Disputes Falling Exclusively Within Jurisdiction Of Statutory Authorities Aren't Arbitrable : Supreme Court Reiterates

The Supreme Court recently reaffirmed that disputes falling exclusively within the jurisdiction of statutory authorities are not arbitrable.

While holding so, the bench comprising Justices PS Narasimha and Sandeep Mehta ruled that the dispute related to wages and termination of an employee were non-arbitrable and would be exclusively dealt with by the statutory authorities established under the Payment of Wages Act, 1936 (“PW Act”) and the Industrial Disputes Act, 1947 (“ID Act”).

“Insofar as other disputes are concerned, they relate to non-payment of wages and the legality and validity of the order of termination dated 21.01.2021. The appellant approached the Authority under the PW Act much before the order of termination and the said authority would exercise jurisdiction under Section 15(2) of the PW Act to the exclusion of civil courts and these disputes are non-arbitrable.”, the court said.

The Court heard the appeal filed by the employee who was employed with Respondent-M/S Hyundai AutoEver India Pvt. Ltd. against the Madras High Court's decision to allow the Respondent's application seeking appointment of arbitrator under Section 11(6) Arbitration & Conciliation Act, 1996.

The Appellant contended that the High Court erred in allowing the application for the appointment of an arbitrator. He argued that the disputes regarding non-payment of wages and the legality of termination fall under the exclusive jurisdiction of the statutory authorities established under the PW Act and ID Act, therefore these disputes were non-arbitrable.

Setting aside the High Court's decision, the judgment authored by Justice Narasimha observed that the disputes related to non-payment of wages were covered under the PW Act, where Section 22 of the PW Act bars the jurisdiction of the civil courts including the arbitral tribunal to entertain the disputes.

Further, the court referred to Section 2(A) of the ID Act which vests jurisdiction over termination disputes with the Industrial Tribunal.

In a nutshell, by applying the test laid down in Vidya Drolia v. Durga Trading Corporation about the arbitrability of the disputes, the court held that these disputes were deemed non-arbitrable as they are governed by mandatory statutory provisions.

In Vidya Drolia's case, the principle of subject-matter arbitrability is enunciated as follows:

“76. In view of the above discussion, we would like to propound a fourfold test for determining when the subject matter of a dispute in an arbitration agreement is not arbitrable:

76.1 (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.

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

76.3 (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.

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

Also, the Court recognizing the respondent's bad faith in pursuing arbitration terming it as an abuse of process of law, imposed a cost of ₹5 lakhs on the respondent, payable within three months.

Accordingly, the appeal was allowed.

Appearance:

For Petitioner(s) Mr. Anurag Ojha, AOR Mr. Kamlesh K Mishra, Adv. Mr. Dipak Raj, Adv.

For Respondent(s) Ms. Jaikriti S. Jadeja, AOR Mr. Shivang Goel, Adv. Mr. Ishaan Aggarwal, Adv.

Case Title: Dushyant Janbandhu v. M/s Hyundai AutoEver India Pvt. Ltd.

Citation : 2024 LiveLaw (SC) 981

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