Arbitrability of Antitrust Disputes

[Avnish Prakash and Sakshi Jha are 4th year B.A., LL.B. (Hons.) students at Hidayatullah National Law University, Raipur]

Arbitration is a private and consensual mode of dispute settlement which has gained immense importance in the contemporary commercial era. Fundamentally, disputes before arbitration must be of private nature, as it is not considered appropriate if disputes with public interests are resolved through private mode without interference by court. For this reason, antitrust disputes and arbitration are generally treated as incompatible with each other.

Antitrust laws are framed to promote competition in the free market by restricting and penalizing enterprises indulging in certain economic practices, including anti-competitive agreements having an appreciable adverse effect and abuse of dominance. These activities affect consumers, retailers and the market as a whole. Therefore, it becomes imperative that competition law has an element of public interest. The decisions of court while restraining such conduct impact the public at large. These circumstances are the particular reason for concerns being expressed when it comes to the arbitrability of antitrust disputes.

Meaning of ‘Arbitrability’

At present, ‘arbitrability’ has no definite meaning; however, it is generally understood as the capability of a dispute to be qualified as a subject matter of arbitration. The Supreme court of India has pondered upon this question in Booz Allen and Hamilton Inc. v. SBI Home Finance Limited. In order to determine whether a dispute is the subject matter of arbitration, the Court applied a three-pronged test. It encapsulates: (i) qualification of the nature dispute to be resolved by arbitration or in courts; (ii) presence of the matter of the dispute in the arbitration agreement, and (iii) redressal sought by the parties through arbitration.

Since, the last two questions are purely factual, dependent upon the arbitration agreement, and is not concerned with the legal aspects of arbitration, this post intends to analyse the first aspect of whether a dispute, particularly an antitrust dispute, is capable of adjudication and settlement by arbitration.

Indian Arbitration Regime

Arbitration in India is governed by the Arbitration and Conciliation Act, 1996 which does not categorize any dispute as “non-arbitrable” per se. It instead provides for arbitration of all contractual as well as non-contractual disputes. Thus, it hints towards arbitrability of all disputes irrespective of their nature. However, this impression is debunked by section 2(3), which states that the Act would be consistent with the laws that exclude certain disputes from being arbitrable. Further, sections 38(2)(b) and 48(2) elaborate upon the power of national courts to set aside or disapprove enforcement where “the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force” or “if the award is in conflict with the public policy of India.”

What is arbitrable?

Since Indian arbitration law lacks clarity with regards to the arbitrability of a dispute, questions as to the freedom of parties to move to the arbitration tribunal are mostly answered by courts. The Supreme Court in Booz Allen observed that disputes that revolve around rights in personam are arbitrable, whereas those disputes which carry rights in rem are prohibited from being resolved by arbitration. However, it is permissible to settle a dispute with a subordinate right in personam arising from right in rem to be the subject matter of arbitration. In Olympus Superstructures Pvt v. Meena Vijay Khetan, the Supreme Court approved arbitration for a settlement of claims between parties (right in personam) arising out of dispute that has the element of right in rem. Following Booz Allen, in Kingfisher Airlines Limited v. Prithvi Malhotra Instructor, a new condition for arbitrability of a dispute was introduced. The Bombay High Court observed that even in an in personam dispute, arbitration can be denied if that dispute is reserved for a public forum by virtue of laws in force or policies of government. This does not imply that disputes for which special tribunals are provided are per se not arbitrable. Instead, the dispute would be non-arbitrable where special rights and obligations are conferred to tribunals to the exclusion of national courts by enactments with regards to the dispute.

This position was later explained in HDFC Bank v. Satpal Singh Bakshi. The Court allowed arbitration of a debt recovery dispute for which a special tribunal existed. It reasoned that the establishment of a special tribunal for debt recovery was carried out for speedy disposal of cases and does not confer any special right or power to the tribunal. On a similar principle, in the Natraj Studios Pvt. Ltd. v. Navrang Studios, the Supreme Court rejected the contention of subjecting a dispute falling under Rent Control Act to arbitration on the ground that the Rent Control Act confers special power and rights to the tribunal giving it exclusive jurisdiction to adjudicate upon rent dispute.

