NON ARBITRABLE DISPUTES: A CRITICAL ANALYSIS

Rahul Gupta

Arbitration is generally considered a more efficient process than litigation because it is quicker, less expensive and promotes greater flexibility of process and procedure. Lately, India has gained its status to be considered a pro-arbitration centre by the world and is shaping its Arbitration and Conciliation Act, 1996 (“the Act”) in order to become a world-wide hub for arbitration. The main objectives of “the Act” interalia are to ensure that rules are laid down for international as well as domestic arbitration and conciliation and also to ensure that arbitration proceedings are just, fair and effective. Significant amendments have been made in “the Act” in order to achieve its overall goal of promoting arbitration but it is also paradoxical that the nature and category of disputes which are non-arbitrable are also on the rise.

The issue of arbitrability of disputes has arisen for consideration by the courts in India on several occasions. Supreme Court, time and again, has passed orders and decisions on this aspect making it a hot topic in the field of contract law. Recently, in the judgment Himangni Enterprises vs. Kamaljeet Singh Ahluwalia”1 dated 12.10.2017, Supreme Court has ruled that the provisions of “the Act” are not applicable in cases of eviction between landlord and tenant governed by Transfer of Property Act, 1882 and only civil courts have the jurisdiction to decide the same. Now, in the subsequent case “Vidya Drolia vs. Durga Trading Corporation”2 dated 28.02.2019, this issue has been referred to a larger Bench of three judges.

However, every civil and commercial dispute is capable of being adjudicated by arbitration unless the jurisdiction of Arbitral Tribunal is barred under law. However, “the Act” (Amendment Act, 2015) does not specify any category of civil or commercial disputes excluded from arbitrability. Section 8 of “the Act” mandates that where a cause of action is brought before a court in a matter, which is subject of an arbitration agreement, the parties shall be referred for arbitration, subject to the exceptions given in Section 8 of “the Act”. However, courts in certain category of disputes (non-arbitrable nature) decline to refer the parties to arbitration and has held that such disputes are reserved exclusively to be tried by public fora (courts/tribunals) constituted under law. Such category of matters considered to be non-arbitrable in various decisions of the Supreme Court “Booz Allen & Hamilton Inc. vs. SBI Home Finance Ltd.”3 dated 15.04.2011 and “A. Ayyasami vs. A. Parmasivam & Ors.”4 dated 04.10.2016 are enumerated as under:

  1. Disputes relating to rights and liabilities which give rise to or arise out of criminal offences;
  2. Matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody;
  3. Guardianship matters;
  4. Insolvency and winding-up matters;
  5. Matters related to grant of probate, letters of administration and succession certificate;
  6. Matters related to eviction of tenants where tenant enjoys statutory protection against eviction by special statutes;
  7. Patent, trade-marks and copyright;
  8. Anti-trust/competition laws;
  9. Fraud
  10. Consumer Disputes

 

Despite the above clarity, there have been instances where it has been found difficult to take a view whether the matter is of non-artitrable nature. It is worth noting that courts have made distinctions between serious issue of fraud and mere allegation of fraud while deciding the categories of disputes as non-arbitrable. A serious issue of fraud has been held to be non-arbitrable. The allegations of fraud should be such that not only these allegations are serious but in normal course, the allegations may have constituted criminal offences and are so complex in nature that the decision on these issues warrants detailed and elaborate evidence for which only courts would be proper and appropriate fora than the arbitral tribunals. Similarly, the cases falling under the Consumer Protection Act, 1986 which is a welfare legislation, with primary objective of protection of aggrieved consumers, who are more often than not in a more vulnerable position than their corresponding vendors or service providers, are also non-arbitrable.

Comment:

The principle of rights in rem and rights in personam seems to be a convincing test for non-arbitrability besides those cases which are covered under special legislations/acts/statues and the jurisdiction of the civil court is specifically and explicitly barred.

References:-

  1. E Civil Appeal No. 16850/2017 arising from SLP (C) No. 27722/2017
  2. SLP (C) No. 22211/2018
  3. (2011) 5 SCC 532
  4. (2016)10 SCC 386