Introduction:
Globally, arbitration has taken over as the standard method for resolving commercial disputes. By allowing them to choose a fair and adaptable arbitration forum, it gives parties a significant amount of control. However, before courts and arbitral tribunals, the arbitrator’s capacity to arbitrate is always given primary priority. In various situations, the word “arbitrability” has distinct connotations. The subject matter of arbitration are generally premised upon the UNCITRAL Model law on the international commercial arbitration, via which the member nations follow the commonly desired method of little judicial intervention transcending their regional legislation.
It should be noted that the subject matter of arbitration varies from country to country, and that there may be circumstances where it is not possible to enforce a foreign award because the dispute’s nature precludes it from being resolved in accordance with the nation’s arbitration law. The Indian Arbitration Act, as it relates to the Indian context, does not explicitly distinguish between disputes that are arbitrable and non-arbitrable in nature.
Subject Matter of Non- Arbitrable Disputes:
The legislature has designated some types of proceedings for adjudication by public forums like courts and tribunals. The Arbitration and Conciliation Act acknowledges that some conflicts cannot be settled through arbitration. Section 34(2) (b)(i) and Section 48(2) of the Act provides that the court could set aside an award when it is found that the subject matter of the dispute is not capable of settlement by arbitration. Nevertheless, the Act is passive in specifically detailing which issues are non-arbitrable.
Non-arbitrable disputes include those involving rights and obligations resulting from or relating to criminal offences, matrimonial conflicts, insolvency and winding up matters, testamentary matters requirements contained grants of probate, letters of administration, declaration matters and succession certificates, and eviction or tenancy matters covered by special statutes, patent, trademark and copyright disputes wherein the legal protection can only be granted by the designated courts with jurisdiction to grant reliefs or redress. However, the above-mentioned provisions include exceptions, such as criminal offences and marriage conflicts, which cannot be the topic of arbitration, but it is acknowledged that matters peripheral thereto may be sent to arbitration. It is well established that if there is a right to damages for personal injury in relation to facts relevant to a criminal action, namely physical injury, then such a disagreement can be sent to arbitration. Similarly, a husband and wife may refer to arbitration the conditions of their separation since they can reach a legal agreement between themselves on that topic.
Judicial Standing:
Arbitrability is assessed to determine whether a dispute can be resolved through arbitration, while non-arbitrability is one of the reasons that a national court may refuse to recognize and enforce an arbitral award on its own initiative, as is agreed upon at the international level and used by the majority of jurisdictions like parties to the New York Convention[1], the European Convention[2] and the UNCITRAL Model Law that additionally recognizes it as a ground for setting aside arbitral award[3]. At the national level, the following are the possible exclusions. For instance, disputes are not arbitrable in Argentina and Botswana when a party is unable to engage in the transaction to the dispute concerned. In Russia, collective rights of natural persons and legal entities are not subject to arbitration.
Noteworthy is the approach of the Supreme court of Ukraine in Ostchem v. Odessa Port Plant that equated subjective and objective arbitrability by obliging courts to examine both of them ex officio[1].
When parties request arbitration, the arbitral tribunal often confirms both subjective and objective arbitrability by applying the kompetenz-kompetenz theory[2] (Kompetenz-kompetenz is the jurisdictional principle to empower an adjudicating body to exercise on the issues on its own jurisdic jurisdiction submitted before it. In Olympus Supertructures Pvt. Ltd. v. Meena Vijay Khetan & Ors, it was ruled that the arbitral tribunal has the power to decide upon matters of its own jurisdiction as per Section 16(1) of the Arbitration and Conciliation Act, 1996.). National courts typically have the authority to evaluate merely objective arbitrability at the phases of annulment, recognition, and enforcement without having the right to bring up the issue of the parties’ capacity, if no party makes such claim.
Giving national courts the authority to independently confirm subjective arbitrability runs counter to the idea that international doctrine is more onerous.
With reference to the Indian scenario in the case of Booz Allen & Hamilton Inc v SBI Home Finance Ltd [3]. It was observed that a right in personam (personal right), which is an interest only protected against certain people is essentially arbitrable, but an action in rem (against the entire world) is nonarbitrary in nature. According to the ruling, the court should hear the matter rather than an arbitral tribunal because the litigation is intended to enforce a mortgage through sale (Right in rem). Prior to Booze Allen[4], the Supreme Court in Radhakrishnan v. Maestro Engineers[5] ruled that a significant fraud charge could not be arbitrated and could only be resolved by a court of law. The Supreme Court then added one more category to the list outlined in Booze Allen, stating that “Disputes relating to Trust cannot be arbitrated” in Shri Vimal Kishor Shah v. Mr. Jayesh Dinesh Shah[6].
