An arbitration clause cannot give a private tribunal jurisdiction over everything. Certain subjects are reserved to the courts or to specialised forums, and an award on them is liable to be set aside.
The governing test
Booz Allen & Hamilton v. SBI Home Finance (2011) drew the line between rights in rem, which bind the world and are for the courts, and rights in personam, which bind the parties and are arbitrable. Vidya Drolia v. Durga Trading (2021) refined this into a fourfold test: a dispute is non-arbitrable when it relates to actions in rem, when it affects third party rights and requires centralised adjudication, when it relates to the inalienable sovereign functions of the State, or when a statute expressly or by necessary implication makes it non-arbitrable.
Commonly non-arbitrable
- Criminal offences. A settlement may affect a compoundable case, but guilt is never arbitrable.
- Matrimonial disputes: divorce, judicial separation, restitution of conjugal rights, and child custody.
- Guardianship matters.
- Insolvency and winding up.
- Testamentary matters, including grant of probate and letters of administration.
- Eviction or tenancy governed by a rent control statute that confers exclusive jurisdiction on a special court. Ordinary landlord and tenant disputes under the Transfer of Property Act were held arbitrable in Vidya Drolia.
- Disputes where a statute creates a dedicated forum, such as certain consumer, trust and NCLT matters. Note that a consumer can still choose to go to the consumer commission despite an arbitration clause, because that remedy is additional and cannot be ousted.
The old view that any allegation of fraud pushed the matter to the civil court has gone. Following Avitel Post Studioz (2020) and Vidya Drolia, allegations of fraud are arbitrable unless they are of such a nature that they vitiate the arbitration clause itself, or the allegation has a public flavour rather than being an inter-party dispute. Pleading fraud is no longer a route out of an arbitration clause.
Who decides arbitrability
Primarily the tribunal, under the principle of competence-competence in Section 16. A court at the Section 8 or Section 11 stage will only decline reference where the non-arbitrability is clear and obvious on the face of the record. So an argument about arbitrability usually has to be run before the tribunal first.