Arbitration In IndiaAnti-Arbitration Injunction

INTRODUCTION

The regular reforms by way of amendments to the Arbitration and Conciliation Act, 1996 (hereinafter referred as “the Act”) have primarily aimed at limiting the extent of judicial interference in arbitral proceedings; providing a structure for rapid and efficient arbitration and developing India a credible commercial arbitration centre.

The fundamental trend of these policy reforms has been reflected in the judicial precedents over the last five years that has consistently adopted a pro-arbitration approach. There is an extremely strong tendency in the Indian Courts to maintain and protect the supremacy of arbitration arrangements that parties willingly enter into as part of their transactions.

However, contrary to this pattern is the possibility that a party to a conflict may request the intervention of a Court to prohibit another party from starting or pursuing arbitral proceedings on various grounds, including the counterparty going outside the negotiated terms of the contract, seeks to invoke the jurisdiction of the arbitrator. This recourse is known as the ‘anti-arbitration injunction’ and is sometimes requested by those engaged in a cross-border disputes.

The anti-arbitration injunctions are typically requested to prohibit a party from starting or extending arbitration proceedings if that party, moves beyond the negotiated provisions of the settlement, falsely tries to challenge or claim the authority of the arbitrator. In other words, such remedies are granted by the national Courts against the commencement or continuation of the arbitration proceedings if the parties have agreed that they will not refer the matter to arbitration or if they have opted for litigation or alternative dispute resolution methods.

Though it has sometimes been referred to as the “anti-suit injunction”, it would be more accurate to term the injunction to restrain an arbitration as an anti-arbitration injunction.

It is an extremely flexible instrument. It may be issued against a party or even against the arbitral tribunal.

It may be sought before an arbitration commences, in the course of the arbitration hearing or after the substantive hearing has concluded, but before the final award is rendered. It may even be issued to prevent a party from enforcing an arbitral award. The effect of the anti-arbitration injunction evidently depends on when the injunction is sought and granted, and against whom it is ordered.

An order granting an anti-arbitration injunction acts in personam against the party who is being restrained. As with any other in personam order, the anti-arbitration injunction only binds the restrained party.

It must be emphasised that the injunction does not negative the restrained party’s right to pursue its substantive rights. Indeed, the restrained party may opt not to comply with the injunction and proceed with the arbitration.

Nevertheless, anti-arbitration injunctions issued by Courts are a powerful remedy for a party seeking to restrain arbitration. A breach of an anti-arbitration injunction issued by a Court amounts to contempt and the restrained party may be punished by a fine or imprisonment.

If a judgment obtained in breach of an anti-suit injunction is unenforceable, an award obtained in breach of an anti-arbitration injunction should meet the same fate.

General grounds for anti-arbitration injunctions include:

• there is no agreement to arbitrate;
• arbitral proceedings have been initiated at the wrong seat;
• arbitral proceedings have been initiated before the wrong institution;
• the arbitral proceedings are outside the scope of the arbitration agreement;
• an arbitration of a certain issue is res judicata;
• an exclusive Court jurisdiction clause has been breached; and
• an arbitration has been commenced against a third party who was not a party to the agreement

Despite the prevalence of these remedies, they are highly controversial because their legal existence is very much in dispute. By fact, these injunctions are often viewed as a challenge to the arbitral tribunals’ power to decide on their jurisdiction, generally regarded as the presumption of independence or the competence-competence principle, which is perceived to be a pillar of the arbitration framework.

In this context, this article would aim to answer the burning issue- if the anti-arbitration injunctions are legally consistent with the arbitration law of India by considering the recent cases rendered by the judiciary in this regard.

INTERNATIONAL PERSPECTIVE : FOR AND AGAINST 

Against Anti-Arbitration Injunction

“In most cases, anti- arbitration injunctions are part of deliberately obstructionist tactics, typically pursued in sympathetic local Courts, aimed at disrupting the parties’ agreed arbitral mechanism. Even if the power to enjoin arbitral proceedings were recognized in principle to exist, that authority should be exercised with the utmost circumspection and only in rare circumstances.”

~Gary Born

Moreover, the concept of anti-arbitration injunctions is violative of the very fundamentals of the principle of “competence-competence”, that forms the bedrock principle for arbitration. Arbitral tribunals use this principle to determine their own jurisdiction. The principle thus empowers a tribunal to conclude that the arbitration agreement is invalid or inoperable and to make a decision declaring that the tribunal lacks jurisdiction. Anti-arbitration injunctions deprives the tribunal of this power.

