Introduction
Mandatory arbitration clauses in FinTech user agreements often serve as a strategic hurdle to bypass public litigation in favor of private, institution-led forums. However, under the legal landscape of 2026, these provisions cannot override the non-derogable jurisdiction of Indian consumer commissions. The Consumer Protection Act, 2019, functions as a welfare statute that grants users of digital financial services a statutory remedy in addition to any contractual agreements. This framework ensures that “take-it-or-leave-it” digital contracts remain unenforceable whenever a consumer elects to seek redress through a public commission.
Broad Consumer Protection under the CPA 2019
The Consumer Protection Act, 2019 is a welfare statute aimed at providing consumers an easy, fast and effective remedy. It defines “consumer” and “service” in very wide terms. A consumer means any person who “hires or avails any service for consideration. Whereas service covers almost all financial services-banking, financing, insurance, telecom, e-commerce, etc. Anyone using a FinTech app for paying or borrowing or investing for personal use is a consumer under the law. The jurisdiction of the consumer forums varies based on the amount claimed by the consumer. The District forums have jurisdiction over claims up to ₹1 Crore. State Commissions have jurisdiction over claims up to ₹10 Crores and the National Commission has jurisdiction beyond ₹10 Crores. The District Forums or Commission or the National Commission can grant or order a refund, compensation, replacement, or penalty, etc., to the consumers. Importantly, Section 102 states that the CPA 2019 is specifically “in addition to and not in derogation of” other laws enacted.
Arbitration Clauses in FinTech Agreements
Even though these provisions are existing, most FinTech user agreements attempt to bound the user to arbitration in the case of any dispute. For instance, in the typical clause, it is stated, “In the event of any difference or dispute arising in respect of or arising out of or in connection with the breach of any of the provisions contained in these Terms and Conditions or for the determination of any matter arising under these Terms and Conditions, the said difference or dispute shall be referred to and settled by ‘binding arbitration’ in accordance with the provisions of the Arbitration and Conciliation Act, 1996.” For instance, Paytm requires that the disputes be referred to and settled by the sole arbitrator in New Delhi, while Razorpay’s wallet user agreement requires the arbitration to take place in Bengaluru. The goal of FinTech companies is to prevent individual lawsuits in various small jurisdictional areas. For that purpose, these companies propose such arbitration clauses, specifying one particular court.
Landmark Case Law: Consumers’ Choice of Forum
Indian Courts have traditionally followed a pro-consumer approach to arbitration clauses. The leading cases make clear that even when the contract says “arbitration”, it is open to a consumer to go to the consumer forum. For instance, in Emaar MGF Land Ltd. v. Aftab Singh (2019), the Supreme Court emphatically held that remedies under the Consumer Act are in addition to arbitration. It said a consumer forum cannot be compelled to refer a case to arbitration. Even after the Arbitration Act was amended in 2015 to promote arbitration, the Court observed that Section 2(3) preserves special statutes and arbitration cannot override the jurisdiction of the consumer forum. In M. Hemalatha Devi v. B. Udayasri (2024) the Supreme Court reaffirmed the rule. It held that the consumer would not be made to go to arbitration unwillingly. These conclusions are reinforced by previous decisions as well. For instance, Skypak Couriers v. Tata Chemicals (2000) and National Seeds Corp. v. Reddy (2012), both held that “the scheme of arbitration is an additional remedy.” Therefore, a standard pre-dispute arbitration provision under the FinTech T&C does not bar a consumer from filing the case in the forum of their choice.
