Arbitrability of disputes in India

AUTHOR

Ahia Mary Babu

AHIA MARY BABU , pursuing 9th semester BBA-LLB at Mar Gregorios College of Law, Trivandrum. She is also a member of LJRF Trivandrum Chapter.

TABLE OF CONTENTS

Abstract
Introduction
Arbitration
Arbitrability of Disputes
Provisions Under The Act
Disputes Which Are Non-Arbitrable
Conclusion
Endnotes

ABSTRACT

This article is envisaged to give an idea of arbitrability of disputes in India. It deals with determining which type of matters can be resolved through in India. Section 2(3), 34(2)(b), 48(2) of the Arbitration and Conciliation Act, 1996 deals indirectly with the non-arbitrability of disputes; however, the Act is silent as to listing specifically which matters are non-arbitrable. This topic is flexible as there is no express provision in the governing Act. The general rule is that disputes affecting the rights in personam can be settled through arbitration and matters affecting the rights in rem cannot be settled through arbitration. As the Act does not provide for arbitrable or non-arbitrable disputes, it is the court who decides what all disputes are arbitrable and non-arbitrable. Thus, the law relating to arbitrability and non-arbitrability of disputes in India has been developed by Courts and it is still undergoing changes. This paper also suggests that the Act should be amended with regard to arbitrability and non-arbitrability of disputes in order to avoid confusion and doubt in this matter.

INTRODUCTION

Disputes between people are quite common from the beginning itself. Disputes are of different nature; it may be between citizens of same state, between citizens of a state and foreigner or it may be civil or criminal etc. Adjudication of disputes between the parties is one of the main functions of any state. Many courts and tribunals have been established by states for the adjudication of disputes. In India also many courts and tribunal have been set up by law for this purpose. Though there are a number of courts and tribunals, Indian courts are clogged with unsettled cases. The scenario is more or less the same even after the establishment of many fast tract courts across India to deal with disputes in a speedy manner. It has become the need of the day to find alternative system for administration of justice. In order to have a speedy disposal cases without much procedural technicalities, ADR alternative disputes resolution mechanism came into the light. With this object to dispose of cases in a speedy manner and to avoid cumbersome process of litigation, law allows parties to settle their disputes through different methods of ADR mechanism. It has been recognized as Arbitration, Lok Adalat, Conciliation, and mediation. Section 89 of Code of Civil Procedure 1908 was amended in the year 1999 and recognized alternative dispute resolution as a mode of settlement of disputes outside court.

Section 89 of CPC reads as follows; Settlement of disputes outside the Court.- (1) Where it appears to the court that there exist elements of a settlement which may be acceptable to the parties, the court shall formulate the terms of settlement and give them to the parties for their observations and after receiving the observations of the parties, the court may reformulate the terms of a possible settlement and refer the same for –

(a) Arbitration;

(b) Conciliation;

(d) Mediation[i]

ARBITRATION

Arbitration is an alternative of litigation or rather private dispute resolution where the arbitrator appointed by the parties or by the court decides the disputes between the parties instead of courts established by law. Arbitration is nothing but determining the disputes between parties out of the court by a third party chosen by the parties to the disputes. The main advantages of arbitration is that in arbitration parties can choose the judge or arbitrator only if they are unable to reach a decision as to appointment of arbitrators, then only court will interfere and appoint a judge or arbitrator for the parties. Another feature is that arbitration is much faster and there is no such procedural technicalities as compared to litigation. Unlike court judgements arbitration award itself is not enforceable. The party is required to execute the award for its enforceability through judicial remedy. Arbitral proceeding may be way less expensive than litigation as in arbitration there is only limited scope for appeals. In India the law relating to the arbitration is governed and controlled by Arbitration and Conciliation Act, 1996. Parties to the dispute refer an issue to a third party who adjudicates the issue and pass an award. The arbitrator is a private judge appointed by the parties. The person to whom the disputes are referred is known as arbitrator and the decision of the arbitrator is called award. Section 2(1) (a) of Act defines Arbitration as “arbitration means any arbitration whether or not administered by permanent arbitral institution”.[ii]

ARBITRABILITY OF DISPUTES

Arbitrability of disputes is concerned with the subject matter of arbitration. It is determining what types of disputes can be resolved through arbitration and what all disputes cannot be referred to arbitration. Not every dispute can be referred to arbitration. In India the issue of arbitrability is in doubt and confusion due to lack of express provisions in the governing Act as to this matter.

