Arbitration and Competition Law

The arbitration and competition laws are interlink-able in this ultra-modern age, where the divergent lis are arising in every sector. Arbitration has been used for the speedy settlement of arising disputes due to the reason of it being a part of an Alternative Dispute Resolution system. The aim of arbitration is to serve as a private and consensual means of dispute resolution as all the subject matter of disputes related to the public policies does not enable one to seek an arbitral award. In general, it has been presumed that any anti-trust issues and disputes related to competition law are non-arbitrable as competition law is related to the public interest. But in a broad sense, the US Supreme Court Judgment in the case of Mitsubishi Motor Corp. v. Soler Chrysler Plymouth, it was held that an Arbitral tribunal could address competition law disputes. Then the question arises, whether or not the competition law disputes are arbitrable in India.

This article deals with the Indian perspective of arbitration and competition law in reference to relevant existing legislation and gives clarity on the arbitrability of competition law disputes.

Introduction

Alternative dispute resolution in India is not a new concept as it has its draft outline from the practice of Nyaya panchayats. But over time, the ADR system has evolved through the Arbitration Act of 1899 and 1940. The existing Arbitration law in India is governed by the Arbitration and Conciliation Act, 1996. Primarily, arbitration is the part of ADR, which enables one to seek the resolution for lis via the alternative judicial system. “The judicial system in India is cumbersome, expensive, dilatory, and cumulatively disastrous. The poor cannot reach the court because of heavy court fee and other expenditures, the mystique of legal procedure. The hierarchy of courts, with appeals, puts legal justice beyond the reach of the poor,” said Justice Krishna Iyer. Apparently, the need for ADR has been substantiated on the grounds of easy and speedy access to justice.

On the other side, competition law predominantly focuses on promoting and ensuring market competition, unlike the predecessor law in the MRTP Act. The said erstwhile Act focuses on restraining the practice of monopolies in the market. Competition law is not novel since it already exists in other world countries. The scope of this legislation revolves around the duty of ensuring consumer welfare by promoting market competition.

Competition law

When the new economic policy was implemented in India, it resulted in the liberalization and relaxation of the market economy. The free market thereby created contributed to the competition, which is the sine qua non for any stable and functionalistic growth in the economy. There are two faces for a coin i.e. head and tail. Similarly, market competition bestows betterment for the perfect market from one side while gaining profits out of misusing it through a dominant market position on the other hand. In order to protect consumer wellbeing, to promote competition in the market, and for regulating the same the Competition Act, 2002 was enacted. 

The Competition Act replaced the erstwhile legislation dealing with Indian trade practices- Monopolies and Restrictive Trade Practices (MRPT) Act, 1969. Even though the erstwhile Act dealt with the same particulars as the existing Competition Act, the ambit of the Act had not covered international economic development. Furthermore, the ideology of the MRTP Act primarily focused on curbing monopolies in the market. Regardless, competition in a market is always from both domestic and international players; hence the requisite competition law was enacted to focus on promoting competition instead of curbing monopolies as its primary objective. One of the essential components of the Competition Act, 2002 was the establishment of the Competition Commission of India (CCI).

Objectives of the Act

  • To ensure freedom of trade in India
  • To promote competition in the  market
  • To prevent consumer exploitation and to ensure their well-being
  • To prohibit anti-competitive agreements and abuse of dominant position
  • To regulate the mergers and acquisition that may have an adverse effect on the Act’s intention to promote competition in India 

The Act was amended twice in the past decade; firstly, the 2007 amendment of the Act enabled the CCI to act as a regulatory and preventive body of anti-competitive practices in the market. It also established a Competition Appellant Tribunal with the Supreme Court Judge or Chief Justice of the High Court as its Chairman. Further, through the 2009 amendment, the pending cases were transferred to the Competition Appellant Tribunal and National Consumer Commission from the Monopolies Trade Practices Commission.

Functions of the Competition Commission of India (CCI)

The Competition Commission of India is a quasi-judicial body empowered to investigate the complaints on the grounds of infringement of any provisions of the Act. The object of the establishment of this commission is to grant the power to administer and impose penalties and sanctions in case of any violation.

