VOILA! LET’S ARBITRATE! BLOG POST-4: ARBITRABILITY BEFORE ARBITRATION.

Before initiating any arbitration process, there is a need to understand and figure out whether the subject matter of the dispute is Arbitrable or not. Till this day, the courts as well as tribunal have given multiple opinions about the arbitrability of various disputes.

The very important case in which the arbitrability of disputes was specifically discussed in India was the Booze Allen and Hamilton Inc. v. SBI Home Finance Ltd. In this case, the Supreme Court opined that the meaning of Arbitrability of any dispute changes in different contexts. It stated that the disputes which are capable of being adjudicated through arbitration; disputes which are covered by the arbitration agreement and the disputes that the parties have referred to arbitration will be arbitrable.

It was also stated by the court that any dispute which can be decided by a civil court can also be resolved through Arbitration.

However, there were few disputes which were excluded from the resolution by a private forum. These consisted of the disputes which are related to rights and liabilities arising out of any criminal offence, matrimony, guardianship matters, insolvency and winding up matters, testimony matters, trust deeds & Indian Trust Act, 1882 and evictions & tenancy related matters.

Now apart from this, there has always been a huge confusion that whether the disputes of fraud and Malpractices were considered to arbitrable or not. There are various judgements which provided different opinion in this context. In the case of N. Radhakrishnan v. M/s Maestro Engineers, it was alleged by one of the parties that the matters related to the serious malpractices and fraud are to be settled by court and not by the Arbitral Tribunal which was completely supported by the Court.

However, in Swiss Timing Limited v. Organizing Committee Commonwealth Games, 2010 as well as World Sport Group (Mauritius) Limited v. MSM Satellite (Singapore) Pvt. Ltd., the court held that Allegations to fraud are not a bar to refer the parties to a foreign seated arbitration. The only exception to refer parties to foreign seated arbitration are those which are specified in Section 45 of the Arbitration and Conciliation Act i.e., in cases where the arbitration agreement is either null or void, inoperative or incapable of being performed.

So, it can be concluded here that though the allegations of fraud are not arbitrable in ICA’s with a seat in India, the same bar would not be applied to ICA’s with a foreign seat.

Another important judgement which gave a very important opinion for the disputes related to fraud is the A Ayyasamy v. A Paramasivam & Ors., wherein the Supreme Court held that the allegations of fraud are arbitrable unless they are serious and complex in nature. It is important to note here that this opinion does not the overrule the case of N. Radhakrishnan discussed above but in fact is supplementary to that case. This judgment just differentiated between a “Fraud simpliciter” and “Serious Fraud” and insists that the serious fraud is best left to be determined by the court but the simple fraud can be determined by the Tribunal.

To simplify this opinion, the Supreme Court in Rashid Raga v. Sadaf Akhtar provide two prog tests to identify whether a particular dispute related to fraud is arbitrable or not. These two tests are:

1. Whether the plea permeates the arbitration agreement and render it void?
2. Whether the allegations of fraud touch upon the internal affairs of the parties inter se having no implication in the public domain?

So, this was about arbitrability of disputes pertaining through fraud.

There are various other subject matters for which the Courts had various discussions and came on to a conclusion in regards to their arbitrability.

In 2019, a very important judgement came which simplified the meaning of arbitrability of any dispute and gave a four-fold test. In the case of Vidhya Drolia & Ors v. Durga Trading Corporation, it was held that a dispute would be non-arbitrable when:

1. It relates to action in rem or actions arising from right in rem.
2. It affects the third-party rights.
3. It relates to the inalienable sovereign and public interest.
4. It is specifically implied as non-arbitrable by a mandatory statute.

Later in various judgements it was also decided that the disputes related to oppression and management and Consumer Issues cannot be referred to arbitration as per tests given in the Vidhya Drolia case.

Question of the Week:

Whether the disputes pertaining to IPR are arbitrable?

Well, since there are not sufficient judgements as well legislations in this subject, the arbitrability of IPR disputes remain unsettled. However, through the various discussions of the Judges in Supreme Court and High Court on this matter, it can be understood that there cannot be bar on the arbitrability of the disputes relating to IPR arising out of the agreement entered by the parties and it will depend on the facts of each case.

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