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04 June 2020
Controversy around anti-arbitration injunctions
Judicial precedent in India: meaning and scope of anti-arbitration injunctions
Decoding legislative and judicial intent
Anti-arbitration injunctions in investment arbitrations
The periodic amendments to the Arbitration and Conciliation Act 1996 have predominantly aimed to:
Over the past five years, the underlying current of these legislative changes has been echoed in the judicial precedents that have actively adopted a pro-arbitration stance.
There is an increasingly clear trend of the Indian courts upholding and preserving the sanctity of arbitration agreements that parties enter into voluntarily as part of their transactions. However, parallel to this trend is the reality that a party to a dispute may seek court intervention to restrain another party from initiating or continuing arbitral proceedings for various reasons, including when that counterparty, going beyond the agreed terms of contract, attempts to invoke or invokes the arbitrator's jurisdiction. This remedy (known as an 'anti-arbitration injunction') is often sought by parties which are embroiled in a cross-border dispute.
While anti-suit injunctions are typical court-ordered injunction orders which restrain the parties from initiating or continuing legal action in foreign courts,(1) anti-arbitration injunctions are specific orders which prohibit parties from initiating or continuing arbitration proceedings – typically foreign-seated arbitrations, but also domestic (ie, India-seated) arbitrations.
A court should theoretically grant an anti-arbitration injunction against the commencement or continuation of arbitration proceedings when the parties have mutually agreed that they will not settle the matter via arbitration or when they have opted for litigation or another alternative dispute resolution method. However, these injunctions are highly controversial.
First, anti-suit injunctions are viewed as a way in which the national courts can exercise their jurisdiction to threaten arbitral tribunals' authority to rule on their jurisdiction (ie, the competence-competence principle, which is the backbone of arbitration law).(2) Second, the legal existence of such injunctions is a matter of dispute. The source of a court's jurisdiction to issue an anti-arbitration injunction under the Arbitration and Conciliation Act 1996 is unclear, with few legal opinions answering the question of whether anti-arbitration injunctions are permissible in view of the implicit language of Sections 8(3) or 45(4) of the Arbitration and Conciliation Act (ie, reference of a dispute to arbitration). The absence of an express provision authorising the grant of anti-arbitration injunctions in the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 and the United Nations Commission on International Trade Law Model Law on International Commercial Arbitration 1985 complicates this issue in an international context. Further, no provision in any applicable law renders anti-suit injunctions illegal per se.
That said, the Indian courts may assume jurisdiction and grant anti-arbitration injunctions even though they seem to weaken the competence-competence principle. The courts could invoke their inherent equitable jurisdiction to do so based on, among others, the grounds that an arbitration agreement was forged by one party or is invalid or that it would save an innocent party from unnecessary harassment.
The Indian courts have dealt with anti-arbitration injunctions, but jurisprudence in this respect is limited. The Delhi High Court dealt extensively with anti-arbitration injunctions in the infamous shareholder dispute McDonald's India Pvt Ltd v Mr Vikram Bakshi.(5) In this case, the court clarified the distinction between the principles that govern the grant of anti-suit injunctions and anti-arbitration injunctions. It explained that the inconvenient forum principle (the bedrock of 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, being an alternative to the courts, was consciously selected by the parties and could not be considered an inconvenient forum per se. The court supported this finding with the competence-competence doctrine (ie, since an arbitral tribunal has inherent jurisdiction to determine its own jurisdiction, it should consider the merits of an anti-arbitration injunction at the first instance).
The court in McDonald's 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 Arbitration and Conciliation Act. These principles were confirmed by the Calcutta High Court and the Delhi High Court in Devi Resources Limited v Ambo Exports Limited,(6) Himachal Sorang Power Pvt Limited (HSPL) v NCC Infrastructure Holdings Limited (NCCL)(7) and Bina Modi v Lalit Modi,(8) in which the courts declined to grant anti-arbitration injunctions.
Indian judicial precedent indicates that in international commercial arbitrations, the courts have refrained from dealing with or interfering in matters within the jurisdiction and competence of an arbitral tribunal and have encouraged parties to argue the matter of jurisdiction before the respective tribunal, specifically in the context of anti-arbitration injunctions. In these cases, the Indian courts appear to prioritise the most important aspect of arbitration (ie, party autonomy). The basis of this principle is that where parties (typically big companies) have knowingly entered into and executed arbitration agreements, they should not be allowed to retract from their contractual commitments regarding jurisdiction and dispute resolution.
The legislative intent for party autonomy can be found in Part I, Section 16 of the Arbitration and Conciliation Act, which states that an arbitral tribunal alone has the requisite competence and jurisdiction to decide questions regarding the validity of an arbitration agreement. In such cases, the civil courts must not restrain the arbitral tribunal from exercising its statutory jurisdiction under Section 16 of the act. This also forms the cornerstone of the difference between an anti-suit injunction and an anti-arbitration injunction, where the parties' chosen forum has the first right to determine its jurisdiction, unless the arbitral reference falls foul of Section 8 or Section 45 of the act.
