-Ashutosh Choudhary and Anshul Goyal*
In the recent case of Bina Modi and Ors v. Lalit Modi and Ors, Justice Rajiv Sahai Endlaw of the Delhi High Court has once again dealt with the issue of the maintainability of anti-arbitration injunction suit after adjudicating upon the similar issue in the 2009 case of Roshan Lal Gupta v. Parasram Holdings. In both the cases, Endlaw J. refused to grant an anti-arbitration injunction restraining arbitral proceedings and negated the jurisdiction of Indian civil courts in granting an anti-arbitration injunction. However, in other similar cases dealing with anti-arbitration injunctions, Indian judiciary had adopted altogether a different opinion to the Bina Modi case while observing certain exceptional cases where the domestic anti-arbitration injunction suits can be maintainable. In this article, the authors critically analyze the distinct judicial opinions which created a dilemma pertaining to the issue of the maintainability of arbitration injunction suits in India.
Background of the Bina Modi Case:
A dispute arose under the family trust deed concerning family-controlled businesses. Defendant had initiated arbitral proceedings against the other trustees for the resolution of dispute. However, the other two trustees filed civil suits and sought reliefs before the Delhi HC to grant a permanent injunction restraining the defendant from instituting any arbitration proceedings as the arbitration agreement was in itself null & void, inoperative, and unenforceable. The Delhi HC, while dealing with the suit, limited its adjudication to whether it had the jurisdiction to injunct the arbitral proceedings.
Delhi High Court Decision: No Injunction when equally efficacious relief available
The Delhi HC held that an anti-arbitration injunction relief could not be granted by a civil court, hence the suit was not maintainable. Endlaw J. reasoned that under Section 16 of the Arbitration and Conciliation Act, 1996 (“the Act”) the arbitral tribunal has its own jurisdiction to rule upon any objections with respect to the existence or validity of the arbitration agreement. Moreover, S. 41(h) of the Specific Relief Act, 1963 (“SRA Act”) bars the grant of injunctions when “equally efficacious relief can certainly be obtained by any other usual mode of proceeding.” Therefore, the Indian Arbitration Act provided an equally efficacious relief under S. 16 of the Act to rule upon the arbitrability of the Arbitration Agreement and thus an injunction cannot be granted by the domestic civil courts on such ground.
It is pertinent to note that Endlaw J. had given similar reasoning in the Roshan Lal Gupta case, stating that the applicant had alternative remedies under (i) S. 16 of the Act to challenge the tribunal’s jurisdiction and consequently (ii) S. 34 of the Act to challenge the adverse award before a court. In both the cases, Delhi HC considered the three-judge bench decision of the Supreme Court in the case of Kvaerner Cementation India Limited v. Bajranglal Agarwal and Anr as the binding precedent wherein the Apex Court had held that “a civil court does not have jurisdiction to entertain suits to declare invalidity of an arbitration agreement or injunct an arbitral proceeding.” Therefore, it becomes pertinent to examine the Kvaerner Cementation rule.
Examining the validity of the Kvaerner Cementation Rule:
The case of Kvaerner Cementation was significantly undermined by the Indian judiciary given the fact that the Supreme Court order waspassed in the year 2001; however, it was reported in the year 2012. In this case, the Apex Court held that in the presence of an arbitration agreement “the civil court cannot have jurisdiction to determine any objection with respect to the existence or validity of the arbitration agreement considering the provisions contained in S. 16 of the Act and the matter must be raised before the Arbitral Tribunal.” However, under S. 34 of the Act, an adverse award made by the arbitral tribunal can be challenged later in the set-aside proceedings before a civil court.
The Apex Court decision in Kvaerner Cementationhas been broadened in the case of A. Ayyasamy v. A. Paramasivam and Ors, wherein a division bench of the Supreme Court distinguished between two situations pertaining to the jurisdiction of civil courts, first where the arbitral tribunal has yet to be constituted and second where the arbitral proceeding has been initiated. In the first situation, the court held that where an arbitration agreement existed between the parties for the settlement of disputes between them. The courts can exercise its jurisdiction to decide upon the arbitrability or non-arbitrability of the dispute upon the question of the maintainability of the suit under S. 8 of the Act.
However, it should be noted that after the 2015 amendment, S. 8 of the Act mandates the civil courts to refer parties to arbitration where an arbitration agreement exists and therefore the express provision under S. 8 of the Act to try the cases concerning arbitrability of disputes ultimately excluded the jurisdiction of civil courts as per the S. 9 of Code of Civil Procedure (“CPC”). On this basis, the scope of S. 8 of the Act has been restricted which lends strength to the Kvaerner Cementation rule.
In the second situation, while observing S. 5 of the Act which provides that “there should not be any judicial intervention at that stage scuttling the arbitration proceedings” the Court affirmed that if an objection is raised pertaining to the initiation of arbitration proceedings then under S. 16 of the Act the arbitral tribunal is empowered to decide upon such objection questioning the existence or validity of arbitration agreement or competence of the Arbitral Tribunal.
