Decoding Anti – Arbitration Injunctions in India

Introduction

Position prior to the Arbitration Act, 1940 (“1940 Act”)

The Calcutta High Court took the view that it had jurisdiction to grant anti- arbitration injunction to restrain commencement of arbitration proceedings or stay pending arbitration proceedings on the grounds of fraud, mistake, or surprise. [Sardarmull Jessraj v. Agar Chand Mahata and Co., AIR 1919 Cal 89; G.M. Birla and Co. v. Johurmull Premsukh, AIR 1920 Cal 908]

Position under the 1940 Act

In case of India seated arbitration, section 33 of the 1940 Act had a clear bar on institution of suits for a decision upon the existence, effect or validity of an arbitration agreement. At the same time, the accepted position of law was that an arbitral tribunal could not decide on its own jurisdiction. Therefore, instead of filing a suit, a party could approach the court by way of an application for adjudication on this issue and during the pendency of such application, could in a given case apply for stay on commencement or continuation of any arbitration proceedings in the form of interim relief.
In case of foreign seated arbitrations, sections 34 and 35 came into play. Therefore, if there was a suit covering the subject matter of arbitration and notice of that suit had been given to the arbitral tribunal, then the arbitral tribunal could not proceed with arbitration unless the suit was stayed under section 34.
Apart from sections 34 and 35, the courts in India often stayed foreign seated arbitrations on the additional grounds of arbitral proceedings being oppressive and vexatious, particularly when it involved an outgo of foreign exchange under the FERA regime. [V.O. Tractoroexport, Moscow v. Tarapore & Company and Ors. (1969) 3 SCC 562; ONGC v. Western Company of North America (1987) 1 SCC 496]

Current Position in Different Seated Arbitrations

Position under the 1996 Act

  • India Seated Arbitration

The Hon’ble Supreme Court (“SC”) held that a civil court would have no jurisdiction to go into the issue of existence of an arbitration agreement [Kvaerner Cementation India Ltd. v. Bajranglal Agarwal and Anr. (2012) 5 SCC 214]. This view can be argued to be later restricted to a situation where the arbitral tribunal had been constituted at the instance of one party and the other party challenges these proceedings before court [A. Ayyasamy v. A. Paramasivam and Ors. (2016) 10 SCC 386].

SC, following Kvaerner, held that a civil court does not have jurisdiction to interdict an arbitral process where the arbitration had already commenced. [National Aluminium Co Limited v. Subhash Infra (2019) SCC Online 1091]

When there was overlapping of issues in arbitration and suit, Calcutta High Court allowed the suit to proceed vis-à-vis what was not covered in arbitration but stayed the suit till a final decision was arrived in arbitration in respect of overlapping issues. [Lafarge India Pvt. Ltd. v. Emami Realty Ltd. MANU/WB/0911/2016]

Justice Endlaw of Delhi High Court has taken a view that courts have no jurisdiction to stay arbitration proceedings and has extended the principle to foreign seated arbitrations. [Bina Modi & Ors. V. Lalit Modi & Ors. MANU/DE/0685/2020]

  • Foreign Seated Arbitration

The SC has, in a given case, undertaken the exercise of finding out whether arbitration agreement existed or not and after finding that there existed an arbitration agreement, held that the anti-arbitration suit was not maintainable. [Chatterjee Petrochemical v. Haldia Petrochemical (2014) 3 SCJ 475]

The SC has further held that civil courts have jurisdiction to grant anti-arbitration injunction provided the conditions of sections 44 and 45 of the 1996 Act are met. Therefore, one could seek injunction on the basis of arbitration agreement being illegal, null, void, inoperative, or incapable of being performed. [World Sport Group (Mauritious) Limited v. MSM Satellite (Singapore) Pte. Ltd. (2014) 11 SCC 639]

Division Bench of Delhi High Court has taken a view that court has jurisdiction to stay the arbitration proceedings subject to the principles laid out in sections 8 and 45 of the 1996 Act. [Vikram Bakshi v. MC Donald’s India Pvt. Ltd. (2016) SCC OnLine Del 3949; also see recent decisions in Spentex Industries v. Quinn Emanuel [Judgment dated 12.05.2020 in CS(OS) 568/2017]; contra view in Bina Modi & Ors. V. Lalit Modi & Ors. MANU/DE/0685/2020]

