India: Monthly Newsletter - December 2021

ANTI ARBITRATION INJUNCTION: TRACING THE VEXED PRINCIPLES OF LAW

INTRODUCTION

'Anti-arbitration Injunction' ("AAI") remains a contentious topic of discussion in the realm of arbitration, wherein different courts have evolved diverse principles in deciding such suits. AAI suit may be understood as a suit for injunction filed by a party restraining the other from commencing or proceeding further with an arbitral proceeding, in pursuance of the arbitration agreement existing between the parties.

Although the Arbitration & Conciliation Act, 1996 ("the Act") has by virtue of Section 16 recognized the universally acknowledged principle of "komptenz-kompetenz" as also contained in the UNCITRAL Model Law on International Commercial Arbitration, however, the recent decision of a division bench of the Delhi High Court in Bina Modi vs Lalit Kumar Modi & Ors ¹ ("Bina Modi's Case") has opened the floodgates of discussion as to when must a court intervene in granting an injunction against arbitration.

This piece seeks to navigate the murky waters pertaining to the existing law on an AAI in India and the power of courts in granting it, in light of the statutory framework and judicial precedents in India, along with a discussion on the English and European provisions & precedents pertaining to it.

I. STATUTORY FRAMEWORK PERTAINING TO ANTIARBITRATION INJUNCTION IN INDIA

The Act consolidates the law pertaining to arbitration in India, however, the Act fails to provide for an injunction against initiating or continuing further with an arbitral proceeding. The only option left to a party is to approach the court through a civil suit under Order XXXIX (Rule 1 & 2) of the Code of Civil Procedure, 1906 seeking an injunction towards it.

That said, it is essential to highlight, under the rubric of the Act, Section 5 provides for minimal judicial intervention by Civil Courts in matters governed by the Act and Section 16 further extends this principle by providing the arbitral tribunal the competence to rule on its own jurisdiction ("komptenz-kompetenz").

Till date, the law pertaining to AAI suits has only developed through the contradicting decisions rendered by the different High Courts in India and a finding of the Supreme Court ("SC") is still awaited.

II. ENGLISH & EUROPEAN PRINCIPLES OF LAW ON ANTIARBITRATION INJUNCTIONS

Similar to the Act in India, the English Arbitration Act, 1996 has no provision pertaining to an AAI however it recognizes the Kompetenz-Kompetenz principle. ² In furtherance to it, the Queen's Bench in AmTrust Europe Ltd. vs Trust Risk Group SpA ³ and Sabbagh vs Khoury ⁴ has held that an AAI should be granted in exceptional circumstances and with caution.

French law echoes a similar framework wherein Article 1458 of the Nouveau Code de Procedure Civile (NCPC) crystallizes the principles of komptenz-kompetenz by providing that whether a dispute brought before a court, either before initiation of arbitral proceedings or after commencement of it in the presence of an arbitration agreement, the court must declare itself without jurisdiction.

III. DEVELOPMENT OF INDIAN LAW THROUGH JUDICIAL PRECEDENTS ON ANTI-ARBITRATION INJUNCTION

As stated above, to trace the law w.r.t. AAI, reference has to be made to various judicial precedents. To this effect, the 2001 decision (although reported in 2012) of the SC in Kvaerner Cementation India Ltd. vs Bajranglal Agarwal ⁵ is of significance, wherein the petitioner had filed a civil suit before local courts seeking declaration that there does not exist any arbitration clause and as such the arbitral proceedings are without jurisdiction. In appeal, the SC declined to grant the said relief holding that the arbitral tribunal has the power to rule on its own jurisdiction including ruling on any objection with respect to existence or validity of the arbitration agreement and the civil court cannot have jurisdiction to go into that question. ⁶

In Oval Investment vs IndiaBulls Financial Services ⁷, the Delhi High Court ("DHC") ruled emphatically against granting an AAI by holding that such a suit would be hit by Section 5 of the Act. ⁸

Similarly the DHC in 2010 in Handicrafts & Handlooms Exports Corporation of India Limited vs Ashok Metal Corporation ⁹ while dealing with a suit seeking injunction from initiating arbitration proceeding, held that the legislative intent behind the act is to keep the civil courts away from the "turf of arbitration proceedings" and that a Civil Court is only allowed to interject in Section 9, 34, 37 of the Act. The DHC in Roshan Lal Gupta vs Parasram Holdings Pvt. Ltd ¹⁰ while declining to grant injunction against the arbitration, clarified further that the said party had an equally efficacious remedy available to it under Section 16 & 34 of the Act.

In McDonald's India Private Limited vs Vikram Bakshi ¹¹, the DHC dismissed an ad-interim injunction against arbitration initiated before the LCIA ¹², by stating that if there exists an arbitration agreement between the parties, it is the mandate of the courts to refer the parties to arbitration. However, the Court also noted that the courts in India have the power to injunct arbitration proceedings which must be exercised rarely and only on principles analogous to Section 8 and 45 of the Act.

ANTI ARBITRATION INJUNCTION: TRACING THE VEXED PRINCIPLES OF LAW

INTRODUCTION

'Anti-arbitration Injunction' ("AAI") remains a contentious topic of discussion in the realm of arbitration, wherein different courts have evolved diverse principles in deciding such suits. AAI suit may be understood as a suit for injunction filed by a party restraining the other from commencing or proceeding further with an arbitral proceeding, in pursuance of the arbitration agreement existing between the parties.