Regulatory Measures for FinTech Consumers
Regulators also inserted a mechanism to ensure public redressal over private arbitration for FinTech-related problems. The RBI’s Ombudsman for Digital Transactions (2019) where RBI launched a new initiative a free ‘Ombudsman’ service to protect consumers from grievances arising out of failed digital payments, wrongful unauthorized payments, delayed credits, etc. In this initiative, as well as its Integrated Ombudsman Scheme 2021, which includes prepaid instruments and fintech entities, the customer has the right to complain to the RBI-appointed ombudsmen if the bank, wallet operator, or fintech service provider involved in the transaction acts erroneously. RBI has also issued Digital Lending Guidelines (2022) which are the new and latest guidelines on digital lending platforms set by RBI direct every fintech loan provider to appoint a nodal officer for handling grievances and redressing consumer complaints within a month. Under the Ministry of Consumer Affairs, the central government formed an organization called the Central Consumer Protection Authority, which enforces the enforcement of unfair and misleading practices in Fintech services, such as the misleading terms and conditions. In fact, the CPA-2019, formulated by this Ministry, clearly states that the rights of the consumers are statutory and inalienable. Together, these steps convey a message to FinTech businesses that financial regulators in India are more comfortable with public grievance redressal mechanisms rather than private arbitration mechanisms. FinTech companies are expected to maintain an effective grievance cells and not rely solely on arbitration clauses.
Why Arbitration Clauses Often Fail in Practice
The Arbitration clauses often fail in practice because of several reasons like: Statutory Consumer Rights: Consumer protection is regarded as a public policy, not just as a matter of contractual agreement between the parties. Thus, it is believed that the CPA provides consumers an “easy, effective forum” where they can be redressed. Unequal Bargaining Power: the FinTech contracts are typically “Take-It-Or-Leave-It” kinds of contracts. The user only has an option to hit “Agree” on the app, and there is no other option to negotiation. Also, the consumers, being ordinary consumers and first-timers, might not be even aware of the arbitration condition appearing in the fine print. In the FinTech contract, the consumer is the weaker party. Consumer commissions are designed to be inexpensive, fast and user-friendly. Proceedings often involve simple, paper-based filing and government-appointed members. Commissions can also lay exemplary penalties and collect evidence with ease. In contrast, arbitration especially ad-hoc or one-person arbitral panels, can get formal, slow and expensive. Courts have held that compelling a consumer to costly arbitration for a relatively small claim would be against public policy.
Implications for FinTech Providers and Consumers
For FinTech organizations, the writing is now on the wall: arbitration terms are no longer a sure bet against consumer disputes showing up in a courtroom. The big rulings, like Emaar MGF and Citicorp Finance, are now issuing strong words: “A consumer can opt to go through a Consumer Commission despite an arbitration clause.” What this translates into, practically, is being better prepared for handling consumer disputes through internal grievance redressal mechanisms as RBI guidelines require organizations to do this and opting for alternative dispute resolution mechanisms, like arbitration or mediation, through consumer consent. Consumers, meanwhile, are empowered through this legal system. If consumers are wronged by any of the FinTech services, such as being overcharged for a transaction through a digital wallet or being offered a predatory loan, they can complain before an appropriate consumer commission or the ombudsperson for the RBI, secure in the knowledge that no hidden provision requires them to go through arbitration. These have the added value of being cost-free, expedited, and punitive, something even an arbitrator cannot provide for. As a practical consequence, the consumer today has access to different tiers of redress‐pipelines ‐internal redress schemes, RBI ombudsman schemes, and CPA 2019 forums‐each time with the consumer’s choice of forum insulated.
AMLEGALS Remarks
The arbitration clauses in the contracts of FinTech apps in India are becoming toothless in consumer disputes. Considering this, it has been addressed in addition to the legislation in the Consumer Protection Act of 2019, which offers definitions and requires consumer-friendly forums. Supreme Court decisions, which have been referred to throughout the jurisprudence, have always been consumer-focused, confirming that a consumer can never be referred to arbitration and he has the right to an exclusive forum.” Considering this, regulators such as the RBI have established public grievance relief through Ombudsmen Systems and Grievance Guidelines that provide quick redressal for FinTech concerns. Arbitration remains an alternate option, but only if the consumer actively and voluntarily options in after a dispute has gone beyond conception.
For any queries or feedback, feel free to connect with Hiteashi.desai@amlegals.com or Khilansha.mukhija@amlegals.com