Arbitrability

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arbitrability

This means disputes that are capable of being settled by arbitration. Section 8(1)does not talk about arbitrability. Section 7 on the other hand only talks about the scope of the arbitration agreement. They talk about the nature of the agreement, irrespective of whether it is contractual or not it should come out of a legal relationship. Section 34 gives the ground for setting aside an arbitral award. The UNCITRAL Model describes it as Incapable of being performed, some reason otherwise which the agreement cannot be performed. One of the grounds is arbitrability of a dispute, which also includes public policy of a particular country. While UNCITRAL model allows courts to decide on all aspects of arbitration,

India has deviated from the UNCITRAL model, the act only talks about whether the agreement is valid or not. The arbitrability of a dispute comes within issues that the court may and do not have to decide. The court could decide it either on the basis of prima facie or conclusively.

In the landmark judgement of the Apex Court[i]  it was inter-alia held that certain categories of cases, though not expressly reserved for adjudication by public fora (courts and Tribunals), might have to due to necessary implication be kept excluded from the purview of private fora. In view thereof, where the cause/dispute is  of a nature rendering it incapable of being submitted to arbitration, the court, will thereby refuse to refer the parties to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996 (the “Act“) irrespective of whether the parties had agreed to arbitration or not, as the forum for settlement of such disputes.

In furtherance of this decision, the Court enlisted the following as non-arbitrable disputes:

a. disputes pertaining to rights and liabilities which would inevitably in some way relate to criminal offences;

b. divorce, judicial separation, restitution of conjugal rights, child custody and other  matrimonial disputes;

c. guardianship matters;

d. insolvency and winding up matters;

e. (grant of probate, letters of administration and succession certificate)testamentary matters; and

f. eviction or tenancy matters a decision on which can be only taken by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.

The Apex Court cited another judgement[ii] wherein another category of non-arbitrable disputes was identified viz., disputes relating to trusts, trustees and beneficiaries arising out of trust deeds and the Indian Trust Act, 1882. This would hold true irrespective of the existence of an arbitration agreement to that effect between the parties.

Fraud

It has the effect of vitiating arbitration agreements in India. It has been held so in several cases.

If there is an allegation of fraud on anybody, then that person has the right to defend against that allegation in a public fora. This was one of the first cases that decided upon status of fraud.[iii] In the case of  N Radhakrishnan v. MasteroEngg 2009 SC[iv] applied the ratio of Abdul Qadir and held that all issues of fraud are non-arbitrable in nature.In another case in 2012[v], SC heldthat what needs to be looked at is what is nature of the allegation of fraud. Whether it is serious enough to vitiate the arb agreement then cannot arbitrate. The court essentially distinguished between serious and simple allegations of fraud. If it is serious then the matter cannot be referred under section 8 or 11, conclusively decide the issue of fraud since it is a problem of validity of the arb agreement. If it is not a serious allegation then it can be referred to arbitration. This was however the case for domestic arbitrations. With respect to International commercial arbitrations, the SC has held that all allegations of fraud are arbitrable.[vi] Even the 246th Law Commission report believes that fraud should be made arbitrable. However A Ayyasamy is the holding law with respect to domestic arbitration. If there is a serious allegation of fraud it should be decided by court.  Fraud simpliciter on the other hand can be decided by arbitration. Serious allegations can be better handled by the court, since they include complex set of facts which require elaborate evidence taking, it thus makes more sense for the court to decide.

IP Disputes

Copyrights are non- arbitrable but other IP disputes are arbitrable. If that case of Booz Allen is applied here, IP disputes are held to be non-arbitrable because they are rights in rem. However, subordinate rights in personam are arbitrable, so some licensing disputes may be arbitrable.

Eros International Indian Ltd. v. Telemax Private Limited[vii]

The court says that the nature of the right should not be looked at but the nature of the remedy. They were trying to modify the test laid down in the Booz Allen judgement. See the remedy claimed and see if the law has provided for a special fora for these remedies claimed.

Internationally, these disputes are held to be arbitrable. This is because if they are not arbitrable, it would become problematic to adjudicate in the event of multiple jurisdictions being involved, which often happens in international disputes.

