India’s significant steps towards Commercial Arbitration

[This article is authored by Jayvardhan Dawar, Advocate from the Indore Bench of Madhya Pradesh High Court.]

Keywords: Anti-Arbitration Injunctions, Commercial Arbitration, Arbitration Tribunal.

Introduction

Imagine Indian Tribunals having the power over International Tribunals in matters of jurisdiction for the purpose of making India a suitable place for commercial arbitration. The Arbitration Tribunal – without any doubt – could have powers parallel to the principle forum non-conveniens, which allows the court to decide the best-suited forum for instituting suits, subject to certain restrictions and discretionary powers for intervention in exceptional circumstances.

In recent years, the primary objective of the Arbitration and Conciliation Act has been to reduce the scope of judicial intervention through overlapping jurisdictions and creating a system for efficient and effective procedures to establish India as a hub for commercial arbitration.

What is an Anti-Arbitration Injunction Suit

An anti-arbitration injunction suit is an action bought before the court of competent jurisdiction to intervene in the arbitration proceedings for either restricting initiation or continuing the arbitration proceedings for various reasons. In other words, it is granted by the National Courts or Tribunals against the initiation or continuance of the arbitration if the parties have agreed to take a different recourse, whether they are referring the matter for arbitration/for initiating litigation or other methods of resolution.

This is often done in the matter of cross border disputes; therefore, in the international judicial making, there has been a constant dispute between the Arbitration Tribunal’s autonomy to decide certain matters to their jurisdiction and the capability of the court to intervene in exceptional circumstances, where they believe that such act would amount to vexatious and erroneous proceedings.

Status of Anti Arbitration Injunction Suit

In the last decade, we have observed that judicial precedents are driven towards the fulfilment of these enumerated objectives by adopting friendly arbitration techniques for the holistic consideration of the suits and also to restrict others from resorting to other forums internationally.

The story of Ulysses, a Greek Legend, becomes relevant here as it stated that Ulysses travelled back and forth for war and to instill peace in the world he knew of but could not come back home for the next 20 years. However, arriving home was his destiny after being given the best of opportunities and the worst of times. Similarly, such is the case of arbitration in India, as there have been regular shifts from time to time from turmoil to victories. However, the latest iteration of the judgment pronounced by the court has been similar to the view of Ulysses’ return home after decades of hardships.

Victory over the International Court

After the pronouncement of Dr. Bina Modi v. Mr. Lalit Modi & Ors. before the Delhi High Court, there has been a clear demarcation between the powers of the Arbitration Tribunal and International Courts concerning the jurisdiction and emergency arbitration proceedings.

The trust in the case comprised 5 members of the Modi family, where after the death of the father, management of the Trust came into the hands of the plaintiff, Bina Modi. Thereby, Bina was supposed to conduct a meeting for requirements of unanimous decisions to be taken in furtherance of the family business and the trust funds. However, in the event of no unanimous decision, the trust funds and the family businesses were to be sold off in accordance with the trust deed.

Despite various attempts to reach a unanimous decision, there were no signs of progression in a settlement, and, amidst that, Lalit Modi, the defendant, filed an application for Emergency Measures before the International Chambers of Commerce (“ICC”). Thereby, proceedings were initiated by the ICC, and dates of hearing were provided to be complied with.

Meanwhile, the plaintiffs filed a suit seeking a permanent injunction restraining the defendant from prosecuting or continuing with the emergency arbitration and from instituting or proceeding with any arbitration proceedings against the plaintiffs. Stating that the dispute shall be governed in accordance with the law in India, the ICC is ought to follow the provisions subject to the trust deed and by satisfying the laws of the mainland. Prime contentions laid down by the Plaintiffs in the case were that arbitrability could not be decided by the arbitrator, International Courts or by the initiation of the emergency arbitration, as such would result in “forum non-conveniens”, which would ultimately lead to oppressive and unreasonable actions under the laws of arbitration.

