Ordinarily every civil or commercial dispute whether based on contract or otherwise which is capable of being decided by a Civil Court is in principle capable of being adjudicated upon and resolved by arbitration “subject to the dispute being governed by the arbitration agreement” unless the jurisdiction of the Arbitral Tribunal is excluded either expressly or by necessary implication.
In Booz-Allen and Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532, the Hon’ble Apex Court set down certain examples of non-arbitrable disputes such as:
(a) Disputes relating to rights and liabilities which give rise to or arise out of criminal offences;
(b) Matrimonial Disputes relating to divorce, judicial separation, restitution of conjugal rights and child custody;
(c) Matters of Guardianship;
(d) Insolvency and Winding Up.
(e) Testamentary matters, such as the grant of probate, letters of administration and succession certificates; and
(f) Eviction or tenancy matters governed by special statutes where a tenant enjoys special protection against eviction and specific courts are conferred with the exclusive jurisdiction to deal with the dispute.
(g) The enforcement of a mortgage has been held to be a right in rem for which proceedings in arbitration would not be maintainable. In Vimal Kishore Shah v. Jayesh Dinesh Shah, 2016 (119) ALR 428, the Hon’ble Apex Court added a seventh category of cases, namely, disputes relating to trusts, trustees and beneficiaries arising out of a trust deed and Trust Act.
In Skypak Courier Ltd.v. Tata Chemicals Ltd., 2000 (40) ALR 255, it was held that the existence of an arbitration clause will not be a bar to the entertainment of a complaint by a forum under the Consumer Protection Act, 1986, since the remedy provided under the law is in addition to the provisions of any other law for the time being in force. Hindustan Petroleum Corporation Ltd. v. Kamalkant Automobiles, 2017 (123) ALR 369.
Independence and impartiality are two different concepts. An arbitrator may be independent and yet, lack impartiality, or vice versa. Impartiality, as is well accepted, is a more subjective concept as compared to independence. Independence, which is more an objective concept, may, thus, be more straightforwardly ascertained by the parties at the outset of the arbitration proceedings in light of the circumstances disclosed by the arbitrator, while partiality will more likely surface during the arbitration proceedings.
The United Kingdom Supreme Court has highlighted this aspect in Hashwani v. Jivraj, (2011) 1WLR 1872 in the following words:
“the dominant purpose of appointing an arbitrator or arbitrators is the impartial resolution of the dispute between the parties in accordance with the terms of the agreement and, although the contract between the parties and the arbitrators would be a contract for the provision of personal services, they were not personal services under the direction of the parties.” Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Ltd., (2017) 4 SCC 665.
It is settled that in exercise of jurisdiction under Section 11 of the Arbitration and Conciliation Act, the Court is to enforce terms of agreement for securing appointment of arbitrator. However, it is not denuded of jurisdiction to follow a different course, for justifiable cause, by giving reasons. Different contingencies requiring such departure have clearly been noticed. The ultimate object is to secure appointment of an impartial arbitrator and secure speedy resolution of dispute by way of arbitration. The scheme underlying the Arbitration and Conciliation Act has to be construed by harmoniously interpreting its provisions. It is imperative for the court to examine qualification and impartiality of arbitrator as well as to secure speedy resolution of dispute. The terms of arbitration agreement providing for arbitrator to be named by designation cannot be read in isolation. It also cannot be construed in a manner inconsistent with the scheme of the Act. The question is answered holding that an application under Section 11(6) of the Arbitration and Conciliation Act would lie also in a case where arbitrator is named, by designation, where (i) arbitrator named is not impartial, or (ii) he lacks required qualification, or (iii) for any other justifiable cause to secure speedy resolution of dispute, by way of a reasoned order. M/s AARGEE Engineering and Company v. ERA Infra Engineering Ltd., 2017 (122) ALR 179.
“Fraud” is a knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his detriment. Fraud can be of different forms and hues. Its ingredients are an intention to deceive, use of unfair means, deliberated concealment of material facts, or abuse of position of confidence. The Black’s Law Dictionary defines “fraud” as a concealment or false representation through a statement or conduct that injures another who relies on it.
The issue of arbitrability of fraud has arisen on numerous occasions and there exist conflicting decisions of the Apex Court on this issue. While it has been held in Bharat Rasiklal Ashra v. Gautam Rasiklal Ashra, (2012) 2 SCC 144 that when fraud is of such a nature that it vitiates the arbitration agreement, it is for the court to decide on the validity of the arbitration agreement by determining the issue of fraud, there exists two parallel lines of judgments on the issue of whether an issue of fraud is arbitrable. In this context, a two Judge Bench of the Supreme Court while adjudicating on an application under section 8 of the Arbitration and Conciliation Act, 1996 in N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72, held that an issue of fraud is not arbitrable. The decision was ostensibly based on the decision of the three Judge Bench of the Supreme Court in Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak, AIR 1962 SC 406. However, the said three Judge Bench decision (which was based on the finding in Russel v. Russel, (1880) LR 14 Ch D 471) is only an authority for the proposition that a party against whom an allegation of fraud is made in a public forum, has a right to defend himself in that public forum.
A distinction has also been made by certain High Courts between a serious issue of fraud and a mere allegation of fraud and the former has been held to be not arbitrable. The Supreme Court in Meguin GmbH v. Nandan Petrochem Ltd., (2016) 10 SCC 422 in the context of an application filed under Section 11 has gone ahead and appointed an arbitrator even though issues of fraud were involved. A. Ayyasamy v. A. Parmasivam, (2016) 10 SCC 386.
In McDermott International v. Burn Standard Co., (2006) 11 SCC 181, it was held as under:
“It is trite that the terms of the contract can be express or implied. The conduct of the parties would also be a relevant factor in the matter of construction of a contract. The construction of the contract agreement is within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and they cannot be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. It is also trite that correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law.
Once, thus, it is held that the arbitrator had the jurisdiction, no further question shall be raised and the court will not exercise its jurisdiction unless it is found that there exists any bar on the face of the award.”
In M.S.K. Projects (I)(JV) Ltd. v. State of Rajasthan, (2011) 10 SCC 573, the court held:
“If the arbitrator commits an error in the construction of the contract, that is an error within his jurisdiction. But of he wanders outside the contract and deals with matters not allotted to him, he commits a jurisdictional error. Extrinsic evidence is admissible in such cases because the dispute is not something whjich arises under or in relation to the contract or dependant on the construction of the contract or to be determined within the award. The ambiguity of the award can, in such cases, be resolved by admitting extrinsic evidence. The rationale of this rule is that nature of the dispute is something which has to be determined outside and independent of what appears in the award. Such a jurisdictional error needs to be proved by evidence extrinsic to the award. Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49.