PROVISIONS UNDER THE ACT

Though the Arbitration and Conciliation Act contains nothing related to arbitrability of disputes it gives a hint as to non-arbitrability of certain disputes. Section 2(3) of the Arbitration & Conciliation Act lays down that the statute will not affect any other law which specifies that certain disputes cannot be subject to arbitration proceedings. Section 2(3) reads as follows; “This Part shall not affect any other law for the time being in force by virtue of which certain disputes may not be submitted to arbitration”.[iii]

Further, as per Section 34(2)(b) the court can set aside an award if the court finds that the subject matter of dispute is not capable of settlement through arbitration[iv] and section 48(2) of the Arbitration & Conciliation Act lays down that an arbitral award may be refused to enforce if the court finds that if the subject matter is not capable of arbitration under the law of India.[v]

These are the only provisions in the Arbitration and Conciliation Act, which deals though indirectly with the arbitrability or non-arbitrability of disputes.

Since there is no express statutory clarification on this point, the law has been developed by the courts. The SC in the case of Booz Allen and Hamilton Inc. v. SBI Home Finance Limited[vi] it was held that all disputes arising out of violations of rights in personam are arbitrable, and those disputes arising out of rights in rem are not arbitrable and should be adjudicated by the courts and public tribunals only. The Bombay High Court in its decision in kingfisher Airlines Limited v. Prithvi Malhotra Instructor[vii] narrowed down this principle by holding that rights in personam would not be arbitrable as a matter of public policy if a statute vests exclusive jurisdiction upon a particular court or tribunal. Later, these two positions were recognised and upheld by the SC in its 2016 decision in A. Ayyasamy v. A Paramasivam and others.[viii]

DISPUTES WHICH ARE NON-ARBITRABLE

Generally, any matter of civil nature can be referred to arbitration. But there are certain exceptions to this general rule; that is under Indian law the following matter cannot be resolved through arbitration. Matters which cannot be referred to arbitration are;

· Criminal offences.

Generally, matters of civil nature can only be referred to arbitration. In any case dispute involving criminal offences are fully beyond the scope of arbitration. Though that is the general rule, disputes of criminal nature can also be taken up for arbitration; provided that, the offence must be a compoundable offence as per section 320 of criminal procedure code. Compoundable offences are those offences where, the complainant enter into compromise, and agrees to have drop the charges against the accused. Some compoundable offences under 320 CrPC are section 323, 334, 379, 343, 344, 346 of IPC

· Matrimonial disputes

Matrimonial related disputes like divorce and restitution of conjugal rights must be decided the court itself and it cannot be referred to arbitration.

· Guardianship matter

Matters relating to guardianship of a person with disability or of a minor cannot be decided or referred to arbitration.

· Insolvency petitions

All matters as to declaring a person as insolvent or pauper cannot be decided by arbitration it should be decided by the court.

· Testamentary suits

Matters relating to succession such as disputes as to genuineness of a will cannot be referred to arbitration.

· Disputes as to dissolution or winding up of a company

Proceedings as to winding up of a registered company cannot be referred to arbitration. But a dispute in respect of dissolution of a partnership can be settled by arbitration. Intra company disputes are also not arbitrable. Intra company disputes are those disputes which arise within the company between members of the company. Such disputes should be adjudicated through court of law.

· Trust disputes

Disputes as to charities and charitable trusts can only be decided by the court.

· Labour and industrial disputes

· Tenancy and eviction matters, Etc.

In recent judgement ‘Vidya Drolia v. Durga Trading Corporation [ix]’ and ‘Suresh shah v. Hipad Technologies Private India Ltd’[x], the court held that tenant- landlord disputes which is covered under Transfer of Property Act would be arbitrable. But where the tenant enjoys protection under any statue and a specific court is given jurisdiction to deal with the matter, then the issue cannot be taken up for arbitration. All other disputes when there is an element of in rem action then that issue will continue to be inarbitrable.

· A dispute arising out of an illegal contract and wagering contract

Dispute arising out of illegal or wagering contract cannot be settled in an arbitration. Such a dispute can only be adjudicated through litigation.

