India: Redefinition Of Key Aspects Of Arbitration In India

Last Updated: 8 August 2018
Article by Chirag Shah

Co-authored by Malavika Menon



  1. Non-Arbitrable Disputes in India

It is an established legal principle that all disputes relating to rights in personam are considered to be amenable to arbitration and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals. However, the same is not set in stone and is subject to the facts and circumstances of each case.

In a landmark judgement of the Apex Court in Booz Allen and Hamilton Inc. Vs. SBI Home Finance Ltd. and Ors. [Civil Appeal No. 5440 of 2002], it was inter-alia held that certain categories of cases, though not expressly reserved for adjudication by public fora (courts and Tribunals), may by necessary implication stand excluded from the purview of private fora. In view thereof, where the cause/dispute is in arbitrable i.e. the same is of a nature which renders it incapable of being submitted to arbitration, the court, will refuse to refer the parties to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996 (the "Act") despite the fact that the parties might have agreed upon arbitration as the forum for settlement of such disputes.

In furtherance thereto, the Court enlisted the following non-arbitrable disputes:

  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. testamentary matters (grant of probate, letters of administration and succession certificate); and
  6. eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.

The Apex Court cited the judgement laid down in Vimal Kishor Shah and Ors. Vs. Jayesh Dinesh Shah and Ors. [Civil Appeal No. 8164 of 2016 (Arising out of SLP (C) No. 13369 of 2013)], wherein another category of non-arbitrable disputes was identified viz., disputes relating to trusts, trustees and beneficiaries arising out of trust deeds and the Indian Trust Act, 1882. This would hold true despite the existence of an arbitration agreement to that effect between the parties.

  1. Whether mere allegation of fraud renders a matter in arbitrable

In a judgement of the Supreme Court in N. Radhakrishnan v. Maestro Engineers and Ors., it was held that where there are serious allegations of fraud, the matter warranted trial by a court and not an arbitrator as the civil court would be the more competent authority to decide the same.

However, in a recent judgement of the Supreme Court in A. Ayyasamy Vs. A. Paramasivam and Ors. [Civil Appeal Nos.8245-8246 of 2016], the Supreme Court has while agreeing with the principle laid down in N. Radhakrishnan v. Maestro Engineers and Ors inter-alia held that where there are allegations of fraud simplicitor and such allegations are merely alleged, it may not be necessary to nullify the effect of the arbitration agreement between the parties as such issues can be determined by an arbitral tribunal. The Supreme Court has attempted to ensure that this does not become a convenient mode of avoiding the process of arbitration by simply using the device of making allegations of fraud and pleading that issue of fraud needs to be decided only by a civil court.

In the light of the above, it is quite evident that where there are simple allegations of fraud touching upon the internal affairs of the party inter se which have no implication in the public domain, the arbitration clause in an arbitration agreement need not be avoided and the parties can be relegated to arbitration.

The Supreme Court has reiterated the same view in the recent case of Ameet Lalchand Shah and Ors. Vs. Rishab Enterprises and Ors. [2018 (4) SCJ 654]. (supra)

  1. Reference to Arbitration in the absence of arbitration clause

The Supreme Court of India in the case of Chloro Controls (I) P. Ltd. Vs. Severn Trent Water Purification Inc. and Ors. [(2013) 1 SCC 641] has inter-alia dealt with the issue as to whether a dispute may be referred to arbitration as a whole or in part where the parties are claiming through a party to the arbitration agreement where:

  1. multiple agreements have been signed between different parties and where only some contain an arbitration clause and others do not; and
  2. the parties are not identically common in proceedings before the Court (in a suit) and the arbitration agreement.

The Supreme Court has inter-alia held that, (i) the requirement for an arbitration agreement to be in writing, is an expression incapable of strict construction and required to be construed liberally; and further that (ii) a non-signatory or third party could be subject to arbitration without their prior consent in exceptional cases. In order to reach this conclusion, the Court will need to examine these exceptions from the touchstone of a direct relationship to the party signatory to the arbitration agreement, direct commonality of the subject matter and the agreement between the parties being a composite transaction.

In the recent case of Ameet Lalchand Shah and Ors. Vs. Rishab Enterprises and Ors. [2018 (4) SCJ 654], the Apex Court was posed with a similar issue as to whether all parties to the four agreements can be referred to arbitration despite one of the agreements not having an arbitration clause.

After having analyzed the commercial understanding surrounding the four agreements, the Court was of the opinion that there was a clear nexus amongst the four agreements which were culminating into one composite arrangement. Thus, despite the absence of an arbitration agreement in one of the four agreements (not being the principal agreement), the matter could most certainly be remanded to arbitration in view of the fact that the principal agreement contained an arbitration clause.  

Conclusion:

By virtue of the aforesaid rulings, the Supreme Court has redefined certain key aspects of arbitration in India which were essentially res integra and not specifically provided for under the Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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