Shinjani Agnihotri[i]
The Supreme Court has on various occasions examined the nature of disputes that are suited for arbitration. It has excluded certain subject-matters from its purview, such as issues relating to intellectual property rights, divorce etc. Another contentious subject-matter is cryptocurrency. This article argues that international commercial arbitration provides the best mechanism to adjudicate cross-border disputes relating to cryptocurrency and proposes that arbitral award in such disputes can be, and should be, enforceable in India.It first discusses the Indian framework of determining arbitrability and then analyses whether enforcing the award of cryptocurrency-disputes will contravene the public policy of India.
Parameters of Arbitrable Disputes
Booz Allen Case
The Supreme Court pondered on the contention of arbitrability in Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. & Ors., where the issue was whether an action for the enforcement of a mortgage in India can be arbitrated. The court declined to favour arbitration in such dispute and while doing so, it highlighted that there are two categories of cases that are beyond the purview of arbitration, namely: (a) matters relating to public policy for which the legislature has reserved adjudication solely by public fora and (b) matters that are implicitly restricted from the scope of private fora by necessity. Both of these situations are related to rights in rem where enforcement of such rights is against the world at large. In comparison, a right in personam is related to personal rights enumerated in a contractual agreement where parties privy to the suit are affected and it is enforced against those parties only.
The Court enumerated a negative list of cases that are considered non-arbitrable, namely:
Disputes relating to rights and liabilities which give rise to or arise out of criminal offences;
Matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody;
Guardianship matters;
Insolvency and winding up matters;
Testamentary matters (grant of probate, letters of administration and succession certificate); and
Eviction or tenancy matters that are governed by special statutes by virtue of which the tenant enjoys statutory protection against eviction.
Vidya Drolia Case
The Supreme Court in this case addressed the question of arbitrability extensively while determining whether disputes between landlord and tenant can be arbitrated. The previous stance had been against arbitrability. The Court stated that a dispute will be considered non-arbitrable, when:
1. The cause of action and the subject matter of the dispute are actions in rem, that does not give rise to subordinate rights in personam;
2. The cause of action and the subject matter of the dispute affect third party rights; have erga omnes effect; require centralized adjudication, and mutual adjudication would be inappropriate and unenforceable;
3. The subject matter of the dispute relates to the state's inalienable sovereign and public interest functions; and
4. The dispute's subject matter is expressly or impliedly non-arbitrable, as required by a statutory framework.
Position of Crypto-Disputes
Cryptocurrency has been defined as a digital representation of value that can be used as: Medium of Exchange, a unit of account or a store of value that does not have a legal tender status. The treatment of a currency in different jurisdictions can vary based on whether it is used as a mode of barter transactions or a mode of payment or as legal tender. India regards digital money (coins and paper currency represented digitally) as ‘real currency’ because it has been accorded with the status of legal tender. As of now, digital currency is the accepted medium of exchange because it reflects a transfer of real money in a transaction. In contrast, cryptocurrency based on block-chain technology does not have the status of legal tender because of its unregulated mechanism and its use as a mere medium of exchange.
The Reserve Bank of India (“RBI”) vide its circular banned the usage of cryptocurrency in transactions, particularly in trading. Subsequently, the Supreme Court in Internet and Mobile Association of India v. Reserve Bank of India struck down the impugned RBI circular stating that the restrictions imposed were disproportionate to the concerns stated by RBI and therefore, were unsustainable. Although this decision lifted the ban on cryptocurrency trading, it was not legalized per se.
This raises concerns of Public Policy, which is a ground for setting aside arbitral awards in India.[i] One of the factors that attract public policy concern is the contravention of the fundamental policy of India. Cryptocurrency is not a part of the Indian framework because of the lack of statutory recognition from RBI. However, this is not a black-and-white situation because while India has not legalized it, it is not against the use of cryptocurrency either. RBI has announced the launch of its own cryptocurrency. This implies that crypto-disputes are not against the fundamental policy of India rather, there is just no mechanism in place to adjudicate them yet.
