27 November 2020
An Anti-Arbitration Injunction (“AAI”) is an injunction granted by courts to restrain parties or an arbitral tribunal from either commencing or continuing with arbitration proceedings.[1] An AAI is generally sought before an arbitration commences or in the course of the arbitration hearing or after the conclusion of substantive hearing but before the rendering of final award.
Critics of AAI argue that this remedy strips the arbitral tribunal of its power to determine its own jurisdiction (the kompetenz-kompetenz principle, elaborated below), increases judicial intervention, and can be used by unscrupulous parties to evade or delay the agreed arbitration mechanism.. On the other hand, the proponents of AAI argue it is a well-recognised legal concept, which streamlines the remedy of arbitration itself, weeding out those cases where the arbitration agreement may be vitiated by fraud, where there is no valid arbitration agreement or where to proceed with arbitration could be considered vexatious, oppressive or unconscionable. This effectively assists in saving costs and time by deciding such issues at an earlier stage than at the stage of setting aside or enforcement of awards. There appears to be merit on both sides of the debate.
Statutory Framework – Does Arbitration Act allow AAIs?
AAIs are increasingly becoming a powerful tool in the hands of parties to an arbitration. However, both the UNCITRAL Model Law 1985 and the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 which forms the basis for the Arbitration and Conciliation Act, 1996 (the “Act”), do not provide for an express provision authorising the grant of AAIs by courts. Neither does the Act explicitly prohibit it.
Opponents of AAI argue that courts have a mandatory obligation to refer the parties to arbitration without first hearing any challenges on the jurisdiction of an arbitral tribunal. For this, they place reliance on the express provisions contained in Section 16 read with Section 5 of the Act. Section 16 enshrines the principle of Kompetenz-Kompetenz in our national laws, thereby establishing the ability of the arbitral tribunal to rule on its own jurisdiction, including any objections with respect to the existence and validity of the agreement[2]. Further, the non-obstante clause in Section 5 provides that ‘notwithstanding anything contained in any other law for time being in force’, no judicial authority should intervene except when so provided under the Act .
However, such critics fail to acknowledge that a reference to arbitration may not be absolute. In substantive proceedings before a civil court, Section 8 of the Act empowers courts to “refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.” Similarly, with regard to foreign-seated arbitrations, Section 45 of the Arbitration Act empowers courts to make a reference to arbitration unless it finds “that the said agreement is null and void, inoperative or incapable of being performed.” Further, Section 45 is also a non obstante clause and hence, it is not limited by Section 5 or the principle of Kompetenz-Kompetenz as enshrined in Section 16. It may, however, be noted that a court’s review under these provisions can only be carried out in substantive proceedings before a civil court.
Both these provisions make it clear that the statutory scheme of the Act allows for grant of AAIs by courts, albeit on a few limited grounds, such as, prima facie there being no valid arbitration agreement or such agreement being null and void, inoperative or incapable of being performed, or if the courts deems it as just and convenient.
On the arbitrability of disputes, the law laid down by the Hon’ble Supreme Court in N. Radhakrishnan v. Maestro Engineers and Ors.[3], A. Ayyaswamy v. A. Paramasivam[4] and Avitel Post Studioz Limited and Ors. vs. HSBC PI Holdings (Mauritius) Limited and Ors.[5] are relevant. These hold that courts may decline reference to arbitration if the matter involves serious and complicated allegations of fraud requiring detailed appreciation of evidence, for which courts guided by the exhaustive provisions of the Indian Evidence Act and the Codes of Civil and Criminal Procedure may be more competent fora than an arbitral tribunal.
Judicial Trend – Are Civil Courts empowered to grant AAIs?
Indian Courts have had multiple occasions to deal with AAIs; unfortunately, the jurisprudence that has evolved is far from being conclusive.
In 2001, the Hon’ble Supreme Court in the matter of Kvaerner Cementation India Limited v. Bajranglal Agarwal[6] (“Kvaerner”) held that a civil court did not have jurisdiction to determine any objection with respect to the existence or validity of an arbitration agreement owing to the principle of Kompetenz-Kompetenz enshrined under Section 16 of the Act. Regrettably, Kvaerner failed to cite any precedent or provide any elaborate reasoning for this decision, and was reported only in the year 2012, after 11 years.
