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This post this authored by Parv Lodha, third year student of LL.B. at the Government Law College, Mumbai. This is the second part of this two-part blog. The first part can be accessed here.
1.INTRODUCTION
In 22Light v. OESPL Pvt. Ltd. (“the Judgment”), apart from the ground of the claims of the applicant being manifestly meritless, the Judgment also held that the application was seeking arbitration for a claim that was not arbitrable and for a claim which did not amount to a dispute whatsoever. As expressed in Paragraph 15 of the Judgment,
15. Applying the said position of law, this Court is entitled to examine as to whether it can be said that an arbitrable dispute indeed exists between the parties. If it is found on a prima facie scrutiny of the material on record that the dispute sought to be raised on behalf of the applicant cannot be said to be a dispute at all, that can be raised in the facts and circumstances of the case, the present application cannot be granted.
While Part 1 discussed the grounds of manifestly meritless claims, this Part seeks to examine whether the application was liable to be rejected on the grounds of non-arbitrability and non—existence of dispute in terms of the prevailing law as established by landmark judgments.
2.ARBITRABILITY AND EXISTENCE OF DISPUTE
As was held by the Supreme Court of India in Vidya Drolia v. Durga Trading Corporation (2020 SCC ONLINE SC 1018), subject-matter arbitrability was to be determined by a Court only on “rare occasions,” and even then, the questions to be determined exclusively by the Court were limited to only certain questions, none of which would’ve held the dispute in the Judgment to be non-arbitrable. Neither was the cause of action an action in rem, nor was it affecting third party rights, nor did it have an erga omnes effect, nor was there need for centralised adjudication, nor was the question of the State’s sovereignty involved and there was no statute which mandatorily barred the applicant’s claim for arbitration.
Moreover, even if it is contended that the question of arbitrability before the Bombay High Court (“BHC”) was one of arbitrability of the claim and not subject-matter arbitrability, even then no strong case for non-arbitrability is made out. In Vidya Drolia (supra), the Supreme Court observes that,
“There is a difference between a non-arbitrable claim and non-arbitrable subject matter. Former may arise on account of scope of the arbitration agreement and also when the claim is not capable of being resolved through arbitration.”
Therefore, non-arbitrability of a claim, even if it is to be determined by the Court, is limited to two questions - whether the claim is within the scope of the arbitration agreement and whether the claim is capable of being resolved through arbitration. As far as the first question was concerned, it was not even the case of the respondent that the claim was beyond the scope of the MoU’s arbitration clause. The respondent never contested that the claims in the invoices were beyond the scope of the arbitration clause, the respondent mainly centred its arguments around the fact that the events which would’ve led to the claims springing into existence had never occurred. The question of what is within the scope of the arbitration agreement can be determined by using the ratio laid in State of Goa v. Praveen Enterprises (2012 SCC 12 581),
“Where the arbitration agreement provides that all disputes shall be settled by arbitration but excludes certain matters from arbitration, then, the arbitrator will exclude the excepted matter and decide only those disputes which are arbitrable. But where the reference to the arbitrator is to decide specific disputes enumerated by the parties/court/appointing authority, the arbitrator's jurisdiction is circumscribed by the specific reference and the arbitrator can decide only those specific disputes.”
In the Judgment, it is quite apparent that the invoices mention claims which are related to the performance of the applicant’s obligations under the MoU, to which the arbitration clause in the MoU would also apply. Therefore, the first question of non-arbitrability of claim cannot be said to make the claim in the Judgment non-arbitrable. To determine the second question of whether the claim was “capable of being resolved through arbitration,” the Supreme Court in Vidya Drolia (supra) gave a further explanation of what being “capable of being resolved through arbitration,” meant by referring to Booz Allen and Hamilton Inc. v. SBI Home Finance Limited (2011 SCC 5 532):
“…(i) Whether the disputes are capable of adjudication and settlement by arbitration? That is, whether the disputes, having regard to their nature, could be resolved by a private forum chosen by the parties (the Arbitral Tribunal) or whether they would exclusively fall within the domain of public fora (courts).”
