The Credit Information Companies (Regulation) Act was enacted to standardize and regulate the functioning of credit information companies (“CICs”) in India. Arbitration is provided as a dispute resolution mechanism under section 18 of the CICRA. If any dispute arises among CICs, credit institutions, borrowers, and clients on matters relating to credit information business, for which there is no other remedy under the CICRA, such disputes shall be settled by conciliation or arbitration.
Consent in traditional arbitration and under the CICRA
As discussed earlier ‘consent’ is the most important aspect of traditional arbitration. It refers to the agreement of parties on various substantive and procedural aspects of a dispute. The arbitration agreement itself is entered into by parties’ mutual express or implied consent. The parties may mutually agree to settle any dispute that may arise between them by way of arbitration. Parties can also consent on how arbitrators are appointed and the number of arbitrators, the language of the arbitration, seat of arbitration, etc.
However, on the other hand, there is no requirement for the parties to mutually agree to resort to arbitration under the CICRA. The parties are deemed, by the CICRA, to have consented to (a) conciliation; or (b) arbitration. But what can be arbitrated under the CICRA?
Opinions of High Courts
The Bombay High Court (WP No 6409 of 2010) and Andhra Pradesh High Court (Arbitration Application No. 94 of 2012) have both taken a view that a dispute between the borrower and the credit institution is not within the scope of section 18 of the CICRA. These High Courts, in our opinion, wrongly suggest that a dispute regarding incorrect reporting of the credit information of a borrower or client by a CIC or credit institution does not relate to the business of credit information. In our respectful opinion, both the High Courts were incorrect.
What does the CICRA say?
Let us consider a circumstance where a credit institution has submitted incorrect information about a borrower or client to the CIC. All CICs have online portals on which the concerned borrower or client may request a correction of the credit information. The portals are used by borrowers or clients to raise “disputes” pursuant to section 21 of the CICRA. The Kerala High Court (WP(C) No 22108 of 2020) has opined that updating the credit score is a statutory right of the borrower. Therefore, CICs and credit institutions are legally bound to consider objections of borrowers and clients within 30 days. The Kerala High Court further noted that failing to update credit information could have civil consequences that impact the financial credibility of a person. But what happens when the dispute raised by the borrower or client is rejected by the CIC or the credit institution?
How to initiate arbitration under the CICRA?
If the approach of the Bombay and Andhra Pradesh High Courts is considered, the borrower or client is left remediless. Our considered opinion is that this cannot be so. On the other hand, the CICRA provides for arbitration under section 18 of the CICRA in these situations. If a dispute raised by the borrower or client with the CIC or the credit institution is rejected or unanswered for 30 days, borrowers or clients can move for arbitration. This can be done by sending a notice invoking arbitration to the Reserve Bank of India (“RBI”). The RBI is bound to appoint an arbitrator, who shall settle the disputes within three months of reference. On the other hand, if the RBI fails to appoint an arbitrator, the borrower or client may approach the High Court under section 11 of The Arbitration & Conciliation Act for appointment of the arbitrator.