ADR Mid Semester - Take Home

Ans 1. The question of which matters can be related to arbitration and what is outside its
ambit is ambiguous at best in the Indian legal context. The question of arbitrability is not
edged in stone so as to act as a guiding light for courts to state which matters can be
arbitrable and which cannot. The Supreme Court first shed light on the implications of
Section 34(2)(b) similar Article 34(2)(b)(i) of the UNCITRAL Model Law. in Booz Allen
and Hamilton v. SBI Finance (‘Booz Allen’). The Court emphasised that the scope of
arbitrable disputes must be limited to those concerning ‘rights in personam’ or personal
rights enforceable against certain individuals. Contrary to it, ‘rights in rem’ exercisable
against the world at large were excluded from the scope of arbitrable disputes. Based on this
rationale, the Court identified an illustrative list of non-arbitrable disputes: criminal offences,
disputes concerning family laws, insolvency and winding up, testamentary matters and
tenancy disputes. It should be noted, however, that immediately succeeding this observation
the court notes that “this is not a rigid or inflexible rule. Disputes relating to sub-
ordinate rights in personam arising from rights in rem have always been considered to be
arbitrable. Thus although insolvency claims may not be arbitrable, the consequent breach in
a contract by virtue of insolvency is arbitrable. The test focuses on whether the action brought
is in the nature of an action in rem or an action in personam. It focuses upon the question of
whether a dispute is ‘inherently’ arbitrable due to the rights relied on in a dispute. Importantly
it does not look into whether the individual relief sought in the action is in rem or in
personam1.

The courts took heed of the wisdom and in Eros International v Telemax Links India Pvt Ltd
and accordingly the court stated the provision which precluded infringement claims from
being brought before a court hierarchically lower than the competent district court. Section
62(1) was not, however, intended to oust the jurisdiction of an arbitration tribunal. Based on
this preliminary finding, the Court proceeded to analyse the nature of infringement claims. It
noted that while an infringement action arising from a contractual relationship may succeed
against a certain defendant, this decision would not necessitate the success of such action
against a different defendant. Thus, while the overlying copyright is a ‘right in rem’
1
Arthad Kurlekar, ‘A False Start – Uncertainty in the Determination of Arbitrability in India’, Kluwer
Arbitration Blog, June 16 2016, http://arbitrationblog.kluwerarbitration.com/2016/06/16/a-false-start-
uncertainty-in-the-determination-of-arbitrability-in-india/
enforceable against the world at large, the specific contractual dispute over its infringement is
a ‘right in personam’ action against a particular individual. Accordingly, the dispute was held
to be arbitrable2.

Subsequently there have been cases where Booze Allen “principle” has been disregarded
wherein the case of  A. Ayyasamy v. A Paramasivam and others 3 decision paved way for
further confusion. This Supreme Court decision declared patents, trademarks, and copyright
disputes to be non-arbitrable in an obiter. This put a limitation and inflexibility on disputes
related to rights in rem but as this was an obiter it is not binding on the courts to follow.

In Pvt Ltd v Rakesh Kumar Malhotra it came up with a decision on the arbitrability of
oppression and mismanagement (shareholders’ claims against the company) under the
Companies Act of India (1956). Such a dispute revolves around specific actions taken by the
company defeating the shareholders’ interest and, thus, applying the Booz-Allen test, this
dispute would be arbitrable. In this case, however, the Bombay High Court held that the
arbitrator could not grant the relief sought and hence the dispute was not arbitrable. the focus
of the High Court is primarily on the relief sought. As per both these decisions, if the relief
sought by a party (as opposed to the right relied on by the party) is capable of settlement by
arbitration the Court will refer the matter to arbitration4.

“Both tests, namely the one based on the remedy and the one based on the nature of the relief
sought, remain ambiguous. Neither test clearly demarcates the boundaries of arbitrability. It
leaves the determination open on a case by to case basis rendering arbitration in India more
uncertain”.

