- Pranshi Gaur & Samarth Kapoor*
The recent amendments to the Arbitration and Conciliation Act, 1996 (hereinafter, “the Act”) have been aimed to bolster the arbitration laws in India. The amendments were made with the intention to reduce judicial intervention in arbitration proceedings, develop a framework for speedy completion of arbitral proceedings, and make India a commercial arbitration hub.
Anti-Arbitration injunctions are restraint orders granted by the courts against the continuation or the commencement of arbitration proceedings. The way the judiciary has performed its duty by promoting and upholding the sanctity of arbitration agreements is very much appreciated. However, the judiciary has been intervening in such matters by issuing injunctions against arbitral proceedings. This is because certain powers are granted by the Act u/s 8 and 45, to the courts to intervene in cases where the agreement seems to be vitiated by fraud, is null and void, is incapable of being performed, or is oppressive.
This article would endeavor to understand the nuances of this principle as well as the circumstances under which, courts are entitled to grant such an injunction.
What is Anti-Arbitration Injunction?
The terminology used in, an injunction granted by the civil courts which negate the continuation or even the commencement of arbitration proceedings is called an anti-arbitration injunction.[i] Generally, the parties take this recourse before the commencement of the arbitration proceedings, but it is not restricted to that and the same can be availed before the tribunal passes the final award.
Many say this rule vitiates the very essence of the idea behind making arbitral tribunals independent of judicial intervention; the power for which has been given u/s 16[ii] read with s. 5[iii] of the Act. However, the proponents of this remedy argue that this rule will be helpful in streamlining the arbitration procedure itself. It will play a key role in weeding out the cases where there is no arbitration agreement in the first place, or the agreement is vitiated by fraud or, where the initiation of arbitration proceedings in itself would be considered “oppressive” or “vexatious” in nature.
There is neither any explicit bar nor any mention in the Act regarding injunctions to be granted by the Indian courts. The provision that revolves around this principle and the provision which rebuts the idea of judicial intervention in arbitration proceedings is enshrined in the Act. However, they are not directly linked with this remedy.
Critics of this remedy rely on s. 5 and 16 of the Act. S. 5 provides for the independence of the arbitral tribunal to resolve all disputes related to any arbitration matter before it. On the same footing, s. 16 talks about the competence of an arbitral tribunal to rule on matters pertaining to its jurisdiction. This includes matters that relate to the validity of the arbitration agreement. The provision further states that the only remedy that an aggrieved has is to challenge the award passed u/s 34[iv] of the Act. The deliberate exclusion of s. 48 of the Act makes it clear that the provision is only applicable in domestic arbitration and not in the case of foreign arbitration. Also, the critics of this remedy, while arguing for the exclusion of the judicial intervention, forget to cite s. 8 and 45 of the Act.[v]
While the Act backs minimal judicial intervention, it does not completely rule out the probability of it. S. 8[vi] of the Act talks about the duty of the court to refer parties to the arbitration. This provision got amended in 2015 to state that reference to arbitration should not be made if the court is prima facie satisfied that the agreement is null and void. It also mentions certain pre-conditions that are to be fulfilled before referring a matter to arbitration. In the case of P. Anand Gajapathi Raju v. P.V.G. Raju (Died),[vii] while analyzing the provision, the Hon’ble Apex Court held that,
“The conditions which are required to be satisfied under Sub-sections (1) and (2) of Section 8 before the Court can exercise its powers are (1) there is an arbitration agreement; (2) a party to the agreement brings an action in the Court against the other party; (3) subject matter of the action is the same as the subject matter of the arbitration agreement; (4) the other party moves the Court for referring the parties to arbitration before it submits his first statement on the substance of the dispute. .... The language of Section 8 is per-emptory.”
S. 45[viii] of the Act deals with the duty of the Courts to refer the matter to arbitration in case of foreign arbitration. However, the provision clearly states that in case the courts, prima facie, find that the agreement is void or is incapable of being performed, then such reference shall not be made. Now, by a conjoint reading of the provisions of s. 8 & 45, one can clearly make out that the remedy provided in the form of anti-arbitration injunction suits has its place in the Act itself in the form of limited judicial intervention.
The Hon’ble Apex Court has, on many occasions,[ix] held that courts are free to decline application seeking reference to arbitration if there exist some serious allegations of fraud for which heavy scrutiny of evidence is needed and courts guided by the Indian Evidence Act, Code of Criminal Procedure, and Code of Civil Procedure may be more competent to decide the issue.
The Kompetenz-Kompetenz Principle
Indian arbitration law follows the principle of Kompetenz-Kompetenz (or Competence-Competence) which is enshrined u/s 16 of the Act. According to this provision, the arbitral tribunal is sufficient to determine and rule out the issue of its own jurisdiction, including the validity of the arbitration agreement. This cardinal principle finds its place in the Indian arbitration law with an objective to ensure that the arbitration proceedings won’t be hindered just because of the primary objection raised by one of the parties.