Therefore, it can be observed that the second question of non-arbitrability of claims is concerned with a civil court having jurisdiction over the claim, of which, no case is made out stating such by the respondent in the Judgment. A contractual dispute related to the arrangement of finances is capable of arbitration and there is no statute which expressly and exclusively confers jurisdiction on deciding the same to a civil court.
Therefore, neither is there a case of non-arbitrability of subject-matter, nor of claim. The BHC seems to have conflated the question of arbitrability with that of existence of dispute. The former is a question which is to be determined by Courts only on “rare occasions,” the latter is a necessary precondition for arbitration to take place.
In Paragraph 15 of the Judgment, the BHC held that there was no dispute at all for the application to be admitted, however, it might be possible that the BHC read too much into the question of the existence of a dispute and was so unconvinced by the weak merits of the applicant’s claims that it conflated the lack of merit with the non-existence of a dispute.
In Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority (1988 AIR SC 1007), the Supreme Court defined what would qualify as a dispute for the purpose of necessitating arbitration:
“There should be dispute and there can only be a dispute when a claim is asserted by one party and denied by the other on whatever grounds. Mere failure or inaction to pay does not lead to the inference of the existence of dispute. Dispute entails a positive element and assertion of denying, not merely inaction to accede to a claim or a request. Whether in a particular case a dispute has arisen or not has to be found out from the facts and circumstances of the case.”
Therefore, for a dispute to exist – there needs to be a claim and a converse repudiation of the claim, but nowhere is it suggested that the strength of the claim would affect the existence of the claim. In the Judgment, it can clearly be seen that the applicant had a claim based on the TS prepared by it and the claim was repudiated by the respondent on the ground that no subsequent IM had been prepared and no disbursal of finances was made. Therefore, the requirement of a claim and a repudiation had been satisfied, fulfilling the precondition of arbitration. A decision on whether the events which would make the claims enforceable was one that could be left to the excusive jurisdiction of the sole arbitrator, instead of being decided by the BHC. As has been held in Mayavti Trading Pvt. Ltd. v. Pradyuat Deb Burman (2019 SCC ONLINE SC 1164), the merits of any claim fall under the third category of questions of determination, which are the exclusive jurisdiction of the arbitral tribunal.
Had there been no repudiation to 22Light’s claim by OESPL, the BHC could’ve rejected the application on the grounds of non-existence of a dispute, as did happen in the case of Dilip Construction Company v. Hindustan Steel Ltd. (1973 SCC ONLINE MP 22).
A case similar to 22Light v. OESPL (supra) that came before the BHC was that of Mohanraj Co. Operative Housing Society Ltd. v. Akar Creations (2018 SCC ONLINE BOM 14780), where a Section 11(6) petition was made and the respondent claimed that there was no dispute in existence for the application to be admitted. The BHC rejected this argument by referring to the invocation notice and held that a dispute did exist. The BHC merely made a perusal and a mention of the invocation notice without commenting on the merits of the applicant’s claim or the strength of the applicant’s case. The BHC confined itself to two questions in a very brief judgment – the existence of the arbitration agreement and the existence of a dispute.
3.CONCLUSION
To conclude, it would be useful to refer to the case of Malini Ventura v. Knight Capital Pte Ltd ([2015] SGHC 225), where the Singapore High Court used the words “logical discomfort,” to describe how it felt to let an arbitrator determine its own jurisdiction, however the Court also held that in keeping with the principle of “kompetenz-kompetenz,” such logical discomfort had to be overcome and disregarded. It would’ve therefore been a better approach by the BHC in the Judgment to have left the question of non-arbitrability and non-existence of the dispute to the arbitrator.
In order to usher in an arbitration-friendly environment, overcoming logical discomfort and interventionist tendencies is imperative.