India: Choose Your Forum Carefully

Last Updated: 15 October 2015
Article by Zerick Dastur

The recent order of the Delhi High Court in the matter of Vikram Bakshi versus McDonald's India Pvt Ltd marks a significant development in the field of arbitration. The court has granted an injunction restraining McDonald's from pursuing arbitration proceedings before the London Court of International Arbitration.

The court took into account the fact that in the present case, proceedings had already been initiated before the Company Law Board where a status quo order had been passed. It was observed that there was a possibility of conflict of decisions of the two forums and hence it was a fit case to injunct the arbitration proceedings and restrain McDonald's from pursuing arbitration. An anti-suit/arbitration injunction is an order issued by a court that prevents an opposing party from commencing or continuing a proceeding in another jurisdiction.

Significantly, the court also observed that disputes sought to be raised before an arbitral tribunal in London suffered from 'forum non convenience', particularly on account of the fact that except one, all defendants carried on business in India, cause of action had occurred in India, the governing law between the parties was Indian and the award would eventually be required to be enforced in India.

Forum non convenience is the discretionary power of a court to direct that there exists another court that would be in a better position to decide the matter in question.

The order restraining arbitration proceeding in London was passed despite the fact that the agreement provided that arbitration would be conducted in London. The advocates appearing for McDonald's strenuously argued that the arbitration agreement providing for London-based arbitration was signed by the parties with open eyes and it could not lie in the mouth of the parties that the place of arbitration so selected was a forum non convenience. The argument was, however, not accepted by the court.

The Delhi High Court also held that anti-arbitration injunctions can be granted on the same principles as those governing anti suit injunctions. The law governing the equitable remedy of grant of anti-suit injunctions has been dealt in detail by the Supreme Court in the case of Modi Entertainment Network & Anr. vs. W.S.G.Cricket Pte. Ltd. These principles still hold good and cover the exceptional circumstances under which a court may grant anti-suit injunctions, including injunctions restraining a party from initiating proceedings before a court having jurisdiction under a contract between the parties. While holding that the contract between the parties in this regard must be respected, the Supreme Court did highlight circumstances where a party is entitled to an injunction where the foreign proceedings are vexatious and oppressive.

The Delhi High Court has in the past, following the decision of the Supreme Court, in the matter of ESSEL Sports granted an anti-suit injunction against continuance of court proceedings in London, holding that it appeared that the foreign suit was oppressive, vexatious and in a forum non convenience. In the present case concerning McDonald's, the court allowed divergence from the terms of the written contract between the parties where London was the selected place of arbitration, holding that in light of the pendency of the proceedings before the Company Law Board, the arbitration clause was rendered inoperative and incapable of being performed.

This aspect of the decision relating to forum non convenience further expands the legal complications surrounding the selection of seat and venue for the purpose of conducting arbitration proceedings. There has been considerable debate and discussion on the question of seat versus venue in the context of international commercial arbitration and the consequent debate of courts having jurisdiction in such cases. The Supreme Court recently, in the matter of Enercon (India) Ltd, has clarified that the courts of the seat of arbitration have the exclusive jurisdiction to exercise supervisory powers over the arbitration process and that the courts of the venue of arbitration cannot have concurrent jurisdiction in this regard.

Arbitration is a creature of an agreement between parties and the parties to an arbitration agreement have the freedom to select the venue, place, language and other procedural aspects which could govern the conduct of arbitration proceedings. While it may be reasonable to hold that there is a possibility of conflicting decisions where two forums are seized of the same dispute between the parties, allowing parties to derogate from written terms of an agreement on the ground of forum non convenience could potentially open up a new dimension of jurisdictional and maintainability challenges that parties may raise at the time when the disputes actually occur. The implications of this decision will become clear in the days to come.

Originally Published In Business Today – Online, February 26, 2015

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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