Kushagra Tolambia[1]
A court may issue an Anti-Arbitration Injunction ("AAI") to prevent parties or an arbitral panel from initiating or continuing arbitration proceedings. An AAI is typically requested prior to the start of an arbitration, during the arbitration proceeding, or following the conclusion of the substantive proceeding but before the judge issues the final award.[2]
Arguments against anti-arbitration injunctions
As a fundamental arbitral premise, "competence-competence" is attacked from the ground up. This concept is used by arbitral tribunals to establish their own jurisdiction. Thus, a tribunal is empowered by the principle of "competence-competence" to draw the conclusion that the arbitration agreement is not legally valid or ineffective and to declare that the tribunal does not have jurisdiction. The tribunal loses this power when an injunction prohibits arbitration.
It does not follow the generally acknowledged legal guidelines for conducting international arbitration. In this system, the tribunal first determines its jurisdiction before allowing courts to intervene and review the decision of the tribunal (on specific grounds). The clauses listed below support this long-standing system:
Article 23 of the UNCITRAL Arbitration Rules (2010)[3]:
o In accordance with Article 23(1), the authority to determine its own jurisdiction, includes any disputes regarding the arbitration agreement's legitimacy or existence, belongs to the arbitral tribunal.
o In accordance with Article 23(3), "The arbitral tribunal can decide on a plea [that the tribunal does not have jurisdiction] either in an award on the merit or as a preliminary matter. Despite any ongoing legal challenges to its jurisdiction, the arbitral tribunal, if it wants to, proceed with the arbitration proceedings and issue an award.
In accordance with Article 16(3) of the UNCITRAL Model Law[4], If the tribunal finds that it has jurisdiction on a preliminary question, any party may request that the case be remanded to the courts in the arbitration site.
The tribunal can proceed to issue an award given in the Article 34 of the UNCITRAL Model Law[5], but a court may thereafter order the award to be vacated if the arbitration agreement is void or the dispute cannot be resolved through arbitration proceedings.
The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards allows the arbitral tribunal to issue such award, but it also allows a court to decline to uphold that award for reasons akin which are stated in Article 34 of the Model Law, such as the illegality of the arbitration agreement.
The level of unnecessary court interference rises as a result of the arbitral proceedings. There should be as minimal disruption as possible.
It encourages the exploitation of the arbitral procedure. For instance, Gary Born stated that "antiarbitration injunctions are often used as part of deliberate obstructionist strategies that are typically pursued in local courts with a favourable disposition in order to obstruct the parties' agreed-upon arbitral process." Even if the right to enjoin arbitration procedures were inherently recognised to be a possibility, the author writes, "that authority should be exercised with the greatest caution and only in exceptional circumstances."[6]
Arguments which go in favour of anti-arbitration injunctions
There are exceptions to the competence-competence principle. Sometimes used in support of this claim is the following statement made by Lord Collins in the UK Supreme Court case of Dallah:
"So also, the principle that a tribunal in an international commercial arbitration has the power to consider its own jurisdiction is no doubt a general principle of law. It is a principle which is connected with, but not dependent upon, the principle that the arbitration agreement is separate from the contract of which it normally forms a part. But it does not follow that the tribunal has the exclusive power to determine its own jurisdiction, nor does it follow that the court of the seat may not determine whether the tribunal has jurisdiction before the tribunal has ruled on it."[7]
According to Article 8 of the Model Law, courts must send parties to arbitration "unless it determines that the contract is invalid, ineffective, or unable to be carried out" if a matter involving an arbitration agreement is the subject of legal action. The New York Convention's Article II contains a similar clause. These provisions assume that a party may file a lawsuit even for a claim which is purportedly related to arbitration, and that the court, not an arbitral tribunal, will determine whether the arbitration agreement is invalid, ineffective, or unable to be carried out.
It is intrinsically unreasonable for an arbitration panel to have the authority to decide any matter if the arbitration agreement was never made. To put it another way, it is irrational for an arbitral tribunal to rule that it lacks jurisdiction if the decision's result is that the tribunal lacked jurisdiction to begin with. A party who challenges the jurisdiction of the tribunal will eventually find themselves in court. It is preferable to "front end" the review process and avoid spending time and money on the arbitral proceeding by having courts decide the jurisdictional question right away.
