Intellectual Property and Commercial Fraud in the Arbitration Law in India: Reassessment of the Arbitrability
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Introduction
The idea of arbitration has increasingly been accepted as one of the effective tools in dispute resolution within the Indian legal system particularly because of the so-called efficiency. In accordance with the UNCITRAL Model Law, the Arbitration and Conciliation Act, 1996, has been enacted to ensure that the autonomy of parties in dispute resolution is preserved as well as to reduce the overloading of the overstretched judiciary.
However, the issue of ambiguity on whether certain disputes should be arbitrated or not has always been observed. These recurrent issues have been brought to the fore as it comes to fraud, intellectual rights and business dealings in India. In this case, the rights of the contracts will often conflict with larger interests of the society at large, throwing issues of jurisdiction, statutory regulation and the arbitral powers. The main problem, therefore, is not whether arbitration should or should not be resorted to but which issues can be subject to an arbitral settlement and which ones should not be.
Concept of Arbitrability
Arbitrability can be perceived to imply the legal ability to settle disputed issues by arbitrating as opposed to going to court. The Supreme Court has emphasized the idea that the rights in rem such rights of insolvency, criminality, or matrimonial cases are non-arbitrable in nature because they directly affect the populace. Rights in personam on the other hand can be arbitrated. This divide is the initial assumption that the investigation of arbitrability is based on. Recent judicial decisions have given some signs of a liberalizing trend that issues relating to publicity or exclusiveness do not, in and of themselves, preclude arbitration, but once again, the facts of the case and interest of the parties involved should be examined.
Arbitrability of Fraud
Old Time Philosophy of the Bench: Suspicion and Exclusion
In the first place, the arbitral jurisdiction was found incompatible with the allegations of fraud which were considered as a continual threat of moral panic. Rigorous evidentiary compilation, which was said to be beyond the capability of an arbitral body, was required in the decision of an alleged fraudulent conduct. In Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak (1962) and Radhakrishnan v. Maestro Engineers (2010), it was determined that suspicion was all that made the claim non - arbitrable because it did not give the tribunal the power to decide on issues concerning the morality of the wider community.
The Turning Point: Reconsideration through the Judiciary.
Another turning point came into being in Ayyasamy v. Paramasivam. In the Court, Justice D.Y. Chandrachud drew a line between charges of an egregious fraud involving an entire structure of contract and the claims that were made based on a common law principle. The Court believed that absence of pervasive fraud in an entire contract or in any other case that involves interest of a public at large made it impossible to avoid arbitration. This ruling goes in line with international jurisprudence that commercial fraud committed by commercial relationship participants under commercial relationships is liable to arbitrators. Later cases, including Avitel Post Studioz Ltd. v. HSBC Holding Mauritius Ltd. (2020), expounded that any fraud of a personal or third-party nature (irrespective of sophistication) is comfortably within the reach of arbitration. The Court reiterated that the sphere of arbitration should not turn into anachronism hence removing cases that would be de facto non-arbitrable.
Current Legal Status
Present day law also means that the claims in regard to an invalidity or a crime cannot be settled by an arbitration unless it is particularly mentioned that they are subject to an arbitration with no specified natural arbitral obligation, so they will not be that easily solved by the use of an arbiter. Practically, where the matrix of fact contains criminal or fraudulent elements, arbitration is seen to be unfit and thus the limited aspect of jurisdiction of the court is preserved in such cases.
Among the Controversies of Intellectual Property to the Topic of Arbitrability.
The Traditional View
The dispute of patents, trademarks and copyrights etc., as well as other matters of intellectual property, have traditionally been judged as non-arbitrable. These rights which are traditionally vested in the state and controlled by specialized statutory authorities (including in the registration and validity and ownership challenges) are closely subject to public policy and therefore do not lie within the shoebox of the arbitrable issues, although they sometimes overlap with rights in rem.
The Turning Point: Judicial Reconsideration
In the more modern jurisprudence, intellectual property rights can be regarded as inherent in a contractual arrangement, such as in licensing or franchising or any other commercial arrangement. Under these circumstances, face to face contingencies (e.g., royalties, obligatory co-branding, licensing fees) without a doubt also fall into the ambit of arbitration. As such, the general IP rights would not be arbitrable, but conflict associated contractual factors based on the rights become more and more arbitrable.
The Current Position
As it turns out, the literature has unanimously determined two entirely different lines of inquiry: (i) the ownership or inherent value of intellectual property rights which the doctrine referred to as non-arbitrable, and (ii) the use or utilisation of rights which is contractual, and is referred to as arbitrable. The rationale behind this is obvious, on the one hand, it is considered that the issue of IP protection is a matter of social concern; on the other hand, the economic implication of IP is not quite sufficiently taken into consideration.
Commercial Disputes and The Fourfold Test.
Arbitration is naturally the area of commercial disputes. Still, the development of the statutory or regulatory complexity remains the subject of the relevant inquiries. Vidya Drolia v. Durga Trading Corporation (2021) in this famous case Fourfold non-arbitrability test was stipulated which is as follows:
The action is in rem;
The act influences the rights of 3rd party;
The act comes under the prima facie responsibility of a specialist forum; and
Express or implicit statutory language prohibits arbitration.
Using such a formula, the Court ruled that a conflict between landlord-tenant, partnership, and contract issues are arbitrable, but not matters of insolvency and testamentary. Accordingly, the test provides transparency and predictability, restoring back to the principle the judicial interference is supposed to be circumscribed accordingly.
Balancing Public Policy and Party Autonomy
Even despite the broadening of the ambit of arbitrability, the public policy exception continues to be a necessary control that is vested in the hands of the judiciary to prevent the abuse. By Section 34 and Section 48 of the Arbitration Act, any award reached by an arbitral tribunal can be dispossessed or disapproved by the fact that the decision breaches the core policy of the Indian law, is drawn by fraud or simply by rejecting the elements of justice or morality. However, the boundaries of this exception have been sharply reduced by recent cases of judicial pronunciation; it is no longer possible to use it to reopen the review of the merits of the arbitral award itself.
Conclusion
The changing legal position of arbitration in India, which started off with distrust in the judicial system but now seems to have undergone a maturity level of development, is also an important developmental direction. Subtopics that were originally considered as not arbitrable like fraud, copyright and commercial terms have received wide acceptance in the Indian jurisprudence.
The Indian courts have found a fine line between restrictive and facilitative approach in arbitration and this methodological change, in itself, is praiseworthy. This development is not a mere process but a paradigm shift, it underlines the arbitral jurisdiction of the problem of private fraud and IP that appears in the contractual set up, but at the same time sends a strong message to the reliability, efficacy and independence of the arbitration in India comparative to the other world regimes that are favourably disposed towards arbitration like Singapore and the United Kingdom.
Author: Manjari Vaishnav, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney.
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