Ishita Chandra
The author is a student at Dr. B.R. Ambedkar National Law University, Sonepat, Haryana
Introduction
“I can imagine no society which does not embody some method of arbitration.” - Herbert Read. Due to the many benefits it provides, arbitration, a typical technique of resolving disputes, has now become well-known in India. The Arbitration and Conciliation Act, 1996 (Hereinafter “the Act”) is legislation governing arbitration in India and exhaustively specifying the arbitration process and procedures.
“Arbitrability” of a dispute refers to the ability of a dispute to constitute the subject matter of the arbitration. It pertains to the jurisdictional aspects of a dispute. It goes beyond the preliminary determination of the legal validity of the arbitration agreement and tries to ascertain whether the dispute is capable of being adjudicated by a private forum instead of courts. The question of arbitrability of a dispute is often raised as a defence, either at the time of arbitration proceeding or when the enforcement of the arbitral award is sought. Therefore, the issue of arbitrability can arise at the initial or pre-reference stage of the proceeding. Furthermore, the question of arbitrability can also be raised, before a court, after the arbitration proceedings have culminated in an arbitral award. This can result in the award being set aside by the court if it was to conclude that either the subject matter of the award is non-arbitrable under the existing law or the award falls foul of the public policy of the country. Arbitrability of the subject matter is an essential precondition without which even a valid arbitration agreement would not allow the parties to settle their disputes amicably through arbitration. It separates the different types of disputes that may be resolved through arbitration and the ones that are reserved to be exclusively dealt with by the courts.
Tests to Ascertain the Arbitrability
The courts have devised certain kinds of tests to ascertain the arbitrability of a subject matter.
According to the Indian Supreme Court, disputes originating under a statute are subject to arbitration if the statute does not expressly or impliedly preclude arbitration. In order to confine the extent of the court's authority to the determination of an arbitration agreement's existence, the court considered the 246th Law Commission Report on the amended Sections 11(6A) and 16 (komptenz-komptenz) of the Act.
It was observed by the Supreme Court in the matter of Booz Allen and Hamilton Inc. v. SBI Home Finance Limited and Ors. (hereinafter Booz Allen), that specific types of disputes could be settled only via adjudication in public forums. This commemorated the advent of the test of exclusive jurisdiction over public forums.
The test of exclusive jurisdiction would restrict the arbitrability of a subject matter arising out of law if both of the following conditions are met. Firstly, the law creates unique rights and obligations that are not already present under common law; and secondly, the law, as a matter of public policy, provides for a unique and distinct remedy and specialised forum for the resolution of disputes involving such rights and obligations.
The Supreme Court has traced different facets of arbitrability relating to the jurisdiction of the Arbitral Tribunal. These are:
Whether the arbitration agreement applies to the disputes. That is, whether the conflicts are listed or identified as matters subject to arbitration in the arbitration agreement.
Whether arbitration can be used to decide the disputes and settle them. In other words, whether the parties' disagreements might be settled in a private forum they both agreed upon (the Arbitral Tribunal).
Whether the parties have presented their disagreements and disputes to arbitration. That is, whether the conflicts are covered under the submission to the arbitral tribunal.
In Booz Allen, the Court has defined six categories of disputes as non-arbitrable. These include disputes relating to rights and liabilities which give rise to or arise out of criminal offenses, matrimonial disputes, guardianship matters, etc. Moreover, it has also held that all disputes related to rights in personam are amenable to arbitration and all disputes concerning rights in rem must be decided by courts and public tribunals.
In the matter of Vimal Kishor Shah and others v. Jayesh Dinesh Shah and others, the Supreme Court carved out a seventh category of the case to the non-arbitrable category and added to the sixth category set out in Booz Allen namely disputes relating to trust, trustees, and beneficiaries arising out of a trust deed and the Trust Act.
Judicial Intervention: A Necessary Evil
The core of arbitration is a legally binding arbitration agreement. The cornerstone upon which the entire structure of the arbitral process is built is a valid arbitration agreement. The absence of such an arbitration agreement calls for the interference of the Court to determine whether the dispute in question is arbitrable or not. However, the extent of judicial intervention in arbitration proceedings has been restricted to what has been expressly provided in the Act, and the question of non-arbitrability is also to be determined by the Arbitral Tribunal. The legislative mandate and the general rule/principle is that it is the Arbitral Tribunal and not the court which determines the said question.
The Court/Judicial Authority may only intervene if it determines that the arbitration agreement is either non-existent or void. When the Court/Judicial Authority is prima facie satisfied against the argument challenging the arbitration agreement, it shall appoint the arbitrator and/or refer the parties to arbitration, as the case may be. If the judicial authority determines, prima facie, that the arbitration agreement exists, then it shall refer the matter to arbitration and let the arbitral tribunal make the final decision about the existence of the arbitration agreement.
The Court in the matter of Vidya Drolia and Ors. v. Durga Trading Corporation decided that the Arbitral Tribunal is the first preferred authority to examine and adjudicate all non-arbitrability-related issues. Following Sub-clauses (i), (ii), or (iv) of Section 34(2)(a) or Sub-clause (i) of Section 34(2)(b) of the Arbitration Act, the court has the authority to take a "second look" at non-arbitrability issues after the arbitral award has been made.
Although the nature and aspect of non-arbitrability would, to a certain extent determine the level and nature of the judicial intervention, the court may intervene at Section 8 or Section 11 stage when it is manifestly and ex facie certain that the arbitration agreement is non-existent, invalid, or the disputes are not arbitrable. The restricted and limited review intends to weed out the deadwood and protect the parties from being compelled to arbitrate where the dispute is unquestionably non-arbitrable. It is not the stage for the court to conduct a mini-trial or an exhaustive investigation in an endeavour to usurp the authority of the arbitral tribunal. Rather, the courts must strive to find the integrity and effectiveness of arbitration as an alternative dispute resolution method.
In the recent case of M/S. Emaar India Ltd. vs Tarun Aggarwal Projects LLP, the Supreme Court held that the Court can hold a preliminary inquiry to determine whether the dispute is arbitrable or not when an application is made under Sections 11(5) & (6) and an objection to the same is made by the respondent.
A preliminary inquiry to determine whether the dispute is arbitrable or not can save the parties from being unnecessarily dragged into arbitration. At the reference stage itself, the court can examine the question of non-arbitrability and decide whether the arbitration clause will apply to the case. The courts cannot leave the issue unresolved for the Arbitral Tribunal to review and decide. The Supreme Court has brought clarity to the question of whether the Court can hold a preliminary inquiry as to the arbitrability of the dispute by holding that a preliminary inquiry can be made when an objection is preferred by the respondent.
Conclusion
Arbitration can supplement India's overworked justice delivery system. But a lot would depend on the attitudes of the parties and the judiciary's critical support indicated by a bias against arbitration agreements. The concept of arbitrability is a cornerstone of arbitration policy and framework. It grants the courts the ability to decline the enforcement of an arbitration agreement (that is otherwise legal) based on public policy.
The courts, while determining the issue of arbitrability, must consider the relaxation of arbitrability norms (by an economy bolstered by an adventurous investment policy of the executive), on one hand, and the perspicuity of a cautious approach that commands economic progression to be reflective of and in tune with the socio-economic realities of its time and must be assessed on the constitutionally guaranteed pursuit of ensuring distributive justice.