Following those, the question of ‘what disputes are considered to be arbitrable?’ was addressed by the Hon’ble Supreme Court in relatively recent times with reference to the case Vidya Drolia. v. Durga Trading Corp.[1].
With such due contention court had established the following criteria for a dispute not being arbitrable in addition to a four-part test to determine arbitrability:
i. When cause of action and subject-matter of the dispute relates to actions in rem.
ii. When cause of action and subject-matter of the dispute affects third-party rights and have ergaomnes (towards all or towards everyone) implication.
iii.When cause of action and subject-matter of the dispute relates to inalienable sovereign functions of the state.
iv.When the subject-matter of the dispute is expressly or by necessary implication non-arbitrable as per mandatory statutes.
The Supreme Court emphasized that the test is intended to aid judges and arbitrators in assessing whether a certain dispute is divisible under Indian law or not, rather than offering a “watertight division” of conflicts. The court continued by stating unequivocally that “grant and issue of patents and registration of trademarks are exclusive matters having fallen within the sovereign or government responsibilities and have erga omnes effect[2], meaning that obligations and liabilities arising from this choice shall be broadly applicable on all. Additionally, such awards impose monopoly rights, making them non-arbitrable. This is especially true in forums involving intellectual property, where non-arbitrable subject matter is a focus.
Hero Electric Vehicles v. Lectro E-Mobility[3] is another case that is comparable. The Delhi High Court approved the arbitration while stating that “the disagreement in the matter does not relate to trademark grant or registration, and trademark transfer is by commercial terms, not by statutory ones.
The Trade Mark Act of 1999 was not violated, and the dispute was a result of contractual obligation which arose from a family settlement. Since there was no exercise of sovereign powers involved, it is an issue of right in personam, which is arbitrable in essence.
In Eros v. Telemax, the Bombay High Court clarified this position by noting that “where there are matters of commercial disputes and parties have consciously decided to refer these disputes arising from that contract to a private forum, no question arises of those disputes being non-arbitrable”.
Similarly, in Eurokids International, the Court held in favour of arbitrability of a matter involving the restriction on using IPs after the franchise agreement.
However, there may be instances where a contractual agreement may also give right in rem and one has to be cautious while deciding whether the right is a right in rem or a right in personam especially in IP matters. The law requires further clarity on this aspect.
Assertion:
The type of non-arbitrability may also influence the court’s inquiry and examination. The court looks at several factors, including whether an arbitration agreement exists and if the party requesting a reference is a party to it, as well as whether the party has sought the proper Court for remedy. The court’s authority under Sections 8 or 11 of the Act will determine the extent of the examination, at least in theory. The merits of the dispute between the parties are not for the court to decide. Its sole function is to determine whether a valid arbitration agreement allows for the issue to be arbitrated at the best.
In situations when the litigation cannot move further, this preliminary view aims to weed out nonexistent or void arbitration agreements or non-arbitrable disputes. There is no need for a trial or summary trial because the proceedings before the courts are summative in nature. The court often allows these issues (jurisdiction and non-arbitrability subject matters) to be addressed by the arbitral tribunal unless there is a clear case of non-existence of a valid arbitration agreement or of the dispute being ex facie non-arbitrable, tested on the aforesaid factors.
Conclusion
The Non-arbitrability theory has changed over time as a result of the prevailing social, economic, and political climate. Since there is no global agreement specifying the parameters of non-arbitrability, only national courts and regional governmental bodies can deal with this issue. Making the methods for defining non-arbitrable subjects to be national, international, or transnational in nature will affect the regional judicial mechanisms for doing so. It is clear that the issue of assessing the arbitrability of conflicts has become more specific as a result of substantial advancements in the form of judicial pronouncements.
However, the arbitral tribunal is the preferable body to handle the claims of non-arbitrability related disputes but within the boundaries of the restricted authority provided by Section 34 of the Act, courts evaluate the non-arbitrability question after the award. It is important to recognize and respect the contracting parties’ intentions. The distinction between them demonstrates the equilibrium between the state’s investment attractiveness policies, pro-arbitration policies, and protection of national sovereignty. However, it is crucial to be aware of the legal situation, particularly when creating arbitration agreements or starting arbitrations. Questions about arbitrability become more significant for Indian and international parties as arbitration becomes a more popular dispute settlement method.
While the more general concepts are very helpfully stated in a number of Supreme Court rulings, for the time being the criteria established in Vidya Drolia should serve as a guide for those wishing to understand Indian law’s arbitrability provisions.
This article is written by Mr. T.S. Ahuja, Managing Partner at Ahuja Law Offices, New Delhi
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