Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court. But, in the practical aspect of Arbitration proceedings, even if there exists an arbitration agreement between the parties, the court has to consider various factors before referring the parties to the arbitration proceedings.
In case of Booz Allen Hamilton vs. SBI Home Finance (2011) 5 SCC 532, it is held by Supreme Court that if the subject matter of dispute is not capable of settlement by arbitration under the law for the time being in force, such award is liable to be set aside. Supreme Court has enumerated some of such non arbitrable disputes and has held that such action would be an action in rem and not in personam and are thus not arbitrable even if parties agreed to refer such dispute by consent.
It was held that following disputes cannot be referred to Arbitration even if there exists Arbitration Agreement between the Parties:
(1) Disputes relating to criminal offence
(2) Matrimonial disputes
(3) Guardianship matters
(4) Insolvency and winding up matters
(5) Testamentary matters
(6) Eviction or tenancy matters
(7) Suit for enforcement of mortgage by sale of property.
(8) Intellectual Property Dispute.
(9) Those disputes which shall be taken up by the court having exclusive jurisdiction, such dispute cannot be referred to Arbitration.
Right in Rem:
When an arbitrator is appointed in a Right in Rem claim, the Respondent has to raise an objection under section 16 before the learned arbitrator before filing first statement of defense. And Arbitral Tribunal has to give its ruling on that objection whether it has jurisdiction or not.
But a view taken by Supreme Court is also is, that if an action in Rem and no such objection is raised under section 16 of Arbitration Act at the threshold before the learned arbitrator, whether that may amount to waiver or not?
The Supreme Court held that, even if no objection is raised under Section 16, the consent of parties or by silence would not amount to confer jurisdiction as the matter itself is not arbitrable. In that event, High Court under section 34 also can set aside an award though no objection is raised.
Bombay High Court in the case of The Indian Performing Right Society Ltd. vs. Entertainment Network (India) Ltd.- (2016) SCC Online Bom 589 has held that declaration granted by the arbitral tribunal in respect of the copyright of the parties which was an action in rem and was not arbitrable. It is held that since the arbitral tribunal inherently lacked the jurisdiction to adjudicate upon such claim made by the claimant, it would not amount to a waiver under Section 4 of the Arbitration Act. It is held that a party even by consent cannot confer jurisdiction on the arbitral tribunal in case of action in rem which jurisdiction the arbitral tribunal did not have.
Illustration:
Where two of the family members had some disputes regarding properties. They appointed some lay person as Arbitrator who was one of the family members. The arbitrator was not familiar with the procedure, he was consulting with both the parties sometimes in presence of each other and otherwise separately about their respective claims and respective defense orally. And on the basis of such oral discussion with the parties, learned arbitrator made an award. That award was challenged before Bombay High Court.
The respondent in this petition, raised an issue that you did not raised an issue before the arbitrator that there was no statement of claim filed by the claimant. Therefore, it amounted in waiver, therefore you cannot raise such issue for the first time before the court under section 34.
Bombay High Court took a view that, statement of claim is must under section 23 of the arbitration Act. Because unless statement of Claim is filed, the respondent does not get an opportunity to deal with the case of the claimant. And unless he has opportunity, there is no question of arbitrator adjudicating upon the oral discussion by treating oral discussion as statement of claim and statement of defense. Hence, there is no question of Waiver.
Conclusion: Therefore, the right of the parties to sue in right in rem claims is not taken away by entering into an arbitration agreement with the other party or even when the dispute is wrongly referred to Arbitration, and if no objection is raised, the exclusive right to sue and set aside the arbitration award is intact.
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