Section 45 of the act, which deals with the execution of foreign awards in India, discusses aspects of the judicial scrutiny to be applied when an arbitration agreement is "null and void, inoperative or incapable of being performed". The court has indicated that the inherent power of granting injunctions from proceeding with arbitration proceedings in foreign-seated arbitration may flow from this provision. Further, with respect to domestic arbitrations, the amended Section 8 made no changes regarding the bar on Indian courts to interfere in arbitration matters (ie, it does not permit a judicial authority to rule on the existence of a valid arbitration agreement).
Section 41(h) of the Specific Relief Act 1963 also indicates that the courts are specifically barred from granting injunctions in cases where an equal and efficacious remedy can be obtained through any other proceeding, which would include presenting an anti-arbitration claim before an arbitrator under Section 16 of the Arbitration and Conciliation Act.
The judicial intent behind anti-arbitration injunctions in international commercial arbitrations is clear – India is and will remain a pro-arbitration jurisdiction. However, problems have arisen in the context of international investment arbitration. International investment disputes (also referred to as 'investor-state disputes') are arbitration proceedings between a foreign investor and the state which hosts the investor's investment under the bilateral investment treaties (BITs) between the investor's home state and the host state.
The issues in this regard have come before the Indian courts in a few cases,(9) including Union of India v Vodafone Group Plc(10) and Union of India v Khaitan Holdings (Mauritius).(11) The Delhi High Court adjudicated on both of these requests for anti-arbitration injunction and sourced its jurisdiction from the proposition that the domestic courts inherently retain the jurisdiction to restrict the initiation of international treaty arbitrations which are oppressive or vexatious or cause severe prejudice to the legal process. The court also noted that the BIT arbitrations were seated outside India and that Part II of the Arbitration and Conciliation Act, which deals with the enforcement of foreign awards, is limited to international commercial arbitrations. On this basis, the court concluded that the act, in its present form, is unequipped to cover arbitrations arising from BIT disputes(12) and that the courts and arbitral tribunals cannot derive jurisdiction to adjudicate on anti-arbitration injunctions in BIT disputes from the act.
The core purpose of an anti-arbitration injunction is to avoid parallel proceedings, which make litigation or arbitration more costly and burdensome. However, as each party will attempt to ensure that they are in the best possible position at the beginning of a dispute – including by scouting for the best forum and jurisdiction in which to resolve the dispute – parallel proceedings will remain a reality.
The jurisprudence regarding the treatment of anti-arbitration injunctions in international commercial arbitration is settled. However, it remains to be seen how other high courts and the Supreme Court will deal with the jurisdiction and enforcement of anti-arbitration injunctions in investment arbitrations.
In general, the courts have taken a pro-arbitration stance. It is hoped that India will achieve its goal of becoming a leading commercial arbitration hub. If it wants to set itself apart as a jurisdiction, it should adopt principles to ensure that it follows a clear, balanced approach as to when honouring an arbitration agreement would trump an application to challenge said agreement.
For further information on this topic please contact Rajat Jariwal or Shruti Khanijow at Khaitan & Co by telephone (+91 11 4151 5454) or email (firstname.lastname@example.org or email@example.com). The Khaitan & Co website can be accessed at www.khaitanco.com.
(1) Under Indian law, anti-suit injunctions cannot be issued by an Indian court with respect to proceedings pending before another domestic court, but are permitted for ongoing proceedings before foreign courts (Horlicks Ltd v Heinz India (P) Ltd, 2009 SCC Online Del 3342).
(1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.
(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof. Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under sub-section (1), and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying the court to call upon the other party to produce the original arbitration agreement or its duly certified copy before that court.
(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made."
Power of Judicial Authority to refer parties to arbitration- Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (V of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in Section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, [unless it prima facie finds] that the said agreement is null and void, inoperative or incapable of being performed.
(8) Order dated 3 March 2020 in CS (OS) 84/2020 and CS (OS) 85 /2020. The matter is pending appeal before the High Court Division Bench, which stayed the operation of the 3 March 2020 order via an order of 5 March 2020, which was passed in RFA (OS) 21/2020 and 22/2020.
(9) In The Board of Trustees of the Port of Kolkata v Louis Dreyfus Armatures SAS (2014 SCC OnLine Cal 17695), the Calcutta High Court granted and applied an anti-arbitration injunction in an international investment arbitration. However, in Vodafone, it was noted that the Calcutta court had assumed that the act was applicable in that case.
(12) The Supreme Court's decision in RM Investment & Trading Co Pvt Ltd v Boeing (1994 (4) SCC 541) may be relevant when considering a wider interpretation of the term 'commercial' under previous Indian law with regard to enforcement of foreign awards. The court examined the definition of 'commercial' under Section 2 of the Foreign Awards (Recognition and Enforcement) Act 1961, which incorporates Articles I(1) and II(1) of the New York Convention but expressly requires a commercial relationship. The court's grant of stay was opposed on the ground that the consultancy agreement between the parties was not a commercial agreement under Section 2 the 1961 act. The court considered that the purpose of the law was to facilitate international trade by providing for dispute settlement through arbitration and interpreted the term 'commercial' broadly, finding that it encompassed the promotion of commercial activity, in order to further the intention of the act.
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