India: To Grant Or Not To Grant: Anti-Arbitration Injunctions In India

The conundrum of this Shakespearean tragedy has embedded itself in the canvass of the Indian Arbitration Law, and the passage of time has not made the decision making any easier. Of course, as always, it depends on the facts of each case. Does that make the answer any simpler? We have to quickly breeze though the statute and the herculean precedents laid down by the Courts of India, to reach even a cursory conclusion in this regard.

The Incidences:

In India, recently there has been a wave of instances of Anti-Arbitration injunctions being sought by parties who have either subjected themselves to the jurisdiction to a foreign law and seat of Arbitration or there is a claim to that effect. The grounds on which such injunction is sought varies, however the underlying objective seems to be common – to enjoin foreign seated arbitration proceedings.

The Statutes:

Anti-arbitration suits are those suits which, simply put, seek injunction on either institution or continuance of a domestic or international arbitration proceeding. Arbitrations in India, including recognition of foreign arbitration awards, are regulated by the Arbitration and Conciliation Act, 1996 ("Act") which mandates minimum interference by the Civil Courts in the conduct of arbitration proceedings under the Act. The Civil Courts of India have been bestowed with the right and power to grant injunctions by and under section 9 of the Code of Civil Procedure, 1908 ("CPC"). This power of the Civil Court has been subjected to scrutiny by section 41(h) of the Specific Relief Act, 1963 ("SRA") which bars the grant of injunctions when equally efficacious relief can certainly be obtained by any other usual mode of proceeding.

The Dilemma:

Following the general principles of Arbitration observed worldwide in pursuance of various conventions, the Act upholds the sanctity of the rule of 'kompetenz-kompetenz'. This principle is recognizes the competence of the arbitral tribunal, and its power, to rule on its own jurisdiction and to examine the existence and validity of the arbitration agreement¹.

However, it also provides leeway to the Civil Courts of competent jurisdiction to examine and decide on whether or not the arbitration agreement is valid², null and void, inoperative or incapable of being performed³. This leads to the eternal dilemma of whether the Civil Courts possess the jurisdiction to interfere in arbitration proceedings and grant an anti-arbitration injunction.

The Rollercoaster of decisions:

The Indian Apex Court made its pro-arbitration stand clear in this regard in the year 2001 while passing the legendary, and most relied upon, judgement in this three judge bench in the matter of Kvaerner Cementation India Ltd. v. Bajranglal Agarwal & Anr⁴ ("Kvaerner Judgement").

In this two paged judgement, the Supreme Court of India, while confirming that in the absence of any arbitration clause, no dispute can be referred to arbitration, held that keeping in mind the very object of the Act the arbitral tribunal has the power to decide on its own jurisdiction and on the existence and validity of an arbitration agreement as a preliminary issue. The Supreme Court, on such ground, dismissed the anti-arbitration injunction suit. However, for whatever reasons, this judgement was not reported until the year 2012. As a consequence, until the year 2012, the dilemma of the Courts of India, could not be redressed leading to overlapping contrary judgements.

In the year 2005, the Supreme Court, in its seven judge bench, passed the much referred judgement in SBP & Co v. Patel Engineering Limited⁵ where it has been held that it cannot be said that the arbitrator has the absolute right to decide on its own jurisdiction to the exclusion of the jurisdiction of the Civil Courts. The Supreme Court has observed that the Civil Courts retain jurisdiction to grant injunction as per section 9 of the Civil Procedure Code, 1908.

This position of the Supreme Court was reiterated in the judgment passed in the matter of World Sport Group v. MSM Satellite Singapore Ltd⁶, where the Supreme Court entered into the question of granting an anti-arbitration injunction with respect to a part II arbitration i.e. an international commercial arbitration. In this regard, the Supreme Court categorically dealt with section 45 of the Act and held that the scope of enquiry under section 45 of the Act is only to examine whether the arbitration agreement is null and void or inoperative or incapable of being performed, the Civil Court cannot venture into examining the legality or validity of the substantive contract. This, once again, mandated the Civil Court to entertain these anti-arbitration suits to at least examine the arbitration agreement, as opposed to the approach adopted in Kvaerner Judgement where the Civil Courts were to simplicitor refer the issue to the arbitrator to rule in its own jurisdiction.

The observations in Kvaerner Judgement were, once again, distinctly departed from by two High Courts of India i.e. the High Court of Delhi in the matter of McDonald's India Private Limited v. Vikram Bakshi and Ors⁷ and the High Court of Calcutta in the matter of The Board of Trustees of Port of Kolkata v. Louis Dreyfus Armatures SAS and Ors⁸, where both Courts have been consistent in holding that the the Civil Courts have the jurisdiction to grant anti-arbitration injunctions. In McDonald's, the division bench of the High Court of Delhi shook the foundation of the settled principles of the Act and held that the Courts in India would have jurisdiction to determine whether an arbitration agreement is void. However, this observation was restricted by the parameters set out by the Supreme Court in Sasan Power Limited vs. North American Coal Corporation (India) Limited⁹ which clarified that the scope of enquiry under section 45 of the Act shall be confined to the arbitration agreement and does not extend to the validity of the substantive contract.