It was rightly pointed out in Dr. Bina Modi v. Mr. Lalit Modi & Ors. that Kvaerner Cementation India Ltd. v. Bajranglal Agarwal & Anr, slipped the radar of various precedents in the last twenty years when the case was decided in 2001. Until 2012, the case was not reported by the Supreme Court, which led to its ignorance by the judiciary, which caused a lot of confusion and issues regarding anti-arbitration injunction suits. In the Kvaerner Cementation case, it was held by the Supreme Court that the Arbitration Tribunal is vested with the powers to decide on its own jurisdiction by virtue of Section 5 read with Section 16 of the Arbitration and Conciliation Act, 1996.

In McDonald’s India Private Ltd. v. Vikram Bakshi & Ors, it was held that the Court would have jurisdiction to grant an anti-arbitration injunction, where the party seeking the injunction can demonstrably show that the agreement is null and void, inoperative or incapable of being performed, especially referring to cases where it was evident that the Arbitration Agreement had been forged and fabricated. However, the principles regarding anti-suit injunction in McDonald’s case could not be held applicable to anti-arbitration injunction suits, as the Arbitration Act of 1940 is holistically a different code than the Arbitration and Conciliation Act of 1996, which empowered the Tribunal to lay its own jurisdiction by placing reliance upon Kompetenz-Kompetenz.

However, in the past, there have been various Judgments where the Arbitration Tribunal was not considered the competent body to decide on the matters of jurisdiction. In LMJ International Ltd. v. Sleepwell Industries Co. Ltd., the court refused to entertain the suit filed for restraining the other party from further proceedings under an arbitration seated at London. In Sancorp Confectionary v, Gumlink,[i] the High Court refused to intervene in a proceeding initiated under Singapore International Tribunal Centre and stated that the objection should be entertained by competent Arbitration Tribunal.

In World Sport Group v. MSM Satellite Singapore Ltd, the court failed to rely upon the Kvaerner Cementation case and, therefore, applied the principles of Section 45 and went on to question the validity of the arbitration agreement. In Board of Trustees of Port of Kolkata v. Louis Dreyfus Armatures SAS and Ors., the Calcutta High Court granted an anti-arbitration injunction based on the facts of the case and, therefore, stated that such could only be granted in exceptional circumstances [ii]. In Ravi Arya v. Palmview Investment Overseas, the Bombay HC was directed to raise all objections before the Tribunal, including that of the anti-arbitration injunction [iii]. In Himachal Sarang Power Pvt. Ltd. v. NCC Infrastructure, the Delhi High Court refused to issue an anti-arbitration injunction as they were of the opinion that courts were slow to issue injunction unless the proceedings are deemed vexatious and oppressive[iv].

In Bina Modi , reliance is placed upon Section 41(h)) of the Special Relief Act, which restricts an injunction when an equally effective relief can be sought by any other mode of proceedings and is stated under Section 16 of the Arbitration Act, 1996. In the aforementioned case, McDonald’s case was not considered binding as the case was considered without looking at Kvaerner Cementation. Therefore, as of 5th March 2020, the court restrained the defendant from proceeding under emergency arbitration as India did not have such a mechanism. The order was further challenged at the Supreme Court. However, it was dismissed on the same considerations. Had Kvaerner Cementation been relied upon, the judgments misdirecting the law would be halted at the subject matter of the jurisdiction rather than holding an agreement null and void or relying upon the facts of the case to validate whether such a dispute is maintainable before issuing an anti-arbitration injunction.

There lies a necessity in striking a balance between autonomy and powers of the Arbitration Tribunal for intervention in extreme circumstances. There is no doubt that the thought of pro-arbitration is the need of the hour. However, equal significance should also be given to courts to interfere in exceptional circumstances. Therefore, after the Bina Modi judgement, it will be interesting to see that whether the courts would continue to give the Arbitration Tribunal autonomy over International Courts in the matter of Jurisdiction and powers of intervention in exceptional circumstances.

[i] Sancorp Confectionary Pvt. Ltd. v. M/s Gumlink A/S, 2012 SCC OnLine Del 5507. [ii] The Board of Trustees of the Port of Calcutta v. Louis Dreyfus Armatures SAS and Ors., 2014 SCC OnLine Cal 17695. [iii] Ravi Arya v. Palmview Investments Overseas Ltd., 2019 SCC OnLine Bom 251. [iv] Himachal Sarang Power Pvt. Ltd. v. NCC Infrastructure, 2019 SCC OnLine Del 7575.