Everything Is Arbitrable, Until It Isn’t: the Great Indian Sorting Hat for Disputes.
Arbitration sells itself on privacy: settle the fight quietly, skip the courtroom theatre. But Indian courts have long insisted some disputes are too public for that privacy, the trouble was nobody could agree which ones. In December 2020, a three-judge bench of the Supreme Court in Vidya Drolia and Others v. Durga Trading Corporation1 finally drew a workable line, and largely made it stick. This piece argues that Drolia didn’t just clarify old law, it quietly flipped the default from ‘courts unless proven otherwise’ to ‘arbitration unless proven otherwise.
The Booz Allen Blueprint, and Its Cracks.
Every arbitrability debate in India traces back to Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd.2, which split disputes into rights in rem (enforceable against the world, criminal liability, matrimonial status) and rights in personam (enforceable against one person, a contractual debt). Only the latter, the Court said, could ordinarily be arbitrated.
Tidy in theory, messy in practice. Landlord-tenant disputes exposed the cracks first. Natraj Studios (P) Ltd. v. Navrang Studios, (1981) 1 SCC 523 held that tenancies under rent-control legislation belonged in the special forums those statutes created.3 Himangni Enterprises v. Kamaljeet Singh Ahluwalia4 then stretched that logic to ordinary tenancies governed only by the general Transfer of Property Act, 1882, reasoning that tenancy itself was a matter of public policy, arbitration agreement or not. That left an absurd result: an unremarkable rent dispute, with no rent-control statute in sight, could still be yanked out of arbitration. Fraud claims had a parallel problem, rooted in N. Radhakrishnan v. Maestro Engineers5, which treated serious fraud allegations as inherently beyond an arbitrator’s competence, regardless of how contractual the underlying dispute actually was.
Drolia’s Fourfold Filter
Rather than hand down a fixed list of arbitrable subjects, the bench built a functional test. A dispute is non-arbitrable if it meets any of these6:
- It concerns actions in rem with no subordinate right in personam arising from them.
- It affects third-party rights, carries an erga omnes effect, or needs centralised adjudication rather than a private, two-party resolution.
- It touches the state’s inalienable sovereign or public-interest functions.
- A statute, expressly or by clear implication, reserves the matter for specific courts or tribunals and bars arbitration.
The Court was explicit that this is not a mechanical checklist, “not a straight jacket formula,” but a working guide7. Spotting implicit non-arbitrability, it added, means reading the governing statute closely enough to see whether it truly forecloses opting out of the ordinary courts8.
Evicting Himangni, Softening Fraud
Running its own test on the facts, the Court overruled Himangni Enterprises. Ordinary landlord-tenant disputes under the Transfer of Property Act, it held, are actions in personam born of a private lease, tenancy alone doesn’t convert them into public-interest matters9. It also clarified that Section 11(6-A) of the Arbitration and Conciliation Act, 1996 limits a referral court’s job at that stage to checking whether an arbitration agreement exists, nothing more10. Only tenancies under special rent-control statutes, which build dedicated protective forums for tenants, stay off-limits to arbitrators.
On fraud, the Court walked back Radhakrishnan’s hard line. A fraud allegation alone doesn’t disqualify a dispute from arbitration; the real test is whether the fraud is serious and public enough that only a court’s machinery, witnesses, discovery, open cross-examination, can fairly untangle it. Fraud confined to the parties themselves, without wider public stakes, stays well within an arbitrator’s remit11.
The New Default: Arbitrate First, Object Later
So, can every dispute be arbitrated? Not quite, and that was never the point. Vidya Drolia’s real achievement is shrinking the exceptions rather than growing them. Criminal offences, matrimonial and guardianship matters, insolvency, testamentary succession, and other sovereign or public-interest disputes remain off the table, as they always were. But the presumption has flipped: unless a dispute clearly falls within one of the four categories above, courts are now expected to lean toward arbitration rather than manufacture fresh public-policy objections. For businesses and individuals, that means a far wider range of contractual disputes, including everyday tenancy fights, can now be resolved through arbitration than the pre-2020 case law ever allowed.
By
~ Abhyuday Sharma