Statutory Framework regarding AAI.
AAIs are evolving into a potent tool in the hands of arbitration parties. However, neither the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958, nor the UNCITRAL Model Law 1985, which serve as the foundation for the Arbitration and Conciliation Act, 1996 (the "Act"), include a specific clause that allows courts to grant AAIs. The Act does not specifically forbid it either.
AAI critics contend that courts must compel arbitration referrals without previously taking into account any objections to the jurisdiction of an arbitral tribunal. They rely on the explicit clauses in Section 16 when read in conjunction with Section 5 of the Act to support this. The power of the arbitral tribunal to decide on its own jurisdiction, including any questions regarding the existence and legitimacy of the agreement, is established by Section 16 of our national laws, which enshrine the idea of Kompetenz-Kompetenz. Additionally, the non-obstructive clause in Section 5 states that no judicial authority should intervene unless specifically authorised by the Act, "notwithstanding anything contained in any other law for the time being in force."
Such critics do not, however, take into account the possibility that an arbitration reference may not be definitive. Section 8 of the Act gives the power for courts to "refer the parties to arbitration" while bringing substantive cases before a civil court, "unless it finds that prima facie no valid arbitration agreement exists." In a similar vein, Section 45 of the Arbitration and Conciliation Act gives courts the authority to include arbitration in foreign-seated arbitrations unless they determine "that the said agreement is null and void, inoperative, or incapable of being performed." Additionally, Section 45 is a non-obstructive clause, therefore it is not constrained by Section 5 or the Kompetenz-Kompetenz principle as mentioned in Section 16.
However, it is important to know that a court can only consider something under these principles during substantive hearings in front of a civil court.
These two clauses make it apparent that the Act's statutory framework enables courts to grant AAIs, even though for a few particular grounds., such as the presumption that the arbitration agreement is invalid or that an arbitration agreement is ineffective, or unable to be performed, or if the court finds it to be fair and practical.
Regarding the arbitrability of disputes, the rules established by the Hon. Supreme Court in the cases of Avitel Post Studioz Limited and Ors. v. HSBC PI Holdings (Mauritius) Limited and Ors.[8], N. Radhakrishnan v. Maestro Engineers and Ors.[9], and A. Ayyaswamy v. A. Paramasivam[10] are pertinent. In accordance with them, if a case involves significant and serious charges of fraud, courts may opt not to refer it to arbitration as that calls for a careful analysis of the evidence. In these cases, courts governed by the stringent guidelines of the Indian Evidence Act and the Codes of Civil and Criminal Procedure can be a more appropriate venue than an arbitral tribunal.
Complexities in the decisions of courts.
The famous and widely regarded decision in the case of Kvaerner Cementation India Ltd. v. Bajranglal Agarwal & Anr ("Kvaerner Judgement")[11], which involved a bench of three judges, made the Indian Supreme Court's support for arbitration apparent in this regard in 2001.
While affirming that no dispute may be submitted to arbitration if there is no particular arbitration provision, the Supreme Court of India held in this two-page decision that the existence and validity of an arbitration agreement, as a preliminary question, may be determined by the arbitral tribunal and that the arbitral tribunal shall have the power to determine its own jurisdiction. The anti-arbitration injunction lawsuit was rejected by the Supreme Court on this basis. But for whatever reasons, this verdict was not made public until 2012. As a result, conflicting verdicts were issued by Indian courts till the year 2012 since the problem could not be resolved.
The seven-judge bench of the Supreme Court in the well-known case of SBP & Co v. Patel Engineering Limited[12] that it is not possible to argue that the arbitrator alone has the authority to determine its own jurisdiction without considering the jurisdiction of the civil courts. The Civil Procedure Code of 1908, Section 9, grants the Civil Courts the authority to issue injunctions, according to the Supreme Court's observation.
The Supreme Court reiterated this stance in its ruling in the case of World Sport Group v. MSM Satellite Singapore Ltd.[13], in which it dealt with the topic of issuing an anti-arbitration injunction with respect to a part II arbitration, also known as international commercial arbitration. The Supreme Court specifically addressed Section 45 of the Act in this regard and ruled that the Civil Court cannot assess the legitimacy or legality of the substantive contract and must limit its inquiry whether the arbitration agreement is void, ineffective, or incapable to be carried out. In contrast to the reasoning used in the Kvaerner Judgement, which made the Civil Courts to refer disputes to arbitrators for decision-making in their respective jurisdictions, this convinced the Civil Court to accept these anti-arbitration suits and to at least analyse the arbitration agreement.
