The alternate dispute resolution mechanism in India, rules and regulations in relation thereto are provided by the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). The Arbitration Act, however, does not provide any specific category or an exhaustive list of the types of disputes which are included and/or excluded from its ambit.
The law on arbitrability of disputes has evolved in the last two decades starting from Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd.1 wherein the Hon’ble Supreme Court (“SC”) took the view that disputes relating criminal offences; matrimonial disputes relating to divorce, judicial separation, child custody; testamentary matters, insolvency and winding up matters and eviction tenancy etc. to be non-arbitrable. Another important observation that the SC made in that case was, when the dispute is based on assertion of rights in personam, it is arbitrable. Otherwise, it is not. The court also observed:
“Every civil or commercial dispute, either contractual or non-contractual, and which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless it is excluded either expressly or by necessary implication.’
Apart from the aforementioned six exceptions, a seventh exception regarding non-arbitrable disputes was also added by the SC in the case of Shri Vimal Kishor Shah & Ors. v Mr. Jayesh Dinesh Shah & Ors.2wherein it held that disputes arising out of Trust Deeds and the Indian Trust Act, 1882 were non-arbitrable.
Arbitrability of IP Disputes
Another category of disputes which joined the controversy relating to arbitrability of disputes was intellectual property disputes. This category of disputes witnessed quite a tussle between Apex Court and the High Courts, on the issue of arbitrability.
In A. Ayyasamy v. A. Paramasivam and Ors.3, the Apex Court included ‘patents, trademarks, copyrights’ in the category of non-arbitrable cases. In EuroKids International Private Limited v. Bhaskar Vidhyapeeth Shikshan Sanstha4 , however, the Hon'ble Bombay High Court adopted a different approach and while entertaining a Section 9 Petition, under the Arbitration Act, restrained the respondents from using the trademark and copyright of the petitioner. It was observed that there is no dispute about the petitioner's ownership of the trademark and copyright involved in the present case, therefore, the proceedings filed by the petitioner cannot be considered as proceeding in rem. Thus, the Court allowed the petition filed by the petitioner to restrict the respondent from breaching the terms of the franchise agreement entered between them.
In Eros International Media Limited v. Telemax Links India Pvt. Ltd. and Ors.5, disputes had arisen between parties in relation to a term sheet (containing an arbitration clause) for granting content marketing and distribution rights in respect of films. While the Term Sheet laid down a clause for execution of a ‘long form agreement', no such agreement was executed between the parties. Eros filed a suit for infringement of copyright of its content by Telemax under Section 62 of the Copyright Act, 1957, claiming that Telemax was not entitled to exploit and deal with such content before execution of such ‘long form agreement’. Telemax filed an application under Section 8 of the Arbitration Act stating that all disputes between Eros and Telemax be referred to arbitration in view of the arbitration clause in the Term Sheet.
It was Eros’s contention that the suit filed is for infringement of copyright and hence non-arbitrable. In order to arrive at a finding in its favour for the damages claimed, finding of infringement of copyright was necessary, which can only be given by a Court and can never be done by an Arbitrator. Eros also contended that disputes in copyright infringement and passing off are non-arbitrable as such, these actions are actions in rem. This, however, was opposed by Telemax on the ground that all civil disputes mentioned in the Term Sheet and in the Arbitration Agreement lend themselves to arbitration, and it is settled law that all civil disputes are, by definition, arbitrable except those that are specifically excluded under the Booz Allen.
Considering the rival contentions, the court inter alia observed:
“Where there are matters of commercial disputes and parties have consciously decided to refer these disputes arising from that contract to a private forum, no question arises of those disputes being non-arbitrable. Such actions are always actions in personam, one party seeking a specific particularized relief against a particular defined party, not against the world at large”.
It further added that it would be too broad, impractical and against all commercial sensibilities to hold that the entire realm of IP disputes is non-arbitrable. Accordingly, the case noted that IP disputes arising purely out of contracts are arbitrable because they are actions in personam.
The Dovetail Test of Non- Arbitrability
The ‘arbitrability/non-arbitrability’ controversy now seems to have been put to rest by the Apex Court of India via its decision in Vidya Drolia & Ors. Vs. Durga Trading Corporation6, where the Court devised a four-fold formula known as “The Dovetail Test” to determine when a dispute is non-arbitrable.
It was held that the disputes are not arbitrable when the cause of action and/or subject matter of the dispute:
- relates to actions in rem, that do not pertain to subordinate rights in personam that arise from rights in rem.
- affects third party rights; have erga omnes (towards all) effect; require centralised adjudication, and mutual adjudication would not be appropriate and enforceable.
- relate to the inalienable sovereign and public functions of the State and, hence, mutual adjudication would be unenforceable; and
- is expressly or by necessary implication non-arbitrable as per mandatory statutes.
The SC clarified that although these tests are not "watertight compartments" they “dovetail and overlap” and when applied pragmatically and holistically it would be of great help to determine when a particular subject would be arbitrable or not under the Indian law.
Further, the Court discussed matters which do not fall within the scope of arbitrability and held that the matters related to grant and issue of patents, registration of trademarks, matrimonial disputes relating to the dissolution of marriage, restitution of conjugal rights etc. are not arbitrable as they are exclusive matters falling within the sovereign or government functions and have erga omnes effect.7 This Dovetail Test has also been recently confirmed and reiterated by the Apex Court in Indus Biotech Private Limited vs. Kotak India Venture (Offshore) Fund and Ors.8
Thus, it is manifest that if a dispute is arising out of the terms of the contract between the parties, and the dispute falls within the ambit of the arbitration clause of the contract, even though such dispute pertains to the copyright or trademark infringement, it still could be decided by arbitration as it will fall under the ambit of right in personam. Most of the IPR disputes arising out of the contract will be amenable to arbitration but not every dispute. Whether a particular IPR dispute arising out of the contract can be adjudicated through arbitration will depend on the facts of each case.
From the discussion of the aforesaid cases, it can be safely concluded that there is no blanket bar on arbitrability of IP disputes and the two concepts, i.e. right in rem and right in personam operate as guiding factor for classification of disputes, including IP disputes, as arbitrable or non-arbitrable. Determination of whether a dispute relates to a right in rem or right in personam depends on the facts of each case and the nature of claims raised. It is not that all IP disputes are statutory or relates to right in rem, some are contractual between two parties and therefore relates to right in personam. The copyright licence agreements which are purely contractual, would be arbitrable as the dispute thereunder would not require determination of copyright of the licensor. Whereas in a dispute where validity or ownership of an IP right is to be determined, it can only be done by the court or assigned public administratorion, the rationale being that the dispute would result in a judgment affecting the general public’s right to use such IP.
- (2011) 5 SCC 532
- 2016 (8) SCALE 116
- AIR 2016 SC 4675
- 2015 (4) BomCR 734
- 2016 (6) BomCR 321
- (2021) 2 SCC 1
- Arbitration Petition (Civil) No. 48/2019 and Civil Appeal No. 1070/2021 (Arising out of SLP (C) No. 8120 of 2020), dated 26 March 2021.