DECIPHERING ARBITRABILITY OF DISPUTES IN LIGHT OF RECENT JUDICIAL PRONOUNCEMENT 

Author: Aman Jain

In India, arbitration has become the usual procedure for resolving business disputes.

It gives the parties significant liberty by allowing them to choose an impartial and flexible forum of judgement.However, the arbitrability of the dispute’s subject matter has always been a crucial issue before courts and arbitral tribunals.In the lack of a defined position under the Indian Arbitration and Conciliation Act, 1996 (“A&C Act”), the Supreme Court has promulgated various guidelines to assess whether a dispute is capable of adjudication/settlement through arbitration. It is imperative to gauge the arbitrability of disputes because the UNCITRAL Model law allows domestic courts to set aside an arbitral award if the subject matter of the dispute is perceived to be non-arbitrable under domestic law.

The conundrum around arbitrability of disputes was first settled by the Supreme Court in Booz Allen and Hamilton v. SBI Home Finance Limited and Others also known as Booz Allen case, where the court laid down the ‘test of arbitrability’ and categorized arbitrability into two segments, namely 

(i) Rights in personam (right against specific individuals) to be amenable to arbitration; and

(ii) Rights in rem (rights against world at large) to be adjudicated by the courts and public tribunals.The decision shows a pro-arbitration stance and seeks to broaden the scope of conflicts.

While the criteria given forth in the Booz Allen decision have long been used to assess the arbitrability of disputes, the Apex Court recently ruled in Vidya Drolia and Others v. Durga Trading Corporation, that they are no longer the driving element.has greatly clarified the position on the difficulties of subject-matter arbitrability.It established a four-part criteria for determining the arbitrability of disputes.As a result, a dispute is non-arbitrable under the new criteria where a cause of action or subject-matter of dispute.

ARBITRABILITY OF TENANCY DISPUTES

The Supreme Court’s ruling in the Vidya Drolia case has clarified the question of the arbitrability of landlord-tenant conflicts under the Transfer of Property Act of 1882 (“TP Act”).While assessing the matter at hand, the court alluded to a number of contradictory decisions and clarified the stance on requiring arbitration in tenancy disputes.In an earlier decision, Natraj Studio (P) Ltd. v. Navrang Studios & Ors[2], the Supreme Court ruled that tenancy issues under the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, must be resolved only through minor causes court proceedings and cannot be directed to arbitration.Following that, in the Booz Allen case, the Supreme Court set out specific situations in which tenancy disputes would be non-arbitrable.It went on to say that the TP Act does not exclude arbitrability.

As a result, a landlord-tenant dispute will be prohibited from arbitration only if and only if the following conditions are met:

  1. Eviction or tenancy issues are controlled by particular legislation; 
  2. the tenant has statutory protection against eviction; and only certain courts have authority to award eviction or resolve disputes.

ARBITRABILITY OF FRAUDS 

  The stance on arbitrability of frauds has been a murky issue that is mainly subject to judicial interpretation and is resolved case by case.

In the case of N. Radhakrishnan v. Maestro Engineers[3], the Supreme Court decided that unless the fraud is of a serious character or contains “serious accusations of fraud,” the authority of an arbitral panel to determine the dispute would not be revoked.

However, the ruling did not provide clear boundaries for what constitutes a significant accusation of fraud and what constitutes a “severe” fraud.

To resolve the position on the arbitrability of frauds, the Supreme Court overruled the N. Radhakrishnan v. Maestro Engineers judgement in the Vidya Drolia case and upheld that a fraud can be a subject-matter of arbitration provided that the alleged fraud does not invalidate the arbitration clause in an agreement or raise allegations against the state or its instrumentalities that require public inquiry.

ARBITRABILITY OF CONSUMER DISPUTES\

As India works toward establishing a fully pro-arbitration system, it is critical to consider the potential of resolving consumer conflicts through arbitration.

The Supreme Court addressed the question of consumer dispute arbitrability in Emaar MGF Land Limited v. Aftab Singh and Others [4] (the “Emaar Case”) in length.

The issue developed as a result of complaints made by homebuyers against the builder for failing to deliver apartments on the agreed-upon date under the Flat Buyers Agreement (“Agreement”).

When the homebuyers filed a complaint with the National Consumer Disputes Redressal Commission (“NCDRC”), the builder responded by filing an application under Section 8 of the A&C Act, sending the issue to arbitration because the Agreement included an arbitration provision.The NCDRC upheld the consumer complaints as non-arbitrable since the Consumer Protection Act of 1986 (“CPA”) is a specific statute designed to safeguard consumer rights and has its own dispute settlement system.Furthermore, the NCDRC emphasised that Section 2(3) of the A&C Act excludes certain kinds of conflicts that impact public interests in general (rights in rem) and so cannot be sent to arbitration.

The NCDRC’s ruling was confirmed by the Supreme Court in an appeal.It repeated the basis for categorising conflicts as rights in rem and rights in personam as articulated in the Booz Allen case, and then concluded that remedies granted under specific legislation, in this case, the CPA, are in addition to the provisions of other law now in effect. As a result, if an individual chooses to submit a complaint before the consumer forum in the first instance, the complaint cannot be prohibited just because an application under Section 8 of the A&C Act was filed.

CONCLUSION

Dispute arbitrability has developed substantially during the previous decade as a result of a spate of court declarations.The courts have often ruled on the arbitrability of dispute subject matter and have taken a pro-arbitration stance.The Supreme Court’s decision in the Vidya Drolia case clarified the situation in tenancy disputes, frauds, and consumer disputes.It represents the court’s progressive attitude and strives to create an efficient, autonomous, and effective arbitration system in India.

References

 1- www.mondaq.com/india/arbitration-dispute…

2 – Natraj Studio (P) Ltd. v. Navrang Studios & Ors

3- N. Radhakrishnan v. Maestro Engineers

agamalaw.in/2021/07/09/deciphering-arbitrability…

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