Open Access Research Article
Vidya Drolia V. Durga Trading Corpn:A New Era Of Arbitration (By- Pranjal Pagaria)
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Article Details
Vidya
Drolia V. Durga Trading Corpn:A New
Era Of Arbitration
Authored By- Pranjal Pagaria
3rd year B.A. LLB at
Symbiosis Law School, Nagpur.
Background
“Justice delayed is justice denied”
To ensure that there is no delay in justice,
as it is the most basic right of every human to have access to free, fair and
speedy justice. But taking a glance at present scenario it is pretty clear that
overburdened and understaffed courts are the two most prominent hurdles in
achieving speedy delivery of justice.
To curb this shortcoming, ADR (Alternate
Dispute Resolution) as a mechanism was devised, arbitration serves the same
purpose. Arbitration, one of the alternate dispute resolution mechanisms, is
beneficial for those who wish to avoid the rigorous drawn-out court
proceedings. Arbitration is a private form of final and binding dispute
resolution presided over by an appointed arbitral tribunal (one or three
arbitrators, typically) acting in a quasi-judicial manner.
As per Black’s Law Dictionary, arbitration
means- “The submission for determination of disputed matter to private
unofficial persons selected in manner provided by law or agreement”.
Precedents
The statutory provisions laid down in the
Arbitration and Conciliation Act of 1996 (and further the amendments introduced
in 2015 and 2019) provide a very strong base to arbitration as a relatively new
legal process.
But the statute maintains silence as to the
subject matters which can go to arbitration. Is it an open-ended aspect that
all matters without any check can approach arbitration? The case of Booz
Allen Hamilton v. SBI finance Home[1]
provided a list of subject-matters that are non-arbitrable, which is to say all
other subject-matters that do not fall into those 6 types are arbitrable.
This case categorically said that all those
rental agreements which are governed by special statutory provisions are not
arbitrable.
The case of Himangni enterprise v.
Kamaljeet Ahluwalia’s[2] case
adjudicated that all those rental agreements which are under the governance of
Transfer of Property Act are non-arbitrable. This clash of 2 precedents made it
extremely necessary for a fresh case to step-in and remove the anomalies.
Along with these 2 questions of arbitrable
subject matters and arbitrability of rental agreements under Transfer of
Property Act. There arose another question of the stages where the
arbitrability of a subject matter can be challenged and before which forum
court or arbitral tribunal?
Introduction
‘Vidya Drolia v. Durga Trading Corpn.,’[3] is
the very recent as well as the most landmark case in the history of Indian
arbitration as it provides the much-needed clarity on three questions.
- What are the subject matters that are
arbitrable?
- Are rental agreements under the purview
of Transfer of Property Act arbitrable?
- Lastly, at what different stages
arbitrability of a subject matter can be raised and before which forums?
With regards to the arbitrable subject
matters, instead of giving a definite list of subject-matters, the Hon’ble
Supreme Court in this case devised a four-fold test[4]
to decide that when a subject matter suffices the pre-requisites of these 4
tests, that subject matter is not arbitrable.
TEST 1- “When 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.”
A right in rem is a right exercisable against
the world at large, as contrasted from a right in personam which is an interest
protected solely against specific individuals.
TEST 2- “When 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.”
Erga omnes, in Latin means ‘towards all’. This
means the cases which have effect on all the people, third party, will fall
into the category of non-arbitrable subject matters.
TEST 3- “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.”
TEST 4- “When the subject-matter of the dispute is
expressly or by necessary implication non-arbitrable as per mandatory
statute(s).”
To answer the 2nd question of
whether rental agreements under the governance of Transfer of Property Act are
arbitrable or not, the Hon’ble engaged these 4 tests-
TEST 1- The rights arising out of landlord-tenant agreement
are subordinate rights in personam arising out right in rem as they predominantly
affect the rights of the parties to the agreement and have no effect on any
third person.
TEST 2- Landlord-tenant agreements are private to 2
individuals they cannot affect the rights of a third party. Thus, these
agreements do not require centralized adjudication and can be resolved through
mutual adjudication by means of arbitration as is the contention of the
appellant at hand.
