Institutional Analysis of Divergent Judicial Approaches to the Arbitrability of Disputes Arising from Banking Contracts of Iranian State-Owned Banks: Explaining the Conflict Between Sovereign and Commercial Approaches

Abstract

The arbitrability of disputes arising from banking contracts concluded by Iranian state-owned banks is characterized by significant uncertainty stemming from the interpretation of Article 139 of the Constitution and divergent judicial approaches. The central issue is whether state ownership of a bank is sufficient to classify its contractual disputes and assets as matters concerning public or state property, thereby subjecting arbitration to the special requirements of Article 139, or whether the bank’s separate legal personality and the commercial nature of its ordinary activities justify recognizing the arbitrability of most such disputes. Using a descriptive-analytical method and an institutional approach, this study examines the foundations of the two competing judicial orientations. The findings indicate that the sovereign approach emphasizes state ownership, protection of public assets, and a broad interpretation of Article 139, whereas the commercial approach relies on the bank’s separate legal personality, the distinction between state ownership of the bank’s capital and the bank’s ownership of its own assets, and the contractual nature of ordinary banking transactions. The institutional analysis demonstrates that the judicial divergence originates from two competing conceptions of the legal status of state-owned banks within the structure of the state. Accordingly, arbitrability should not be determined merely by the institutional label of “state-owned bank,” but through a functional assessment of the underlying relationship, the legal ownership of the disputed property, the nature of the banking activity, and the presence or absence of sovereign authority. The study concludes that most disputes arising from ordinary banking contracts should, in principle, be considered arbitrable because they derive from commercial and proprietary activities undertaken by a separate legal entity. Nevertheless, restrictions remain justified in exceptional cases involving genuine sovereign functions, specially protected public resources, or fundamental public interests. Adoption of this approach can reduce conflicting judicial decisions, strengthen legal certainty, and contribute to a more coherent development of banking arbitration in Iran.