India: Anti-Arbitration Injunction in India

A growing concern in the arbitration circle is the issue of anti arbitration injunction in foreign arbitrations, especially in jurisdictions like India.

Courts in India are empowered vide Section 45 of the Arbitration & Conciliation Act, 1996 ("the Act") to refer parties to arbitration unless it found that, "the arbitration agreement was null and void, inoperative or incapable of being performed". There is nothing unusual about this Section indeed it corresponds to Article 2 (iii) of the New York Convention 1958.

By virtue of Section 45 of the Act, the power of judicial authority to decide on the jurisdiction of the arbitral tribunal is not ousted rather it imposes a duty on the judicial authority to prima facie determine as to whether the arbitration agreement is valid or not.

The object to confer a specific power on the Civil Court to decide whether the agreement is null and void, inoperative or incapable of being performed is based on public policy that a party ought not to be forced to participate in arbitral proceedings in a foreign country incurring considerable expenses and losing valuable time in the event the finding of the Court is that the arbitral agreement is null and void, inoperative or incapable of being performed. Once such a finding is made, it would avoid a situation where the arbitral tribunal records the same findings after the parties have already incurred great cost in initiating the arbitral proceedings¹. The Bombay High Court GTC Ltd. case, held that since the arbitral clause had been invoked and the English Arbitration Act of 1996 contained provisions for raising jurisdictional challenges before the arbitral tribunal itself and the arbitrator having been appointed it was not appropriate to grant the relief of interim injunction against continuance of arbitral proceedings in London.

Indian Courts have granted injunctions usually in cases where a suit for declaration along with an application for interim injunction is filed on the ground that the arbitration agreement is either null and void, inoperative of being incapable of being performed. On most occasions, injunctions have been obtained by a party from District Courts of the place, where the cause of action arises and have been granted in favour of them ex parte. However, the Courts on hearing both the parties have in majority of cases vacated such injunctions.

In Bharti Televentures Ltd. Vs. DSS Enterprises Pvt. Ltd.², the Delhi High Court while considering an application seeking injunction of reference of the dispute of foreign arbitral forum held that in absence of provisions of Section 5, 9 and 16 in Part-II of the Act, the legislature did not intend to provide jurisdiction of the Court for deciding the issue whether to grant interim injunction or not either before or during the arbitral proceedings. The Court stated that,

In Cultor Ford Science Inc. Vs. Nicholas Piramal India Ltd.³ the High Court of Andhra Pradesh refused to grant an interim injunction against arbitral proceedings under the LCIA Rules (Rules) mainly in view of the provisions under Article 23 of the Rules which confers power on the arbitral tribunal itself to determine the plea of its jurisdiction or authority. It further observed that,

In a recent case, the Delhi High Court in Union of India Vs. Dabhol Power Co.⁴, granted injunction against arbitral proceedings continuing in England on the ground that neither Section 5 nor Section 45 of the Act ousted the jurisdiction of the Court from issuing an injunction if it finds that the arbitral proceedings against the Plaintiff in a foreign country are oppressive and call for interference. The High Court emphasized on the fact that the Plaintiff Union of India was not asking for an indefinite injunction but was merely praying that the Defendant be restrained from oppressing with the arbitral proceedings till the Supreme Court delivered its judgment on the jurisdiction of the Maharashtra Electricity Regulatory Commission (MERC). Further, there was an undertaking given by the Union of India to the Delhi High Court that in the event, the Supreme Court dismisses the appeal pending before it, it would submit to the jurisdiction of the arbitral tribunal.

The most frequently asked question is as to what should the arbitrators do when Courts have granted an anti-arbitration injunction against foreign arbitration proceedings. The answer is not very simple and the onus is on the arbitrators to act in a manner as would be in the interest of either both the parties or the party which is affected the most by such injunction. It is possible to contemplate a situation when neither of the parties have sought for stay of arbitration proceedings, but an application seeking stay has been moved by a third party who is not privy to the arbitration proceedings. An example would be where one of the share holders, of the company party to the proceedings before foreign arbitral tribunal, moves an injunction application praying that he or she is likely to be seriously affected by the award. However, in most cases it is one of the parties to arbitration which wants a stay of the proceedings. The arbitrators would have to weigh the pros and cons of continuing with the proceeding. The negatives are many, and are something that the arbitrators ought not to ignore. Firstly, if there is an injunction order passed, the party on whose request it was passed will not continue to participate in the proceedings and if the arbitrators decide to continue, any award rendered by them can be challenged as being contrary to the principles of natural justice and thus, giving that party the right to challenge the award invoking the ground of public policy. Whether or not the arbitrator/s are made a party to the injunction application filed in the Court, continuance of the arbitral proceedings despite the Court’s order would render the arbitrator/s liable for contempt of court proceedings having violated the order of the Court. If the arbitrators are willing to ignore such order of the Court and are ready to take the risk of being hauled for contempt proceedings (even though this may not be an eventuality), an award made by them would still not be immune to challenge of breach of public policy of the country (assuming the award is sought to be enforced in the country of the courts which passed the injunction order). If it were an Indian Court, it would take such a breach of its order seriously and may not uphold the award. However, this is yet to be established. But if the award is sought to be enforced in a different country, other than the one that passed the injunction order, then the party seeking to enforce such an award may not face such difficulty. Thus, a lot would depend on the jurisdiction in which enforcement of the award is applied for. It would thus, not be appropriate for arbitrators to ignore such factors and proceed with the arbitration proceedings and make an award that would not withstand in the court where it is sought to be enforced.

It would be reasonable for the arbitrators to not to proceed and direct the other party to have the injunction order vacated first. Although, this may involve time loss or delay but would be prudent step to take, lest the party wants to take the risk in having a mere paper award after having incurred huge expenses as costs of arbitration.

Thus, it is rather a myth that the Indian Courts liberally grant injunctions against foreign arbitration proceedings and that it allows a party to subvert or stultify such proceedings. The approach of the Indian Courts countenanced by the Supreme Court has been rather to draw a balance between protecting of interest of a party from being forced to participate in arbitral proceedings incurring considerable expense and losing valuable time and on the other hand to ensure that the parties by frivolous plea, do not misuse the jurisdiction of the Court to interfere in arbitral proceedings by obtaining injunctions. What seem to have been brought more into limelight is the fact that the Courts in India have granted injunctions against foreign arbitral proceedings (although temporarily), but not the fact that in a greater number of cases the Courts have refused to grant such injunctions.

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