The two potential areas of dispute for those involved in the transfer of cryptocurrency are commercial disputes over cryptocurrency transactions and the operation of smart contracts. Ancillary issues involve risk of fraud and money laundering because of the anonymity of users. After Booz Allen the Supreme Court delved into the arbitrability issue many times on the lines of fraud allegations because arbitration of same is permissible in jurisdiction like Singapore, whereas in India it is barred from being arbitrated as a matter of Public Policy. The Supreme Court subsequently in Vidya Drolia held that allegations of fraud can be settled in arbitration as long as the dispute is civil, only serious fraud allegations are beyond the purview of arbitration. This addresses the ancillary concerns of fraud and illegal activity which may arise in crypto-disputes.
Arbitration is best suited for commercial disputes. The Supreme Court for the first-time discussed nature of disputes that could be subjected to arbitration in Afcons infrastructure v. Cherian Verkay Construction, wherein the question before the court was regarding which procedure should be followed by Court in implementing Section 89 of Code of Civil Procedure, 1908 (reference to arbitration). It was held that in the absence of an arbitration agreement where the Court is of the view that the case is capable of being settled through arbitration, the court is bound to refer the such dispute to arbitration after obtaining parties’ consent. Only in cases involving excluded categories of cases, the Court may opt to not refer the same to arbitration. This implies that there is a presumption of arbitrability in India and non-arbitrability is an exception to it. The court provided a negative list of categories of cases that would be beyond the purview of arbitration, namely:
1. Representative suits because of its relation with public interest
2. Disputes regarding election to public offices
3. Cases that involve grant of authority by court post-inquiry stage
4. Disputes involving serious allegations of fraud, forgery of documents, impersonation etc.
5. Cases where either of the parties requires protection of courts such as claims involving minor and mentally challenged persons.
6. Criminal offences
In addition, a positive list also follows where a dispute can be arbitrated, such as cases of trade or contractual claims; disputes between two parties having strained relationships; or cases regarding tortious liability. Crypto-disputes are fundamentally commercial creatures of contracts that have not yet been barred by any legislation and thus, must be considered arbitrable.
The Booz Allen reasoning states that all issues involving rights in personam are deemed amenable to arbitration, whereas all disputes involving rights in rem must be resolved by courts and public tribunals, and are not suitable for private arbitration. Crypto-disputes are related to rights in personam without any erga omnes effect. They do not warrant court intervention by virtue of the nature of their disputes or by the legislative framework.
The cause of action of cryptocurrency disputes is neither related to sovereign function nor affects the public interest at large, so there is adequate jurisdiction of a private forum. Mutual adjudication would prove to be an effective method and there is no need for centralised adjudication because domestic regulation of cross-border transactions would prove to be an obstacle in the proceedings.
Concluding Remarks
Crypto-disputes have a degree of anonymity and follow cross-border approach because of which it is sensible to opt for International Commercial Arbitration that gives the parties requisite autonomy, confidentiality and the option of appointing arbitrators whose expertise will aid the parties in their dispute. Arbitral institutions' recent move to establish expedited and emergency procedures, which will improve the procedural economy and result in greater cost-savings, could also spur growth in this area. The parties are also at liberty to choose the format of proceedings so as to increase the use of technology in arbitration. The rise of online dispute resolution in particular will alter the way arbitration is conducted.
The domestic framework may take time to catch up and regulate the technological issues involved, but arbitration can effectively adjudicate the dispute. India has been pro-arbitration from the start and in the same spirit, Indian courts should enforce arbitral awards in crypto-disputes. The only reservation may be with respect to public policy because of its wide ambit, but that should not be an obstacle given that the cryptocurrency may become part of public policy in the future.
[i] The Arbitration and Conciliation Act, 1996, § 34(2) (B)(Ii), Act No. 26 Acts of Parliament, 1996.
Shinjani Agnihotri is a final year law law student at Institute of Law, Nirma University. For any discussion related to the article, she can be contacted via mail shinjani.25.agnihotri@gmail.com.
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