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ANTI-ARBITRATION INJUNCTION

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ANTI-ARBITRATION INJUNCTION
Mr.M. GOVINDARAJAN By: Mr.M. GOVINDARAJAN
June 27, 2022
All Articles by: Mr.M. GOVINDARAJAN       View Profile
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Anti-suit injunction

An anti-suit injunction order is made against a party in personam restraining them from instituting a legal action or from continuing with proceedings that have already been instituted. This injunction can be granted in respect of proceedings in both the local and foreign courts. In other words, anti-suit injunctions prohibit a party from taking or continuing a case in another jurisdiction. Anti-suit injunctions are used to enforce exclusive jurisdiction clauses and to prevent forum shopping.  Anti-suit injunctions in India broadly fall into two main categories-

  • to prevent a contractual breach; or
  •  to prevent a non-contractual breach.

The important considerations when granting an anti-suit injunction to prevent a contractual breach includes-

  • the court must have jurisdiction in relation to the party against whom an anti-injunction is granted;
  • if the proceedings have advanced to a stage where it is not equitable to grant an anti-suit injunction, then the court will dismiss the application for anti-suit injunction;
  • the court can grant an anti-suit injunction only in respect of a valid agreement;
  • normally, the court will give effect to the intention of the parties as expressed in the agreement entered into by them.

Anti-Arbitration injunction

An Anti-Arbitration Injunction is an injunction granted by courts to restrain parties or an arbitral tribunal from either commencing or continuing with arbitration proceedings.  The expression ‘anti-arbitration injunction’ has not been defined in the Arbitration and Conciliation Act, 1996.  It has been appropriately perceived and received by the Indian Courts

The standards and principles which are applicable to an ‘anti-suit injunction’ won’t really be applied to an anti-arbitration injunction as the mere presence or plausibility of existence of different procedures is certainly not an adequate reason to render the arbitration agreement defective or unequipped for being performed.

An anti-suit action is different and distinct from an anti-arbitration action. But, even an anti-suit injunction cannot be granted against a defendant where parties have agreed to submit to the exclusive jurisdiction of a court including a foreign court save in exceptional circumstances such as-

  • which permit a contracting party to be relieved of the burden of the contract; or
  • where, after the date of the contract, subsequent events have made it impossible, for the party seeking injunction, to prosecute the case in the court of choice because the essence of the jurisdiction of the court does not exist; or
  • because of a vis major or force majeure and the like.

The law on anti-arbitration injunctions was considered in MCDONALD’S INDIA PRIVATE LIMITED VERSUS VIKRAM BAKSHI & ORS [2016 (7) TMI 1648 - DELHI HIGH COURT], by a Division Bench of the Delhi High Court, wherein the Court underscored the fact that the threshold tests for an anti-arbitration injunction are more exacting than that applicable for an anti-suit injunction and concluded that the principal considerations would be those underpinning Section 45 of the Indian Arbitration Act, i.e.

  • whether there is an arbitration agreement; and
  • whether such agreement is null and void, inoperative or incapable of being performed.

The competence of Indian courts, to grant anti-arbitration injunction was first recognized by a Division Bench of the High Court of Calcutta in DEVI RESOURCES LIMITED VERSUS AMBO EXPORTS LIMITED [2019 (2) TMI 2033 - CALCUTTA HIGH COURT] wherein it was stated:

‘Thus, despite no law providing for an anti-suit or an anti-arbitration injunction, the general equitable jurisdiction of granting an injunction encompasses the authority to grant an anti- suit or anti-arbitration injunction or even an anti-anti-suit injunction. But such an injunction is issued only in the most extreme of cases where the refusal of the injunction may result in palpable and gross injustice in the meanest sense.’

