Arya Gaddam
(The author is a 5th year Law Student at MNLU Aurangabad)
The concept of Arbitrability:
In simple words, arbitrability refers to the capacity or possibility of a dispute or claim to be adjudicated by an arbitral tribunal. This concept is crucial in determining the jurisdiction of the arbitral tribunal and whether the parties have the option to choose arbitration as a method of resolving their dispute. The principle of arbitrability is established on the idea that not all disputes are suitable for resolution through arbitration and some disputes, such as criminal cases, are typically considered non-arbitrable. The concept of non-arbitrability implies the limitation on arbitration as a dispute resolution mechanism.
As per the UNICITRAL Model Laws, the provisions of the arbitration laws would not affect any lex fori provision which prohibits a dispute to be adjudicated by an arbitration mechanism. In the context of Indian Law, According to the Arbitration and Conciliation Act 1996 (hereinafter “the arbitration act”), the provisions of the act would not apply to any dispute, whereby a particular law lays down the same. Further, Section 34, which lays down conditions to set aside an arbitral award, also provides that an award may be set aside if the dispute was not capable of being settled through arbitration. Thus, the act clearly recognizes the principle of non-arbitrability. However, what exactly is arbitrable is a grey area. The act has not laid down in explicit terms which disputes would be considered non-arbitrable per se. It is left to the courts to decide the principles of non-arbitrability by ex visceribus actus. The concept of arbitrability is also closely related to public policy.
It can be observed through various other decisions of the Apex Court that until the recent landmark case of Vidya Drolia and Ors. v. Durga Trading Corporation (Vidya Drolia), the question of arbitrability of disputes was decided on the basis of either the nature of rights involved or the exclusive jurisdiction of a particular judicial authority over a dispute as laid down by any law. Vidya Drolia, the recent landmark case which has settled the position of law regarding arbitrability, has laid down a fourfold test. According to the same, the following four kinds of disputes are not arbitrable:
Actions in rem, which pertains to rights in rem, but not subordinate rights in personam
Disputes having an impact on third-party rights, where a mutual settlement would not be suitable
Disputes wherein the subject matter relates to inalienable and essential functions of the State
The law specifically states or implies that a particular dispute is non-arbitrable.
Although these four criteria laid down are not “watertight compartments” to decide the arbitrability, they would certainly act as crucial guiding principles. The case is also important because it reiterated the principle “When in doubt, refer to arbitration”.
What important is to this particular research essay, is the authority which decides the arbitrability of the dispute. The issue has wide ramifications as it directly impacts party autonomy and the principle of kompeteze kompetenze, which are the main foundation stones of the arbitration law. The principle of kompetenze kompetenze upholds the jurisdiction of the arbitral tribunal as to rule upon their own jurisdiction and non-arbitrability issues. The general global perspective in this particular issue is “pro-arbitration”. The French practice is to leave the issues of existence and validity of arbitration agreement to the arbitrators. The same has been followed by the US Courts.
In the context of Indian Law, one has to also refer to Section 11 of the Arbitration Act. The said section is the starting point of an arbitration proceeding, as it lays down the procedure of appointment of the arbitral tribunal and the power of the Supreme Court or High Court to appoint the arbitrator. As would be seen from judgments in the at-variance precedents on this topic, who decides non-arbitrability still remains a difficult question that does not have a clear-cut universal solution.
Evolution of Section 11:
The arbitration law in India has witnessed many changes. When the 1940 Act of Arbitration law made “the lawyers laugh and legal philosophers weep”, the parliament introduced the Arbitration and Conciliation Act 1996 which is based on the UNICITRAL Model Law on International Commercial Arbitration,1985 and the UNICITRAL Model Conciliation Rules, 1980. The main motive behind this move was to establish a uniform practice, par with the global standards, keeping in mind the increasing global relations due to the liberalisation policy introduced by the P V Narasimha Rao Government. The purpose behind the act, which is a self-contained exhaustive code, is to minimize judicial intervention and expedite the appointment of the arbitral tribunal
However, this act failed to guarantee party autonomy, which is considered the focal point of alternative dispute mechanisms. Section 11 of the 1996 act dealt with appointments of the arbitral tribunal by the High Court conferred a wide set of powers. The Courts were thus allowed to take “necessary measures” while entertaining petitions under section 11, and often considered complex issues of validity, duration etc of the claim. Parties faced a full-blown trial even before the appointment of the tribunal where the actual adjudication of the dispute would begin.