Despite the common observations in the various judgements cited here, the courts of India made a sudden and abrupt return to the principles set out in Kvaerner Judgement. The Delhi High Court in Ravi Arya v. Palmview Investments Overseas¹⁰, the Calcutta High Court in Lafarge India Pvt Ltd v. Emami Realty and Anr¹¹ and the Supreme Court in National Aluminum Company Ltd v. Subhash Infra Engineering Pvt. Ltd¹² and A. Ayyasamy v. A. Paramasivam and Ors.¹³, refused to grant antiarbitration injunctions while observing that the arbitral tribunal can rule its own jurisdiction as regards existence and validity of the arbitration agreement. In Ayyaswamy, the Supreme Court observed that arbitrability of the dispute can also be considered in a suit for anti-arbitration injunction in order to determine whether there exists a void arbitration agreement. The Supreme Court made a pertinent observation on the parameters to be considered, while deciding on the arbitrability of the dispute, that generally and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. The Supreme Court clarifies that this is not, however, a rigid or inflexible rule and that disputes relating to subordinate rights in personam arising from rights in rem have always been considered to be arbitrable.

The Delhi High Court in Himachal Sarang Power Pvt Ltd v. NCC Infrastructure¹⁴, picking the trail, refused to grant an anti-arbitration injunction in an international arbitration proceeding with a disclaimer that such injunctions may not be granted unless the proceedings are vexatious and/or oppressive. This has now paved way for another criteria which the Civil Court could consider in an anti-arbitration injunction suit.

Then came the Bina Modi judgement¹⁵, which placed itself close to the hearts of all the pro-arbitration folks out there. Bina Modi Judgement went one step ahead in ousting the jurisdiction of the Civil Court for anti-arbitration injunction by observing that the McDonald's judgement was per in curium as it did not refer to, or consider, Kvaerner Judgement. While rejecting the anti-arbitration injunction, the Bina Modi judgement also considered the bar set out in clause 41(h) of the SRA and held that since the Act provides for equally efficacious alternate remedy, Civil Court cannot grant an anti-arbitration injunction.

This judgment was overturned by the Appellate Bench of the Delhi High Court¹⁶ breaking the hearts of many, who were monitoring the appeal perhaps more than the parties themselves. The Appellate Bench held that the Court is under a duty to consider the validity of an arbitration agreement in the facts and circumstances of the case, and that in case of foreign arbitration enormous expenses and efforts get involved and as such the legislature in its wisdom has thought that the question relating to the validity of arbitration agreement, its cooperativeness and capability of being performed should be examined by the Court itself instead of leaving those in the hands of an Arbitrator in a foreign land.

Surprisingly, this judgement does not venture into, or deal with, section 45 being a non obstante clause or that section 45, which adopts Article II of the New York Convention on enforcement of arbitral awards, does not empower Civil Courts to grant an anti-arbitration injunction. In fact, the section has made it obligatory on the Courts, when seized of an action, to refer such action to arbitration at the request of one of the parties, unless it prima facile finds that the arbitration agreement is null and void, inoperative or incapable of being performed. Arbitrability of the dispute, or vexatiousness of the arbitration proceedings, is not a criteria provided under this section. It can, therefore, be deemed that the parameters set out under section 45 lacks elasticity to encompass any elements for examination by the Civil Courts, other than those specifically arrayed in the section.

Nevertheless, there may be still hope for Lalit Modi considering a petition for special leave to appeal has been instituted before the Supreme Court¹⁷ challenging the judgement passed by the Appellate Bench of Delhi High Court.

The Conclusion

The ambiguity, contradictions and inconclusivity as regards the parameters to be adhered to while granting or rejecting anti-arbitration injunctions in the Indian arbitral scenario, does not permit us to reach to a conclusion. However, one aspect that the Indian Courts seem to agree upon is that Civil Court should use its power to grant injunctions in anti-arbitration suits very sparingly. This is a welcomed reprieve granted by the Indian Courts tilting the scales in favour of arbitrations. In popular opinion, pro-arbitration stance in the Indian legal scenario is the need of the hour considering that the Civil & Commercial Courts of India are overburdened with cases. Prolonged entertainment of such anti-arbitration suits may defeat the purpose for which the Act was enacted. Narrowing the scope of examination for interference of Civil Court in anti-arbitration injunction suits would go a long way in putting this issue and dilemma at rest.

Footnotes

1. Section 16 of the Act

2. Section 8 of the Act

3. Section 45 of the Act

4. (2012)5SCC214

5. (2005)8SCC618

6. (2014) 11 SCC 639

7. 2016 SCC OnLine Del 3949

8. 2019 SCC OnLine Bom 251

9. (2016) 10 SCC 813

10. 2019 SCC OnLine Bom 251

11. (2016) SCC OnLine Cal 4964

12. 2019 SCC OnLine SC 1091

13. (2016) 10 SCC 386

14. 2019 SCC OnLine DEL 7575

15. Order dated 3rd March 2020 in CS(OS) 84 of 2020, Delhi High Court

16. Order dated 24th December 2020 in RFA 21 & 22 OF 2020, Delhi High Court

17. Special Leave to Appeal (C) No(s).1134-1135/2021

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