  • Foreign Seated Treaty Arbitrations

Various Courts have taken a view that they have jurisdiction to grant anti-arbitration injunction. Further, the courts have gone on to observe that the powers of a court deciding an anti-arbitration injunction application are not limited and subject to the provisions of the 1996 Act because the treaty arbitration disputes are not commercial in nature, therefore, the provisions of 1996 Act do not apply to them. [See DHC decisions in Union of India v. Vodafone Group Plc. (2018); Union of India v. Khaitan Holdings (2019]

Grounds For Seeking Anti-Arbitration Injunction

  1. That there is No Arbitration Agreement. [Vikram Bakshi v. MC Donald’s India Pvt. Ltd. (2016) SCC OnLine Del 3949]
  2. Also, where a third party, who is not a party to the arbitration agreement, is made a party to the arbitration proceedings; 
  3. Agreement is null and void; agreement is inoperative or incapable of being performed [World Sport Group (Mauritious) Limited v. MSM Satellite (Singapore) Pte. Ltd, 2014 (11) SCC 639]
  4. Existence of arbitration agreement, efficacy of arbitration agreement, survival of arbitration agreement or jurisdiction of arbitral tribunal, incapacity of party, overwhelming inconvenience; egregious fraud committed by the party seeking reference or reference being patently vexatious or unbearably oppressive- [Devi Resources Limited v. Ambo exports Limited, (2019) 2 CALLT50 (HC), DB]
  5. Action of a party in initiating an arbitration proceeding is oppressive and/ or vexatious as opposed to mere inconvenience – for example where the proceedings are sought to be initiated before a forum with no jurisdiction [Modi Entertainment v. WSG Cricket (2003) 4 SCC 341];
  6. Res Judicata (Himachal Sorang Power Private Limited and Ors. v. NCC Infrastructure Holdings Limited 2019 SCC Online Del 7575]
  7. Serious and material issues of fraud and not mere allegations of fraud [Swiss Timing Limited v/s Organising Committee, Commonwealth Games (2014) 6 SCC 677; N. Radhakrishnan v/s M/s Maestro Engineers & Ors. (2010) 1 SCC 72; A. Ayyasamy v. A. Paramasivam and Ors. (2016) 10 SCC 386; Devi Resources Limited v. Ambo exports Limited, (2019) 2 CALLT50 (HC), DB]

Strategic Considerations

  • For parties seeking anti-arbitration injunction
  1. If no arbitration proceeding has commenced, a suit seeking anti – arbitration injunction should be filed.
  2. In case of a domestic arbitration, which has already commenced, if one has a strong case on merits and is convinced that the arbitration agreement does not exist between the parties and/ or the subject matter of the arbitration proceedings would not cover subject matter of a suit, then it may prefer to file a ‘substantive’ suit along with an application seeking stay of the arbitration proceedings. This strategy is to force the other party to file a section 8 application and face adjudication by a court apropos the issue of existence of arbitration agreement. In respect of any other ground, a party should file a section 16 application before the arbitral tribunal challenging its jurisdiction.
  3. Parties to suit should be parties to arbitration agreement unless there is an issue with regard to the personnel who constitutes the arbitral tribunal such as allegations of collusion on part of the arbitral tribunal etc. In such cases, the arbitral tribunal can also be added as party.
  4. In case of a foreign seated arbitration, one can move and seek an anti- arbitration injunction before the Indian civil court as S. 16, which provides power to arbitral tribunal to decide on its own jurisdiction, is a provision under Part I of 1996 Act which does not apply to foreign seated arbitrations. Unless the issue is regarding existence of arbitration agreement, the suit should ideally be filed in supervisory court as per the curial law.
  • For The Parties Opposing Anti-Arbitration Injunction
  1. Since the trend appears to be that of limited intervention by courts, it is always optically advantageous for the party opposing anti-arbitration injunction to have the arbitration proceedings up and running.
  2. Parties should move an application before the court under sections 8 or 45 of the 1996 Act depending on the facts of the case.

Conclusion

On a concluding note, I must say that the fundamental rule continues to be that, if the parties have a valid arbitration agreement, the dispute arose must be resolved by arbitration. Party autonomy is recognized by the courts. As a result, Anti-Arbitration Injunctions can only be granted by a court of law in extraordinary cases. It is still the responsibility of the party requesting an Anti-Arbitration Injunctions to argue and show that it has no other adequate or suitable remedy and that postponing the arbitration process is fair and in the best interests of all parties.

The arbitral tribunal’s final award will not be challenged again and again and the award stayed on the same jurisdictional grounds if all jurisdictional disputes are settled by the supervisory court prior to the arbitration process (which has been made possible by the recent Arbitration and Conciliation (Amendment) Ordinance, 2020).