Authored by: K. Vidya Sagar
Edited by: Aprameya Manthena
Alternative Dispute Resolution as a means of settling disputes out of court is gaining precedence across the world. Most disputes that arise may be resolved through methods such as arbitration, conciliation and mediation amongst alternative options of redressal. However, there are certain classes of disputes that cannot be resolved as easily. They are non-arbitrable in the sense that requisite authority has not been provided under the law to resolve them privately. For instance, Section 2(3) of the Arbitration and Conciliation Act, 1996 (“A & C Act) ousts the jurisdiction of arbitral tribunals wherein the laws in force provide that the particular dispute is not arbitrable.
At first glance it might seem that this is in direct contrast with the terms agreed upon in the New York Convention and UNCITRAL Model Law since the objective of the Convention is to arm arbitration as a method and ensure the enforceability and execution of arbitral awards across multiple jurisdictions. Therefore, it could be concluded that non-arbitrability clauses in Indian law are not compliant with this objective.
However, it should be noted that Articles 34 and 36 of the UNCITRAL Model Law on International Arbitrations provides that no arbitral award shall be recognized or enforceable in states where the subject matter of arbitration is not capable of being settled out of court or if the award is against the public policy of such state. The same words have been reiterated by the A&C Act, 1996 under sections 34 (2) and 48(2). The law, both international and domestic, is thus clear that not every issue may be arbitrable and that arbitral awards may be set aside in accordance with the laws of that country.
The A&C Act, 1996 in its entirety does not provide for the class of issues that are non-arbitrable. This has been determined by judicial precedents and other special statutes. Two cases hold the field and provide the necessary guidelines to determine the arbitrability of a case. They are –
- Booz Allen & Hamilton Inc v SBI Home Finance Ltd, (2011) 5 SCC 532
- Vidya Drolia and others v Durga Trading Corporation, (2021) 2 SCC 1
It may be useful, in this context, to understand the scope of the rights available to parties in regard to disputes. These are as follows:
a) Rights in Rem
b) Rights in Personam
Right in rem is a right the person exercises against the world at large while right in personam is a right that is exercisable only against specific person/s.
Any case that involves an element of right in rem is generally non-arbitrable and by default, taken up by the public fora. The types of remedy involved are not those which an arbitral tribunal is empowered to give. On the other hand, rights in personam are enforceable only against certain people, and are civil in nature; hence, these are amenable to arbitration though this is not a rigid or inflexible rule.
The case is foundational to the development of the parameters of non-arbitrability of disputes and the Supreme Court laid down general rules in this regard.
The Court discussed the three facets of arbitrability relating to the jurisdiction of the arbitral tribunal herein:
i) whether the disputes are capable of adjudication and settlement by arbitration? That is, whether the disputes could be resolved by a private forum chosen by the parties (the arbitral tribunal) or whether they would exclusively fall within the domain of public fora (courts)
(ii) Whether the disputes are covered by the arbitration agreement? That is, whether the disputes are enumerated or described in the arbitration agreement as matters to be decided by arbitration or whether the disputes fall under the `excepted matters' excluded from the purview of the arbitration agreement.
(iii) Whether the parties have referred the disputes to arbitration? That is, whether the disputes fall under the scope of the submission to the arbitral tribunal, or whether they do not arise out of the statement of claim and the counterclaim filed before the arbitral tribunal.
The Court also pointed out that adjudication in certain categories of cases were reserved for public fora exclusively as a matter of public policy. Other categories of proceedings, though not reserved exclusively for adjudication by public fora including courts and tribunals, may, by necessary implication stand excluded from the ambit of private fora. Furthermore, the Court added, subordinate rights in personam arising from rights in rem have always been considered to be arbitrable and hence may form one of the exceptions to the above.
The class of cases that cannot be arbitrated, as cited by the court in this case, includes-
(i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences;
(ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody;
(iii) guardianship matters;
(iv) insolvency and winding up matters;
(v) testamentary matters (grant of probate, letters of administration and succession certificate); and
(vi) eviction or tenancy matters governed by special statutes.
In A. Ayyasamy vs A. Paramasivam & Ors, J. D. Y. Chandrachud commented that there are classes of disputes which fall within the jurisdiction of special fora created under legislation which exclude the jurisdiction of the ordinary civil court.
In Vidya Drolia, while coming to an understanding of whether arbitrability can be analyzed by the Courts under Section 8 or 11 of the Act, J. N.V. Ramana, in agreement with J. Sanjiv Khanna held that Sections 8 and 11 of the Act have the same ambit with respect to judicial interference i.e. scope of judicial review and jurisdiction of the court is identical but extremely limited and restricted.
Subject matter arbitrability cannot be decided at the stage of Sections 8 or 11 of the Act, unless it’s a clear case of deadwood. The restricted and limited review is to check and protect parties from being forced to arbitrate when the matter is demonstrably ‘non-arbitrable’ and to cut off the deadwood.
The scope of the Court to examine the prima facie validity of an arbitration agreement includes only: a. Whether the arbitration agreement was in writing? or b. Whether the arbitration agreement was contained in exchange of letters, telecommunication etc? c. Whether the core contractual ingredients qua the arbitration agreement were fulfilled? d. On rare occasions, whether the subject matter of dispute is arbitrable?
The Court, under Sections 8 and 11, has the power to refer a matter to arbitration or to appoint an arbitrator, as the case may be, unless a party has established a prima facie (summary findings) case of non-existence of valid arbitration agreement.
The Court has the power to refer a matter if the validity of the arbitration agreement cannot be determined on a prima facie basis, as laid down above, i.e., ‘when in doubt, do refer’.
The Court may interfere at the Section 8 or 11 stage, as little as possible, when it is manifestly and ex facie certain that the arbitration agreement is non- existent, invalid or the disputes are non-arbitrable, though the nature and facet of non-arbitrability would, to some extent, determine the level and nature of judicial scrutiny.