While the tendency has been to keep complex technical matters from the scope of arbitration,
assiduous efforts have been made in U.S and Switzerland to permit arbitration on IPR issues
provided that the consequent award is registered with the relevant patent authority or board. (
2
Vishakha Choudhary, ‘Arbitrability of IPR Disputes in India: 34(2)(B) or Not to Be’, Kluwer Arbitration
Blog, August 15 2019, http://arbitrationblog.kluwerarbitration.com/2019/08/15/arbitrability-of-ipr-disputes-in-
india-342b-or-not-to-be/

3
2016 SCC ONLINE SC 1110

4
Ibid ‘1’
35 United States Code (U.S.C) § 294(d); Article 193.2, Swiss Federal Act on Private
International Law, 1989)5. Same progressive legislative reforms can be brought in the Indian
legal context for unequivocal clarity.

Ans 2. Germany is considered a leader in Arbitration dispute settlements in terms of their

laws and efficacy of it. The German Arbitration Act is an almost adaptation of the
UNCITRAL Model Law and easily accessible for foreign users.
The German Arbitration Act governs all arbitrations seated in Germany. Regarding the
applicable procedural rules, it does not distinguish between domestic and international
proceedings, or whether the dispute is commercial in nature. Almost all commercial disputes
are arbitrable (section 1030(1), Code of Civil Procedure (CCP)). Parties can agree to
arbitrate:
 “Any claim involving an economic interest
 Claims not involving an economic interest, as long as the parties may resolve the
subject-matter in dispute through settlement agreement”.
The only disputes that the German Arbitration Act explicitly declares non-arbitrable are
disputes relating to the existence of a lease of residential accommodation (section 1030(2),
CCP). Section 1030(3) of the CCP clarifies that other laws may contain additional
exceptions, and there is relevant family law and labour law legislation in this regard. Matters
relating to antitrust law, competition law, and IP law are generally arbitrable. But one of the
most important factors that makes Germany arbitration friendly is that the risk that German
courts intervene to frustrate arbitration proceedings is virtually non-existent. German
legislation and courts are very arbitration-friendly. Judicial interventions, if any, are usually
supportive6.
State courts cannot act regarding arbitral proceedings or arbitral awards unless the German
Arbitration Act explicitly entitles them to do so (section 1026, Code of Civil Procedure
(CCP)). The provisions setting out a role for state courts are listed in section 1062(1) of the
CCP. None of the relevant provisions puts a party into the position to obstruct, delay, or
derail an arbitration by way of frequent court applications. Section 1032(3) of the CCP, for
example, clarifies that an arbitration can be commenced, continued, or concluded while a
5
Ibid ‘2’
6
Gustav Flecke-Giammarco and Gebhard Bücheler, Seven Summits Arbitration, “Arbitration procedures and
practice in Germany: Overview”, https://uk.practicallaw.thomsonreuters.com/4-385-8191?
transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1
state court seized by one of the parties determines whether the matter in dispute falls under
the relevant arbitration agreement7. Whereas in India, to begin with matters having financial
tune to it like insolvency petitions, trust disputes, testamentary suits can’t be arbitrable and
while on the matter of court intervention compared to its German counterpart some
legislative and judicial developments for example section 5, section 8 of the act have sought
to limit the extent of court intervention, in practice, it is possible for parties to file multiple
applications and delay proceedings, both before and after the closure of arbitration
proceedings. Even if these applications are ultimately dismissed on merit, the process of
filing applications, serving the other side, hearing applications and seeking an order on these
applications, is used by the parties to buy time in a judicial system. Hence this creates an
unfavourable environment for resolvent of dispute through arbitration and also in case of
insolvency, in Germany  an arbitration can continue if one of the parties becomes insolvent.
The arbitration agreement is not affected by insolvency proceedings. New proceedings can be
commenced and, if the insolvency occurred after the arbitration, courts can declare the award
enforceable. However, execution is barred pending the insolvency proceedings.
Under the Insolvency and Bankruptcy Code 2016, when a proceeding for insolvency is
admitted, a moratorium is imposed on the party subject to the insolvency proceeding for a
period of 180 to 270 days. During this period of moratorium, there is a statutory stay on all
suits and proceedings, including arbitral proceedings, against the party subject to the
insolvency proceeding. It is to be kept in mind that insolvency itself is not arbitrable and this
is a situation wherein one of the parties during an arbitration proceeding relating to a different
matter receives an insolvency notice. As the case is in Germany, India should also strive for
such a reform where arbitration is not interrupted by insolvency because, if the case so
happens that insolvency winding up of the company doesn’t happen then they would have
lost on precious time in solving the dispute persisting between parties8.

