India's approach to anti-arbitration injunction suits: Step in the right direction?
The expression “being between Scylla and Charybdis” is an idiom derived from Greek mythology, which has been associated with the phrase "to choose the lesser of two evils". India’s approach to developing the jurisprudence on anti-arbitration injunction suits, arguably, can be best summarized by this expression.
An anti-arbitration injunction suit is an action brought before jurisdictional courts seeking to injunct the initiation or continuation of arbitration. In international jurisprudence, there is a constant tussle between giving autonomy to arbitral tribunals to decide challenges to their jurisdiction, and the ability of courts to interfere in certain exceptional circumstances, where there is demonstrable injustice or harassment being caused to a party by the arbitration proceedings. Even India has struggled to find that balance.
The recent judgment of the Delhi High Court in Bina Modi & Ors v. Lalit Modi & Ors has created quite a stir, and seems to have tilted the balance entirely in favor of giving autonomy to the arbitral tribunal to decide even questions of their jurisdiction. This has shaken the very approach taken by Indian courts over the last two decades on evolving the principles governing anti-arbitration injunction suits.
In Bina Modi, the Court primarily relied on the judgment of the Supreme Court in Kvaerner Cementation India Ltd. v. Bajranglal Agarwal & Anr, which had held that the arbitral tribunal has the power to decide even questions of its own jurisdiction, and by virtue of Section 5 read with Section 16 of the Arbitration and Conciliation Act, 1996, an anti-arbitration injunction suit is not maintainable.
It would be interesting to note that Kvaerner Cementation was decided by a three-judge Bench of the Supreme Court on March 21, 2001, but was not reported until 2012, and appears to have slipped under the radar of several judgments that were passed in the last two decades, leading to confusion. In Bina Modi, the Delhi High Court sets the record straight and rejects various other judgments of Indian courts, on the ground that they did not consider Kvaerner Cementation.
The Bina Modi case
A trust was set up by the Modi family for managing family assets and properties. Disputes arose between the trustees under a trust deed dated April 9, 2014. One of the trustees, Lalit Modi, filed an application seeking emergency measures before the International Chamber of Commerce (ICC), Singapore, against the other trustees. The other trustees commenced anti-arbitration injunction suits before the Delhi High Court, seeking a declaration that the arbitration proceedings are unenforceable and are contrary to the public policy of India.
The main contention of the plaintiffs was that the issue of arbitrability cannot be left to be decided by the arbitral tribunal or by the courts in Singapore or the emergency arbitrator and that such forums would also be forum non conveniens, oppressive, manifestly unfair, unreasonable and prejudicial to the interest of the plaintiffs.
The suits were dismissed by following Kvaerner Cementation in which the Supreme Court had held that the suit for anti-arbitration injunction is not maintainable owing to an alternative remedy being available under Section 16 of the Arbitration Act. The Single Judge refused to rely on the Division bench judgment of the same court in McDonald’s India Private Limited v. Vikram Bakshi. It was also observed that McDonald's was not binding as it had not followed the dicta of the Supreme Court in Kvaerner Cementation.
Further, the principles pertaining to anti-suit injunction in McDonald's cannot be made applicable to anti-arbitration injunction suits for the reason that the Arbitration Act is a complete code in itself, and the Arbitration Act empowers the arbitral tribunal to rule on its own jurisdiction, based on the principle of kompetenz-kompetenz.
Reliance was also placed on Section 41(h) of the Specific Relief Act, 1963, which bars the grant of injunctions when equally efficacious relief can be obtained by any other usual mode of proceeding. It was observed that the proper remedy would be to approach the arbitral tribunal under Section 16 of the Arbitration Act.
The law prior to Bina Modi
It would be interesting to analyze the development of law prior to Bina Modi. The important cases are summarized below (in chronological order):
In LMJ International Ltd v. Sleepwell Industries Co. Ltd. and Anr, the Calcutta High Court refused to entertain a suit filed by a party to restrain the other party from taking steps for a London-seated arbitration. The contention of forum non conveniens was rejected since the contract was signed with eyes wide open. This was followed by the judgment of the Delhi High Court in Sancorp Confectionary v. Gumlik, where the Court refused to interfere in an arbitration initiated before the Singapore International Arbitration Center (SIAC) and held that all objections be heard by the arbitral tribunal.
A two-judge Bench of the Supreme Court in Chatterjee Petrochem Company and Anr v. Haldia Petrochemicals Ltd. and Ors rejected a suit that was filed challenging a Paris-seated ICC arbitration. Even though Kvaerner Cementation had been reported in law journals by then, neither the parties nor the Court referred to the same. The Court decided that there was novation of the arbitration agreement and referred the parties to arbitration. Interestingly, the Court relied on Section 45 of the Arbitration Act to determine if the arbitration agreement was null and void, inoperative, or incapable of being performed, even though no such application was filed. Though the Court dismissed the anti-arbitration injunction suit, the approach taken was entirely different from Kvaerner Cementation.