It is inconsistent with the legal framework generally accepted as applicable for the conduct of an international arbitration. The system is based on the tribunal first determining its jurisdiction and only thereafter does it allow Courts to step in to review, the decision made by the tribunal, although on limited grounds.

It increases the interference of the Courts in arbitration proceedings where it should be minimum.

For instance, according to Article 23 of the UNCITRAL Arbitration Rules, 2010,

“The arbitral tribunal shall have the power to rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement.”

“The arbitral tribunal may rule on a plea [that the tribunal does not have jurisdiction either as a preliminary question or in an award on the merits. The arbitral tribunal may continue the arbitral proceedings and make an award, notwithstanding any pending challenge to its jurisdiction before a Court.”

Further, Article 16(3) of the UNCITRAL Model Law provides that if the tribunal rules as a preliminary question that it has jurisdiction, any party may submit the matter to the Courts at the arbitration’s seat to have the matter re-determined.

Article 34 of the UNCITRAL Model Law enables the tribunal to proceed to make an award but then permits a Court to set aside the award if the arbitration agreement is not legally valid or that the subject matter of the dispute was not capable of settlement by arbitration.

The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards permits the tribunal to make an award but then permits a Court to refuse enforcement of that award on grounds similar to those expressed in Article 34 of the Model Law, including arbitration agreement invalidity.

For Anti-Arbitration Injunction

Although, the principle of competence-competence is fundamental to arbitration, it cannot be said to be absolute in nature.

Article 8 of the Model Law provides that Courts before which proceedings are brought in a matter that is the subject of an arbitration agreement shall refer the parties to arbitration “unless it finds that the agreement is null and void, inoperative or incapable of being performed.” A similar provision is found in Article II of the New York Convention.

These provisions are based on the assumption that a party can commence Court proceedings even in respect of a matter that is said to be covered by an arbitration agreement and the Court, not the arbitral tribunal, decides whether the arbitration agreement is null and void, inoperative or incapable of being performed.

If the arbitration agreement was never formed, it is inherently illogical that an arbitration tribunal has the power to determine any issue. In other words, it makes no sense that an arbitral tribunal can decide that it lacks jurisdiction if a consequence of that decision is that the tribunal did not have jurisdiction to make that decision in the first place.

If a party has an objection to the tribunal’s jurisdiction, it will end up in Court sooner or later. Henceforth, it is better to save the time and costs of going through the arbitral process and the review process by having Courts determine the jurisdictional issue from the outset.

DECODING LEGISLATIVE INTENT AND JUDICIAL INTERPRETATION

The legal existence of such injunctions is disputable. The scope of a Court’s authority under the Act to grant an anti-arbitration injunction remains vague. With few legal opinions addressing the problem of whether anti-arbitration injunctions are permissible given the tacit wording of Sections 8(3) or 45(4) of the Act which provides for reference of a dispute to arbitration.

Furthermore, no provision in any applicable law makes anti-suit injunctions illegal per se. This being said, the Indian Courts can claim jurisdiction and issue anti-arbitration injunctions even if this tends to undermine the principle of competence-competence.

The High Court of Calcutta in the case of Board of Trustees of the Port of Kolkata vs. Louis Dreyfus Armatures SAS and others, 2014 SCC OnLine Cal 17695,  granted the anti-arbitration injunction and laid down the circumstances under which an anti-arbitration injunction can be granted which were:

1. “If an issue is raised whether there is any valid arbitration agreement between the parties and the Court is of the view that no agreement exists between the parties.

2. If the arbitration agreement is null and void, inoperative or incapable of being performed.

3. Continuation of foreign arbitration proceeding might be oppressive or vexatious or unconscionable.”

The High Court of Delhi in the case of McDonald’s India Pvt Ltd v Mr Vikram Bakshi, 2016 SCC OnLine Del 3949, dealt extensively with the issue of anti-arbitration injunctions.

In this case, the Court elucidated on the issue and clarified that there is an difference between the principles that govern the grant of anti-suit injunctions and anti-arbitration injunctions. It explained that the inconvenient forum principle, that is fundamental to anti-suit injunction jurisprudence, applies only when there are competing Courts and not when a dispute is before an arbitral tribunal.