But they have some checks in place — for examples there is a practice to have some check on the arbitrators when they decide the grant or revocation of an IP right. In such cases, it has to be sent to the statutory authority that has the power to revoke or terminate the right. So award of an arbitrator only be valid when a copy of the award is submitted to the authority that revokes licenses etc.

Along with the award you also send a copy saying that the court in that country has no objection to the grant, revocation etc. of the right granted to through that tribunal. The State wants to control these rights in the interest of public policy. By making patent authorities decide all kinds of disputes, there may be overcrowding in these authorities, so to expedite the process, it is efficient to make them arbitrable. However, the State also needs to have a check because IP Rights affect the public at large. Therefore, this is a midway solution.

Competition disputes

Internationally, antitrust and competition law claims are being made arbitrable in certain contexts — US and EU: If agreement is international in character, they are arbitrable.In India: These are issues which impact public interest, and so these disputes are non-arbitrable in nature mostly because of boozallen.

Union of Indian v. CCI AIR 2012 Delhi HC[viii]

Here the court applied Booz allen, rights in rem and hence non arbitrable. Certain duties that the CCI has such as having to investigate the issue are the activities that cannot be done by arbitral tribunal and hence are non-arbitrable.The Delhi High Court held that these are activities that cannot be done by an arbitral tribunal and thus these disputes are not arbitrable.Additionally, arbitrators are pro-businessmen and competition laws exist to curtail unfair business practices and thus they should not be allowed to be arbitrated.

Consumer disputes

The law was settled through a number of decisions by SC. Section 3 of COPRA says the remedy is in addition to any other remedy available in law. They held that section 3 of COPRA as per arb remedy is not the exclusive remedy that is there. The final decision was made by Aftab Singh and Others v. Emar MGF Land Limited[ix] that primarily stated

a. The disputes to be adjudicated and governed by statutory enactments established for specific public purpose to subserve a particular public policy are not arbitrable.

b. There are a vast domain of legal universe that are non- arbitrable and kept at a distance from pvt dispute resolution

c. The subject amendment (section 8(1)) was made for a completely different purpose leaving status quo ante (previous situation) unaltered and subsequently reaffirmed and restated.

d. Sec 2(3) discussed again. Act makes some laws which make some disputes non arbitrable.

Section 8 phrase used in context of other things, it is not that for this purpose of arbitrability that previous decisions can be disregarded. When a party has used COPRA (selected it out of a couple of remedies) this means the consumer has selected a forum they want and arbitration is an option they do not want to use. If there are any statutory provisions which excludes reference to private fora, they can be non-arbitrable. Parties may then have 3 remedies available: civil court, arbitration, consumer forum. Consumer forum are usually pro-consumer and have a lot of pro-consumer remedies.

In an arbitration we can imagine how much unequal bargaining power might exist between multinationals and individual consumers. Thus in public interest these disputes were held to be non-arbitrable.

Upheld the judgment in Booz Allen case. The Supreme Court also said that their decision does not mean that all consumer disputes are non-arbitrable in nature. The ratio is not to be meant that all consumer disputes are non- arbitrable but if a petition is filed under COPRA then section 8 does not apply.

When a person chooses to file a dispute in the consumer forum, then he cannot be referred to arbitration.

Consumer Disputes are not arbitrable in nature. However, they also say that a few consumer disputes are arbitrable. The choice is thus to be left with the parties.

Edited by Shuvneek Hayer

Approved & Published – Sakshi Raje

Reference

[i]Booz Allen and Hamilton Inc. Vs. SBI Home Finance Ltd. and Ors. [Civil Appeal No. 5440 of 2002],

[ii]Vimal Kishor Shah and Ors. Vs. Jayesh Dinesh Shah and Ors. [Civil Appeal No. 8164 of 2016 (Arising out of SLP (C) No. 13369 of 2013)],

[iii]Abdul Qadir v. Madhav Prabhakar 1962 AIR 406

[iv]2009 (13) SCALE 403.

[v]Bharat Rasik Lal v. Gautam Rasik Lal 2012 (2) SCC 144

[vi]Swiss Timing Ltd v Org Comm(2010) 1 SCC 72

[vii]2016 SCC OnLine Bom 2179

[viii]AIR 2012 Delhi HC

[ix]2018 SCC OnLine SC 2378

 

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