Booz Allen & Hamilton v. SBI Home Finance (2011) 5 SCC 532

BOOZ ALLEN & HAMILTON v. SBI HOME FINANCE

Whether the absence of an express provision in the Arbitration and Conciliation Act, of 1996, has created uncertainty in identifying which conflicts can be brought to arbitration and which must be resolved in court?
Whether the Supreme Court’s four-part test in the Vidya Drolia case gives a clear framework for establishing arbitrability in India, and how it differs from the earlier Booz-Allen Test?

Disputes involving a “right in rem” (a person’s right against the entire world) are often seen as non-arbitrable, but disputes involving a “right in personam” (rights against specific individuals, such as in a contract) are regarded as arbitrable.

The nature of the disagreement between Booz Allen & Hamilton Inc. and SBI Home Finance Ltd. was whether the subject matter of the dispute was arbitrable, i.e., whether it could be addressed through arbitration or required court adjudication.
Booz Allen and SBI Home Finance previously agreed to arbitrate any issues between them.
A dispute emerged between the two parties, prompting Booz Allen to commence arbitration under their agreement clause. Booz Allen contended that the disagreement could be resolved through arbitration.
The Supreme Court of India introduced the “Booz-Allen Test” to determine arbitrability in its decision in this case. According to this test, the arbitrability of a dispute is determined by the nature of the rights concerned. The Court ruled that conflicts containing a right in rem were not arbitrable.
Due to this decision, the Supreme Court classified certain types of disputes as non-arbitrable. These included criminal offense conflicts, marriage problems, guardianship issues, insolvency and winding up disputes, testamentary disputes, and eviction or tenancy disputes.

The Supreme Court dismissing the appeal recognized three conditions that need to be satisfied for a subject matter to come under the jurisdiction of arbitration. They were:
(i) The disputes must be capable of adjudication and settlement by arbitration;
(ii) The disputes must be covered by the arbitration agreement; and
(iii) The parties must have referred the disputes to arbitration.
The arbitrability of a dispute is determined by the nature of the rights at stake.
Disputes involving a “right in rem” (a person’s right against the entire universe) are often regarded as non-arbitrable.
Generally, disputes involving a “right in personam” (rights against specific individuals, such as in a contract) are arbitrable.