Parameters

The High Court of Delhi, in the matter of HIMACHAL SORANG POWER PRIVATE LIMITED & ANR. VERSUS NCC INFRASTRUCTURE HOLDINGS LIMITED [2019 (3) TMI 1981 - DELHI HIGH COURT] has set out the following parameters governing anti-arbitration injunction:

  • The standards governing anti-suit injunction are not identical from those that administer an anti-arbitration injunction.
  • Courts are slow in granting an anti arbitration injunction except if it arrives at the resolution that the procedure started is vexatious and/or oppressive.
  • The Court which has administrative and supervisory jurisdiction or even close or personal jurisdiction over parties has the ability to refuse initiation of new procedures on the ground of res judicata or constructive res judicata. Whenever convinced to do so the Court could hold such continuing to be vexatious or potentially severe. This bar could acquire in regard of an issue of law or actuality or even a blended inquiry of law and truth.
  • The fact that in the appraisal or assessment of the Court a trail would be required would be a factor which would weigh against grant anti-arbitration injunction.
  • The aggrieved should to be urged to approach either the Arbitral Tribunal or the Court which has the supervisory jurisdiction in the issue. An undertaking ought to be made to help and help arbitration as opposed to permit parties to move away from the selected adjudicatory procedure.

Conditions for anti-arbitration injunction

An anti-arbitration injunction might be allowed by a Court under the following conditions:-

  • The arbitration initiated is vexatious and/ or oppressive in nature.
  • Fresh arbitration procedures would be banned by res-judicata or constructive res-judicata, which could prompt procedures that perhaps vexatious and/or oppressive in nature.
  • A current Arbitral Tribunal has already seized of the debates between the gatherings and as such some other arbitral council would do not have the jurisdiction to attempt the issue.
  • The party seeking injunction is under some incapacity or overwhelming inconvenience.
  • Egregious misrepresentation or fraud has been committed by the party trying to start or seek the second arbitral reference.

Case laws

In  (INDIA TV) INDEPENDENT NEWS SERVICE PVT LIMITED VERSUS INDIA BROADCAST LIVE LLC AND ORS. [2007 (7) TMI 684 - DELHI HIGH COURT] the  Delhi High Court held that while deciding an application for anti-suit injunction, factors such as convenience of parties, expenses involved and law governing the transaction are important while determining the appropriate forum should be considered.

In DINESH SINGH THAKUR VERSUS SONAL THAKUR [2018 (4) TMI 1923 - SUPREME COURT] -  the Supreme Court has also observed that anti-suit injunctions should be granted sparingly and not as a matter of routine and that before passing the order of anti-suit injunction, courts should be extremely.

The High Court of Calcutta, in ROTOMAC ELECTRICALS PRIVATE LIMITED VERSUS NATIONAL RAILWAY EQUIPMENT COMPANY [2011 (5) TMI 1131 - CALCUTTA HIGH COURT] while refusing to grant an anti-suit injunction, the Court observed that when two parties to a contract belong to two different countries and proceedings are initiated in the country of origin of one of the parties to the contract, it cannot be said that the proceedings are initiated in a forum non conveniens, if the forum is competent otherwise. When the parties to a suit belong to different countries thousands of miles away from each other, one or the other of the parties would be inconvenienced. Proceedings in India would not be convenient to the party from the United States and proceedings in United States would not be convenient for the party from India.

In ADM INTERNATIONAL SARL A ONE BUSINESS CENTRE AND ORS. VERSUS SUNRAJA OIL INDUSTRIES PRIVATE LIMITED AND ORS.  [2021 (4) TMI 1322 - MADRAS HIGH COURT] Sunraja Oil Industries Private Limited (‘Sunaraja’ for short) and Gem Edible Oils Private Limited (‘Gem’ for short) entered into contracts for the purchase of crude sunflower seed oil of edible grade from ADM International Sarl (‘ADM’ for short), a company in Switzerland.  The said two companies filed two suits against ADM for a declaration that the arbitration proceedings instituted by ADM and Sunraja nd Gem before an arbitral institution namely Federation of Oil Seeds and Fats Association (‘FOSFA’ for short) was against public policy and also to declare that specific transactions between them and ADM are null and void.   They also prayed to grant permanent injunction to restrain ADM from initiating and proceeding with, or continuing arbitration proceedings.  The plaintiffs also claimed Rs.1,00,01,000/- as damages.