In the meantime, a seven-Judge bench of the Hon’ble Supreme Court in SBP & Co. v. Patel Engineering Ltd.[7] (“SBP & Co.”), by a majority judgment, rejected the argument that there is exclusive jurisdiction of the arbitral tribunal to decide the existence or validity of the arbitration agreement. This was further strengthened by the ruling of the Hon’ble Supreme Court in World Sport Group (Mauritius) Ltd. v. MSM Satellite[8] wherein the Hon’ble Supreme Court affirmed the jurisdiction of civil courts to refuse arbitration if the grounds mentioned under Section 45 of the Act are satisfied. Subsequently, division benches of the Delhi High Court and the Calcutta High Court held that civil courts are empowered to grant AAIs; however, such power should be exercised sparingly and with abundant caution.[9] In fact, the Hon’ble Calcutta High Court in Balasore Alloys Limited v. Medima LLC clarified that Kvaerner appears to have been impliedly overruled by the later larger bench in SBP & Co.
Kvaerner was brought to life after 15 years when the Hon’ble Supreme Court cited it with its approval in A. Ayyasamy v. A. Paramsivam[10] (though not directly on this issue) and subsequently in National Aluminium Company Limited v. Subhash Infra Engineers Private Limited[11]. Recently, this controversy has again come into prominence due to the Hon’ble Delhi High Court judgment in Bina Modi v. Lalit Modi and Ors[12] which held that suits to declare the invalidity of an arbitration clause/agreement and to injunct arbitration proceedings, whether falling in Part I or Part II, are not maintainable.
Finding the Middle Path
In light of the conflicting decisions of the Supreme Court and various High Court, it is imperative that the courts bring clarity to the issue.
The overarching principle remains that if there is a valid arbitration agreement between the parties, then the parties shall mandatorily be referred to the arbitration mechanism for resolution of their dispute. The Courts recognise party autonomy. Thus, it is only where exceptional circumstances exist, that AAIs can be granted by a court of law. The onus still remains on the party seeking an AAI to plead and demonstrate that it has no other efficacious or alternative remedy and that it is just and in the interests of all parties not to proceed with the arbitration process.
If all jurisdictional issues are resolved by the supervisory court prior to the arbitration process, there is less likelihood of the award ultimately rendered by the arbitral tribunal being challenged successfully and the award stayed on the same jurisdictional grounds (which has been made possible by the recent Arbitration and Conciliation (Amendment) Ordinance, 2020). This would undeniably provide greater certainty to negotiating parties that the award, once made, would be enforceable without delay.
For further information, please contact:
Jyoti Dastidar, Partner, Cyril Amarchand Mangaldas
jyoti.dastidar@cyrilshroff.com
[1] Julian Lew, “Control of Jurisdiction by Injunctions Issued by National Courts” in International Arbitration 2006: Back to Basics? International Council for Commercial Arbitration Congress Series No 13 (Albert Jan van den Berg ed) (Kluwer, 2007) at pp 185–220
[2] The principle of Kompetenz-Kompetenz dictates that an arbitral tribunal is empowered to rule on its own jurisdiction, including, determining all jurisdictional issues and the existence or validity of an arbitration agreement. It is regarded by many scholars as the “bedrock principle ” of arbitration, and it finds reference in laws governing arbitration globally.
[3] 2009 (13) SCALE 403
[4] AIR 2016 SC 4675
[5] (2020) 6 MLJ 544
[6] (2012) 5 SCC 214
[7] 2005 (8) SCC 618
[8] AIR 2014 SC 968
[9] McDonald’s India Private Limited v. Vikram Bakshi and Ors, 2016 (4) ARbLR 250; Devi Resources Ltd. v. Ambo Exports Ltd, 2019 (6) ARbLR 32
[10] (2016) 10 SCC 386
[11] 2019 (5) ARbLR 254
[12] 2020 (2) ArbLR 446
