Soham Banerjee[i]
In its recent decision in Balasore Alloys Limited v. Medina LLC, (“Balasore”), the Calcutta High Court (“Calcutta HC”) has renewed the ongoing debate surrounding the powers of a Civil Court to injunct arbitral proceedings. Known more commonly as anti – arbitration injunctions, the Court affirmatively held that Civil Courts in India have the power to grant anti-arbitration injunctions, even in foreign seated arbitrations. However, the Calcutta HC’s decision merits an independent analysis as it effectively clarifies the inconsistent rulings of several high courts on the issue and lays down an expansive test for granting of anti-arbitration injunctions in foreign seated arbitrations. This article aims to critically analyse the position laid down in Balasore and extrapolate its impact on the fate of issuance of anti-arbitration injunctions by Civil Courts in foreign seated arbitrations.
Kompetenz – kompetenz and Civil Courts:
In Balasore, the dispute arose out of the interpretation of an agreement (“Agency Agreement”) for sale of high Carbon Ferrochrome manufactured by the Plaintiff, Balasore Alloys and its exclusive distribution led by the Respondent, Medina LLC, in the US and Canada. In terms of the Agency Agreement, any and/or all past and present disputes were to be referred to Arbitration Administered by the Indian Chamber of Commerce (“ICC”) in London. However, the arbitration clause of the independent Purchase Orders (“POs”) issued by the Plaintiff to the Respondent envisaged application of Indian Arbitration law for settlement of disputes, with Kolkata as the venue for arbitration. Accordingly, when the Respondent initiated arbitration as per the Agency Agreement, the Plaintiff moved before the Calcutta HC seeking to injunct the Respondent from initiating arbitration before the ICC in London.
The Calcutta HC while adjudicating the lis, limited its enquiry to the issue of whether Civil Courts in India had the jurisdiction to injunct foreign seated arbitrations. The Court distinguished the dictum of the Supreme Court in Chatterjee Petrochem Company v. Haldia Petrochemicals Ltd, (2014) 14 SCC 574 (“Chatterjee Petrochem”) which conclusively held that Civil Courts do not have the jurisdiction to injunct foreign seated arbitrations. The Calcutta HC in the present matter relied on its own division bench judgment in Devi Resources Limited v. Ambo Exports Limited, E.C. No. 233/2016 to hold that while there is no gain holding that a Civil Court ought “to be circumspect in injuncting foreign seated arbitrations and do so in extremely restricted and limited circumstances, a Civil Court nonetheless had the authority to injunct foreign seated arbitrations”. It observed that the ratio of Chatterjee Petrochem was rendered in the specific facts and circumstances of the case, where the Court had come to a finding that the principal agreement between the parties, mandating ICC arbitration in Paris, still subsisted.
The Delhi High Courtin Bina Modi v. Lalit Modi, C.S. (O.S.) 84/220 (“Bina Modi”), had held that civil courts do not have the jurisdiction to injunct foreign seated arbitrations. It was differentiated due to its failure of not taking into account the observation of the six judge bench decision of the Supreme Court in SBP & Co. v. Patel Engineering, (2005) 8 SCC 618 (“Patel Engineering”). In Patel Engineering, the majority opinion had categorically rejected the notion that an arbitral tribunal, has the exclusive jurisdiction to determine its jurisdiction to the complete exclusion of Civil Courts. It observed that there was no proscription in the Arbitration and Conciliation Act, 1996 (“Act”) which denuded Civil Courts of the jurisdiction to determine an arbitral tribunal’s jurisdiction. Accordingly, since Bina Modi was premised on the findings of a later Supreme Court ‘order’ in Kvaerner Cementation India Limited v. Bajranglal Agarwal and Anr., (2012) 5 SCC 214 (“Kvaerner”), it was observed that Patel Engineering implicitly overruled Kvaerner and as such Bina Modi no longer held precedential value. Since Kvaerner had held that only an arbitral tribunal has sole competence, to the exclusion of Civil Courts, to determine its jurisdiction, the decision in Patel Engineering, being of an earlier date and of a greater bench, held the field.
