This piece was first published in the October 2017 edition of the Manupatra Competition Law Reports.

Over the years arbitration has become a preferred private and consensual mode of dispute resolution. Arbitral tribunals and courts have been dealing with complex contracts and rapidly evolving the law relating to arbitrations. An issue commonly faced by arbitral tribunals is whether the dispute referred to it is arbitrable in the first place. These questions commonly arise when allegations of fraud are made before a tribunal, or a reference is made to decide issues relating to competition law.

Traditionally, courts across jurisdictions have taken the view that competition law disputes are non-arbitrable. This was because arbitration being a private and consensual mode of dispute resolution, was considered to be an inappropriate forum for deciding competition law issues which related to the larger public interest of promoting competitive markets. However, around late 1980s to early 1990s, the judicial trend on arbitration of competition law disputes changed. The U.S. Supreme Court’s decision in Mitsubishi Motor Corp. v. Soler Chrysler Plymouth[1] (Mitsubishi) and the European Court of Justice’s decision in Eco Swiss China Time Ltd. v. Benetton International N.V.[2] held that an arbitral tribunal could also arbitrate upon competition law issues.

In Mitsubishi, Soler alleged that Mitsubishi had conspired to divide markets in restraint of trade and had coercively tried to replace Soler as a distributor. The U.S. Supreme Court noted that the arbitration clause between the parties was broad enough to provide for the arbitration of all disputes, controversies and differences between the parties in relation to the agreement. Given the nature of the clause, even antitrust claims would be covered within its scope. The court further held that there was no presumption under the Federal Arbitration Act[3] against arbitration of statutory claims.

Thus far, in India, there has not been a substantive decision on the arbitrability of competition law disputes. A general view has prevailed that an arbitral tribunal is well within its competence to decide issues in personam but should not decide ‘rights in rem’.[4]

What is arbitrability and why is it important?

If an arbitral tribunal adjudicates upon a dispute which is not arbitrable, the award may be set aside[5] or refused from being enforced[6] on the ground that it was “incapable of settlement by arbitration”. Such an award may also be amenable to challenge under Section 34 or Section 48 of the Arbitration & Conciliation Act, 1996 on the ground that it violates a fundamental public policy of India. While an arbitral tribunal has the power to decide upon its jurisdiction as per the principle of kompetennz-kompetenz,[7] it is, important for it to exercise jurisdiction over a dispute that is capable of being settled by arbitration under the law of the seat.

There is no internationally accepted definition of the term ‘arbitrability’ but in common parlance, the term refers to the ability of a dispute to be subject to arbitration. An inquiry into the arbitrability of a dispute includes the following: (i) whether the dispute is capable of being resolved by a private arbitral tribunal or whether it is exclusively reserved for courts; (ii) whether the dispute is covered by the arbitration agreement; and (iii) whether the parties have referred the dispute to arbitration.[8]

The Competition Act and arbitrability of antitrust related issues

The question on arbitrating competition law issues has not come up before a court in India. But the courts have determined that proceedings under the Competition Act, 2002 (Competition Act) will not be stayed due to the presence of an arbitration clause between the parties. In Union of India v. Commission of India,[9] parties to a Concession Agreement with the Ministry of Railways had filed a complaint alleging that the Railway Board was abusing its dominant position by imposing increased charges. The Railway Board challenged the Competition Commission of India’s (CCI) jurisdiction on the basis of the arbitration clause between the parties. The Delhi High Court did not accept this as a valid ground for staying the proceedings at the CCI and held that the scope and focus of the CCI’s investigations would be very different from the scope of the arbitral tribunal. In a similar context relating to the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act), the predecessor to the Competition Act, the Supreme Court had held that the remedies under the MRTP Act were in addition to the remedies available under contract or arbitration laws.[10] The question which then arises for consideration is whether the arbitration of competition law disputes is also an additional remedy to those provided under the Competition Act and if an arbitral tribunal should decide antitrust issues.

As has been mentioned earlier, it is a settled principle that rights in rem are not arbitrable whereas rights in personam would be capable of being settled by arbitration. There are certain aspects under the Competition Act which have a bearing on public interest such as cartel activities or other anti-competitive agreements which fall within the ambit of Section 3 of the Competition Act. On the other hand, abusive conduct by a dominant enterprise in relation to a distributorship agreement may relate to rights in personam. Accordingly, an arbitral tribunal may be allowed to adjudicate upon a dispute as long as it relates to deciding rights inter se between the parties.

