India: Dispute Resolution And Arbitration Monthly Update | September 2020

DISPUTE RESOLUTION AND ARBITRATION UPDATE

Balasore Alloys Ltd v M/s. Medima LLC

G.A. No. 871 of 2020 with G.A. No. 872 of 2020 in C.S. No. 59 of 2020

Background facts

• The Plaintiff is a company engaged in the business of manufacturing and exporting ferro-alloys. M/s Medima LLC (Defendant) is a limited liability company incorporated under New York (USA) State laws and is engaged in the business of trading of ferro-chrome.
• In 2017, the parties entered into an arrangement whereby high carbon ferro chrome (Goods) would be manufactured by the Plaintiff which would in turn be sold and distributed exclusively by the Defendant in USA and Canada. This arrangement was governed by an Agreement dated June 19, 2017 (2017 Agreement) for the period of June-July 2017. Clause 14 of the agreement clearly stated that the Agreement and formal agency agreement to be executed in furtherance of the same would be governed by the laws of India and in event any disputes were to arise out of these agreements, the same would be referred to settlement through arbitration as per arbitration laws of India.
• In furtherance of clause 14(a) of the 2017 Agreement, another agreement came to be executed on March 31, 2018 (2018 Agreement). It is pertinent to note that the term of 2018 Agreement was retroactively extended to be operative from March 31, 2017 to March 31, 2021. The 2018 Agreement laid down the blueprint for all future transactions between the parties and while it would be operative on a retroactive basis, all individual shipments of the goods, related to such subsequent cases of sale and purchase between the parties, would be governed by the 2018 Agreement.
• However, in sharp contrast to the 2017 Agreement, as per Clause 23 of 2018 Agreement, any dispute arising out of the same would be submitted to arbitration in UK as per the Rules of Arbitration of International Chamber of Commerce (ICC) in accordance with British law.
• With regards to the various purchase orders executed between the parties, there were 3 modes of payment which divided the said orders into 3 distinct classes. The purchase orders contained independent clauses which persisted with the Indian arbitration laws.
• On March 31, 2020 a Notice of Dispute was addressed by the Defendant to the Plaintiff, thereby invoking Clause 23 of the 2018 Agreement and stating that if the dispute was not resolved within 30 days, Respondent would be constrained to refer the dispute to arbitration before the ICC, London.
• Vide reply dated April 13, 2020 Plaintiff alleged that this dispute pertains to independent purchase contracts and would therefore be governed by Indian arbitration and provisions of 2018 Agreement would not apply. Further, Plaintiff informed the Defendant to invoke these Indian arbitration clauses under Arbitration and Conciliation Act, 1996 (Act)
• After the lapse of the mandatory 30-day period on April 13, 2020 Defendant filed a Request for Arbitration before ICC. In furtherance of the same, ICC informed the Plaintiff about filling of RFA and urged them to nominate their arbitrator and file their written response within 30 days.
• Plaintiff raised objections to the existence and validity of arbitration clause in 2018 Agreement vide its letter dated June 12, 2020 and urged ICC secretariat to place this matter before ICC Court to decide upon this preliminary issue before constitution of an arbitral tribunal. Plaintiff also requested that the arbitral tribunal be composed of a sole arbitrator instead of a panel of three arbitrators.
• By a communication dated June 16, 2020, ICC informed Plaintiff that the requests made by them had not been referred to ICC Court and would be decided by arbitral tribunal once constituted. Further, Defendant vide its letter dated June 17, 2020 reiterated primacy of 2018 Agreement and pushed for a 3-member arbitral tribunal to be constituted. ICC vide a letter dated June 22, 2020 confirmed the constitution of a 3-member arbitral tribunal.
• In light of the aforesaid, Plaintiff filed the present application seeking an injunction against the ICC arbitration proceedings.

Issues at hand?

• Does the High Court (HC) have power and jurisdiction to grant an anti-arbitration injunction against a foreign seated arbitration, and if so, under what circumstances can it be granted?
• If the answer to the above question is in the affirmative, do the facts and circumstances in the present case warrant the grant of such an ad interim injunction?

Decision of the Court

• Court took into consideration several judgments relied upon by both the parties, including the different legal positions in Kvaerner Cementation India Ltd¹ and Patel Engineering² pertaining to the power of a civil court to grant an injunction that may impede the progress of an arbitral proceeding. However, Court placed its reliance on majority opinion of Supreme Court (SC) in Patel Engineering wherein a majority of the judges had conclusively rejected the argument that an arbitral tribunal solely has competence, to the complete exclusion of civil courts, to determine its own jurisdiction.
• With regards to the first issue, it was held that the Courts in India do have the power to grant antiarbitration injunctions. However, Court stated that such a power should be used sparingly and only in the circumstances as set out in SC's decision in matter of Modi Entertainment Network³ .
• On the second issue, the Court held the Plaintiffs submission of ICC clause in 2018 Agreement to be inoperative as it ran counter to the facts of the present case and stated that the Plaintiff failed to conclusively discharge its burden of exhibiting that ICC is either a forum non-conveniens or that the proceedings initiated before it by the Respondent are vexatious in nature as has been ruled in Modi Entertainment Network.
• The Court was able to infer that both parties had thought about their convenience and all relevant factors before submitting to non-exclusive jurisdiction of the Courts of their choice. Therefore, the choice of ICC as a forum could not be written-off or merely treated as an alternative forum by Plaintiff, just because a dispute had now emerged. The parties had consciously chosen a third, independent and non-partial seat for arbitration. Moreover, the law to be applied was also elected to be English law (neutral) and not American law or Indian law. Having chosen such a neutral venue and applicable law, Court observed that neither party is at a disadvantage before ICC.
• The Court further took note of the Plaintiff's conduct stating that they are not averse to the endorsement of their participation in ICC arbitration as is evident from their pleas to have arbitration conducted by a sole arbitrator and the fact that if their plea for determination of a valid arbitration agreement was not adjudicated by ICC Court, plaintiff would retain undiluted rights to argue the same once arbitral tribunal was so constituted in accordance with extant ICC Rules.
• It was held that the parties agreed to 2018 Agreement and purchase orders with their eyes open, and if multiple proceedings may arise due to certain ambiguities, so be it. That fact alone cannot make one of the proceedings vexatious. Considering the same the second issue was answered by the Court in the negative.

Footnotes

1 (2012) 5 SCC 214

2 (2005) 8 SCC 618

3 (2003) 4 SCC 341

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