By Kabir Chaturvedi and Ridhima Bhardwaj, third-year students at RGNUL, Patiala
On 12 August 2020, the Calcutta High Court – in the case of Balasore Alloys Limited v. Medima LLC (‘Balasore’) – ruled that “courts in India do have the power to grant anti-arbitration injunctions”, even against foreign seated arbitrations. This decision came just months after the Delhi High Court – in the case of Bina Modi and ors. v. Lalit Modi and Ors. (‘Bina Modi’) – stated that an anti-arbitral injunction suit is not maintainable. The law on anti-arbitration injunctions is already far from consistent but the handling of recent suits by the Indian Judiciary has been nightmarish. Analysing the two judgements, this article critiques the Balasore approach and advocates for the one adopted in Bina Modi.
Setting the Scene
Justice Rajiv Sahai Endlaw in Bina Modi relied on Kvaerner Cementation India Limited v. Bajranglal Agarwal and Anr. in 2001 (‘Kvaerner’) given its precedential value and concluded that a civil court could not grant an anti-arbitration injunction. However, when Bina Modi – and subsequently Kvaerner – were raised before the Court in Balasore, Justice Shekhar B. Saraf placed an “overwhelming reliance” on the majority dictum in SBP & Co. v. Patel Engineering Limited in 2005 (‘SBP’) to rule that Indian Civil Courts could injunct arbitral proceedings. Through this reliance, he inferred that SBP had implicitly overruled Kvaerner and stated that Bina Modi is per incuriam because it ignored the decision in SBP. However, scrutiny of the facts and ratio decidendi of SBP indicate otherwise.
The matter before the Apex Court in Kvaerner was whether the court could act outside the purview of The Arbitration and Conciliation Act, 1996 (‘Act’) and grant a stay on arbitration proceedings. The court relied on a bare reading of section 16 of the act to conclude that a civil court does not have the jurisdiction to injunct an arbitral proceeding. Section 16(1) empowers the arbitral tribunal to rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement.
On the other hand, the seven-judge bench in SBP was summoned to decide the nature and scope of the exercise of power by the Chief Justice (or his designate) to refer parties to arbitration and appoint the arbitral tribunal, vested in them by sections 8 and 11 of the Act respectively. Subsequently, the bench also had to decide whether this power under sections 8 and 11 could be overridden by a tribunal’s power to decide its own jurisdiction under section 16. The potential overlap between the two was resolved when the bench established that such exercise of power was a judicial function and not an administrative function. The court held that “where the jurisdictional issues are decided under these Sections (8 or 11), Section 16 cannot be held to empower the arbitral tribunal to ignore the decision given by the judicial authority or the Chief Justice before the reference to it was made.”
This limitation on the tribunal’s power exemplifies a hierarchy which is ensconced within the ecosystem of the Act – wherein the courts are placed on a higher rung. The judicial authorities’ power to review a decision of the tribunal regarding its jurisdiction under section 34 (recourse available to parties to apply for setting aside arbitral award) or section 37 (appealable orders) of the Act are further instances of the existence of this hierarchy within the Act, and were accentuated in SBP. These powers, however, fall under the purview of the Act.
An anti-arbitration injunction looks to essentially proscribe arbitration proceedings, and a civil court considering an objection to an anti-arbitration injunction suit which does not represent a substantive action on the basis of merits cannot be said to be exercising powers under sections 8 or 45 in the true sense. Therefore, when civil courts grant an anti-arbitration injunction, they exercise powers ordinarily conferred upon the tribunal under section 16, and operate outside the purview of the Act. The bench in SBP went on to unequivocally condemn any such court interference in arbitration proceedings outside the purview of the Act unless permitted by the Act itself, as it “is a complete code in itself”.
In a nutshell, the ratio in SBP was centred around the possible overlap and sharing of authority within the purview of the Act, while the Kvaerner judgment addressed the civil court’s jurisdiction to issue an anti-arbitral injunction outside the purview of the act. These two verdicts thus lay down rules in vastly different contexts and Kvaerner is evidently more relevant to the grant of anti-arbitral injunctions than SBP. Thus, it would be incorrect to assume that SBP implicitly overruled Kvaerner and civil courts can injunct arbitration proceedings. Therefore, the decision in Bina Modi cannot be invalidated by relying solely on SBP and should’ve been given precedential value in Balasore.
The Impracticality of Anti-Arbitral Injunctions
Apart from being legislatively flawed, the Balasore approach is also impractical. By mulling over an anti-arbitration injunction suit – and eventually not injuncting the arbitral proceedings – Justice Shekhar utilised judicial resources to deal with an issue an arbitral tribunal is competent to deal with under section 16 of the Act. Parties prefer arbitration to litigation because of its quick and efficient nature. When courts mull over anti-arbitration injunctions, it gives rise to prolonged judicial proceedings and interference at the initial stage itself. This creates uncertainty and adds to the costs to be borne by the parties to the dispute, making the whole process of arbitration tiresome, inefficient and expensive. Consequently, parties are discouraged to opt for India as a seat for arbitration. Further, there already exists a huge pendency of cases in India and instead of handling anti-arbitration injunction suits, it must adopt the practice of efficient utilisation of limited judicial resources to swiftly clear the backlog of the pending civil and criminal cases.
Additionally, Justice Endlaw in Bina Modi cited section 41(h) of the Specific Relief Act, 1963 – which provides that an injunction cannot be granted when an equally efficacious relief can certainly be obtained by any other usual mode of proceeding – to conclude that anti-arbitration injunctions cannot be granted since the tribunal is empowered to offer efficacious relief under Section 16. Therefore, anti-arbitration injunctions amount to unnecessary judicial interference and are, as Gary B. Born puts it, “in most cases, deliberately obstructionist tactics, typically pursued in sympathetic local courts, aimed at disrupting the parties’ agreed arbitral mechanism.”[i] Judicial interference by Indian Courts is also one of the primary reasons why India is considered “non-friendly jurisdiction” for arbitration. India has adopted an aggressive pro-arbitration approach with the objective of making itself a hub of international arbitration, and the 2015 and 2019 Amendments to the Act are testament to the same. Therefore, granting anti-arbitral injunctions would conflict with our overarching objective of fueling the growth of international arbitrations in India.
Anti-Arbitration injunction suits in India have been a source of controversy since the decision in Kvaerner and many advocates for such injunctions can be found. However, injuncting an arbitral proceeding violates the basic tenets of arbitration. Misguided by malafide intentions of the parties, courts in India have fallen prey to unnecessarily interfering with – and perusal of – arbitration agreements, a task the tribunal is competent to carry out. Parties’ decision to arbitrate instead of litigate becomes redundant when Civil Courts take the matter into their own hands. Therefore, it is evident that Justice Shekhar’s approach in Balasore is not only legislatively flawed, but also impractical, and that the Bina Modi approach is the way forward.
[i] Gary B. Born, International Commercial Arbitration (Kluwer Law Intl 2009).