If something is satisfactorily found to have caused or likely to cause an adverse effect on the completion in a market by the mean of the existence of any Anti-competitive agreements or an abuse of dominant position, or Anti-competitive combinations and acquisitions, then the CCI is empowered to bestow following orders,

  • According to Section 33 of the Act, the CCI is empowered to issue an interim order in case of the existence of the abovementioned practices which may harm market competition.
  • Cease or restrain such deeds or  order any  modification on the said practice or agreement
  • Impose penalty up to 10% of the enterprise’s average turnover of the preceding 3 financial years
  • In the case of a cartel, the CCI may impose a penalty of up to 3 times its profits, or up to 10% of its turnover, whichever is higher, for each year during which the agreement was in force

Arbitration Law

In general, “arbitration” refers to the processes of resolving disputes arising between people by aiding them to agree upon an acceptable solution. Defacto, as it is part of the alternative dispute resolution system, it has its benefit to the parties through settling the disputes quickly as opposed to the regular lengthy practice of approaching the court. 

An arbitration is the reference of a dispute or difference between not less than two parties for determination, after hearing both sides in a judicial manner, by a person or persons other than a court of competent jurisdiction,”  

Halsbury

It is a proceeding conducted by the arbitral tribunal, where the dispute between the parties will be settled mutually by the appointment of a third party, who will give a binding solution to decide the dispute, such persons are said to be the arbitrator. It is the way of settling disputes through an alternative judicial system, which helps the parties to save their resources as well as time. 

Advantages of Arbitration

  • Arbitration is comparatively expeditious, while court proceedings will force the parties to wait for years before the court decides. Thus arbitration is somewhat the best choice in this modern era, where time is of great importance.
  • The arbitral awards (decision of the arbitrator) can be quickly implemented.
  • The cost of Arbitration is lesser than court proceedings and can be made more flexible based on the mutual consent of the parties.

Legislations in India

Law relating to arbitration in India is mainly regulated by the Arbitration and Conciliation Act, 1996. Earlier, Arbitration in India was governed by the Arbitration Act, 1899 which was substituted by the Arbitration Act, 1940. Indian law on Arbitration was largely based on English common law. This Act is divided into two parts, of which Part I derives its basis from UNCITRAL model law and UNCITRAL Arbitration Rule, 1976. Part I deals with the domestic Arbitration as well as arbitration seated in India irrespective of party nationality, whereas Part II deals with the enforcement of the Arbitral Award. 

Under this Act, the Arbitral award can be considered as a domestic award when the subject matter of the contract and the procedure of Arbitration are all governed by Indian law, or the parties of the contract subject to the Indian jurisdiction, or the cause for the dispute arose in India. Section 2(a) of the Arbitration and Conciliation Act, 1996 defines Arbitration as; it means any arbitration whether or not administered by a permanent arbitral institution. It also defines arbitral tribunal as sole arbitrator or a panel of arbitrators; this Act within its ambit deals with both the domestic and international Arbitration.

What does the term Arbitrability mean according to this Act?

In general, the term Arbitrability refers to the ability of a dispute to be subjected to Arbitration. It is enunciated in Section 7 of the Act that, “arbitration agreement” is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between the parties out of legal relationship whether contractual or not. Since this Act does not elucidate upon any category of disputes as non-arbitrable, there arises a need for comparative analysis with other sections of the Arbitration Act, 1996. This has been clarified under Section 2(3) that, the Act shall not affect any other law by virtue of which certain disputes may not be subjected to Arbitration. If the arbitral tribunal adjudicates any dispute which is considered to be non-arbitrable, such an arbitral award can be set aside by the court under Section 34 of the said Act on the ground that if the court finds that the subject matter of the dispute is not capable of settlement under arbitration and also if the arbitral award challenges the public policy of India. However, apart from reading the Act, it is necessary to look at several judgments of the court on arbitrability of disputes for a better understanding of disputes, which is arbitrable and not under this Act.