In the case in question, the forum of arbitration was consciously selected by the parties as an alternative to the Courts, and could not be considered an inconvenient forum per se. The Court supported this finding with the competence-competence doctrine.

The Court further held that the Courts should exercise their inherent power to injunct arbitration proceedings cautiously and only in rare circumstances in accordance with the principles envisaged in Sections 8 and 45 of the Act.

Similarly, in the matter of Ravi Arya and ors vs. Palmview Overseas Limited and ors, 2019 SCC OnLine Bom 251, the  High Court of Bombay observed that once the matter is before the Arbitral Tribunal, the Civil Court cannot entertain any proceedings seeking injunction against the Arbitral Tribunal during the course of arbitration proceedings. It was held that Section 16 of the Act confers power on the Arbitral Tribunal to rule on its own jurisdiction which includes adjudication upon the existence or validity of the arbitration agreement.

The High Court of Delhi in Himachal Sorang Power Private Limited vs. NCC Infrastructure Holdings Limited, 2019 SCC Online Del 7575, rejected the application seeking anti-arbitration injunction and laid down the following parameters governing anti- arbitration injunction:

1. “The principles governing anti-suit injunction are not identical to those that govern an anti- arbitration injunction.

2. Courts are slow in granting an anti-arbitration injunction unless it comes to the conclusion that the proceeding initiated is vexatious and/or oppressive.

3. The Court which has supervisory jurisdiction or even personal jurisdiction over parties has the power to disallow commencement of fresh proceedings on the ground of res judicata or constructive res judicata. If persuaded to do so the Court could hold such proceeding to be vexatious and/ or oppressive. This bar could obtain in respect of an issue of law or fact or even a mixed question of law and fact.

4. The fact that in the assessment of the Court a trial would be required would be a factor which would weigh against grant of anti- arbitration injunction.

5. The aggrieved should be encouraged to approach either the Arbitral Tribunal or the Court which has the supervisory jurisdiction in the matter. An endeavor should be made to support and aid arbitration rather than allow parties to move away from the chosen adjudicatory process.”

The High Court of Delhi in Bina Modi & Ors v. Lalit Modi & Ors, 2020 SCC OnLine Del 901, has generated quite an uproar, which seems to have tipped the scale largely in favour of granting the arbitral tribunal discretion in determining their jurisdictional issues.

The case emerged with the Modi family forming a trust for the maintenance of family assets and property. Within a trust deed dated April 9 2014, conflicts emerged between the trustees. One of the trustees, Lalit Modi, filed an application seeking emergency measures against the other trustees before the Singapore International Chamber of Commerce. The other trustees filed anti-arbitration injunction suits before the Court, demanding a declaration that the arbitration proceedings are inapplicable and contradictory to India’s public policy.

The Court dismissed the suit by relying on the Supreme Court’s decision in Kvaerner Cementation India Ltd. v. Bajranglal Agarwal & Anr, (2012) 5 SCC 214, which had found that the arbitral tribunal has the right to determine even issues relating to its jurisdiction under its authority, and having interpreted Section 5 in compliance with Section 16 of the Act, it was held that an anti-arbitration injunction complaint cannot be enforced.

Furthermore, the Court observed that Kvaerner Cementation decision has recently been approved by the Supreme Court in A. Ayyasamy v. A. Paramasivam and Ors., (2016) 10 SCC 386 and National Aluminium Company Limited v. Subhash Infra Engineers Private Limited and Anr., 2019 SCC OnLine SC 1091.

However, the Supreme Court’s decision in Kvaerner Cementation has been overruled by the case of SBP & Co. v Patel Engineering, (2005) 8 SCC 618 in which the Supreme Court rejected the argument that an arbitral tribunal solely has competence to the complete exclusion of Civil Courts to determine its own jurisdiction.

The above rulings also provided that the Courts while exercising their inherent powers to enjoin arbitration proceedings must be cautious and use it only in rare circumstances.

Recently, the High Court of Calcutta in Balasore Alloys Limited v. Medima LLC, G.A. No. 871 of 2020, held that the Courts in India have the power to grant anti-arbitration injunctions against foreign seated arbitrations; however, this power should be used sparingly and with caution.

In the instant case, the question to be determined was whether the arbitration seat was in India, or the United Kingdom’s International Chamber of Commerce (ICC). While the ICC would have the jurisdiction according to the clause in the 2018 Agency Agreement, the terms and conditions in purchase orders required the application of Indian arbitration law with Kolkata as the arbitration venue.