The Court granted order restraining FOSFA from proceeding with the respective arbitration on 05.07.2019.  At first the injunction was granted up to 29.07.2019 which was further extended from time to time and extended until further orders vide order dated 14.11.2019.  ADM filed application in each suit with the prayer-

  • to vacate the interim injunction;
  • to revoke the leave granted;
  • to reject the plaint; and
  • to refer the disputes to arbitration.

These applications were heard jointly because they raised common issues.

The High Court observed that the plaintiffs are engaged in procuring CSFO of edible grade in bulk cargo from the international market.  Bromex Private Limited acted as a broker for these purchases.  12 contracts were executed between July 2018 and June 2019 by Gem and ADM.  13 contracts were executed between May 2018 and June 2019 by Sunraja and ADM.

The plaintiffs in the two suits asserted the following procedure-

  • The broker is to nominate a vessel and inform the buyer.
  • Once the buyer confirms the order the cargo would be loaded onto the vessel.
  • Then the buyer is required to open letters of credit.
  • Each contract was on Cost, Insurance and Freight (CIF) based.
  • The vessel was required to carry only cargo meant for the plaintiffs and not for other buyers.

In regard to arbitration clause the plaintiffs contended the following before the High Court-

  • Although there is an arbitration clause in each contract, the arbitral institution is FOSFA.
  • FOSFA is an organization which is fully controlled by the prominent sellers of oil seeds such as ADM and therefore it does not qualify as a neutral arbitral institution.
  • The rules of FOSFA do not permit the party to be represented by an advocate.
  • Even the empanelled arbitrators are not neutral; each person named therein has some connection to the one or the other of the major oil seeds producers.
  • It is not necessary to prove actual bias and that it is sufficient to establish justifiable doubts of bias, which threshold has been satisfied by the respective Plaintiff.
  • The plaintiffs cannot expect an impartial adjudication through such arbitration.

Therefore they contended that the arbitration agreement is void and not enforceable.  Therefore they filed suits and applications praying for anti arbitration injunction.

The defendants/respondents contended the following before the High Court-

  • The respective Plaintiff and the first Defendant executed multiple contracts for the sale and purchase of CSFO.
  • All these contracts were based on FOSFA's Standard Form 54 subject to variations as agreed to between the parties.
  • The contracts contain an arbitration clause which provides for the resolution of disputes by an arbitral tribunal constituted by FOSFA.
  • The contracts also admittedly provide that the governing law is English law and that court proceedings, if any, should be instituted before the appropriate courts in England.

Therefore they contended the suits filed by the plaintiffs are not maintainable and also the applications for interim injunction are liable to be dismissed.  On the issue raise by the plaintiffs that the contracts are void and not enforceable they contended that the arbitration agreement is separate and distinct from the other clauses of the contract and that even it is concluded that the rest of the contract is void or unenforceable, the same would not affect the arbitration agreement.

With regard to the grant of an anti-arbitration injunction, he submitted that such order is liable to be vacated because the contract clearly provides for dispute resolution through arbitration under the auspices of FOSFA, which is a globally recognized body.  Since the contracts are governed by English law the Court has no jurisdiction to entertain the suits as well as the applications.  The legal position with regard to the grant of anti-arbitration injunction is well settled and the Supreme Court had laid down the limited circumstances in which interference is warranted.

The High Court considered the contentions of the parties to this case.  The High Court analyzed the provisions of FOSFA Rules of Arbitration and Appeal.  The High Court observed that the preamble ascertains the following-

  • parties agreed to resolve disputes through arbitration;
  • parties agreed that the arbitration would be governed by the Arbitration Act, 1996 (the English Arbitration Act);
  • the juridical seat has been designated as England in terms of the English Arbitration Act.

