By Pratik Pawar & Shanaya Cyrus Irani, Partners JSA, and Ananya Verma, Associate Partner, JSA
The Arbitration and Conciliation Act, 1996 (the Act) was enacted to consolidate the law relating to domestic and international commercial arbitration and enforcement of foreign arbitral awards in India. The Act is a self-contained code. However, various judicial pronouncements on the applicability of the Act to certain disputes muddle the waters to an extent.
While Section 2(3) of the Act recognises that “certain disputes may not be submitted to arbitration”, it does not identify which ‘disputes’ are not arbitrable in India. Absent any such clear demarcation within the Act on the arbitrability of ‘disputes’, the judiciary in India has risen to the occasion and has attempted to fill this void. But the growing dependency on courts to define the contours of arbitrability of disputes in India has often led to uncertainty in the face of varied interpretations. One such category of disputes of which arbitrability in India remains moot are the Intellectual Property Rights disputes (IP disputes).
On the broader question of arbitrability of disputes in India, the landmark decision of the Supreme Court of India in Booz Allen v. SBI Homes Finance Limited (Booz Allen) is often referred to by the courts. After all, this was the first case where the Supreme Court set out an indicative list of six subject matters which were identified as unamenable to arbitration in India. Notably, the Supreme Court went on to define the contours of arbitrability of disputes in India and held that disputes involving rights in rem were not arbitrable whereas all disputes involving rights in personam were amenable to arbitration. Interestingly, the indicative list of six subject matters of disputes in Booz Allen was further supplemented by the Supreme Court in Vimal Kishore Shah & Ors. v. Jayesh Shah & Ors. by adding disputes pertaining to trusts to the list of arbitrable disputes. But the question of arbitrability of IP disputes found no mention in these cases leading to the present-day conundrum.
The opacity is frequently observed in the varying decisions of the High Courts while adjudicating the question of arbitrability of IP disputes in India. In instances where disputes pertained to copyright and trademark infringement or passing off, some High Courts held that such reliefs being inherently in rem and operating against the world at large would not fall within the purview of arbitration. In contrast, some High Courts held that infringement or passing off disputes arising out of contracts for trademark or copyright (licensing or assignments) would be arbitrable since those were disputes in personam.
This anomaly in determining the arbitrability of IP disputes was to an extent reconciled by the Supreme Court of India in Vidya Drolia v. Durga Trading Corporation where the Apex Court provided a four-fold test to clarify when disputes would be non-arbitrable – (i) when the subject matter pertains to actions in rem and do not pertain to subordinate rights in personam that arise from rights in rem; (ii) when the cause of action affects third-party rights or has erga omnes effect; (iii) when the subject matter relates to inalienable sovereign or public interest functions of the State; and (iv) when the subject matter is expressly or by necessary implication non-arbitrable under a specific statute.
Following this decision of the Supreme Court of India, the Rajya Sabha in 2021 recommended that the Patent Act, 1970 be amended to promote arbitration to ensure speedy justice to patentees. However, the Patent Act, 1970 remains unamended. Likewise, the Copyright Act, 1957 and the Trade Marks Act, 1999 also remain unamended such that the extant provisions under these legislations do not expressly allow or disallow arbitrations.
While the current line of judicial precedents seems to make certain IP disputes arbitrable particularly when the disputes pertain to parties’ rights in personam, the ambiguity under the Act as well as the IP legislation may not only continue to plague questions on arbitrability of IP disputes in India but also lead to interference from courts at the initial stages of an arbitration. Thus, corrective actions by the legislature are the need of the hour. For India to be recognised as an arbitration hub, it is important to keep courts’ interference at its minimal. India could consider an approach analogous to its contemporaries in the Far East.
In Singapore, the Intellectual Property (Dispute Resolution) Act, 2019 was enacted to delineate specific categories of IP disputes that are arbitrable. To meet the purpose of the Intellectual Property (Dispute Resolution) Act, 2019, Singapore also introduced corresponding amendments to its IPR legislation. Similarly, in Hong Kong, the Hong Kong Arbitration Ordinance, of 2011 was amended by the Arbitration (Amendment) Ordinance of 2017 to categorically include IP disputes within the ambit of arbitration.
The legislative initiatives in Singapore and Hong Kong could be borrowed by India to recommend and implement necessary amendments to the Act and the IPR legislation to conclusively settle the debate over the arbitrability of IP disputes in India. This strategic approach will significantly boost India’s standing in the realm of arbitration further propelling its ambitious pursuit to establish itself as a global arbitration hub. .
