Arbitrability is one of the concerns where the jurisdictional and contractual natures of international commercial arbitration collide. It involves the unpretentious question of what categories of issues can and cannot be acquiesced to arbitration. Party autonomy advocates the right of parties to acquiesce any dispute to arbitration. It is the party’s right and choice to choose out of the standard national court jurisdiction. National laws frequently levy restrictions or limitations on what matters can be referred to and determined by arbitration. For example, states or state entities may not be permitted to make arbitration agreements at all or may require a distinctive authorisation to do so. This is commonly known as “subjective arbitrability.” More important than the limitations involving the parties are restrictions concerning the subject matter in issue. This is known as “objective arbitrability.” Some disputes may contain such subtle public policy issues that it is believed that they should only be dealt with by the judicial authority of state courts. An understandable example is criminal law which is normally the domain of the national courts.
The Supreme Court discussed the concept of arbitrability in detail in Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd., and held that the term ‘arbitrability’ had diverse meanings in varied contexts:
- It included disputes that can adjudicated through arbitration,
- It included disputes covered in the arbitration agreement, and
- It included disputes that parties have mentioned to arbitration.
It specified that in principle, any dispute that can be resolved by a civil court can also be settled through arbitration. However, some disputes may, by mandatory insinuation, stand excluded from determination by a private forum. These non-arbitrable disputes include:
- disputes involving rights and liabilities giving rise to or arising out of criminal offences;
- matrimonial disputes concerning divorce, judicial separation, restitution of conjugal rights, or child custody;
- guardianship disputes;
- insolvency and winding up disputes;
- testamentary disputes (grant of probate, letters of administration and succession certificate); and
- Eviction or tenancy disputes administered by special statutes where the tenant enjoys legal protection against eviction and only the specified courts are deliberated jurisdiction to grant eviction or resolve the disputes.
Further, in the case of N. Radhakrishnan v. M/S Maestro Engineers the Supreme Court held that where fraud and grave malpractices are suspected, the dispute can only be resolved by the court and such a condition cannot be referred to an arbitrator. The Supreme Court also witnessed that fraud, economic malpractice and collusion are accusations with criminal repercussions and as an arbitrator is a person of the contract, he has restricted jurisdiction. The courts are more fortified to judge grave and multifaceted allegations and are proficient in offering a broader range of reliefs to the parties in clash. But in the cases of Swiss Timing Limited v. Organizing Committee, Commonwealth Games 2010, Delhi and World Sport Group (Mauritius) Ltd. v. MSM Satellite (Singapore) Pte. Ltd., the Supreme Court held that assertions of fraud are not a limit to refer parties to a foreign-seated arbitration and the only exceptions to refer parties to foreign seated arbitration are those which are mentioned under Section 45 of Act. The section mentions cases where the arbitration agreement is either:
- null and void; or
- inoperative; or
- incapable of being performed.
Thus, it appeared that though charges of fraud are not arbitrable in ICAs with India as its seat, the same limit would not apply to ICAs with a foreign seat.
The verdict of the Supreme Court in A Ayyasamy v. A Paramasivam & Ors. has elucidated that accusations of fraud are arbitrable as long as it concerns simple fraud. The Apex Court in this case held that:
- allegations of fraud are arbitrable unless they are grave and multifarious in nature;
- unless fraud is suspected against the arbitration agreement, there is no disablement in arbitrability of fraud;
- The judgment in Swiss Timing did not override Radhakrishnan. The ruling distinguishes between ‘fraud simpliciter’ and ‘serious fraud’, and accomplishes that while ‘serious fraud’ is best left to be resolved by the court, ‘fraud simpliciter’ can be adjudicated by the arbitral tribunal. In the same disposition, the Supreme Court has said that an appointed arbitrator can comprehensively scrutinize the allegations concerning fraud.
The Delhi High Court in the case of Sudhir Gopi v. Indira Gandhi National Open University held that another case which is not arbitrable includes the principle of alter ego. Whereas, in GMR Energy Limited v. Doosan Power Systems India Private Limited & Ors., the Delhi HC perceived that the judgment in Sudhir Gopi is per incuriam as it was conceded without taking into account the verdict of the Supreme Court in A Ayyasamy wherein the Supreme Court had carved out cases which cannot be devoted to arbitration.
In a recent case of Rashid Raza vs. Sadaf Akhtar, the Supreme Court reiterated its judgment in A Ayyasamy and set out the working tests for deciding if an accusation of fraud is arbitrable while appointing an arbitrator under Section 11 of the Act. It concluded with two working tests from A Ayyasamy to govern this distinction between simple allegations of fraud or otherwise, they are as follows:
- If this plea infuse the entire contract and before everything, the agreement of arbitration, rendering it void, or
- Whether the allegations of fraud trace the inner affairs of the parties inter se having no inference in the public sphere.
The Apex Court in the case of Vimal Shah & Ors. v. Jayesh Shah & Ors., held that disputes relating to Trust Deeds and the Indian Trusts Act, 1882 cannot be referred to arbitration.