On January 5, a division bench of the Delhi High Court, in the Amazon-Future dispute, granted an interim stay order on the Delhi seated arbitral proceedings. This brought into focus an aspect of jurisprudence—anti-arbitral injunctions.
(Amazon and Future have been engaged in a legal tussle around Future group’s deal with Reliance Group. Future group has endeavored to push the deal through while Amazon has been fiercely trying to protect its interests in the Future group. While the matter is pending for further adjudication, it has ignited a debate amongst arbitration experts on the subject of anti-arbitration injunctions.)
Critics of anti-arbitral injunctions argue that such orders are in abeyance of the arbitral Tribunal powers to decide upon its own jurisdiction. On the other hand, there is an argument that courts cannot be taken out of the equation in their entirety, especially in circumstances where the disputes are non-arbitrable.
India has had codified laws for arbitration since colonial times. However, it was only upon the liberalization of the economy in 1991 that arbitration in India gained prominence.
Foreign companies that landed in India post-economic liberalisation preferred arbitration to circumvent time-consuming court-based litigation. Over the years, the number of arbitrations has grown exponentially as the quantum of commercial transactions increased.
Today, arbitration is an attractive option for dispute resolution in India. A significant threat to any developing arbitral jurisdiction is the tendency of the courts to pierce into the arbitral process.
It would be highly undesirable if there is recurring judicial interference in otherwise arbitrable matters. One way of bringing arbitral proceedings to a complete standstill is seeking an anti-arbitral injunction from the courts.
Anti-arbitral injunctions are a controversial subject in jurisdictions across the world. An anti-arbitral injunction is an order which restrains a party to a dispute (or even the arbitral tribunal) from beginning or resuming an arbitration proceeding.
From a global jurisprudence perspective, arbitral injunctions are seldom granted and have received strong criticism from experts. Arbitration purists argue that arbitral injunctions should be granted in rare circumstances as they run into international instruments such as the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention).
Further, arbitral injunctions are also against the principle of competence-competence (or kompetenz-kompetenz) which is recognised by most arbitration statutes across the world.
As per the competence-competence principle, an arbitral tribunal is conferred with the power to rule on its own jurisdiction. This includes the ability to decide upon issues relating to the arbitration agreements validity, existence, and scope. In foreign seated arbitrations, the case for judicial deference is made stronger based on the principle of comity of courts.
Indian position on anti-arbitral injunctions
India recognises the competence-competence principle under Section 16 of the Arbitration and Conciliation Act 1996 (Arbitration Act). Framed in consonance with the UNCITRAL Model law, Section 16 states that an arbitral tribunal has the power to rule upon its own jurisdiction, specifically on issues relating to the existence and validity of the arbitration agreement.
To further the object of limiting judicial interference in domestic arbitrations, Section 5 of the Arbitration Act states that no judicial authority shall intervene in arbitral proceedings except as provided under Part I of the Arbitration Act.
Thus, the Arbitration Act limits judicial interference to a handful of issues, including the appointment of arbitrators, grant of interim measures, and challenge to arbitral awards. The Indian courts have repeatedly clarified that where there is a valid arbitration agreement, there is no escape from arbitration. The parties in such cases shall be referred to an arbitral tribunal to have their disputes resolved.
Judicial trends and the three-fold test for granting anti-arbitral injunction
Article II(3) of the New York Convention provides that the court shall refer a matter falling within the scope of an arbitration agreement to arbitration unless the arbitration agreement is null and void, inoperative or incapable of being performed.
Similarly, Section 45 of the Arbitration Act empowers the courts to refer matters to arbitration unless it is found that the arbitration agreement is null and void, inoperative or incapable of being performed.
Several courts have adopted these three broad conditions to decide upon matters where anti-arbitral injunctions were sought. In World Sport Group (Mauritius) Ltd. v. MSM Satellite, the Supreme Court recognised the above three conditions in which the court may refuse a reference of the matter to arbitration.
In Board of Trustees of Port of Kolkata v. Louis Drefus Armateurs SAS, the Calcutta High Court held that an anti-arbitral injunction can be granted where (i) there is no valid arbitration agreement amongst parties, (ii) the arbitration agreement is null and void, inoperative or incapable of being performed, and (ii) continuation of arbitration might be oppressive or vexatious, and unconscionable. However, in Union of India v. Vodafone Group Plc United Kingdom, the Delhi High Court observed that the jurisdiction to grant an anti-arbitration injunction must be exercised with caution and granted only if the arbitral proceedings are vexatious or an abuse of process.
In Mc Donald India (P) Ltd. v. Vikram Bakshi, the Delhi High Court referred to the conditions prescribed under Section 45 of the Arbitration Act, i.e., the arbitration agreement is null and void, inoperative or incapable of being performed.
In Bina Modi v. Lalit Modi, the Delhi High Court held that a court had the inherent jurisdiction to look into arbitrability of a dispute especially when the ends of justice would otherwise be defeated. If the dispute were non-arbitrable, an anti-arbitral injunction could be granted by the court.
In ADM International Sarl v. Sunraja Oil Industries, the Madras High Court observed that the test for granting an anti-arbitral injunction should have a high threshold as the applicant needs to satisfy the court on the reasons for departing from contractually agreed dispute resolution mechanism.
The way forward
As witnessed in the judicial trends, there is no uniform threshold for granting anti-arbitral injunctions. While the three-fold test offers some direction and guidance to granting anti-arbitral injunctions in India, we are far from having a crystallized position. The Indian courts have created an arbitration-friendly jurisprudence over the years to make India a global arbitration hotspot.
Hence, a uniform and high threshold is required, in line with other mature jurisdictions around the world, for granting anti-arbitral injunctions. A path must be laid that pays regard to the right of arbitrators to determine their own jurisdiction and the right of courts to prevent abuse of the arbitral process.
The authors are advocates at Phoenix legal, a law firm