Faculty in the News | NLS Alum and Visiting Faculty cited by the SC

We would like to congratulate NLS visiting faculty Ajar Rab, NLS ‘LLB 2011, whose article has been cited by the Supreme Court of India in the landmark judgment on the arbitrability of disputes in India. The article by Ajar Rab titled ‘Defining the Contours of the Public Policy Exception – A New Test for Arbitrability in India,’ proposed a test for public policy.

The article was cited in judgement of the Supreme Court of India in ‘Vidya Drolia and Others v. Durga Trading Corporation (C.A No. 2402/2019) dated December 14, 2020.

Ajar Rab is a Partner at Rab & Rab Associates LLP, Dehradun, and an arbitrator. With nearly 10 years of experience, his practice areas include international arbitration, mergers and acquisitions, corporate transactions, and commercial litigation.

Excerpt from his article:

The New Test of Arbitrability

“With about 2,94,52,124 cases currently pending in the country, arbitration can facilitate and help reduce this backlog to a large extent. However, if the courts continue to keep disputes close to their chests and continue to hold mistrust with respect to arbitration, the backlog is only bound to increase. It is about time that the judiciary accepts that arbitration does not deprive parties of any legal protection afforded by courts, but offers the same legal protection, if not a greater one. Also, the mistrust that only judges can apply public policy rules is misplaced. Arbitrators can apply the same substantive law, including public policy rules.

Accordingly, a new test for determining arbitrability of disputes in India is required. The test requires answering the following:

(1)Whether the dispute relates to a claim involving economic value?

(2) Whether the claim is one which falls within the domain of sovereign functions or state monopoly i.e. inalienable functions of the State, or is it inter partes?

(3) Whether the relief claimed is one which has an erga omnes effect?

(4) Whether there is a special legislation with a social objective covering such a dispute?”

The test adopted by the SC:

The judgement stated that the SC would like to propound a four-fold test for determining when the subject matter of a dispute in an arbitration agreement is not arbitrable:

(1) when cause of action and 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.

(2) when cause of action and subject matter of the dispute affects third party rights; have erga omnes
effect; require centralized adjudication, and mutual adjudication would not be appropriate and
enforceable;

(3) when cause of action and subject matter of the dispute relates to inalienable sovereign and public
interest functions of the State and hence mutual adjudication would be unenforceable; and

(4) when the subject-matter of the dispute is expressly or by necessary implication non-arbitrable as per
mandatory statute(s).”

For more details,

Read the full Article by Ajar Rab.

Read the full SC judgement.