Introduction

Arbitrability plays a pivotal role in dispute resolution, determining if a particular dispute can be resolved through arbitration. Several key factors, including, among other things, procedural/curial laws, governing law and actual text of the arbitral agreements, identity of the parties, etc., help establish arbitrability.[1]

The creation of a contract,[2] party autonomy, and consensus ad idem form the cornerstones of the private resolution method,[3] which make for an efficient alternative to traditional litigation. Over the years, courts have developed frameworks and tests to ascertain the extent of arbitrability, often drawing from landmark cases. However, the legal landscape regarding the scope of arbitrability has been silent in international[4] and Indian texts.[5] The absence of statutory rules has led to judicial interpretation playing a crucial factor in assessing the meaning of arbitrability. This article aims to delve into the broad intricacies of arbitrability, focusing particularly on the evolution of the Booz Allen test, the judicial interpretations that followed, and which ultimately led to the development of the expansive fourfold test in the Vidya Drolia case, which has sought to settle the legal debate on the arbitrability of disputes.

The Booz Allen Test: A Foundational Framework

The Booz Allen test, derived from the seminal Supreme Court decision in Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. & Ors.,[6] established the criteria for assessing the arbitrability of disputes. The issue was whether arbitration could settle a suit of enforcement of a charge/mortgage. The Apex Court answered in the negative and recognised three conditions that had to be satisfied for a subject matter to be referred to arbitration[7]:

• The disputes must be capable of adjudication and settlement by arbitration;
• The disputes must be covered by the arbitration agreement; and 
• The parties must have referred the disputes to arbitration.

The Court, among other things, also lay down six categories of disputes as incapable of being settled by arbitration[8]:

• Disputes relating to rights and liabilities which give rise to or arise out of criminal offences;
• Matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody;
• Guardianship matters;
• Insolvency and winding up matters;
• Testamentary matters; and
• Eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction.

The nature of rights involved is the basis for determining arbitrability. Rights in personam (rights and interests of specific persons) as prevalent in contracts are amenable to arbitration, whereas rights in rem (rights and interests exercisable against the world) require judicial intervention. The Court also held that subordinate rights in personam arising from rights in rem may be referred to arbitration. This test emphasised that certain categories of disputes are non-arbitrable due to the nature of implications resulting from the rights.  

Since 2011, the Booz Allen test has formed the guiding principle for determining the arbitrability of disputes in India, setting a benchmark for subsequent deliberations on arbitrability and holding the field of law on arbitrability until the Vidya Drolia decision.

Aftermath of Booz Allen: Subsequent Refinements and Variations

Following the Booz Allen test, Indian courts have faced nuanced scenarios that require further delineation of arbitrable disputes, with the scope of disputes involving fraud, taxation, insolvency, etc., being open to debate. By expanding upon the Booz Allen test, the Supreme Court has contributed to the evolving jurisprudence on arbitrability and shaped the contours of permissible arbitration.

In Shri Vimal Kishor Shah v. Jayesh Dinesh Shah & Others,[9]the Supreme Court examined the Indian Trusts Act, 1882, and held that disputes arising out of trust deeds form part of the civil court’s jurisdiction. The Indian Trusts Act, 1882, is a complete code, has a comprehensive machinery to deal with all issues relating to a Trust, and provides for the specific remedy of adjudication of disputes by a Civil Court, barring any dispute resolution through arbitration. This ensured culling out a seventh exception to arbitrability.

Further, in Ayyasamy v. A. Paramasivam and Others,[10]the Supreme Court held that conferring exclusive jurisdiction to a specified court or tribunal as a matter of public policy, implicitly bars the remedy by arbitration. The Court also examined the arbitrability of disputes involving fraud, holding that while allegations of fraud not affecting the public domain shall be amenable to arbitration, the courts will adjudicate serious instances of fraud because these demand extensive evidence.

The Supreme Court has provided a standard test for determining arbitrability in Booz Allen and subsequent judicial pronouncements. However, lower courts have differed on their interpretation of arbitrability. Following are some instances:

• In Rakesh Kumar Malhotra v Rajinder Kumar Malhotra,[11] the Bombay High Court excluded arbitrability for a disputeof oppression and mismanagement (shareholders’ claims against the company) under the Companies Act of India, 1956, recording that despite shareholders’ interest being aggrieved, parts of the relief may be in rem and, therefore, outside the purview of the arbitrator.

• In Eros International Media Ltd. v. Telemax Links India (P) Ltd.,[12] the Bombay High Court held that contractual rights related to copyrights are amenable to arbitration as the remedy is a right in personam, whereas the claim for copyright is a right in rem.

• In Lifestyle Equities CV v. Q.D. Seatoman Designs Pvt. Ltd. and Ors.,[13] the relief sought was for a decree of permanent injunction, i.e., right in personam and not for declaratory relief of ownership of copyright, which is a right in rem and, therefore, the same was amenable to arbitration.   

In the aforestated set of cases, the courts emphasised on the nature of the relief sought, as opposed to the rights and interest of the parties, to determine the feasibility of settlement by arbitration. The Booz Allen approach allows parties to circumvent the test by claiming for reliefs outside the purview of the arbitration. The test falls short in instances wherein the relief may in essence be arbitrable. The Supreme Court has stated that the facets of arbitrability expressly laid down in Booz Allen are not a hard–and-fast rule to be blindly followed.

[To be continued in Part II]

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[1] Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552

[2] Bhaven Construction v. Executive Engineer, Sardar Sarovar Narmada Nigam Ltd, (2022) 1 SCC 75

[3] Cox & Kings Ltd. v. SAP India (P) Ltd., (2024) 4 SCC 1

[4] The following provisions in international text lack guidance with regard to arbitrability:

Article 34 (2b), UNCITRAL Model Law on International Commercial Arbitration 1985: An arbitral award may be set aside by the court specified in article 6 only if: (b) the court finds that:

• the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State; or
• the award is in conflict with the public policy of this State.

Article II(1) of the New York Convention:Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.

[5] The following provisions of the Arbitration and Conciliation Act of 1996 do not expressly address the limits and contours of arbitrability in India:

Section 2(3): This Part shall not affect any other law for the time being in force by virtue of which certain disputes may not be submitted to arbitration.

Section 34(2B): An arbitral award may be set aside by the Court only if (b) the Court finds that—(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or (ii) the arbitral award is in conflict with the public policy of India.

Section 48(2):Enforcement of an arbitral award may also be refused if the Court finds that—(a) the subject-matter of the difference is not capable of settlement by arbitration under the law of India; or (b) the enforcement of the award would be contrary to the public policy of India.

[6] (2011) 5 SCC 532

[7] Para 34 of (2011) 5 SCC 532

[8] Para 36 of (2011) 5 SCC 532

[9] Para 46 of (2016) 8 SCC 788

[10] Para 18 of (2016) 10 SCC 386

[11] 2014 SCC OnLine Bom 1146

[12] 2016 SCC Online Bom 2179

[13] (2017) 8 MLJ 385