The tests for granting injunction:
While holding that Civil Courts have the jurisdiction to injunct foreign seated arbitrations, a caveat was imposed to ensure that such injunctions are used sparingly and with abundant caution. Reliance was placed on the Supreme Court’s judgement in Modi Entertainment Network v. W.S.G. Cricket, (2003) 4 SCC 341 (“Modi Entertainment”) to delineate circumstances in which the injunctions ought not to be granted against foreign seated arbitration. The principles inter alia included:
a) The injunction should not be granted if the defendant, against whom injunction sought, is not amenable to the personal jurisdiction of the injuncting court;
b) The injunction should not be granted if it amounts to gross injustice and irreparable harm;
c) The injunction should not be granted if due consideration is not given to the principle of comity of courts; and
d) The injunction should not be granted if continuation of the arbitration would result in forum non – conveniens or the proceedings were initiated vexatiously and/or oppressively, or the arbitration agreement was inoperative.
Reverting to the factual matrix of the case, the learned Judge observed that the initiation of arbitration in ICC would not amount to forum non – conveniens and that the arbitration agreement in itself was capable of being performed. Since the Act entails a judicial authority from refusing to refer parties to arbitration only if the tests of forum non – conveniens or oppression or inoperability of the agreement are satisfied (See Section 45), it was observed that the Plaintiff had exchanged correspondence with the ICC regarding the appointment of the arbitrator while retaining their right to agitate the issue of appointment before the ICC appointed arbitrator, if their demands are not met. While the mere exchange of correspondence with the ICC was not by itself sufficient for denying an injunction order in favour of the Plaintiff, the fact that the Plaintiff eventually acquiesced to the appointment of the sole arbitrator, was evidence of the proceedings not being vexatious or oppressive to the Plaintiff, or the agreement by itself being inoperative.
Additionally, while refuting the arguments of the Plaintiff on forum non – conveniens, it was held that the mere existence of multiplicity of proceedings was not by itself a ground for granting of an injunction. Establishing that the proceedings in themselves were vexatious and/or oppressive was also an essential precursor for granting of an injunction. Accordingly, the Calcutta HC refused to injunct the arbitration proceedings administered by the ICC in London and disposed off the petition.
The way forward – Implications of the two views
It would be pertinent to note that the Indian jurisprudence surrounding grant of injunctions against foreign seated arbitration exists in two independent silos – the restrictive view and the regulated view. While the restrictive view, as outlined in Kvaerner and Bina Modi take a hard-line approach to the issue and restrict Civil Courts from injuncting arbitrations as a fixed rule, the regulated view, as outlined in Patel Engineering recognizes the Civil Court’s inherent jurisdiction to injunct arbitral proceedings, subject to the Restrictions outlined in Modi Entertainment.
While prima facie, the regulated view appears to create fetters on the advancement of a pro-arbitration regime, regard must also be given to the fact that there exist compelling circumstances which warrant judicial intervention, albeit in rare and exceptional circumstances. For instance, if arbitration proceedings are initiated over a subject matter which in itself is non – arbitrable, or if the arbitration proceedings have been instituted by fraud. Since arbitrators in India usually tend to frame a preliminary issue of jurisdiction which are then decided along with the main case, litigants often have to wait for the conclusion of the entire proceedings before finally having their objections on jurisdiction, adjudicated.
Accordingly, the regulated view posits a balanced approach to Civil Courts injuncting foreign seated arbitrations. It balances out the key principles of autonomy of the arbitral tribunal and supervision (not to be equated with ‘intervention’) of Civil Courts, in compelling circumstances to make restricted and limited use of injunctions. More importantly, the divergence from Kvaerner limits the scope of judicial supervision in such cases to merely establishing the circumstances under which such prohibitive orders can be issued.
Pending a challenge to this decision, it is evident that courts would be gradually looking to reset the problems created by Kvaerner and create a framework under which neither the courts nor the tribunals are given primacy over each other when it comes to adjudicating upon issues of jurisdiction. It is the author’s belief that the ambiguity and confusion created by Kvaerner has finally been put to rest and Indian courts, moving forward, will not by default refrain from injuncting arbitral proceedings which have been initiated without court assistance and/or intervention but rather, make a measured and restricted assessment of the facts and circumstances of the case and only issue an order of injunction once the statutory provisions of Section 45 of the Act are complied with and the four – fold test of Modi Entertainment has been satisfied.
[[i]] Soham is a graduate of Government Law College, Mumbai (class of 2019), and is currently working as an Associate in the Dispute Resolution team of Vashi and Vashi, Advocates and Solicitors, Mumbai. Preferred Citation – Soham Banerjee, The Ghost of Kvaerner exorcised: Indian court allows Anti- Arbitration Injunction in Foreign Seated Arbitrations, Arbitration & Corporate Law Review, Published on 17th September 2020.