· Disputes which comes under Competition Act,2002

Though there is no authoritative decision as to this matter, the existing law suggests that disputes which would come under the ambit of Competition Act are inarbitrable.

· Intellectual property disputes

Disputes relating to the registration of intellectual property rights are not arbitrable. Whereas disputes relating to infringement or assignment of IP rights can be referred to arbitration. Disputes relating to IP rights are not arbitrable as it gives rise to rights in rem, whereas disputes relating to subordinate rights in personam from the rights in rem are arbitrable.

As provided under section 7(1) of the Act, dispute in respect of a defined legal relationship, whether contractual or not may be referred to arbitration. Thus, it is clear that in order to refer a dispute to arbitration the dispute should be in respect of a properly defined legal relationship. It is not necessary that it must arise out of a contractual relationship between parties. In Vidya Drolia v. Durga Trading Corporation (2020)[xi] the court suggested four-fold test to determine arbitrability of disputes. A dispute is held to the inarbitrable if;

· the dispute is with respect to right in rem or do not pertain to subordinate rights in personam that arise from right in rem

· it relates to inalienable sovereign and public interest functions of the state

· it affects the rights of a third party then arbitration would be inappropriate

· it is expressly or impliedly non arbitrable as per statues.

As per the recent judgement a dispute may be arbitrable if the matter does not come under any of the above said conditions. So, it is the settled law that all disputes relating to rights in rem are in arbitrable and required to be decided by court of law but disputes which involves a right In personam can decided and settled by arbitration proceedings. There are only very limited grounds where the arbitral award can be challenged, the subject matter not capable of arbitration is one among the grounds. As the Act does not provide for arbitrable or non-arbitrable disputes, it is the court who decides what all disputes are arbitrable and non-arbitrable.

CONCLUSION

Arbitrability of disputes in India has been conflicting as there is no express provision in the Act regarding the same. As there is no explanation as to arbitrability of disputes in the arbitration and conciliation Act, 1996 the law has been developed by courts through its judgements. Generally, all disputes related to a right in personam are amenable to arbitration as it only binds the parties to the disputes and whereas disputes relating to rights in rem cannot be referred to arbitration as the judgement would bind the general public who are not the parties to the dispute. Though it is the general rule and practice it is not a rigid one. In addition to the above said rule disputes arising out of subordinate rights in personam from right in rem is also arbitrable. As we said earlier there is no statutory provision or explanation as to arbitrability of disputes in the Act, thus all these rules and practices relating to arbitrability of disputes has been developed by court of law from time to time. The issue of arbitrability of disputes is still evolving. In recent judgement the court tried to settle the confusion in arbitrability of various disputes and we can say that court succeeded in clearing the air to an extent. Cases involving question of Arbitrability of disputes should be heard and decided by court with utmost care and caution in order to avoid doubts and confusion regarding the topic. In my view the mere existence of a specific forum to deal with the dispute should not bar the parties from opting arbitration. Any disputes in which rights in personam is in question should be allowed to refer to arbitration, existence of a specific forum for dealing with the matter shall not affect the right of parties to choose arbitration procedure over litigation. Arbitration is the future and it is highly recommended that arbitration should be given wider scope and recognition. Also, the Act may be amended and include provisions as to which all types of matters can be resolved through arbitration and which all matters cannot be settled through arbitration inorder to eliminate doubt and confusion in that matter.

ENDNOTES

[i] The code of civil procedure, (1908) S.89

[ii] The Arbitration and conciliation Act, (1996)

[iii] The Arbitration and conciliation Act, (1996) S.2(3)

[iv] The Arbitration and conciliation Act, (1996) S.34 (2)(b)

[v] The Arbitration and conciliation Act, (1996) S.48(2)

[vi] Booz Allen and Hamilton Inc. v. SBI Home Finance Limited, (2020) SCC Online SC 358

[vii] Kingfisher Airlines Ltd. v. Prithvi Malhotra Instructor, (2013) (7) Bom. C.R. 738 (India)

[viii] A. Ayyasamy v. A Paramasivam and others (2016) 10 SCC 386

[ix] Vidya Drolia & Ors. v. Durga Trading Corporation, (2011) 5 SCC 532

[x] Suresh Shah v. Hipad Technology Pvt. Ltd, 2020 SCC OnLine SC 1038

[xi]vidya Drolia v. Durga Trading Corporation, 2020 SCC OnLine SC 1018