the petitioner from invoking the arbitration agreement to pursue its own contractual claims.

The Scope of Judicial Intervention under Section 11

The Court commenced its analysis by examining the limited jurisdiction of a referral court under Section 11(6A) of the Arbitration Act. The provision confines the court’s examination to the existence of an arbitration agreement, reflecting the principle of minimal judicial intervention and the competence of the arbitral tribunal to determine its own jurisdiction under Section 16 of the Arbitration Act.

Section 11(6A) of the Arbitration and Conciliation Act, 1996, directs the referral court, while considering an application under Section 11(4), 11(5) or 11(6), to confine its examination to the existence of an arbitration agreement. Section 11(6), in turn, provides the statutory mechanism for securing the appointment of an arbitrator where the agreed appointment procedure fails. Read together, these provisions explain the limited role of the referral court and the statutory basis for appointing an arbitrator.

In re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899, the Supreme Court emphasised that the referral court’s inquiry must remain confined to the existence of an arbitration agreement. This approach was subsequently applied in SBI General Insurance Co. Ltd. v. Krish Spinning, wherein the Supreme Court clarified that questions concerning the arbitrability of disputes and pleas of accord and satisfaction should ordinarily be determined by the arbitral tribunal.

The Calcutta High Court accordingly held that the existence of an arbitration agreement and the limitation applicable to the Section 11 application were matters for the referral court. Other questions, including whether particular claims were barred by the consumer proceedings, were to be considered by the arbitral tribunal.

The distinction is important because the existence of an arbitration agreement does not necessarily establish that every dispute arising under the contract is arbitrable.

Consumer Protection and the Right of Election

The central legal principle in the judgment concerns the consumer’s right to elect between arbitration and the statutory consumer remedy.

In Emaar MGF Land Ltd. v. Aftab Singh, the Supreme Court held that an arbitration agreement does not compel a consumer to abandon the statutory remedy available under consumer protection legislation. The decision recognises that the consumer’s statutory remedy is additional to other remedies and cannot be defeated merely because the parties have agreed to arbitration.

The principle was subsequently affirmed in M. Hemalatha Devi v. B. Udayasri, where the Supreme Court held that the choice of forum belongs to the consumer and not to the developer. The Court further clarified that the nature of the dispute, rather than the identity of the party who first approached a forum, determines the appropriate remedy.

The Calcutta High Court recognised that these decisions protected the respondents’ right to pursue their consumer claims before the District Commission. However, it distinguished the consumer’s grievance from the developer’s independent contractual claims. Being a developer, it could neither institute a consumer complaint nor seek relief against the respondents by way of a counterclaim before the District Commission. Consequently, the consumer proceedings could not necessarily determine every independent contractual claim available to the petitioner.

The Court reasoned that extending the consumer’s election to all disputes arising under the agreement would effectively render the arbitration agreement unilateral. The consumer would retain the statutory remedy, while the developer would be deprived of the contractual forum even for claims that the consumer forum had no jurisdiction to adjudicate.

The judgment therefore adopts a distinction between consumer disputes, which cannot be referred to arbitration at the developer’s instance, and independent contractual claims, which may remain arbitrable.

Arbitrability and the Competence of the Arbitral Tribunal

The Court identified the classification of disputes as a question of arbitrability. Determining whether a particular claim falls within the consumer’s election or constitutes an independent contractual claim requires examination of the pleadings, the findings of the Consumer Commission and the nature of the relief sought.

Such an examination would require the referral court to undertake a factual inquiry beyond the limited scope of Section 11(6A) of the Arbitration Act. Accordingly, the Court held that the arbitral tribunal must determine which claims are arbitrable under Section 16 of the Arbitration Act. The distinction must nevertheless be drawn with care. Section 16(1) of the Arbitration Act empowers the tribunal to rule on its jurisdiction, while Section 16(3) specifically contemplates an objection that the tribunal is exceeding the scope of its authority. These provisions support the Calcutta High Court’s decision to leave the classification of the developer’s claims to the tribunal at the appropriate stage. In doing so, the tribunal must respect the consumer’s election and refrain from adjudicating consumer disputes already pursued before the statutory forum. The Court also clarified that the pendency of criminal proceedings arising out of the same transaction does not, by itself, exclude civil disputes arising under the contract from arbitration.

The judgment also clarifies that the arbitration proceedings cannot operate as a substitute for the statutory appeal against the Consumer Commission’s order. The final order and its execution remain unaffected by the appointment of an arbitrator. The Court, however, left it open to the arbitral tribunal to determine whether, and to what extent, the order passed by the Consumer Commission would bind the parties in the arbitral proceedings by way of res judicata, issue estoppel or otherwise.

Unilateral Appointment and the Final Decision

The Court additionally considered the arbitration clause, which permitted the petitioner to appoint the sole arbitrator. Relying upon Perkins Eastman Architects DPC v. HSCC (India) Ltd. and Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV), the Calcutta High Court held that the unilateral appointment mechanism could not be given effect.

The statutory framework governing the eligibility of arbitrators is contained in Section 12(5) of the Arbitration Act, read with the Seventh Schedule. Section 12(5) renders a person falling within the specified relationships ineligible to be appointed as an arbitrator, notwithstanding any prior agreement to the contrary, unless the parties waive the ineligibility by an express agreement in writing made after disputes have arisen. In Perkins Eastman (Supra), the Supreme Court held that a person who is himself ineligible to act as arbitrator cannot retain the exclusive authority to nominate the sole arbitrator. The decision thus addresses the neutrality of the appointment process, rather than the existence of the parties’ underlying agreement to arbitrate. The statutory appointment power under Section 11 can consequently be used to secure an independent appointment without necessarily invalidating the arbitration agreement itself.

However, the invalidity of the appointment mechanism did not invalidate the arbitration agreement itself. The Calcutta High Court therefore appointed an independent sole arbitrator under Section 11(6) of the Arbitration Act. The application was allowed subject to the express exclusion of consumer disputes. The Calcutta High Court further clarified that questions concerning limitation, quantum, liability and the merits of the claims and counterclaims remained open for determination by the arbitral tribunal.

Conclusion

The judgment in Leisure Country Club (Supra) provides an important clarification of the relationship between contractual arbitration and statutory consumer remedies. Its principal contribution lies in distinguishing the consumer’s right to elect a statutory forum from the independent contractual rights of the opposing party. The decision does not permit arbitration to undermine a consumer order or reopen a dispute already adjudicated by a competent statutory forum. Instead, it preserves the possibility of arbitration for claims that fall outside the consumer forum’s jurisdiction. The judgment thus reinforces the principle that arbitrability must be assessed with reference to the nature of the particular dispute and the relief sought. By leaving the classification of claims to the arbitral tribunal, the Court also maintains the statutory limits of referral jurisdiction while preserving the distinction between consumer protection and contractual adjudication.

Viewed through the statutory framework, the decision brings together three complementary principles: Section 11(6A) limits the referral court’s inquiry to the existence of the arbitration agreement; Section 16 places questions concerning jurisdiction and objections regarding the scope of the arbitral tribunal’s authority before the tribunal in the first instance; and the consumer-protection legislation preserves the consumer’s additional statutory remedy. The judgment’s approach is therefore not an unqualified preference for arbitration, but an attempt to preserve arbitration only for claims that remain legally distinct from the consumer dispute already pursued.

FAQs

References –

1. (2024) 6 SCC 1
2. 2024 INSC 532
3. (2019) 12 SCC 751
4. (2024) 4 SCC 255
5. (2020) 20 SCC 760
6. 2024 INSC 857

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