Do Indian Courts have the Power to Grant Anti-Arbitration Injunctions?

Authors: Yash More* and Ved Thakur**

On 12th August 2020, the Calcutta High Court in Balasore Alloys Limited v. Medima LLC[1] (“Balasore Alloys“) ruled that Indian Courts have the power to grant anti-arbitration injunctions against foreign-seated arbitrations. In doing so, Justice Shekar Saraf concluded that the recent contrary ruling by the Delhi High Court in Bina Modi & Ors v. Lalit Modi & Ors[2] (“Bina Modi“) in March 2020 does not hold any precedential value.

In this post, the authors delineate the concept of anti-arbitration injunctions and outline its statutory framework. The article also analyses the divergent opinions rendered on the power of courts to grant anti-arbitration injunctions. The authors conclude that the Supreme Court must step in and legislate on the power of courts to grant anti-arbitration injunctions. 

STATUTORY FRAMEWORK

An ‘anti-arbitration injunction’ is an injunction whereby a party seeks restraining orders against the other party to proceed or commence with an arbitration proceeding in pursuance of the arbitration agreement between the parties. The legal existence of such injunctions is a matter of dispute due to its lack of statutory recognition under the Arbitration and Conciliation Act, 1996 (“ACA”).[3] In fact, despite voluminous discourse, the source of a court’s jurisdiction to issue an anti-arbitration injunction is filled with ambiguity.

The grant of an anti-arbitration injunction is often argued to be contrary to the cardinal principle of arbitration, i.e. the rule of kompetenz-kompetenz embodied in Section 16[4] of the ACA. The aforementioned provision empowers the arbitral tribunal, alone, to rule on its own jurisdiction and decide any issue regarding the existence and validity of the arbitration agreement. This is read in consonance with Section 5,[5] which forbids any judicial authority to intervene in matters governed by the ACA except where so provided in the statute.

However, the courts, on a few occasions, have assumed jurisdiction under Section 9[6] and Section 45[7] of the Act to grant anti-arbitration injunctions. Section 9 empowers the court to grant interim remedies to parties before or during the arbitral proceedings. Similarly, Section 45 of the Act provides certain powers to the court to interfere with proceeding in foreign arbitrations if the arbitration agreement between the parties is null and void or inoperative or incapable of being performed.

POWER OF COURTS TO GRANT ANTI-ARBITRATION INJUNCTIONS 

The legal jurisprudence on the grant of anti-arbitration injunctions is limited. The earliest decision in this regard is that of Kvaerner Cementation India Limited v. Bajranglal Agarwal[8] (“Kvaerner Cementation“) in 2001. The Supreme Court on a bare reading of Section 16 and bearing in mind the broader objectives of the ACA, held that a civil court did not have jurisdiction to determine any objection with respect to the existence or validity of an arbitration agreement. It is a short 2-page order which did not elaborately explain its reasoning or cite any precedent.

Kvaerner Cementation has been upheld by the Supreme Court recently in A. Ayyasamy v. A. Paramasivam and Ors (“Ayyasamy“).[9] Similarly in National Aluminium Company Limited v. Subhash Infra Engineers Private Limited[10](“National Aluminium“) the Apex Court relied upon Kvaerner Cementation and held that any objection with regard to the existence or validity of an arbitration agreement might be raised before the arbitrator, but a suit for declaration or injunction cannot be maintained for such an objection.

Nevertheless, there is a growing body of case laws which have affirmed the jurisdiction of civil courts to grant anti-arbitration injunctions under limited or exceptional circumstances. The most important one being SBP & Co. v. Patel Engineering[11] (“SBP & Co.“) in 2005, where a majority of six of the seven learned judges of the Supreme Courtconclusively rejected the argument that an arbitral tribunal solely has competence, to the complete exclusion of civil courts, to determine its own jurisdiction.

Subsequently, the Apex Court in Chatterjee Petrochem Company and Anr. v. Haldia Petrochemicals Limited[12](“Chatterjee Petrochem“), reaffirmed the jurisdiction of civil courts to grant anti-arbitration injunctions. Soon after Chatterjee Petrochem was delivered, the Supreme Court in World Sport Group (Mauritius) Ltd. v. MSM Satellite[13](“World Sport Group“), held that a civil court has inherent jurisdiction under Section 9[14] of the Code of Civil Procedure, 1908, to try all suits of civil nature unless expressly or impliedly barred by the law, and in the absence of any such bar on the maintainability of anti-arbitration suit, suits seeking injunctions in restraint of arbitration are indeed maintainable.

Later in McDonald’s India Private Limited v. Vikram Bakshi and Ors.[15] (“McDonald’s“), a Division Bench of the Delhi High Court relied on the decision in World Sport Group and held that civil courts have jurisdiction to grant anti-arbitration injunctions in extreme circumstances where it is proved that the existence of the arbitration clause is in peril and the arbitration agreement is “null, void, inoperative or incapable of being performed.” However, based on the facts, the court refused to grant an anti-arbitration injunction.

In McDonald’s, the court also succinctly clarified the distinction between the principles that govern the grant of anti-suit injunctions and anti-arbitration injunctions. It explained that the principle of forum non conveniens applies only when there are competing courts and not when a dispute is before an arbitral tribunal. In anti-arbitration injunctions, the forum of arbitration, being an alternative to the courts, is consciously chosen by the parties and cannot be considered an inconvenient forum per se.

