Arbitrability Of Disputes
Introduction
Parties seeking an alternative to the traditional court system, often turn to Arbitration as a means of dispute resolution. It is a consensual process wherein parties agree to submit their case to an impartial third party, an arbitrator, or a panel of arbitrators.
However, determining the arbitrability of a dispute requires a consideration of various factors, such as the specific laws, the jurisdiction, the terms of the arbitration agreement, the nature of the dispute, etc, as the non-arbitrability of a dispute might render the arbitration agreement invalid.
Usually, any dispute that has arisen out of a contractual relationship between two or more parties, is often arbitrable, for two simple reasons, one – arbitrability clause comes into place through an agreement between parties, unless under special circumstances, and two – an arbitration can only take place between two or more parties in dispute and not the entire world. Therefore, rights in persona which include contractual rights, tort claims, family law rights, IP licensing, employment rights, etc., are generally enforceable through arbitration.
What the Supreme Court has to say
There has been an evident advancement in the area of court pronouncements, which has made it easier to determine the arbitrability of various disputes.
In a recent judgment by the Supreme Court in the case of Sushma Shivkumar Daga v. Madhurkumar Ramkrishnaji Bajaj (2023), the court was presented with a question of determining whether cancellation of a conveyance deed is arbitrable, as there was no arbitration clause in the Conveyance deed.
As opposed to an action against the entire world, the court identified ‘Cancellation of a Conveyance deed and Development Agreements’ as an action in persona, that is, an action against an individual, and therefore found that the cancellation of a conveyance deed is arbitrable in nature.
[Image Sources: Shutterstock]
According to the facts of the case, there existed two Tripartite agreements between the parties, both of which contained an arbitration clause. The parties entered into a Conveyance deed and five Development Agreements in pursuance of the Tripartite agreements. The dispute arose between the parties on the question of declaring the Conveyance deed as null and void. The respondents urged the court to direct the matter to arbitration. Therefore, the court had to examine the arbitrability of the dispute before deciding whether to refer the matter to the arbitration tribunal.
The court relied upon the judgment of Vidya Drolia and Others v. Durga Trading Corporation (2019), which put forth a four-part test to determine the arbitrability of the subject matter of a dispute. These tests are used to determine whether a dispute is non-arbitrable based on whether the cause of action and subject matter are related to action in rem; whether they affect the third-party rights; whether they are based on “inalienable sovereign and public interest functions of the State”; or are expressly or by necessary implication non-arbitrable as per mandatory statutes. However, the court clarified that “These tests are not watertight compartments: they dovetail and overlap, albeit when applied holistically and pragmatically, will help and assist in determining and ascertaining with great degree of certainty when as per law in India, a dispute or subject matter is non-arbitrable – only when the answer is in the affirmative that the subject-matter of the dispute would be non-arbitrable.”
The judgment highlighted an essential aspect of a non-arbitrable dispute: an action in rem. According to the Supreme Court, in the judgment, any action in rem is non-arbitrable, whereas the court found an action in persona as arbitrable. Any rights against the entire world, are identified as rights in rem. On the other hand, rights exercised by a person against a single individual, are called rights in rem. Therefore, rights in rem generally include property ownerships, mortgages, easements, intellectual property rights providing exclusive control over the use of inventions or distinctive symbols, etc., security interests in personal properties, rights by survivorship, etc.
The court also examined the matter at hand through the lens of the Supreme Court’s judgment in the case of Deccan Paper Mills v. Regency Mahavir Properties (2016), wherein the court held that any suit for cancellation of a deed or a declaration of rights shall not be considered as an action in rem but an action in personam.
It was observed by the Supreme Court, as in Vidya Drolia (supra), that the court can decline a request to refer a dispute to arbitration, made under Section 8 or 11 of the Act, only under exceptional circumstances wherein, “either the arbitration agreement is non-existent or the dispute is itself ‘manifestly non-arbitrable’.
Examining of the Question of Arbitrability at Various Stages
Arbitrability concerns may be raised by a party at three different junctures, firstly, before a court by applying Section 11 of the Act, for reference to arbitration, or a stay of judicial proceedings on an application under Section 8 of the Act. The court is to examine whether an agreement contains an arbitration clause or whether the arbitration agreement was included in correspondence or other exchanges.
In the case of Madhurkumar Ramkrishnaji Bajaj (supra), the respondents moved an application under Section 8 of the Arbitration and Conciliation Act, 1996 for referring the matter to arbitration by relying upon the arbitral clause in the other Tripartite agreements between the parties. Addressing this issue raised by the respondent, the Apex court discussed how the role of a court in arbitration matters is limited and referred the matter to the arbitrator.
Secondly, an arbitrability concern may be raised before an Arbitral tribunal at the time of an arbitral proceeding. Under Section 16 of the Arbitration and Conciliation Act, the arbitral tribunal holdsthe power to decide on its jurisdiction. If the arbitrator finds that the nature of the dispute does not fall under the realm of the arbitration agreement or the arbitral tribunal, the arbitrator can direct the parties to the concerned authority. “In other words, the arbitral tribunal is competent to decide upon its own competence”, as decided by the court in the case of Uttarakhand Purv Sainik Kalyan Nigam Ltd., v. Northern Coal Field Ltd. (2020).
And lastly, concerns regarding arbitrability of a dispute can be raised at the stage of challenging an award or its enforcement, under Section 34 of the Act.
However, at any of these stages, it is to be examined whether the dispute is prima facie arbitrable. The court needs to decide on the question of arbitrability of the matter without entering into the merits of the case.
The various decisions by the Supreme Court highlight the intricate factors influencing arbitrability and emphasize upon the distinction between an action in rem and an action in personam, and how it affects the arbitrability of matters. In essence, these court verdicts contribute to the decision of validity of arbitration in various matters and play a pivotal role in guiding parties to the concerned authority.
Author: Vaishnavi Choudhary, in case of any queries please contact/write back to us at support@ipandlegalfilings.com or IP & Legal Filing
References
- Vidya Drolia and Others v. Durga Trading Corporation, 2019 SCC OnLine SC 358
- Sushma Shivkumar Daga v. Madhurkumar Ramkrishna Bajaj, 2023 INSC 1081
- Deccan Paper Mills v. Regency Mahavir Properties, CA 5147/2016
- Uttarakhand Purv Sainik Kalyan Nigam Ltd., v. Northern Coal Field Ltd., (2020) 2 SCC 455.
- Gyanvi Khanna, Cancellation Of Deed Is Action In Personam, Not In Rem; It Is Arbitrable: Supreme Court, (Dec. 20, 2023), https://www.livelaw.in/top-stories/cancellation-of-deed-is-action-in-personam-not-in-rem-it-is-arbitrable-supreme-court-244967.