Ans 3. The Apex Court in the case of SMS Tea Estates Pvt. Ltd. Vs. Chandmari Tea
Company Pvt. Ltd., (2011) 14 SCC 66, dealt with the question as to what if the arbitration
agreement is contained in an unregistered (but compulsorily registrable) instrument which is
not duly stamped? The Court held that, having regard to Section 35 of the Stamp Act, unless

7
Ibid
8
Pradeep Nayak, Sulabh Rewari and Vikas Mahendra, Keystone Partners, “Arbitration procedures and practice
in India: overview” , https://uk.practicallaw.thomsonreuters.com/4-385-8191?,
transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1
the stamp duty and penalty due in respect of the instrument is paid, the court cannot act upon
the instrument, which means that it cannot act upon the arbitration agreement also which is
part of the instrument. Therefore, when a lease deed or any other instrument is relied upon as
contending the arbitration agreement, the court should considers at the outset, whether an
objection in that behalf is raised or not, whether the document is properly stamped.

It has further been held, that if the Court comes to the conclusion that the instrument is not
properly stamped, it should be impounded and dealt with, in the manner specified in Section
38 of the Stamp Act, 1899. It has also been held, that the Court cannot act upon such a
document or the arbitration clause therein. However, if the deficit duty and penalty is paid in
the manner set out in Section 35 or Section 40 of the Stamp Act, 1899, the document can be
acted upon or admitted in evidence.

“The Apex Court further emphasised in Garware Wall Ropes v. Coastal Marine Construction
and Engineering Ltd9, and held that the court must impound an insufficiently stamped
document and hand it over to the relevant stamp authority for rectification. In order to
balance the objective of expeditious disposal of cases and revenue collection by the
authorities, the Supreme Court in Garware Wall Ropes case had stated that the revenue
authorities should resolve the issues relating to stamp duty as expeditiously as possible and
preferably within a period of 45 days from the date of receipt of such document”10.

And in its most recent decision of Supreme Court comprising of a three judge bench in M/s.
Dharmaratnakara Rai Bahadur Arcot Narainswamy Mudliar Chattram & Other Charities &
Ors. v. M/s. Bhaskar Raju & Brothers & Ors (2020). has reiterated that an instrument
containing an arbitration clause cannot be enforced for providing reliefs under Section 11(6)
of the Arbitration and Conciliation Act, 1996 unless the same is duly stamped in accordance
with law. This further cemented the Supreme Court’s declaration that an agreement only
becomes a contract if it becomes enforceable under the law, and under the Indian Stamp Act,
an agreement does not become enforceable under law if the same is unstamped or
insufficiently stamped. Hence, an arbitration clause contained in any such an agreement
would not exist when it is not enforceable

9
(2019) 9 SCC 209 
10
 Maneck Mulla and Akshitha Bhargava (M Mulla Associates), “India: Instrument Containing An Arbitration
Clause Cannot Be Relied Upon Unless It Is Duly Stamped”
Ans 4. According to the facts of the case the first issue that arises is whether the dispute can
be referred to arbitration ? Section 8 mandates that the subject matter of the dispute is the
same as the subject matter of the arbitration agreement.