India’s Oscillating Stance on Anti-arbitration Injunctions

This guest post is authored by Navya Saxena. She is currently studying law (batch of 2023) at the National Law Institute University, Bhopal.

India’s Oscillating Stance on Anti-arbitration Injunctions

In March 2020, the Delhi High court in Bina Modi v. Lalit Modi [Bina Modi] declined to grant an anti-arbitration injunction based on the reasoning that courts cannot rule on the validity or existence of an arbitration agreement unless there is a “substantive action” brought before the Court under Section 8 of the Arbitration and Conciliation Act 1996 [hereinafter, “the Act”]. Another reason provided was that since an “equally efficacious remedy” was available by another usual mode of proceeding i.e. via the application of the kompetenz-kompetenz principle, it did not warrant any interference by the Court.

This is not the first instance where Courts’ power to rule on the existence or validity of an arbitration agreement has come into conflict with the principle of kompetenz-kompetenz and been put up for question.

In this article, the author has analysed the trend followed by courts in resolving this conundrum and how it compares to other jurisdictions who have adopted (or adapted) the UNCITRAL model law. The author concludes with her thoughts on a future direction for Indian jurisprudence in this arena.

Factual background in Bina Modi

The dispute in Bina Modi arose regarding the interpretation of the Restated Trust Deed executed by K.K. Modi, with Bina Modi, Lalit Modi, Charu Modi and Samir Modi as the trustees of the K.K. Modi Family Trust. Lalit Modi invoked Clause 36 of the Restated Trust Deed, which provided for settlement of disputes through arbitration, and filed an application before the International Court of Arbitration of the ICC in Singapore for emergency measures against the other three trustees. Consequently, Bina Modi, along with Charu and Samir Modi, moved the Delhi High Court to restrain the arbitration proceedings.

High Court’s decision

The Delhi High Court, however, declined to grant an anti-arbitration injunction since Section 8 did not permit “a judicial authority to intervene to injunct arbitration, if no valid arbitration agreement exists”. In arriving at its decision, the Court  relied heavily on the Supreme Court’s decision in Kvaerner Cementation v. Bajranglal Agarwal (2001) [Kvaerner].

In Kvaerner, the court held the principle of kompetenz-kompetenz,under Section 16 of the Act, to be absolute i.e., an arbitral tribunal possessed the “exclusive and sole power” to rule on the validity or existence of the arbitration agreement and determine its jurisdiction. This principle was reiterated by the Delhi High Court in  Roshan Lal Gupta v. Parasram Holdings Pvt Ltd (2010). While dismissing a suit for injunction against arbitral proceedings, Justice Endlaw found the matter no longer res integra owing to the Supreme Court’s ruling in Kvaerner. It was held, therefore, that this absolute formulation of the competence principle denuded the power of civil courts to injunct arbitration proceedings.

Shaky foundations

While the Kvaerner Court barred courts from ruling on the existence of arbitration contracts, a larger bench of the Supreme Court in  SBP & Co. v. Patel Engineering Limited (2005)[Patel Engineering]  had subsequently held otherwise. In Patel Engineering, the Court implicitly overruled Kvaerner Cementation while holding that the arbitral tribunals do not the exclusive jurisdiction to determine the validity or existence of an arbitration agreement. The Apex Court reasoned that Section 8 of the Act, which empowers a ‘judicial authority’ to refer the parties to arbitration, does not require courts to “mechanically refer” the dispute to arbitration upon receiving an arbitration agreement for scrutiny. Simply put, the court is required to necessarily make a preliminary determination regarding the existence and validity of the arbitration agreement, if the subject matter of the claim is covered under the arbitration agreement. In other words, Section 16 of the Act must be interpreted to mean that the arbitral tribunal shall have the competence to rule on its own jurisdiction only when such an issue arises before it.

The Supreme Court’s findings in Patel Engineering have since been mirrored by several subsequent judgements. In Chatterjee Petrochem Company v. Haldia Petrochemicals Limited (2013), though the Supreme Court ultimately rejected the plea for an anti-arbitration injunction, the Court did acknowledge its power to rule on the existence and validity of the arbitration agreement, irrespective of whether a suit has first been filed on the substantive agreement. Similarly, the Calcutta High Court in Board of Trustees of the Port of Kolkata v. Louis Dreyfus Armatures SAS (2014), observed that an anti-arbitration injunction maybe granted in the absence of a valid arbitration agreement between the parties. It was noted that courts hold the power to injunct arbitral proceedings only if the arbitration agreement is found to be null and void, inoperative or incapable of being performed or the continuation of proceedings might be oppressive or vexatious or unconscionable. Hence, the decision to not injunct would be based on the nature of the arbitration agreement, rather on the negation of the court’s power to examine it.

Conversely, the 246th Law Commission Report (2014) recommended that the judicial authority may only prime facie satisfy itself that the arbitration agreement exists, and shall refer the dispute to arbitration where the existence of the agreement will finally be determined by the arbitral tribunal. Despite the negative view of Patel Engineering adopted by the Commission, the apex court in Garware Wall Ropes v. Costal Marine (2019) did not refrain from reiterating and relying on the principle laid down in Patel Engineering.