While there has always been a tussle among courts on the power to grant anti-arbitration injunctions, the courts have concurred that this power must be sparingly and in a rare and controlled manner. The Supreme Court in Modi Entertainment Network v. W.S.G. Cricket[16] enumerated and exhaustively discussed the circumstances would merit the grant of an anti-arbitration injunction. The Calcutta High Court in the Board of Trustees, Port of Kolkata v. Louis Dreyfus Armatures SAS & Ors.[17] summarized these circumstances as follows:

(i) If an issue is raised whether there is any valid arbitration agreement between the parties and the court is of the view that no agreement exists between the parties.

(ii) If the arbitration agreement is null and void, inoperative or incapable of being performed.(iii) If the continuation of foreign arbitration proceeding might be oppressive or vexatious or unconscionable.

BINA MODI AND BALASORE ALLOYS – FLIP FLOP BY HIGH COURTS

The recent judgment of the Delhi High Court in Bina Modi is a poor aberration of what could have otherwise been termed a settled position of law. In Bina Modi, the counsels relied primarily on Delhi High Court’s previous verdict in McDonald’s to argue in favor of the grant of an anti-arbitration injunction. However, the reliance on McDonald’s was held to be per incuriam because of its failure to consider Kvaerner Cementation. In fact, even though Kvaerner Cementation was decided in 2001, it was reported only in 2012 and therefore missed the scrutiny of courts for a long time.

When Bina Modi was discussed before the Calcutta High Court in Balasore Alloys, the Court raised doubts on its precedential value because the Delhi High Court was not made aware of the ruling in SBP & Co. In his opinion, owing to the seven-judge bench ruling in SBP & Co., the three-judge bench dictum in Kvaerner Cementation stands implicitly overruled. Therefore, the Calcutta High Court criticized Bina Modi to be per incuriam and refused to follow the reasoning therein.

Surprisingly, the Supreme Court in both Ayyasamy and National Aluminium simply applied Kvaerner Cementation without appreciating that Kvaerner Cementation could no longer be considered good law by virtue of its implicit overruling by SBP & Co. Nor did it consider the subsequent decisions in Chatterjee Petrochem and World Sport Group which had rejected the idea that an arbitral tribunal has the sole competence to decide such questions. Therefore, the value of the decisions in Ayyasamy and National Aluminium as binding precedent to negate civil courts’ jurisdiction to grant such injunctions is doubtful at best.

The other significant aspect of Balasore Alloys is its correct understanding of Chatterjee Petrochem. In that case, while the court affirmed the jurisdiction of civil courts to grant anti-arbitration injunctions, it ultimately declined the grant of an injunction restraining arbitral proceedings. Based on this contradiction, parties often attempt to mislead courts in believing that in Chatterjee Petrochem the Apex Court had indeed held that the civil courts do not possess the power to issue anti-arbitration injunctions.

In Balasore Alloys, the court negated the reliance on Chatterjee Petrochem and explained that, in the true sense, the refusal to grant an injunction was based on the finding that arbitration agreement was still subsisting; it had not been novated and therefore enforcing the intention to arbitrate the dispute possessed sound legal propriety. To buttress his argument, Justice Saraf relied on the Calcutta High Court’s ruling in Devi Resources Ltd. v. Ambo Exports Ltd.[18]which had considered the implications of Chatterjee Petrochem and held the same.

CONCLUSION

Since there exists a divergence of opinion between various High Courts and even the Supreme Court itself, it is imperative to settle this conundrum and cement the legality on the power of courts to grant anti-arbitration injunctions. In light of the 7-judge bench ruling in SBP & Co., which allows grant of such injunctions in exceptional circumstances, it will require a 9-judge bench to impose the contrary. In the meantime, Justice Saraf’s dictum in Balasore Alloys seems to be the most authoritative judgment in this regard due to its acknowledgement of both Kvaerner Cementation and SBP & Co. and other subsequent landmark cases and the interplay between them.

[1] Balasore Alloys Limited v. Medima LLC, C.S. No. 59 of 2020 (India).

[2] Bina Modi & Ors v. Lalit Modi & Ors., 2020 (2) ArbLR 446 (Delhi) (India).

[3] The Arbitration and Conciliation Act, No. 26 of 1996, India Code.

[4] Id. at § 16.

[5] Id. at § 5.

[6] Id. at § 9.

[7] Id. at § 45.

[8] Kvaerner Cementation India Limited v. Bajranglal Agarwal, (2012) 5 SCC 214 (India).

[9] A. Ayyasamy v. A. Paramasivam and Ors, AIR 2016 SC 4675 (India).

[10] National Aluminium Company Limited v. Subhash Infra Engineers Private Limited, 2019 (5) ARbLR 254 (SC) (India).

[11] SBP & Co. v. Patel Engineering, AIR 2006 SC 540 (India).

[12] Chatterjee Petrochem Company and Anr. v. Haldia Petrochemicals Limited, 2013 (4) ARbLR 456 (SC) (India).

[13] World Sport Group (Mauritius) Ltd. v. MSM Satellite, AIR 2014 SC 968 (India).

[14] The Code of Civil Procedure, § 9, No. 5 of 1908, India Code.

[15] McDonald’s India Private Limited v. Vikram Bakshi and Ors, 2016 (4) ARbLR 250 (Delhi) (India).

[16] Modi Entertainment Network v. W.S.G. Cricket, AIR 2003 SC 1177 (India).

[17] Board of Trustees, Port of Kolkata v. Louis Dreyfus Armatures SAS & Ors, 2014 SCC. OnLine Cal. 17695 (India).

[18] Devi Resources Ltd. v. Ambo Exports Ltd, 2019 (6) ARbLR 32 (Cal) (India).

*Yash More is an undergraduate student at Gujarat National Law University, India.
**Ved Thakur is an undergraduate student at Gujarat National Law University, India.