Two Indian High Courts, the Delhi High Court in McDonald's India Private Limited v. Vikram Bakshi and Ors.[14] and the Calcutta High Court in The Board of Trustees of Port of Kolkata v. Louis Dreyfus Armatures SAS and Ors.[15], both consistently held that the Civil Courts have the jurisdiction to grant anti-arbitration injunctive relief, distinctly disregarding the observations in the Kvaerner Judgement. In McDonald's, the two-judge bench of the Delhi High Court changed the fundamental assumptions underlying the established rules of the Act by ruling that Indian courts would have the authority to decide on the legality of an arbitration agreement. This observation was nevertheless constrained by the guidelines established by the Supreme Court in Sasan Power Limited vs. North American Coal Corporation (India) Limited[16], which made it clear that the arbitration agreement is the only subject of the examination required by Section 45 of the Act; the validity of the substantive contract is not taken into consideration.
The courts of India abruptly and suddenly returned to the guidelines outlined in the Kvaerner Judgement, despite the consistent observations in the many judgements given below. The High Court of Delhi in Ravi Arya v. Palmview Investments Overseas[17], the High Court of Calcutta in Lafarge India Pvt Ltd v. Emami Realty and Anr.[18] and the Supreme Court in National Aluminium Company Ltd v. Subhash Infra Engineering Pvt. Ltd.[19] and A. Ayyasamy v. A. Paramasivam and Ors.[20], denied granting anti-arbitration injunctions, stating that the arbitral tribunal may choose its own jurisdiction in determining whether the arbitration agreement is valid and enforceable.
The Supreme Court of India made a significant point regarding the standards to be considered into account when determining whether the dispute could be arbitrated, stating that generally and traditionally, all disputes which involve rights in personam are thought to be amenable with arbitration, while all disputes which involve rights in rem must be decided by courts and public tribunals and are not suitable for private arbitration. However, the Court makes it clear that this is not a fixed or unbending norm and that arbitration has traditionally been considered a viable option for resolving disputes about lesser rights in personam arising from superior rights in rem.
In the case of Himachal Sarang Power Pvt Ltd v. NCC Infrastructure[21] which is an international arbitration case, the Delhi High Court declined to issue an anti-arbitration injunction, retracing the path and stating that if the procedures are not vexatious and/or oppressive, such injunctions may not be obtained. This has now opened the door for yet another factor that the Civil Court could take into account in a lawsuit seeking an anti-arbitration order.
The Bina Modi judgement[22] followed, winning the support of everyone who is in favour of arbitration. The decision on McDonald's was per in curium because it did not refer to or take into consideration the Kvaerner verdict, according to the Bina Modi Judgement, which went one step further in removing the authority of Civil Court to issue an anti-arbitration injunction. The Bina Modi ruling, which rejected the anti-arbitration injunction, also took into account the restriction outlined in clause 41(h) of the Specific Relief Act, 1963 and determined that an anti-arbitration injunction cannot be granted by a civil court since the Act provides an equally effective alternative remedy.
Many people who were keeping an eye on the appeal—possibly more so than the parties themselves—had their hearts broken when this judgement was reversed by the Delhi High Court's Appellate Bench[23]. The Appellate Bench ruled that the Court must consider the facts and circumstances of the case when determining whether an arbitration agreement is valid. Since foreign arbitration involves significant costs and efforts, the legislature, in its wisdom, decided that the Court should determine whether an arbitration agreement is valid, as well as whether it is cooperative and capable of being carried out.
Surprisingly, this decision makes no attempt to address the non obstante language in section 45 or the fact that this provision, which adopts Article II of the New York Convention on the execution of arbitral judgements, does not give civil courts the authority to issue an injunction against arbitration. In reality, unless the court finds that the arbitration agreement is prima facie invalid, inoperative, or incapable of being carried out, the clause makes it mandatory for the courts to refer an action filed in arbitration at one of the parties' request when they are seized of it. The criteria stated under this provision do not include the arbitrability of the case or the complicated nature of the arbitration process. Therefore, it may be said that the restrictions specified in section 45 are rigid and do not allow for the Civil Courts to consider any factors that are not clearly included there.