The Court placed reliance on the case of Devi Resources Ltd. v. Ambo Exports Ltd in which the Court held that before granting anti-arbitration injunction the Court has to exercise extreme caution and circumspection.

The Court further relied on the principles enumerated by the Supreme Court in Modi Entertainment Network v. W.S.G. Cricket Pte. Ltd. (2003) 4 SCC 341, which include the following:

• In exercising discretion to grant an anti-suit injunction the Court must be satisfied with the following aspects: –

1. The defendant is amenable to the personal jurisdiction of the Court;
2. If the injunction is declined the ends of justice will be defeated and injustice will be perpetuated; and
3. The principle of comity must be borne in mind.

• In cases where multiple forums are available, the Court as per its discretion must decide the most appropriate forum.
• Where a Court’s jurisdiction is invoked in a contract based on the jurisdiction clause, the recitals therein in respect of the parties’ exclusive or non-exclusive jurisdiction of the Court of choice are not determinative but are relevant factors. In case a problem occurs as to the extent of jurisdiction negotiated by the parties, the Court shall rule on a valid interpretation of the contract based on the evidence and circumstances of each case;
• A Court of natural jurisdiction will not normally grant an anti-suit injunction against a defendant before being satisfied that the parties have agreed to submit to the exclusive jurisdiction of a Court including a Foreign Court, as a forum of their choice;
• Ordinarily, no anti-suit injunction will be granted where parties have agreed to approach a neutral foreign forum and be governed by the law applicable to it for the resolution of their disputes arising under the contract,
• A party to the contract containing jurisdiction clause cannot normally be prevented from approaching the Court of choice of the parties and the proceedings in that Court cannot per se be treated as vexatious or oppressive.

The burden of establishing that the forum of choice is a forum non-conveniens or the proceedings therein are oppressive or vexatious would be on the party so contending to aver and prove the same.

Therefore, the Court denied the ad-interim order for an anti-arbitration injunction by observing that Balasore did not completely discharge the duty of proving that the ICC in London, in this case, the alternate venue, is indeed a non-conveniens platform or that the proceedings brought before it by the respondent are of an arbitrary or vexatious sort. 

Thus, the very presence of several proceedings and/or the possibility of a claim arising in several jurisdictions are not adequate grounds to make an arbitration arrangement inoperative.

From the above judicial precedents, it can be inferred that the judiciary has largely refrained to deal with or interfere in the issues of jurisdiction and competency of the arbitral tribunal. The Courts have rather promoted arbitration and have directed the parties to resolve the issue of jurisdiction before the arbitral tribunal only, especially for anti-arbitration injunctions. By doing so, the Courts have resorted to upheld the fundamental principle of arbitration, the party autonomy.

The rationale behind this approach is that where parties have intentionally with the knowledge have entered and executed the arbitration agreement, then their contractual commitments including that of jurisdiction and dispute resolution mechanism should be enforced.

CONCLUDING REMARKS 

Given the contentious existence of the anti-arbitration injunctions, it has arisen as one of the possible remedies in various jurisdictions. Nevertheless, their presence under either the New York Convention or the Model Law is far from clear as there is no express clause that authorizes its grant or a law that renders them illegal. Therefore, every authority has its strategy concerning their presence and availability.

In general, common law jurisdictions do not deny their Courts any power to intervene in cases involving abuse of legal or arbitral proceedings.

In India, the issue of the anti-arbitration injunction has so far not been settled by the Supreme Court. In the absence of any binding decision of the Supreme Court, various High Courts have haphazardly dealt with the matter.

Apart from the limited judicial attention given to the anti-arbitration injunctions by the Indian courts, no judicial opinion has so far been articulated on the substantive incompatibility of these injunctions within the Indian legal framework. On the other hand, in several cases, in particular, at the level of the High Courts, such injunctions exist.

To distinguish itself as a jurisdiction, Indian Courts must adopt principles to ensure a clear, balanced approach as to when honouring an arbitration agreement will prevail over an application challenging that agreement.

Therefore, pending a global consensus on this issue, it is suggested that India should follow a very restrictive approach for granting these injunctions and take a pro-arbitration stance. This will aid India in attaining its goal of becoming a major hub of commercial arbitration.

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