This substantial intervention of the court in arbitration matters was undeniably unfavourable in the arena of alternative dispute resolution. The Law Commission of India, in its 246th report, thus recommended when parties approach the judicial authority in the pre-arbitral stage, it should confine its jurisdiction to decide the prima facie existence of the arbitration agreement. If the answer comes out positive, the parties should be referred to arbitration. However, if the decision comes out against the existence of such an arbitration agreement, the decision should be final and not prima facie. The commission had also included an explanation clause to this effect, which sadly did not form part of the 2015 Amendment to the act.
The Arbitration and Conciliation Act 1996 was amended by Arbitration and Conciliation (Amendment) Act 2015. What is relevant to this research essay is the insertion of subclause 6A in Section 11. As per the amended provision, whenever a party approaches the court through a section 11 petition, the Supreme Court or the High Court would only consider the issue of the existence of the arbitration agreement. Further, the amendment has laid down the finality of the said order passed by the Supreme Court or High Court, as the case may be.
Ramifications of the 2015 Amendment:
The 2015 amendment indeed brought significant changes to the arbitration law. The amendment established a new mechanism relating to the appointment of the arbitral tribunal and legislatively overruled the ratio of Patel Engineering Ltd. Justice Kurian Joseph in his judgement in the case of M/s. Duro Felguera, S. A. v. M/s. Gangavaram Port Ltd., observed that the legislative intent behind the 2015 amendment to the act is crystal clear- to minimize judicial intervention by restricting the Court’s jurisdiction to only the existence of the arbitration agreement. The court has to only look at whether there is an arbitration clause in the contract between the parties, pertaining to which the dispute has arisen, leaving the preliminary issues to be decided by the arbitral tribunal. Thus, the scope of enquiry by the court is narrow in the sense that the court has to only establish a connection between the existence of an arbitration agreement, the arbitration mechanism agreed upon by the parties and the occurrence of dispute in relation to that contract.
However, this “Hands-off” approach of court can be detrimental. Coming back to the case of Vidya Drolia, the Apex Court after deciding what exactly is arbitrability and the criteria to decide the same, also dealt with the issue of the authority to decide the issue of arbitrability. It was held that the courts should be prima facie satisfied that an arbitration agreement exists. However, when such prima facie review is not sufficient and it is manifestly clear that the arbitration agreement is non-existent, in those rare cases, the court may interfere at the stage of Section 8 or a Section 11 petition itself, so as not to force parties to arbitrate non-arbitrable disputes. Further, the court would by default refer the matter to arbitration when contentions relating to non-arbitrability are plainly arguable. This interpretation grants adequate judicial scrutiny and at the same time does not harm the principle of Kompeteze kompeteze. This view of Vidya Drolia was again reiterated in the case of Mohd. Masroor Shaikh v. Bharat Bhushan Gupta and Ors, wherein it was held that the issue of non-arbitrability is left to be decided by the arbitral tribunal.
CONCLUSION:
To give the short answer to the research question, arbitrability is not a precondition for an order under section 11. As per section 11 (6A) of the act, the court’s jurisdiction is limited to the examination of the existence of an arbitration agreement. When necessary at the referral stage, the courts' limited scope assures prompt, efficient resolution. What is to be kept in mind is that judicial interference should not overpower the jurisdiction of the arbitral tribunal. The author would also like to highlight Justice D. Y. Chandrachud’s observation, that the arbitration act should be interpreted in a way to bring it in consistent with global standards, i.e, the pro-arbitration approach as noted before. However, there are certain flaws to this approach. The principle of “when in doubt, refer” certainly places a large reliance on and presupposes the capability of the arbitrator to rightly determine these issues. Thus, the arbitrators should be reminded of their positive duty to pass an enforceable award. Otherwise, failure to determine the issue of arbitrability would ultimately result in setting aside the award under section 34 of the act, which would in turn frustrate the intention of the arbitration mechanism, i.e., to provide an efficient alternative dispute resolution mechanism.
The “existential” crisis of section 11(6A) is further aggravated by the fact that the Arbitration and Conciliation (Amendment) Act 2019 actually lays down a provision for repealing the said section and leaving the complete authority to appoint arbitrators to various arbitral institutions. This move is made keeping in mind the goal of the legislature to promote institutional arbitration. In the author’s opinion, repeal of Section 11(6A) is certainly not the answer. Completely removing the supervision of the court would have a destructive effect. A balance has to be maintained by the judiciary itself between party autonomy and judicial intervention.
Komentarai