However, Lalit Modi may still have hope given that a petition for special permission to appeal against the decision made by the Appellate Bench of the Delhi High Court has been filed before the Supreme Court[24].
Searching for the middle ground
The fundamental rule continues to be that, if there is a valid arbitration agreement between the parties, that dispute must be settled by arbitration. Party autonomy is recognised by the courts. As a result, a court of law can only award AAIs in exceptional circumstances. It is still the responsibility of the party asking for an AAI to argue and show that it has no alternative or suitable solution and that postponing the arbitration process is fair and in everyone's best interests.
In the Indian arbitral context, the vagueness, inconsistencies and ambiguity about the requirements to be satisfied when approving or rejecting anti-arbitration injunctions prevents us from reaching a judgement. The Indian Courts appear to agree on one thing, though: the Civil Court should exercise its authority to issue injunctions in anti-arbitration lawsuits extremely sparingly. The Indian Courts' decision to tip the balances in favour of arbitrations is a welcome reprieve. According to public opinion, there is an urgent need for the Indian judicial system to adopt a pro-arbitration stance given the backlog of cases in the Civil & Commercial Courts of India.
The intent behind the Act may be defeated if such anti-arbitration lawsuits are entertained for an extended period. This problem and conundrum could be resolved in large part by restricting the scope of the investigation of Civil Court into potential interference in anti-arbitration injunction lawsuits.
[1] Kushagra Tolambia is a third-year B.A. LL.B (Hons.) student at National Law University, Lucknow. [2] Julian Lew, Control of Jurisdiction by Injunctions Issued by National Courts in International Arbitration 2006: Back to Basics? (Albert Jan van den Berg ed, Kluwer, 2007) 185–220. [3] UNCITRAL Arbitration Rules (2010) art. XXIII. [4] UNCITRAL Model Law art. XVI § 3. [5] UNCITRAL Model Law art. XXXIV. [6] Gary B. Born, International Commercial Arbitration (Vol I, Kluwer 2009)1049-1054. [7] Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan [2010] 3 WLR 1472, at para. 84. [8] Avitel Post Studioz Limited and Ors. v. HSBC PI Holdings (Mauritius) Limited and Ors., (2020) 6 MLJ 544. [9] N. Radhakrishnan v. Maestro Engineers and Ors., 2009 (13) SCALE 403. [10] A. Ayyaswamy v. A. Paramasivam, AIR 2016 SC 4675. [11] Kvaerner Cementation India Ltd. v. Bajranglal Agarwal & Anr, (2012) 5 SCC 214. [12] SBP & Co v. Patel Engineering Limited, 2005 (8) SCC 618. [13] World Sport Group v. MSM Satellite Singapore Ltd, AIR 2014 SC 968. [14] McDonald’s India Private Limited v. Vikram Bakshi and Ors, 2016 (4) ARbLR 250. [15] The Board of Trustees of Port of Kolkata v. Louis Dreyfus Armatures SAS and Ors., 2019 SCC OnLine Bom 251. [16] Sasan Power Limited vs. North American Coal Corporation (India) Limited, (2016) 10 SCC 813. [17] Ravi Arya v. Palmview Investments Overseas, 2019 SCC OnLine Bom 251. [18] Lafarge India Pvt Ltd v. Emami Realty and Anr, (2016) SCC OnLine Cal 4964. [19] National Aluminium Company Ltd v. Subhash Infra Engineering Pvt. Ltd., 2019 SCC OnLine SC 1091. [20] A. Ayyasamy v. A. Paramasivam and Ors., (2016) 10 SCC 386. [21] Himachal Sarang Power Pvt Ltd v. NCC Infrastructure, 2019 SCC OnLine DEL 7575. [22] Bina Modi v. Lalit Modi, 2020 SCC OnLine Del 90. [23] Bina Modi v. Lalit Kumar Modi, 2020 SCC OnLine Del 1678. [24] Bina Modi v. Lalit Kumar Modi, (2021) 3 SCC 1134.