Although the Arbitration & Conciliation Act, 1996 ("the Act") has by virtue of Section 16 recognized the universally acknowledged principle of "komptenz-kompetenz" as also contained in the UNCITRAL Model Law on International Commercial Arbitration, however, the recent decision of a division bench of the Delhi High Court in Bina Modi vs Lalit Kumar Modi & Ors ¹ ("Bina Modi's Case") has opened the floodgates of discussion as to when must a court intervene in granting an injunction against arbitration.

This piece seeks to navigate the murky waters pertaining to the existing law on an AAI in India and the power of courts in granting it, in light of the statutory framework and judicial precedents in India, along with a discussion on the English and European provisions & precedents pertaining to it.

I. STATUTORY FRAMEWORK PERTAINING TO ANTIARBITRATION INJUNCTION IN INDIA

The Act consolidates the law pertaining to arbitration in India, however, the Act fails to provide for an injunction against initiating or continuing further with an arbitral proceeding. The only option left to a party is to approach the court through a civil suit under Order XXXIX (Rule 1 & 2) of the Code of Civil Procedure, 1906 seeking an injunction towards it.

That said, it is essential to highlight, under the rubric of the Act, Section 5 provides for minimal judicial intervention by Civil Courts in matters governed by the Act and Section 16 further extends this principle by providing the arbitral tribunal the competence to rule on its own jurisdiction ("komptenz-kompetenz").

Till date, the law pertaining to AAI suits has only developed through the contradicting decisions rendered by the different High Courts in India and a finding of the Supreme Court ("SC") is still awaited.

II. ENGLISH & EUROPEAN PRINCIPLES OF LAW ON ANTIARBITRATION INJUNCTIONS

Similar to the Act in India, the English Arbitration Act, 1996 has no provision pertaining to an AAI however it recognizes the Kompetenz-Kompetenz principle. ² In furtherance to it, the Queen's Bench in AmTrust Europe Ltd. vs Trust Risk Group SpA ³ and Sabbagh vs Khoury ⁴ has held that an AAI should be granted in exceptional circumstances and with caution.

French law echoes a similar framework wherein Article 1458 of the Nouveau Code de Procedure Civile (NCPC) crystallizes the principles of komptenz-kompetenz by providing that whether a dispute brought before a court, either before initiation of arbitral proceedings or after commencement of it in the presence of an arbitration agreement, the court must declare itself without jurisdiction.

III. DEVELOPMENT OF INDIAN LAW THROUGH JUDICIAL PRECEDENTS ON ANTI-ARBITRATION INJUNCTION

As stated above, to trace the law w.r.t. AAI, reference has to be made to various judicial precedents. To this effect, the 2001 decision (although reported in 2012) of the SC in Kvaerner Cementation India Ltd. vs Bajranglal Agarwal ⁵ is of significance, wherein the petitioner had filed a civil suit before local courts seeking declaration that there does not exist any arbitration clause and as such the arbitral proceedings are without jurisdiction. In appeal, the SC declined to grant the said relief holding that the arbitral tribunal has the power to rule on its own jurisdiction including ruling on any objection with respect to existence or validity of the arbitration agreement and the civil court cannot have jurisdiction to go into that question. ⁶

In Oval Investment vs IndiaBulls Financial Services ⁷, the Delhi High Court ("DHC") ruled emphatically against granting an AAI by holding that such a suit would be hit by Section 5 of the Act. ⁸

Similarly the DHC in 2010 in Handicrafts & Handlooms Exports Corporation of India Limited vs Ashok Metal Corporation ⁹ while dealing with a suit seeking injunction from initiating arbitration proceeding, held that the legislative intent behind the act is to keep the civil courts away from the "turf of arbitration proceedings" and that a Civil Court is only allowed to interject in Section 9, 34, 37 of the Act. The DHC in Roshan Lal Gupta vs Parasram Holdings Pvt. Ltd ¹⁰ while declining to grant injunction against the arbitration, clarified further that the said party had an equally efficacious remedy available to it under Section 16 & 34 of the Act.

In McDonald's India Private Limited vs Vikram Bakshi ¹¹, the DHC dismissed an ad-interim injunction against arbitration initiated before the LCIA ¹², by stating that if there exists an arbitration agreement between the parties, it is the mandate of the courts to refer the parties to arbitration. However, the Court also noted that the courts in India have the power to injunct arbitration proceedings which must be exercised rarely and only on principles analogous to Section 8 and 45 of the Act.

Footnotes

1 2020 SCC OnLine Del 1678

2 Section 30 of the English Arbitration Act, 1996 - Competence of tribunal to rule on its own jurisdiction:
(1)Unless otherwise agreed by the parties, the arbitral tribunal may rule on its own substantive jurisdiction, that is, as to—
(a)whether there is a valid arbitration agreement, (b)whether the tribunal is properly constituted, and
(c)what matters have been submitted to arbitration in accordance with the arbitration agreement.

3 [2015] EWHC 1927 (Comm)

4 [2019] EWCA Civ 1219

5 (2012) 5 SCC 214

6 Ibid, para 3

7 2009 (165) DLT 652

8 Ibid, para 36

9 2010 SCC OnLine Del 2099

10 2009 (109) DRJ 101

11 2016 SCC OnLine Del 3949

12 London Court of International Arbitration

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