Threshold tests for an anti-arbitration injunction more exacting than those applicable for anti-suit injunction: Madras High Court

The Madras High Court recently had occasion to opine that the threshold tests for granting an anti-arbitration injunction are more exacting than those applicable for an anti-suit injunction (ADM International Sarl v. Sunraja Oil Industries Private Limited and ors)..In this regard, Justice Senthilkumar Ramamoorthy expressed agreement with the Delhi High Court's ruling in the case of McDonalds India Pvt. Ltd. v. Vikram Bakshi. ."The (Delhi High) Court underscored the fact that the threshold tests for an anti- arbitration injunction are more exacting than that applicable for an anti-suit injunction and concluded that the principal considerations would be those underpinning Section 45 of the Indian Arbitration Act, i.e. whether there is an arbitration agreement; and whether such agreement is null and void, inoperative or incapable of being performed. I respectfully concur with the principles set out therein. Therefore, these tests should be applied to the case at hand," the Court ruled. .In this case, the arbitration proceedings were initiated over a dispute concerning the procurement of crude sunflower seed oil by two companies, Sunraja Oil Industries Private Limited and Gem Edible Oils Private Limited, from the Switzerland-based ADM International Sarl. .Sunraja and Gem had objected to the arbitration proceedings on concerns that the arbitral institution involved, Federation of Oil Seeds & Fats Association (FOSFA), was not a neutral platform. .Objections were also raised over the contracts between ADM and the two companies, on grounds that they were discriminatory as they did not offer the buyers an option to terminate. .In 2019, the two buyer-companies also obtained an interim injunction against the arbitration proceedings initiated by ADM, which was extended from time to time. ADM, in turn, moved the Madras High Court to vacate the injunction. .The High Court ruled in ADM's favour in view of the principles outlined above on the grant of anti-arbitration injunctions. It dismissed the contentions made by Sunraja and Gem over the neutrality of the arbitral institution. ."While 'justifiable doubts of bias' may be a valid test when an arbitral tribunal is challenged either before such tribunal or before a jurisdictional court; as stated earlier, a higher threshold should be satisfied for an anti-arbitration injunction because the plaintiff should justify the departure from the contractual dispute resolution mechanism," the Court held. .Notably, the neutrality of the arbitral institution had been challenged on the ground that it is fully controlled by the prominent sellers of oil seeds such as ADM. The Court, however, opined that this is not necessarily an indicator of bias.."There are several arbitral institutions spread across the world which are established by organisations or entities that represent the interest of the specific trade. This is particularly the case with regard to trade in commodities such as cotton, oil, spices and the like. The rationale for the establishment of such arbitral institutions is that domain expertise is necessary to effectively adjudicate such disputes and trade practice and the knowledge thereof is also significant. In the present context, unless it is ex facie evident that the contractual remedy is unconscionable and illusory, either because there was no genuine agreement to resolve disputes through arbitration or for other comparable and compelling reasons, there is no basis to interfere with the contractual dispute resolution process. The material on record does not support a conclusion that the FOSFA arbitral institution is ex facie not neutral and I see no reason to draw such conclusion merely because FOSFA is an organisation representing the interest of traders in oil seeds and fats.".No actionable material has been placed before Court to substantiate the argument that specific arbitrators in the case were not neutral, the Court added. .Other concerns over whether the rules of FOSFA permitted the party to be represented by an advocate and whether the contracts were discriminatory hinged upon whether FOSFA Form 54 was provided to the the buyer companies. In this regard, the Bench found that, prima facie, there was no material to indicate that this form was not received by the buyer-companies. The judge added that this aspect can also be raised before the appropriate forum. ."Upon prima facie examining the documents on record, I do not find any contemporaneous document complaining of the non-receipt of FOSFA Form 54. On the contrary, the executed contracts contain a clause stating that the parties admit knowledge and notice of contract Form 54 of FOSFA. In this context, it is noteworthy that reciprocal obligations were fulfilled by the buyer and seller as regards some of the executed contracts, all of which used the same template, and the allegation that contract Form 54 was not received did not surface then. Therefore, the material on record does not prima facie support the contention that the respective Plaintiff did not have a copy of the contract Form 54 of FOSFA. However, in order to not prejudice the contesting parties in proceedings before the appropriate forum, I do not propose to enter conclusive findings," the judgment said. .Ultimately, the Court set aside the anti-arbitration injunction obtained earlier by the two buyer-companies and ruled that the Court does not have jurisdiction over such an issue. "The respective Plaintiff has failed to demonstrate that the arbitration agreement is null and void, inoperative or incapable of being performed. In light of the above discussion and analysis, I find no reason to continue the anti-arbitration injunction," the Court opined. .Whereas there was also an allegation that ADM had continued with arbitration proceedings even after the anti-arbitration injunction (now set aside) was granted, the Court said that it would prefer not to indulge in jingoistic impulses or one-upmanship, even if ADM should have ideally waited until the said injunctions were vacated. ."On these facts, it was contended on behalf of the respective Plaintiff that both FOSFA and ADM proceeded with the arbitration in flagrant violation of the order of this Court and that such conduct vitiates the proceedings. There is no doubt that the appropriate course of action for ADM would have been to proceed with the arbitration after the order of injunction of this Court was discharged upon consideration of its applications. However, in view of the conclusions in the preceding paragraph that the respective Plaintiff has failed to make out a case for an anti-arbitration injunction and that this Court does not have jurisdiction, I do not propose to interfere with the arbitral process. In my view, the stature and prestige of the Indian judicial system is enhanced by consistently enforcing the rule of law and, by contrast, is undermined if jingoistic impulses hold sway or one- upmanship is indulged in", the judgment said. .Senior Advocate Nakul Dewan, assisted by Advocate Anirudh Krishnan appeared for ADM. Senior Advocate PH Arvindh Pandian, assisted by Asvocates S Santosh and K Magalingam appeared for Sunraja Oil Industries Private Limited..[Read Judgment]

Threshold tests for an anti-arbitration injunction more exacting than those applicable for anti-suit injunction: Madras High Court

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