India: Anti-Arbitration Injunction

Last Updated: 8 August 2017

The fruitful adventure of Anti-Suit Injunction, which has lived up a life dealing from matrimonial cases to complex commercial disputes, the litigants have been tempted to apply for such recourse also in relation to Arbitration proceedings as well. However, the principles applicable to Anti-Suit Injunction are far different from those applicable to Anti-Arbitration Injunction.

An Anti-Suit Injunction is set up on the basis that the impugned proceedings is "vexatious" or "oppressive" or that the Court entertaining impugned proceedings (in foreign country), is "forum non-conveniens". An Anti-Suit Injunction case has to conform to the requirement of Section 41 of Specific Relief Act, which prohibits 'grant of injunction' from prosecuting in Indian Courts. The Anti-Arbitration Injunction case is set up on the principles prescribed under Section 45 of the Arbitration & Conciliation Act, 1996 to the effect that the 'arbitration agreement' between parties is 'null' or 'void' or "inoperative" or "incapable of being performed". Section 45 is reproduced below:

Section 45 of Arbitration Act, 1996 – Notwithstanding anything contained in Part I of CPC, 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 the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.

The Division Bench of Delhi High Court, in the case of Mcdonald's India Pvt. Ltd. v Vikram Bakshi [FAO(OS) 9/2015], had the occasion to deal with the issue of Anti-Arbitration Injunction, when the difference of principles applicable to both the form of proceedings had been taken note of. The deliberations and findings of Delhi High Court in relation to applicability of principles on Anti-Arbitration Injunction stood upheld, pursuant to dismissal of SLP (C) 24914/2016 vide order dated 30.08.2016, whereby Judgment dated 21.07.2016 of High Court was challenged.

In the said case, the Plaintiff, Mr. Vikram Bakshi filed suit seeking restraint against Mcdonald from proceeding ahead in arbitration case filed before London Court of International Arbitration (LCIA) against Vikram Bakshi. The grounds for the suit has been set out inter-alia on the basis that since a proceeding is pending before Company Law Board, which is seized of the matter, the arbitration agreement between parties has become inoperative and incapable of performance. Accordingly the ground of forum non-conveniens qua the Arbitration before LCIA was also set up.

While making deliberations on the principles of Anti-Arbitration Injunction, the Division Bench of Delhi High Court was persuaded to refer to the Judgment of Supreme Court in World Sport Group (Mauritious) Limited v. MSM Satellite (Singapore) Pte. Ltd: 2014 (11) SCC 639, to observe as follows:

The Supreme Court in World Sport Group (supra) observed that Section 45 made it clear that notwithstanding anything contained in Part I or in the Code of Civil Procedure, 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 finds that the said agreement is null and void, inoperative or incapable of being performed. It is evident from the said decision that even if, under Section 9 CPC read with Section 20 CPC, this court had jurisdiction to entertain a suit, once a request is made by one of the parties or any person claiming through or under him to refer the parties to arbitration, this court would be obliged to refer the parties to arbitration unless it found that the agreement was null and void, inoperative or incapable of being performed. Importantly, the Supreme Court also noted that even if no formal application to refer the parties to arbitration is made and an objection is filed to the effect that the arbitration has already been invoked and arbitration proceedings have commenced, that would itself amount to a request made by a party to refer the parties to arbitration which had already commenced. It was clarified that no formal application was necessary for invoking the provisions of Section 45 of the 1996 Act. The Supreme Court decision in World Sport Group (supra) also noted that the provisions of Article II of the New York Convention and, in particular, paragraph 3 thereof, was mirrored in Section 45 of the 1996 Act.

While making deliberation, the High Court took note of distinction between the terms "inoperative" and "incapable of being performed", since this was the very essence of the issue. It was observed that an arbitration clause is 'inoperative' where it has ceased to have effect, as a result, for example, of a failure by the parties to comply with a time-limit, or where the parties have by their conduct impliedly revoked the arbitration agreement. This term refers to cases where the arbitration agreement has ceased to have effect by the time the court is asked to refer the parties to arbitration. For example, the arbitration agreement ceases to have effect if there has already been an arbitral award or a court decision with res judicata effect concerning the same subject matter and parties. However, the mere existence of multiple proceedings is not sufficient to render the agreement inoperative. By contrast, the expression 'incapable of being performed' appears to refer to more practical aspects of the prospective arbitration proceedings. It applies, for example, if for some reason it is impossible to establish the arbitral tribunal or where the arbitration clause is too vaguely worded, or other terms of the contract contradict the parties' intention to arbitrate. The High Court went forth to observe that the arbitration agreement does not become "inoperative or incapable of being performed" where allegations of fraud have to be inquired into and the court cannot refuse to refer the parties to arbitration as provided in Section 45 of the Act on the ground that allegations of fraud have been made by the party which can only be inquired into by the court and not by the arbitrator.

Next, the Division Bench turned attention towards the words "null and void" and observed that the same may be interpreted as referring to those cases where the arbitration agreement is affected by some invalidity right from the beginning, such as lack of consent due to misrepresentation, duress, fraud or undue influence which was clearly not the case in the present proceedings.

In the above backdrop it was concluded that unless and until a party seeking an anti-arbitration injunction can demonstrably show that the arbitration agreement is null and void, inoperative or incapable of being performed, no such relief can be granted in the suit or as an interim measure therein. The High Court returned the following findings:

  1. mere existence of the multiple proceedings (proceedings before the Company Law Board and those before the arbitral tribunal) is not sufficient to render the arbitration agreement inoperative or incapable of being performed. In any event, the subject matter of the proceedings before the Company Law Board fell within the ambit of the alleged oppression and mismanagement whereas the subject matter of the dispute before the arbitral tribunal related to the termination of the JVA and the rights flowing therefrom;
  2. merely by withdrawing its application under Section 45 as filed before the Company Law Board, the appellant had not abandoned/waived the arbitration agreement;
  3. while courts in India may have the power to injunct arbitration proceedings, they must exercise that power rarely and only on principles analogous to those found in sections 8 and 45, as the case may be, of the 1996 Act.

The High Court referred to the observation in paragraph 7.01 of Redfern and Hunter on International Arbitration: Sixth Edition: Oxford University Press, as reproduced below:

The relationship between national courts and arbitral tribunals swings between forced cohabitation and true partnership. Arbitration is dependent on the underlying support of the courts, which alone have the power to rescue the system when one party seeks to sabotage it. ...

It was further observed that Courts need to remind themselves that the trend is to minimize interference with arbitration process as that is the forum of choice. That is also the policy discernible from the 1996 Act. Courts must be extremely circumspect and, indeed, reluctant to thwart arbitration proceedings. Thus, while courts in India may have the power to injunct arbitration proceedings, they must exercise that power rarely and only on principles analogous to those found in sections 8 and 45, as the case may be, of the 1996 Act. We have already indicated that the circumstances of invalidity of the arbitration agreement or it being inoperative or incapable of being performed do not exist in this case.

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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