This principle is recognized by many scholars as the “backbone principle” of arbitration law and finds its place in laws governing arbitration globally. In the case of Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd.,[x] the Supreme Court, while examining and interpreting the provisions of s. 11 & 16 applied the principle of Kompetenz-Kompetenz and held that the dispute related to the arbitrability should be decided by the tribunal itself and courts can interfere only when there is no agreement at all or whether the consent to enter into an agreement is vitiated by fraud or misrepresentation.[xi]
Similarly, the recent case of N.N. Global Mercantile v. Indo Unique Flame Ltd.[xii] observed the Kompetenz-Kompetenz principle and held that,
“The doctrine of kompetenz-kompetenz implies that the arbitral tribunal has the competence to determine and Rule on its own jurisdiction, including objections with respect to the existence, validity, and scope of the arbitration agreement, in the first instance, which is subject to judicial scrutiny by the courts at a later stage of the proceedings. Under the Arbitration Act, the challenge before the Court is maintainable only after the final award is passed as provided by Sub-section (6) of Section 16.”
Further, the decisions of the Supreme Court in the cases of SBP & Co. v. Patel Engineering Ltd.[xiii] and Kvaerner Cementation India Ltd. v. Bajranglal Agarwal[xiv] are also in line with this judgment as both the cases interpreted s. 16 to determine whether the tribunal has exclusive jurisdiction due to the Kompetenz-Kompetenz principle. In both, the judgments court had emphasized this principle, but the issue still persists.
With so many judgments quoting different opinions, one cannot render a position of exclusivity to the tribunal to decide matters of jurisdiction including the issue of the validity of arbitration agreements.
Precedents laid down: The jurisprudence regarding the law
Courts in India have, in the past, dealt with the issue of granting anti-arbitration injunctions on many occasions. Even after numerous deliberations and discussions about the same, the issue stands unresolved and the jurisprudence evolved is still not conclusive.
In the case of Kvaerner Cementation, the Hon’ble Apex Court, while dealing with the issue of granting an anti-arbitration injunction held that civil court does not have the power to determine the jurisdiction of arbitration tribunals-(including the validity of arbitration agreement). With this judgment, the Supreme Court emphasized the objectives of the Act and the need for minimal intervention of the judiciary in arbitration matters. This judgment was reaffirmed in the case of A. Ayyasamy v. A. Paramasivam.[xv]
In the case of National Aluminium Company Ltd. v. Subhash Infra Engineers Pvt. Ltd.,[xvi] the Supreme Court relied on the Kvaerner Cementation judgment and held that any dispute, whether in relation to jurisdiction[xvii] or the validity of the arbitration agreement, should be raised before the arbitrator only and Civil Courts have no jurisdiction over the matter.
While some judgments rule out judicial intervention by relying on Kvaerner Cementation judgment, there are some judgments that support the idea of judicial intervention to some extent. In the case of SBP & Co., the Supreme Court partially overruled the Kvaerner Cementation Judgment, however as the 2001 judgment was reported after 11 years, i.e., in 2012, so it is quite difficult to adjudge that whether the Kvaerner Cementation has been overruled or is still contingent. In the SBP judgment, the Supreme Court held that the courts have the duty to first scrutinize the arbitration agreement before referring the matter to arbitration. The Supreme Court interpreted the provision of s. 16 and held that arbitral tribunals are competent only in those cases where the issue is raised before the arbitrator.
This decision by the Supreme Court in the case of SBP & Co. was referred to in many subsequent cases. In the case of Chatterjee Petrochem Co. v. Haldia Petrochemicals Ltd.,[xviii] the Supreme Court accepted the power of the courts to grant an injunction and to rule on the validity of the arbitration agreement. Similarly, the Calcutta High Court in the case of The Board of Trustees of the Port of Kolkata v. Louis Dreyfus Armatures SAS,[xix] held that with respect to s. 8 and 45 of the Act, the courts have the power to grant the anti-arbitration injunctions in cases where the agreement is null and void, it is oppressive to continue the proceedings, or the agreement is incapable of being performed. Relying on Chatterjee Petrochem judgment, the Supreme Court in the case of World Sport Group (Mauritius) Ltd. v. MSM Satellite (Singapore) Pte. Ltd.,[xx] held that there is no explicit bar under the Act on the maintainability of anti-arbitration Injunction suits, hence the suit is maintainable. Similarly, in the case of McDonald’s India Pvt. Ltd. v. Vikram Bakshi,[xxi] Delhi High Court relied on the judgment of World Sport Group and held that if there is proof of the agreement being null and void, then the Civil Courts have the jurisdiction to grant anti-arbitration injunctions.
A way to move ahead
As discussed above, the jurisprudence around this concept remains unclear and confusing because of the different stance taken by the High Courts and the Supreme Court. However, it is clear by the judgments that Courts only grant injunctions in the cases of “Compelling Circumstances,” i.e., only in those cases where the agreement is null and void, or is prima facie incapable of being performed, or it would be oppressive to continue with arbitration.