Thus, it is clear that a two-fold enquiry is required to determine arbitrability of an issue in the context of Indian arbitration. At first, one needs to determine whether the subject matter of dispute is a “right in rem” or “right in personam”; rights in rem are not amenable to arbitration. If the subject matter of dispute is a right in personam, then a second level enquiry is required to identify whether the dispute is reserved by the legislative enactments to be resolved by public fora or tribunals. If the second enquiry is answered in affirmative, the dispute could not be subject to arbitration.

Arbitrability of Antitrust Disputes in India

The Competition Act does not provide for arbitration in case of antitrust law disputes. This same stance was re-affirmed in Union of India v. Competition Commission of India. In this case, according to the agreement between parties any dispute arising in the course of business has to be subjected to arbitration. However, when a complaint was filed before the Competition Commission of India (CCI) alleging abuse of dominance, it was contended that the dispute should be resolved through arbitration and not through public fora. The Delhi High Court rejected the contention and held that right to file an information or suit before the CCI or a court is un-waivable and therefore could not be undermined by an arbitration clause.

The present judgement does not provide a blanket denial of a right to go for arbitration of antitrust dispute; instead makes the right to approach the CCI immune from any arbitration clause. In the absence of any judgement dealing with the legislative nature of arbitrability of antitrust disputes, it is necessary to apply test formulated in Booz Allen and Kingfisher to determine the arbitrability of an antitrust dispute.

Therefore, the two-fold enquiry as discussed above has been applied as follows:

“Right in rem” or “Right in personam”?

The Competition Act provides for both right in rem as well as right in personam claims to be brough in respect of antitrust disputes. Section 19(1) of the Competition Act provides for information to be filed with the CCI regarding any market activity inconsistent with the Act. The CCI is vested with the power to penalize the violator by issuing a “cease and desist order”. In addition, the Act has a provision to compensate third parties who are adversely affected because of the anti-competitive activity. Such a provision is included under section 53N of the Competition Act. Under this provision, the aggrieved party can approach the National Company Law Appellate Tribunal (NCLAT) to obtain compensation for the losses suffered because of anti-competitive activity. Additionally, under Section 42A of the Act, a third party can also claim compensation for loss suffered because the other party failed to comply with the orders of the CCI or the NCLAT.

Therefore, it can be argued that section 19 of the Competition Act has an element of public interest involved for the fact that any individual, irrespective of injury suffered, can file information upon which the CCI adjudicates. This affects everyone who is directly or indirectly attached with the market. Thus, claims arising out matter under section 19(1) are rights in rem and could not be subject to arbitration.

On the other hand, section 53N of the Competition Act provides for a compensation claim for aggrieved party. Since, these claims are between private individuals, which are determined in terms of civil monetary claims or contractual remedies between parties, and in no particular way affecting the rights of the public in general, it can be argued that claims are in nature of right in personam. Therefore, such claims arising out antitrust disputes could be subjected to arbitration according to the principle laid down in Booz Allen.

Exclusive Jurisdiction or Public Fora?

The Competition Act established the CCI as an overreaching body to promote and sustain competition. By virtue of the preamble to the Act and section 18, the CCI is vested with responsibilities to discourage anti-competitive practices, to protect and preserve the interest of consumers and to ensure freedom of commerce and trade. Further, section 61 of the Act bars the jurisdiction of civil courts to adjudicate upon antitrust cases. Therefore, applying the test formulated in Kingfisher and HDFC Bank, it can be argued that the CCI, through the enactment of the Competition Act, has been vested with special rights and power to resolve antitrust disputes, thereby excluding arbitrability in these cases.

Conclusion

On the strength of these arguments, it could be established that antitrust disputes are two-fold. The first comprises the policy aspect which is related with competition regulation in the market and penalizing on violation. This aspect involves a right in rem which deals with the test of arbitrability. The Second deals with private compensation where the aggrieved party is entitled to claim compensation with regards to damage suffered due to anti-competitive conduct. This aspect involves right in personam and, therefore, satisfies the first prong of the test. However, the second test which talks about special jurisdiction of the court is not fulfilled, as competition law has assigned the CCI and the NCLAT as the sole authorities to handle antitrust disputes, to the exclusion of every other body including arbitration courts.

Avnish Prakash & Sakshi Jha

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