The main purpose of any law is to create a stable structure for the efficient functioning of a society to which everyone in that society agrees to follow, which is then protected and implemented by the judicial system, i.e. courts of adjudication. The law develops and expands over time to create a more stable and better structure for the functioning of the society, which in turn increases the burden on the judicial system, i.e., courts.
Arbitration is an alternate mode of dispute resolution which does not take the path of court for resolving disputes among the individuals of a society. Arbitration in itself is not a statutory law but rather is a separate mode by following which disputes can be resolved amongst individuals and it is not bound by the cumbersome procedure of law, rather is much more flexible as per the demands of the situation. Therefore, in modern times, where certain disputes are much more capable of being efficiently resolved outside the courts, the mode of arbitration has evolved to be a viable option for many such cases, whereby a much more flexible procedure is followed while safeguarding the principles of natural justice to ensure delivery of justice in those cases which are subject to it.
But while talking about the procedural laws of Arbitration, it is of prime importance to understand what comes under the umbrella of that law, i.e. what could be a subject to that law or in much simpler terms, what comes under the ambit of that law? In the context of the arbitration, it is what is referred to as the ‘Arbitrability of a Dispute’, i.e., whether a dispute is capable of being resolved/settled through arbitration or not. If the answer turns out to be a yes, only then the dispute can be adjudicated by the arbitral tribunal otherwise the disputes can only be adjudicated by the court of law.
In the context of Indian laws of arbitration, ‘the Arbitration and Conciliation Act, 1996’ does not explicitly exclude any kind of dispute to be not capable of being resolved through arbitration and Section 7 of the act merely requires an agreement between the parties to elect for the mode of arbitration to be the primary mode for resolution of the nature of disputes agreed upon, to make the act applicable and thus making the dispute to be a subject for arbitration. However, the act also provides for setting aside of the arbitral awards by the courts, “if the subject matter of the dispute is not capable of settlement by arbitration under the law for the time being in force”[1], which means that even if arbitration had been conducted in a dispute, which cannot be a subject of arbitration as per any law of India at that time respectively, awards from such arbitration can be set aside by the courts, and cannot be executed, both in cases of domestic as well as international awards. Thereby, it indirectly limits the scope of the disputes which can be subject to arbitration.
Right in R.E.M vs. Right in Personam
The rights of an individual can be divided into two parts: ‘Right in R.E.M.’, i.e., right of an individual against the society at large & ‘Right in Personam’, i.e., right of an individual against any other individual specifically. In a general sense, only the ‘Right in Personam’ are considered to be those which are capable of being subject to arbitration and can be settled through arbitration, however, ‘Right in R.E.M.’ can only be adjudicated by a court of law as only in the cases of ‘Right in Personam’ can all the parties related to it, mutually agree to submit to arbitration in case of a dispute, which is a primary requirement for arbitration. Further, ‘Rights in Personam’ arising out of ‘Right in R.E.M.’ can also be referred to as arbitrable, i.e., certain rights are against an individual in nature which arises as a consequence of an absolute right against the public at large, and such rights against individuals can be said to be arbitrable in nature.
Threefold Test of Arbitrability
The Supreme Court of India elaborated and provided for three tests for a dispute to be referred to as arbitrable which are as follows[2]:
- Whether the dispute, by its very nature, is capable of being adjudicated by arbitration or not?
- Whether the dispute is covered within the ambit of an arbitration agreement between the parties subject to it or not?
- Whether the parties refer the dispute to arbitration or not?
Merely disputes qualifying these 3 tests as mentioned hereinabove can be said to be arbitrable.