Going by the latest judgment of Delhi High Court in the case of Bina Modi v. Lalit Kumar Modi,[xxii] referring to s. 16 of the Act and relying on the judgments of Kvaerner Cementation and National Aluminium, the Court held that the Civil Court has no power to restrain or grant anti-arbitration injunctions in view of the Kompetenz-Kompetenz principle. Also, it was held that the Act is in itself a complete code and it empowers the tribunal to rule on its own jurisdiction, including cases w.r.t validity of arbitration agreement. However, the tables were turned by the Calcutta High Court in the case of Balasore Alloys Ltd. v. Medima LLC,[xxiii] where it was held that Indian Courts have the jurisdiction to grant anti-arbitration injunctions and the judgment given by the Delhi High Court in the Bina Modi case does not hold any precedential value.
The important question that needs to be addressed is, “whether there is a need to amend the present Act to add a proviso to completely exclude judicial intervention and everything will be decided by the tribunal itself?”. The answer to this question will be negative as there is a fine balance between the autonomy of an arbitral tribunal and the power of courts under the Act, as according to the provisions of the Act, courts can intervene in compelling circumstances only.
There is no doubt with regards to the Pro-Arbitration approach that India should adopt, but some situations can arise where judicial intervention is required. The law on this aspect is still evolving but it will be interesting to see what will be the approach of the Supreme Court and the High Courts in coming years with regard to the power of the Civil Court and the maintainability of anti-arbitration injunction suits.
* 3rd Year Students (Batch of 2018-23), B.A., LL.B. (Hons.), Maharashtra National Law University, Aurangabad. [i] Lomesh Kiran Nidumuri, India's approach to anti-arbitration injunction suits: Step in the right direction?, Bar and Bench (May 7, 2021, 9:34 PM), https://www.barandbench.com/columns/indias-approach-to-anti-arbitration-injunction-suits-step-in-the-right-direction. [ii] The Arbitration and Conciliation Act, 1996, No. 26 of 1996, Acts of Parliament, 1996, §16. [iii] The Arbitration and Conciliation Act, 1996, No. 26 of 1996, Acts of Parliament, 1996, §5. [iv] The Arbitration and Conciliation Act, 1996, No. 26 of 1996, Acts of Parliament, 1996, §34. [v] Rajat Jaiswal & Shruti Khanijow, Anti-Arbitration Injunctions: Use and Controversy, Lexology (May 7, 2021, 1:48 AM), https://www.lexology.com/library/detail.aspx?g=34200c24-71f4-4484-9f74-93a79aeba604. [vi] The Arbitration and Conciliation Act, 1996, No. 26 of 1996, Acts of Parliament, 1996, §8. [vii] P. Anand Gajapathi Raju v. P.V.G. Raju (Died), (2000) 4 SCC 539. [viii] The Arbitration and Conciliation Act, 1996, No. 26 of 1996, Acts of Parliament, 1996, §45. [ix]N. Radhakrishnan v. Maestro Engineers and Ors., 2009 (13) SCALE 403; A. Ayyaswamy v. A. Paramasivam, AIR 2016 SC 4675; Avitel Post Studioz Limited and Ors. v. HSBC PI Holdings (Mauritius) Limited and Ors., (2020) 6 MLJ 544. [x] Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd., AIR 2020 SC 979. [xi] Mayank Jain, A-Z of ADR: Kompetenz-Kompetenz Principle, BIMACC (May 7, 2021, 5:14 PM), https://www.bimacc.org/a-z-of-adr-kompetenz-kompetenz-principle/. [xii] N.N. Global Mercantile v. Indo Unique Flame Ltd., (2021) 1 MLJ 708. [xiii] SBP & Co. v. Patel Engineering, AIR 2006 SC 4675. [xiv] Kvaerner Cementation India Ltd. v. Bajranglal Agarwal, (2012) 5 SCC 214. [xv] A. Ayyasamy v. A. Paramasivam, AIR 2016 SC 4675. [xvi] National Aluminium Company Ltd. v. Subhash Infra Engineers Pvt. Ltd., 2019 (5) ArbLR 254 (SC). [xvii] Ravi Arya v. Palmview Investments Overseas, 2019 (6) ArbLR 321 (Bom.). [xviii] Chatterjee Petrochem Co. v. Haldia Petrochemicals Ltd., 2013 (15) SCALE 45. [xix] The Board of Trustees of the Port of Kolkata v. Louis Dreyfus Armatures SAS, 2014 SCC Online Cal. 17695. [xx] World Sport Group (Mauritius) Ltd. v. MSM Satellite (Singapore) Pte. Ltd., (2014) 11 SCC 639. [xxi] McDonald’s India Pvt. Ltd. v. Vikram Bakshi, 2016 (4) ArbLR 250 (Delhi). [xxii] Bina Modi v. Lalit Kumar Modi, 2021 (1) ArbLR 1 (Delhi). [xxiii] Balasore Alloys Ltd. v. Medima LLC, (2020) SCC Online Cal. 1698.