TEST 3- Landlord-tenant disputes do not relate to
inalienable and sovereign functions of the State.
TEST 4- the agreements between landlord-tenant especially
when they are governed by Transfer of Property Act, implies that this specific
being a general statute the agreement is arbitrable.
Thus, in the very of Vidya Drolia[5] the
Hon’ble Supreme Court adjudged that- “The provisions of the TP Act do not
expressly or by necessary implication bar arbitration”.
“Landlord-tenant disputes governed by the TP
Act are arbitrable as they are not actions in rem but pertain to subordinate
rights in personam that arise from rights in rem. Such actions normally would
not affect third-party rights or have erga omnes affect or require centralized
adjudication. Landlord-tenant disputes do not relate to inalienable and
sovereign functions of the State”. Thus, these rental agreements between
landlord-tenant are arbitrable.
This case by answering the 3rd
question, not only provided clarity as to a legal question. But also provided a
firm footing to arbitral tribunal’s jurisdictional power juxtaposed to courts
with respect to arbitrability test.
The Hon’ble Supreme Court held that there are
3 stages at which the arbitrability of a subject-matter can be questioned.
Stage 1 – Referral stage-
Before the court – at the very stage where an
application has been filed under section 8- parties to be referred to
arbitration where there is an arbitration agreement read with section 11 -
appointment of arbitrators.
Stage 2- During proceedings-
The court held that the arbitral tribunals are
empowered to rule on the arbitrability of a subject mid-proceeding.
This judgment gave a broad interpretation to
section 16 of Arbitration and Conciliation Act, 1996 which though states that
arbitral tribunal is competent to rule on its own jurisdiction. But sub-section
2 of this section provides a cap to this power by saying that “The question
that arbitral tribunal does not have jurisdiction should be raised not later
than the submission of statement of defence.”
This judgement came in consonance with the
doctrine Competence-Competence which inherently empowers the adjudicating body
to decide its own jurisdiction. In the case of ‘N.N. Global Mercantile Pvt.
Ltd. V. M/S Indo Unique Flame Ltd.[6]’,
the Hon’ble Supreme Court ruled that-
“The doctrine of kompetenz-kompetenz implies
that the arbitral tribunal has the competence to determine and rule on its own
jurisdiction, including objections with respect to the existence, validity, and
scope of the arbitration agreement, in the first instance.”
Stage 3- Setting aside the arbitral award-
Again, the jurisdiction can be questioned
before the court when an application is made under section 34 to set aside the
arbitral award.
Conclusion
Arbitration being a relative new field
required a lot of judicial interpretation, the precedents though provided a lot
of clarity but at the same time created a confusion with regards to the powers
and jurisdictional engagements of the arbitral tribunal.
Moreover, case of ‘SBP Co. v. Patel
Engineering Ltd.’,[7] also
created a conflict between the courts and arbitral tribunal with respect to
jurisdictional powers. It said that arbitral tribunal is empowered to rule on
its own jurisdiction only when there is a court referred arbitration. This
meant the subordination of arbitral tribunal thereby refuting the main
intention behind the inception of arbitration as a process.
Thus, in such scenario where there is a lot of
confusion with respect to the position and powers of arbitral tribunal this
case of ‘Vidya Drolia v. Durga Trading Corpn.’[8],
is the much needed one. This case not only just provided clarity but at the
same time also established arbitral tribunals as independent entities which are
not subordinate to rather assisted by courts.
In a commercialised world in which we live in
free, fair and speedy is a basic requirement, hence the upliftment and
streamlining of arbitral tribunal’s as provided by this case is the
sin-quo-non.
THANK YOU
Article Information
Vidya Drolia V. Durga Trading Corpn:A New Era Of Arbitration (By- Pranjal Pagaria)
Authors: Pranjal Pagaria
- Journal IJLRA
- ISSN 2582-6433
- Published 2022/07/20
- Volume 2
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
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