Non-Arbitrable Disputes by their Nature
In general, whether the nature of a dispute is arbitrable or not depends on the public policy of the land. As per the laws of India and the judicial decisions to date, a certain dispute which cannot be referred to as arbitration includes:
- Criminal offences, as a criminal offence is considered to be an offence against the state and not against an individual. However, cases relating to fraud, fabrication of documents, forgery, impersonation, coercion, etc are criminal in nature and thus cannot be referred to arbitration[3], but the Supreme Court of India held that only where there exists a serious question of fraud, a matter can be referred to as non-arbitrable[4];
- Matrimonial matters, child custody & guardianship matters, as they are having certain social significance to be only adjudicated by a family court;
- Insolvency and Winding up matters, as such disputes involve the rights of stakeholders in general, powers of which are conferred on the courts by statutory provisions[5]. However, in the context of Singapore’s law, the court of appeal in 2015, held that winding up of a company is a relief that can be granted via arbitration where the dispute involves the oppression of minority shareholders by the majority shareholders, thus not involving the interest of the public at large but merely involves protecting the rights of minority shareholders.[6];
- Testamentary matters, as such disputes include establishing the intent of the deceased people who cannot defend themselves;
- Eviction and Tenancy matters which are required to be adjudicated under specific legislations by the court;
- Disputes relating to the Trust Act, as such disputes involve an element of trust of public at large;
- Disputes with regard to the validity of Patents, Trademarks and Copyright[7], as these are rights of individuals against the general public at large and are not ‘Right in Personam’. However, rights against individuals arising out of such absolute rights, which may be certain contractual rights agreed upon between parties as a consequence of such absolute intellectual property rights, can be a subject matter to arbitration. Also, if the relief sought in a dispute is not with regard to the declaration of validity of an Intellectual Property Right, i.e., Right in R.E.M., but is a mere relief with regard to usage of such Intellectual Property Right by way of a contractual agreement, then such disputes are arbitrable in nature;
- Disputes where the genuineness of the agreement containing an arbitration clause is itself in question[8].
Before 2016, infringement of Intellectual property rights was said to be non-arbitrable by nature but in 2016, it was argued before the Bombay High Court that all civil disputes are arbitrable in nature unless expressly barred by any statute thus seeking relief that infringement of Intellectual property rights should also be interpreted to be a ‘Right in Personam’ arising out of ‘Right in R.E.M.’. The Bombay High Court held that only relief in personam can be granted in an infringement case of Intellectual Property Right and thus such disputes should be referred to as arbitrable in nature[9].
In Indian Arbitration and Conciliation Act, 1996, it is primarily up to the arbitrator to decide whether a dispute referred to by such arbitrator is arbitrable in nature or not. It is also pertinent to mention that as per the rules of the Singapore International Arbitration Council, the arbitration tribunals are given powers to adjudicate whether a dispute referred to them is arbitrable or not.[10] However, the final discretion is of the courts when it comes to categorising certain disputes as arbitrable or not, which have not to be categorised as such by any judicial precedent or any statutory provision.
Conclusion
It would be appropriate to conclude that arbitrability of a dispute can be generally defined and categorised as mentioned hereinabove, but in certain specific cases where the category of dispute is not so apparent, it is only the true nature of the dispute which is critical while interpreting and deciding that whether such dispute can be a subject matter to arbitration or can only be adjudicated by a court of law.
A dispute can only be said to be arbitrable if there exists an arbitration agreement between the parties. Therefore, a contractual infringement that is supported by an arbitration agreement can be said to be arbitrable but a dispute where there is no contract cannot be said to be arbitrable because of the lack of an arbitration agreement primarily.
The basic distinguishing feature is that whether the relief being sought in a dispute shall be binding on any person who is not subject to such agreement. If the relief being sought shall only be effective and shall only be binding the parties who are subject to the arbitration agreement, then such dispute can be said to be arbitrable. However, on the other hand, if the relief being sought shall also be binding to any third person as well, who is not subject to such arbitration agreement between the parties, then such dispute can be categorised to be a non-arbitrable dispute and thus can only be adjudicated by a court of law.
[1]See Section 34(2) & 48(2), The Arbitration and conciliation Act, 1996.
[2] Booz Allen & Hamilton INC v. SBI Home Finance Ltd. & ors. (2011) 5 SCC 532.
[3] Afcons Infrastructure v. Cherian Varkey (2010) 8 SCC 24.
[4] Ameet Lalchand Shah v. Rishabh Enterprises, (2018) 15 SCC 678.
[5] Haryana Telecom v. Sterlite Industries (1999) 5 SCC 688.
[6] Tomolugen Holdings Ltd. and another v. Silica Investors Ltd. and Other [2015] 1 SLR 373.
[7] A. Ayyasami v. A. Paramasivam, (2016) 10 SCC 386.
[8] HSBC v. Avitel (Civil Appeal No. 5145 of 2016)
[9] Eros International v. Telemax Entertainment (2016) SCC online Bombay 5893
[10] See Rule 28.2, SIAC Rules, 2016.