Likewise, in World Sport Group v. MSM Satellite Singapore Ltd, the Supreme Court did not notice the decision passed by the larger bench in Kvaerner Cementation. Even in this case, the Court applied the principles of Section 45 of the Arbitration Act (even though no such application was filed) and went into the question of whether the arbitration agreement was null and void. The law therefore, took a curious turn, in that Kvaerner Cementation mandated the Court to simply refer all jurisdictional questions to be decided by the arbitral tribunal.
In perhaps the only reported case of its kind, the Calcutta High Court in The Board of Trustees of Port of Kolkata v. Louis Dreyfus Armatures SAS and Ors granted an anti-arbitration injunction on the facts of the case. The Court cautioned that it was only in exceptional circumstances that anti-arbitration injunction can be granted by a court of law.
In McDonalds, the Delhi High Court set aside the order of the Single Judge which had proceeded on the basis that the existence of multiple proceedings makes an arbitration agreement null and void or incapable of being performed. The Division Bench did not follow Kvaerner Cementation and on the facts proceeded to observe that “the courts in India would certainly have the jurisdiction to determine the question as to whether an arbitration agreement is void or a nullity”. This was again a clear departure from the principles laid down in Kvaerner Cementation.
The Calcutta High Court in Lagarfe India Pvt Ltd v. Emami Realty and Anr also proceeded without reference to Kvaerner Cementation, and on the facts, refused an anti-arbitration injunction. After a long hiatus, Kvaerner Cementation was relied on by one of the parties and referred to in the judgment of the Delhi High Court in Ravi Arya v. Palmview Investments Overseas. Thereafter, the Court directed the parties to raise all questions of jurisdiction before the arbitral tribunal.
Soon after, the Delhi High Court in Himachal Sarang Power Pvt Ltd v. NCC Infrastructure refused to grant an anti-arbitration injunction of the SIAC arbitration, and reiterated the principle that the courts are slow in granting injunction unless the proceedings are vexatious and/or oppressive.
A two-judge Bench of the Supreme Court in National Aluminum Company Ltd v. Subhash Infra Engineering Pvt. Ltd relied on Kvaerner Cementation and refused to grant an anti-arbitration injunction on the ground that the proper remedy was to raise issues of jurisdiction under Section 16 of the Act before the arbitral tribunal and the civil courts cannot have jurisdiction to go into such questions.
This was followed by Bina Modi, which set the cat among the pigeons by observing that McDonald's was not binding since it was passed without considering Kvaerner Cementation. The plaintiffs thereafter filed an appeal before the Division Bench of the Delhi High Court. By an order dated March 5, 2020, the Court restrained the defendant from proceeding with the emergency arbitration proceedings, till further hearing of the said appeal. This order was challenged before the Supreme Court, and the same was dismissed. The outcome of the appeal will have a significant bearing on the development of this law.
Had Kvaerner Cementation been relied on, in its true purport, the judgments that followed ought to have simply referred the challenges on jurisdiction to be decided by the arbitral tribunal. Instead, as is evident from the above cases, the courts undertook the exercise of assessing whether on the facts of the case the arbitration agreement had become null and void, inoperative, or incapable of being performed. Further, there was no need for the courts to rely on Section 45 of the Arbitration Act, since no such application was filed by any party.
There is a fine balance between autonomy of an arbitral tribunal and the power of courts to intervene in compelling circumstances. Practically speaking, in the Indian context, some arbitral tribunals frame a preliminary issue on jurisdiction to be decided along with the main case. Therefore, a defendant may have to wait for the entire conclusion of the case for the jurisdictional issue(s) to be decided. The moot question is – can we have a blanket rule where everything ought to be decided by the arbitral tribunal, leaving courts with no ability to interfere (albeit in exceptional circumstances)? Has India approached this as if it were caught between the devil and the deep sea – in choosing to exclusively vest the jurisdiction with the arbitral tribunal?
While there can be no argument over the fact that a pro-arbitration approach is the need of the hour, regard must also be given to the fact that there may be situations where the court needs to interfere in rare and exceptional circumstances. For instance, if arbitration proceedings are initiated over a non-arbitrable dispute, or if one party has acted fraudulently in initiating arbitration proceedings, or if the arbitration proceedings have been initiated in violation of the choice of law and jurisdiction clause(s). This would ensure that there are checks and balances and we do not navigate a path of either extreme.
It would be relevant to note that in Bina Modi, it was additionally argued that the arbitration proceedings that had been initiated before the ICC were oppressive, vexatious, and inequitable. We will have to wait and see if in future cases the contentions regarding the arbitration proceedings being oppressive, vexatious, and inequitable are negated if the court simply finds that there is a valid arbitration agreement (as in Bina Modi), and if an anti-arbitration injunction is ever granted.
The law on anti-arbitration injunction suits in India has certainly reached a tipping point. It will be interesting to see how the Indian jurisprudence evolves after Bina Modi.
Lomesh Kiran Nidumuri is a Partner and Prerna Ponappa, Mahati Guttal and Vegadarshi K are Associates at IndusLaw.