The threshold for arbitrating competition law issues

In the absence of any decision relating to the arbitrability of competition law disputes in India, parallels can be drawn to the view adopted by courts regarding the arbitrability of fraud. Similar to antitrust issues, an allegation of fraudulent conduct by a party, or fraudulent inducement of a party to enter into a contract may involve an adjudication of rights in rem or in personam. Fraud as covered under the Indian Penal Code, 1908 is a criminal wrong and its adjudication by an arbitral tribunal would be wrong given that criminal law operates in larger public interest. However, allegations that a party has committed a fraud while performing its obligations under a contract will only involve an adjudication of rights in personam. The operation and application of criminal law should be left upon courts and not arbitral tribunals though parallel proceedings for civil and criminal liability may lie before different forums.[11]

Judicial decisions regarding arbitrability of fraud were unclear until October 2016, when the Supreme Court clarified that matters involving allegations of “serious fraud” would not be arbitrable, but matters related to “mere allegations” of fraud were arbitrable.[12] The rationale for this decision stems from the need to follow adequate procedures and carry out a full-fledged trial when the dispute relates to serious fraud. Arbitral tribunals are not as adept as courts in conducting trials. An allegation of serious fraud in a dispute would be complex in nature and a decision on it would require extensive evidence for which civil court would be a more appropriate forum.

Applying the same reasoning to arbitrability of competition law disputes, the extent of arbitrability would depend upon the nature of allegations that are made. If the allegations are such that they involve an inquiry into anti-competitive conduct, the CCI would be a more appropriate forum. But, if the allegations are such that they incidentally relate to the determination of other claims, the arbitral tribunal should be allowed to arbitrate.

Another factor for determining if competition law issues should be arbitrable is to consider if the dispute was contemplated by the parties when they entered into the agreement, and if they had intended its resolution by an arbitrator. In such cases, the drafting of the arbitration clause would play an important role. If the clause is broadly worded, as in the case of Mitsubishi, so that “any and all disputes arising out of, in connection with and in relation to the agreement” would be referred to arbitration, the arbitral tribunal would be well within its jurisdiction to arbitrate upon ancillary antitrust issues.

Further, it is important to note that parties would almost never intend to refer purely antitrust claims to a tribunal. This is because the remedies associated with the Competition Act relate to penalties for violations and not damages or compensation which are contractual remedies sought by the parties during arbitrations. If the objective of the claim before an arbitral tribunal is to seek contractual remedies, and the scope of the reference is limited to the contract, the tribunal should proceed with the matter even if incidental antitrust issues are involved. This is in consonance with international practices which allow arbitrability of competition law disputes.

* This piece was co-authored by Anu Shrivastava, Associate.

[1] Mitsubishi Motors Corp v. Soler Chrysler Plymouth, 473 U.S. 614 (1985).

[2] Case C – 126/97, Eco Swiss China Time Ltd. v. Benetton Int’l N.V., 1999 E.C.R. I – 3055.

[3] The United States Arbitration Act, February 12, 1925 (Pub.L. 68–401, 43 Stat. 883; 9 U.S.C. § 1).

[4] Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 S.C.C. 532.

[5] Section 34(2)(b)(i), The Arbitration and Conciliation Act, 1996; See also Article 34(2)(b)(i), UNCITRAL Model Law on International Commercial Arbitration, 2006.

[6] Section 48(2)(a), The Arbitration and Conciliation Act, 1996; See also Article V(2)(a), Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

[7] Section 16, The Arbitration and Conciliation Act, 1996; See also Article 16, UNCITRAL Model Law on International Commercial Arbitration, 2006.

[8] Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 S.C.C. 532.

[9] Union of India v. Competition Commission of India, A.I.R. 2012 Del 66 (India).

[10] Man Roland v. Multicolour Offset, (2004) 7 SCC 447.

[11] Hindustan Petroleum Corporation Ltd. v. Pinkcity Midway Petroleums, (2003) 6 SCC 503.

[12] A. Ayyaswamy v. A. Paramasivam, Civil Appeal No. 8245-8246 of 2016.