FOFSA Form 54 has also contains an arbitration clause.  The contracts executed between the parties also contain the arbitration clause.  The contract shall be governed by and construed in accordance with English law. 

The High Court observed that when the clauses contained in the contract are examined cumulatively, the undisputed position that emerges is that all disputes are required to be referred to arbitration in accordance with the Rules of Arbitration and Appeal of FOSFA.  Such arbitration would be governed by the English Arbitration Act and the juridical seat of arbitration is England.  The arbitral tribunal constituted as per the contracts and not Indian courts should exercise jurisdiction, in the first instance, and, thereafter, challenges, if any, would lie before the English courts.

The order of interim injunction of the Court, which restrained FOSFA from continuing with the arbitration, remained in force until date. During this period, ADM approached the High Court of England and Wales and obtained an order dated 22.07.2019 restraining the respective Plaintiff from, inter alia, taking further steps to prosecute the suit before the High Court or to prevent ADM from pursuing either the proceedings before the English Court or the arbitration proceedings. The said order was extended by order dated 29.08.2019 . Pursuant thereto, it appears that the separate arbitration proceeding against Sunraja and Gem continued and a first partial award was issued by the Arbitral Tribunal on 29.07.2020. From the proceedings of the Arbitral Tribunal, it is evident that Sunraja and Gem did not participate in such proceedings. On these facts, it was contended on behalf of the respective Plaintiff that both FOSFA and ADM proceeded with the arbitration in flagrant violation of the order of the High Court and that such conduct vitiates the proceedings. There is no doubt that the appropriate course of action for ADM would have been to proceed with the arbitration after the order of injunction of the  Court was discharged upon consideration of its applications. However, in view of the conclusions in the preceding paragraph that the respective Plaintiff has failed to make out a case for an anti-arbitration injunction and that the High Court does not have jurisdiction, the High Court did  not propose to interfere with the arbitral process. In the view of the High Court, the stature and prestige of the Indian judicial system is enhanced by consistently enforcing the rule of law and, by contrast, is undermined if jingoistic impulses hold sway or one up man ship is indulged in.

The High Court further held that it would be open to the respective Plaintiff to cite these proceedings and seek exclusion of time to appeal against the first partial award in accordance with the Rules of Arbitration and Appeal of FOSFA or to initiate appropriate proceedings in the courts in the UK in accordance with the English Arbitration Act.

Criticism

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.

Further, arbitral injunctions are also against the principle of competence-competence (or kompetenz-kompetenz) which is recognized 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.

Conclusion

The ambiguity, contradictions and inconclusivity as regards the parameters to be adhered to while granting or rejecting anti-arbitration injunctions in the Indian arbitral scenario, does not permit us to reach to a conclusion. However, one aspect that the Indian Courts seem to agree upon is that Civil Court should use its power to grant injunctions in anti-arbitration suits very sparingly.         

Reference:

  1. https://www.ibanet.org/article/40B35B14-9403-412F-9A6C-6E03080BF696
  2. https://viamediationcentre.org/
  3. www.mandaq.com.
  4. https://www.mondaq.com/india/arbitration-dispute-resolution/1053432/to-grant-or-not-to-grant-anti-arbitration-injunctions-in-india
  5. https://www.barandbench.com/columns/indias-approach-to-anti-arbitration-injunction-suits-step-in-the-right-direction
  6. https://blog.ipleaders.in/controversies-around-anti-arbitration-injunctions/
  7. https://www.thehindubusinessline.com/business-laws/the-revolving-jurisprudence-on-anti-arbitral-injunctions-in-India/article64969366.ece#:~:text=Indian%20position%20on%20anti%2Darbitral%20injunctions&text=To%20further%20the%20object%20of,I%20of%20the%20Arbitration%20Act.
  8. https://corporate.cyrilamarchandblogs.com/2020/11/anti-arbitration-injunctions-judicial-trends-and-finding-the-middle-path/

 

By: Mr.M. GOVINDARAJAN - June 27, 2022

 

 

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