Recently, the Calcutta High Court, in Balasore Alloys Limited v. Medima LLC (2020), also proceeded to ascertain the existence of an arbitration agreement prior an arbitral tribunal in a foreign-seated arbitration.

Despite the findings in Patel Engineering and subsequent judgements, Bina Modi was based on Kvaerner. This is because the latter decision has ‘held the field for more than two decades‘; and was also relied on by the Supreme Court in 2019 in Peerless General Finance v. CIT and National Aluminium Company Ltd. v. Subhash Infra Engineers Pvt. Ltd. In these cases, it was observed that any objection with regard to existence or validity of the arbitration agreement is open to be pleaded before an arbitrator; but a suit for declaration and injunction is not maintainable on the basis of such claim.

This is testament to how, even with the position of law seemingly cemented in the post-Patel Engineering era, Courts have continued to deviate and return to the Court’s power to rule on the validity or existence of the arbitration agreement.

A comparative perspective

The extent of kompetenz-kompetenz granted to tribunals varies across different countries. Article 8(1) of the Model Law obliges Courts to rule on the validity of an arbitration agreement. A similar provision can be found in Section 45 of the Act, which deals with foreign awards and corresponds to Article II of the New York Convention 1958.

It may be argued that Articles 16 and 23 of the UNCITRAL Model Law permit courts to review the arbitral tribunal’s determination only after the tribunal’s prior determination in that regard. However, the power of courts under Article 8 Model Law overrides it. As Romesh Weeramantry’s puts it:

The assumption is that a party can commence court proceedings even in respect of a matter that is said to be covered by an arbitration agreement and the court – not an arbitral tribunal – decides whether the arbitration agreement is null and void, inoperative or incapable of being performed.’

As such, the arbitral tribunal does not have exclusive jurisdiction on determining the existence of an arbitration agreement. Nevertheless, the issue of balancing two competing interests, that is, preserving the autonomy of arbitral proceedings on one hand, and maintaining legitimate claims against the tribunal’s jurisdiction on the other, has proved to be crucial across a multitude of jurisdictions.

While the competence principle is regarded as the bedrock of arbitration, several countries neither consider supreme nor understand it to preclude judicial review.[1] The UK Supreme Court, in Dallah Real Estate v Ministry of Religious Affairs (2010) [Dallah], ruled that the principle of kompetenz-kompetenz does not follow that “the court may not determine whether the tribunal has jurisdiction before the tribunal has ruled on it.” The court relied on the US Supreme Court’s holding in First Options of Chi. Inc. v. Kaplan (1995) to conclude that “no deference is given to a tribunal’s kompetenz-kompetenz when an issue arises as to the validity of the exercise of that power”.

Pursuant to Section 6 of Singapore’s International Arbitration Act 2012 , the court is not merely in a position to resolve questions pertaining to the validity or existence of the arbitration agreement – it is in fact obliged to do so. This is also reflected in Article 8(1) of the Model Law and is the position in England as well.[2]

Viscount Simon’s findings in Heyman v. Darwins (1942) sum up the above-discussed position most aptly:

“If the dispute is whether the contract which contains the clause has ever been entered into at all, that issue cannot go to arbitration under the clause, for the party who denies that he has ever entered into the contract is thereby denying that he has ever joined in the submission.”

Comments

The author believes that the potential non-existence of an arbitration agreement should be sufficient for the court to deviate from the principle of kompetenz-kompetenz. Evidently, contrary to what was observed in Bina Modi, itdoes not afford an “alternative efficacious remedy”. This is because if there are objections regarding the tribunal’s ruling on the validity of the agreement, the matter may, in any case, wind up in court eventually by virtue of Section 34 of the Act, since the determination of its validity by an arbitral tribunal may itself be considered invalid.

Besides, if the arbitral tribunal asserts jurisdiction to rule on the existence of the disputed arbitration agreement, the objection to the tribunal’s jurisdiction on the ground that the arbitration agreement was invalid would effectively be hollow. Hence, in the view of preventing this circulus inextricabilis, courts must be empowered to determine the existence of arbitration agreements in the “first instance”, which can also help in considerable procedural expenses being saved by both the parties in case the invalidity or non-existence of the agreement is, in fact, established.

This approach will also help is avoiding the dichotomy between the existence and scope of an arbitration agreement. The court would be empowered to grant an injunction only on the former question. This distinction presents a logical inconsistency, because any objection on the scope of the agreement is cannot be answered without first determining its existence.

Concluding remarks

It is indeed important that proceedings be injuncted cautiously and only in “rare circumstances”. However, the autonomy of arbitral proceedings and the protection provided by kompetenz-kompetenz must not deprive an applicant of the remedy to injunct when he may have never consented to submitting before an arbitral tribunal in the first place.

Courts must be permitted to injunct the proceedings in cases where a party alleges that the agreement was never entered into, since it would be inappropriate to let such proceedings commence.


[1] Emmanuel Gaillard & John Savage, Fouchard, Gaillard, Goldman On International Commercial Arbitration, Para 659, Kluwer, 1999.

[2] Al-Naimi v. Islamic Press agency Inc., [2000] 1 Lloyd’s Rep 522; Albon v. Naza Motor Trading Sdn Bhd, [2008] 1 Lloyd’s Rep 1.


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