One of the landmark judgments related to the Arbitrability of disputes was exemplified in the case of Booz Allen Hamilton Inc. v SBI Home Finance Limited. In this case, the Supreme Court of India held that all disputes related to rights in personam are required to be adjudicated by the courts and public tribunals only, whereas disputes related to rights in rem shall be subjected to arbitration. By declaring this judgment the court has clarified that the right against the person is arbitrable whereas the right attached to a particular thing rather than a person is not arbitrable. But it also states that lis in personam associated with lis in rem may also be arbitrable. Further, it added that subordinate rights in personam closely related to right in rem can also be submitted to arbitration. For example, even though insolvency proceedings cannot be subjected to arbitration, but, the official assignee or receiver can refer to arbitration, disputes arising between the insolvent and the creditor.

Matters which may and may not be referred to Arbitral tribunal

  • All matters of disputes or controversies can be subjected to arbitration unless and until it is forbidden by the statute of public policy.
  • All Civil matters, which is the civil litigation affecting private rights may be referred to arbitration.
  • Lunacy proceedings cannot be the subject matter of arbitration, since protecting the rights of the lunatic person is the duty of the government, the individual has no role to play.
  • In criminal proceedings, if the involved dispute is purely criminal and which is not the subject of a civil action, then it cannot be referred to Arbitration.
  • Testamentary matters

Arbitrability of the competition law

As far as India is concerned, the arbitrability of the disputes related to competition law is obscure in nature. However, in the case of the Union of India v. Competition Commission of India, the Delhi High Court explicitly held that the scope of proceeding before the CCI/MRTPC is different from proceeding before the Arbitral tribunal, and also denied to stay the proceeding before CCI. Hence, the judgment of this case has comprehensively declared that antitrust issues cannot be subjected to an arbitral tribunal. 

But it is not static, as mentioned in the case of Booz Allen Hamilton Inc. v SBI Home Finance Limited the lis in personam is capable of arbitration whereas lis in rem is not arbitrable. Similarly, Section 3 of the Competition Act covers the deeds related to public interest such as cartel activities and anti-competitive agreements, which is in rem in nature. On the other end of the spectrum, the abuse of dominant position in relation to contract of distributorship and so on will fall under the principle of in personam. Accordingly, if there is an existing contractual relationship between the parties unrelated to public policy, they may seek an arbitral tribunal for contractual remedies. But the law in this regard is still ambiguous.

Conclusion

Since arbitration is a part of the Alternative Dispute Resolution System, in sensu lato it is the alternative way for settling a dispute that has arisen inter se between the parties. But not every dispute can be resolved by the decision of a mutually appointed arbitrator. The subject matter of the dispute also has a role to play while considering whether the dispute is arbitrable or not. Before deciding the same, the arbitrator is supposed to make the following inquires, 

  1. whether or not the dispute proceeded before the arbitral tribunal has exclusively reserved for the court; 
  2. whether are not all the parties to the disputes have referred to Arbitration; and also the arbitrator should have the clarity over the dispute as to whether it is lis in rem or lis in personam.

While considering the Arbitrability of disputes related to competition law, it is better to understand the status of arbitrability of fraud deeds in India. Since the fraud comes under the ambit of the Indian Penal Code of 1908, the criminal proceedings cannot be subjected to Arbitration whereas criminal deeds that could be the subject of civil actions are arbitrable. Hence, the same could be applied to the competition disputes; if the dispute focuses on serious anti-competition practices, then the CCI is the best forum to address the claim. But if it is a mere dispute in personam, and either of the parties intends to seek compensation, then they can refer the same to arbitration.

Frequently asked questions (FAQ)

  1. Which is the legislation governing Arbitration in India?
  2. Why do we need an Alternative Dispute Resolution System while regular court proceedings still exist?
  3. Which is the legislations governing Competition law in India?
  4. What is the reason for the establishment of CCI?
  5. What is the status quo of arbitrability of competition law disputes in India?

References

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