In Our Last Post, We Discussed Arbitration And Its Features. While The Same Is Important To Understand Whether Parties Would Like To Refer Their Disputes To Arbitration, It Is Equally Important To Understand Whether Disputes Between The Parties Can Even Be Referred To Arbitration In The First Place. To Clarify, Not All Disputes Can Be Referred To Arbitration. Therefore, It Is Important To Decipher How To Determine Whether Disputes Are Arbitrable.
Arbitrability of disputes – What is the relevance?
The Phrase ‘Arbitrability Of Disputes’ Has Not Been Defined Under The Arbitration And Conciliation Act, 1996 (“Arbitration Act”). However, Section 34 Of The Arbitration Act (Which Provides For Limited Grounds For Setting Aside An Arbitration Award) Provides That An Arbitral Award May Be Set Aside If The Subject Matter Of The Dispute Is Not Capable Of Settlement By Arbitration. Therefore, It Is Extremely Important To Ascertain Whether Disputes Are Capable Of Settlement By Arbitration Before The Same Are Referred To Arbitration.
Vidya Drolia v Durga Trading – The Four Pronged Test
Courts In Various Cases Have Elucidated The Concept Of ‘Arbitrability Of Disputes’. Recently, In Vidya Drolia & Ors. V Durga Trading (Special Leave Petition (Civil) Nos. 5605-5606 Of 2019, Decided On December 14, 2020), The Hon’ble Supreme Court Propounded The Following Tests Which Would Be Applicable To Determine Whether Disputes Are Non-Arbitrable:
A. “When The Cause Of Action And Subject Matter Of The Dispute Relates To Actions In Rem, That Do Not Pertain To Subordinate Rights In Personam That Arise From Rights In Rem.
B. When The Cause Of Action And Subject Matter Of The Dispute Affects Third Party Rights; Have Erga Omnes Effect; Require Centralized Adjudication, And Mutual Adjudication Would Not Be Appropriate And Enforceable;
C. When Cause Of Action And Subject Matter Of The Dispute Relates To Inalienable Sovereign And Public Interest Functions Of The State And Hence Mutual Adjudication Would Be Unenforceable; And
D. When The Subject-Matter Of The Dispute Is Expressly Or By Necessary Implication Non-Arbitrable As Per Mandatory Statute(S).”
While It May Be Relevant To Understand The Emergence Of The Aforementioned Principles By The Hon’ble Supreme Court, For Simplifying Whether The Disputes Are Arbitrable, It Is Important To Note That There Is No Straight-Jacket Formula For Determining Whether The Disputes Are Arbitrable. The Same Is Contingent On The Facts And Circumstances Of Each Case.
Applying The Aforementioned Principles, The Following Disputes Squarely Fall Within The Aforementioned Four-Pronged Tests And Hence, Cannot Be Referred To Arbitration. Please Note That The List Provided Below Is Not Exhaustive:
A. Criminal Offenses As These Offenses Are Against The State And Not Just Against The Victim. Further, These Relate To Sovereign Rights Of The State;
B. Matrimonial Disputes Relating To The Dissolution Of Marriage, Restitution Of Conjugal Rights, Etc. As These Are Sovereign Functions And Do Not Have Any Commercial Or Economic Value;
C. Testamentary Matters As These Are Actions In Rem;
D. Eviction-Related Matters Which Are Exclusively Governed By A Special Statute And A Specific Forum;
E. Insolvency Related Matters Or Intra-Company Disputes;
F. Grant And Issue Of Patents As Such Grants Confer Monopoly Rights; And
G. Registration Of Trademarks As Such Registration Confers Monopoly Rights.
Similarly, The Following Disputes Can Be Referred To Arbitration:
A. Contractual Disputes Between Parties, Exclusive Jurisdiction Over Which Has Not Been Granted To Any Court/Tribunal;
B. Landlord Tenant Disputes Under The Transfer Of Property Act, 1882 Which Pertain To Subordinate Rights In Personam And Not Rights In Rem As These Do Not Relate To Inalienable And Sovereign Functions Of The State. However, Landlord Tenant Disputes Exclusively Governed By The Rent Control Legislations May Not Be Arbitrable.
To Reiterate, There Is No Straightjacket Formula For Determining Whether A Particular Dispute Is Arbitrable. The Same Can Be Determined By Applying The Four Pronged Test, As Enlisted Above, To The Facts And Circumstances Of The Case.
We At WeVaad Help Our Customers In Resolving Their Legal Disputes By Way Of Online Dispute Resolution. Online Arbitration Is One Of The Mechanisms We Employ For Resolution.
Please Check Our Blog “Online Dispute Resolution: Arbitration At WeVaad” To Know More About Our Online Arbitration Mechanism.
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