Similar to the Kvaerner Cementation rule, the Bina Modi case is also based on the above mentioned second position, i.e., any matter relating to the competence of the arbitral tribunal, once arbitration has begun, must go to the arbitrator. Moreover, the Kvaerner Cementation case has also been cited with approval in National Aluminum Company Limited v. Subhash Infra Engineers Private Limited and Anr wherein a division bench of the Supreme Court gave similar directions that if the plaintiff wanted to raise an objection with regard to existence or validity of the arbitration agreement, it was open for it to move an application before the arbitrator; for such plea, a suit cannot be maintained for declaration and injunction.
It is amply clear after examining the Kvaerner Cementation rule that the Indian Courts in aforesaid cases are restraining themselves in granting anti-arbitration injunctions, via adopting the less judicial interference approach, affirming the sanctity of arbitration proceedings. However opposite opinions of other courts as discussed below, create a conundrum pertaining to the issue of maintainability of domestic anti-arbitration suits.
Opposite Views to the Kvaerner Cementation Rule:
The rule in the Kvaerner Cementation case that an arbitral tribunal has the competence to determine its jurisdiction by the complete exclusion of interference of civil courts was rejected by a seven-judge bench of the Supreme Court in the 2005 case of SBP & Co. v. Patel Engineering Limited and also in subsequent decisions. As per the SBP case, the arbitral tribunal has the competence to rule on its own jurisdiction only in the situation when jurisdiction issues are raised before the arbitral tribunal. Moreover, the Supreme Court also affirmed the civil courts’ jurisdiction to entertain suits seeking grant of anti-arbitration injunctions in Chatterjee Petrochem Company and Anr. v. Haldia Petrochemicals Limited and Ors.
In the case of Mcdonald’s India Private Limited v. Vikram Bakshi and Ors, a division bench of the Delhi HC observed that the anti-arbitration injunction could be granted in the exceptional cases where the arbitration proceedings would be oppressive or unconscionable which would include the situations where the issue was of the consent of the parties to the agreement or the forgery in the agreement. For this purpose, in Mcdonald’s case, the Delhi HC laid down certain exceptional cases for the maintainability of anti-arbitration injunction suits while holding that civil courts had jurisdiction to grant anti-arbitration injunction, where the arbitration agreement is null, void, inoperative or incapable of being performed. In addition to that, exceptional cases based on the ground of the incapacity of the party seeking injunction or ground of overwhelming inconvenience to such party were also laid down by the Calcutta HC in the case of Devi Resources Limited v. Ambo Exports Limited.
However, in the Bina Modi case, the single judge bench of the Delhi HC while referring to Pal Singh v. National Thermal Power Corporation Limited observed that the decision of a larger bench of a High Court does not bind the lower bench when the larger bench has not noticed the law/legal principle laid down by the Supreme Court. The Delhi HC refused to consider the aforesaid exceptional cases laid down by the division bench (larger bench)of Delhi HC in Mcdonald case on the ground that the reasoning of Delhi HC in Mcdonald’s case is found to be per incuriam qua the Supreme Court’s decision in Kvaerner Cementation India Limited. However, it is pertinent to note that similar to the Supreme Court decision in Kvaerner Cementation case the division bench in Mcdonald’s case had also refused to grant an anti-arbitration injunction while laying down certain exceptional cases in order to confirm that no demonstrable injustice or harassment be caused by the reason of initiation of arbitral proceedings.
From the above analysis, it can be deduced that there is no straight-jacket formula available to determine the jurisdiction of domestic court to entertain an anti-arbitration injunction suit challenging arbitrability of arbitration agreements. However, a principle can be inferred if both the distinct observations are combined and applied together in the given facts and circumstances to determine the jurisdiction of Indian Courts i.e. (i) the jurisdiction of civil courts is barred to try such suits when cognizance of such suits is explicitly made to the arbitral tribunal as per the S. 41(h) of the Specific Relief Act 1963 as an equal efficacious relief is available under S. 16 of the Act and S. 5 of the Act limited the scope of judicial intervention while reading S. 9 of CPC with S. 8 of the Act; (ii) the jurisdiction of civil courts can be exercised to grant an anti-arbitration injunction where the arbitration agreement is null, void, inoperative or incapable of being performed.
Unlike Bina Modi case, which strictly followed the Kvaerner Cementation rule, certain exceptional conditions were laid down in the Mcdonald’s case pertains to the maintainability of anti-arbitration suits. It wasdonewhile keeping in mind the legislative void and to ensure that certain remedies be available for the parties in dispute to avoid any prejudice or injustice by the reason of initiation of an arbitral proceeding. However, no such remedial measure has been considered in the Bina Modi case. Another issue with the single judge decision in the Bina Modi case is that it has limited its adjudication to the jurisdiction whether to injunct the arbitral proceedings and once the jurisdiction was not determined, the HC did not consider going into the remaining aspects of the case. In this regard, it will be promising to observe the decision of the division bench of the Delhi HC in appeal in this matter on the issue of maintainability of domestic anti-arbitration injunction suit in India.