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28 January 2021
In its 24 December 2020 judgment in Dr Bina Modi v Lalit Kumar Modi, the Delhi High Court granted an anti-arbitration injunction in relation to an arbitration invoked in accordance with the terms of a family trust deed, which provided for arbitration to be governed under the aegis of the International Chamber of Commerce (ICC), by holding that disputes regarding trusts are non-arbitrable.
A family trust deed was settled by Mr KK Modi (the settlor) for the inception of the KK Modi Family Trust, which was established under the Trusts Act 1882 and administered under a restated trust deed dated 9 April 2014. The co-trustees were Dr Bina Modi, wife of Mr Modi, and their children, Mr Lalit K Modi, Ms Charu Modi and Mr Samir Modi.
The settlor passed away on 2 November 2019, after which Dr Modi assumed charge of the trust as its managing trustee in accordance with Clause 3.2 of the restated trust deed. As a result, disputes regarding the sale of the trust's assets arose between the co-trustees, with Dr Modi, Samir Modi and Charu Modi on one side and Lalit Modi on the other.
The parties briefly attempted to settle the dispute amicably, but to no avail. Accordingly, on 18 February 2020 Lalit Modi invoked arbitration by filing an emergency application before the ICC. Clause 36 of the restated trust deed provided for arbitration in accordance with the "Rules of Arbitration of the International Chamber of Commerce, Singapore", with Indian law as the substantive law for deciding disputes.
In light thereof, Dr Modi filed suit before the Delhi High Court, seeking, among other things, a declaration and permanent injunction against Lalit Modi, restraining the latter from proceeding with the emergency measures application in the arbitration initiated by Lalit Modi before the ICC. A similar suit was also filed by Charu Modi and Samir Modi against Lalit Modi. The two suits were heard together by the high court, which dismissed the suit without issuing summons in a common judgment dated 3 March 2020 (impugned judgment).
Aggrieved by the impugned judgment, Dr Modi, Charu Modi and Samir Modi filed appeals before the Division Bench of the Delhi High Court.
It was submitted that Clause 36 of the restated trust deed was:
It was further submitted that said clause was too vague, uncertain, unclear and incapable of being performed in its material particulars since it referred to the settlement of disputes under the "Rules of Arbitration of the International Chamber of Commerce, Singapore", which do not exist.
The question of the arbitrability of the dispute that had arisen between the appellants and the respondent had to be decided in accordance with Indian law, under which disputes between trustees are not arbitrable. Only jurisdictional courts in India would have exclusive jurisdiction to try and dispose of said disputes under the Trusts Act. It was also submitted that Indian law was not only the governing, proper and substantive law of the contract, but also the law governing the arbitration, and that Indian law had the closest connection to the dispute. It was further argued, in view of the pending criminal charges and other cases against Lalit Modi, that the ICC had been approached to decide the disputes in an attempt to evade the Indian courts' jurisdiction. In the present case, an arbitral tribunal would lack the inherent subject matter jurisdiction as the dispute was prima facie non-arbitrable, striking at the root of the arbitral tribunal's jurisdiction and making its jurisdiction non-existent. Thus, it was the arbitral tribunal, and not the court, which lacked jurisdiction to adjudicate on the arbitrability of the dispute.
The restated trust deed had been executed in the United Kingdom and provided that Singapore was the seat of arbitration. The question of arbitrability was to be governed by Singaporean law, not Indian law, and any limitations on the arbitration of such disputes found in Indian law would thus be irrelevant. The restated trust deed was not a 'trust deed' within the meaning of the Trusts Act; rather, it was a family arrangement, not amenable to the Trusts Act. In view of the competence-competence principle, it was the arbitrator alone, before whom the appellants had already raised jurisdiction issues, who had to decide questions on jurisdiction raised by the parties, rather than the high court. As such, by law, the arbitration was an international commercial arbitration, and it would be wrong to state that the respondent was evading the high court's jurisdiction. There was no urgency in the matter as no prejudice would be caused to the appellants if they were to reply to the arbitration notice. The appellants had questioned the seat of arbitration and arbitrability of the dispute before the emergency arbitrator. Therefore, it was evident that the appellants had approached the high court and the ICC (in the main and emergency arbitration) citing identical grounds. It was submitted that this was an abuse of the court process and a case of forum shopping and that, as such, the appeal should be dismissed.
In view of the facts and circumstances of the case and the submissions advanced by the parties, the high court analysed whether:
The court observed that the impugned judgment did not determine whether the arbitration initiated by the respondent fell within Part I or Part II of the Arbitration Act, although the respondent claimed that it was an international commercial arbitration. The court held that the impugned judgment erred in holding that the issue of arbitrability could be submitted to arbitration without question. It was held that Section 2(3) of the Arbitration and Conciliation Act 1996 carves out an exception to Section 5 of the Arbitration Act which provides for judicial intervention in relation to disputes which may not be submitted to arbitration. Disputes relating to trusts fall squarely within the ambit of Section 2(3) of the Arbitration Act. It was held that the civil courts have jurisdiction to pronounce upon the arbitrability or non-arbitrability of disputes.
The Delhi High Court relied on McDonald's India Private Limited v Vikram Bakshi (2016 SCC Online Del 3949) to hold that the court has jurisdiction to grant anti-arbitration injunctions where the party seeking the injunction can demonstrably show that the agreement is null and void, inoperative or incapable of being performed. The court has a duty to consider the validity of an arbitration agreement based on the facts and circumstances of the case. The court also held as follows:
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.
It was further held that the principles of autonomy of arbitration and competence-competence did not prima facie arise in the present case since the disputes themselves were incapable of being submitted to arbitration. Accordingly, it was held that in the present case, it was the arbitral tribunal that evidently lacked jurisdiction and not the high court, which has inherent jurisdiction to determine whether disputes are arbitrable. This is particularly relevant when, as in the present case, justice would otherwise not be served. Consequently, the above questions were answered in the negative and the case was decided in favour of the appellants. Thus, the matter was remanded back to the single judge for adjudication in accordance with Indian law.
The Delhi High Court extensively examined the relevant authorities and case law in arriving at its decision that it is the prerogative of the courts (and not arbitral tribunals) to determine the arbitrability of a dispute, notwithstanding the competence-competence principle. The court held that although Section 5 of the Arbitration Act provides for minimum judicial intervention in arbitration proceedings, the same is circumvented by Section 2(3) of the Arbitration Act, which provides for judicial intervention in disputes which may not be submitted to arbitration on account of any other law in force. It is also relevant to observe, as held by the high court, that Section 2(3) of the Arbitration Act remains a part of the statute, even after the amendments, since it is a standalone provision. As such, the amendments to the Arbitration Act have nothing to do with the issue of the non-arbitrability of certain disputes specified jurisprudentially.
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