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TMI Blog2016 (7) TMI 1648X X X X Extracts X X X X X X X X Extracts X X X X ..... that there is no arbitration agreement between the plaintiffs (respondent Nos. 1 and 2) and the defendant No.1 (appellant) and an injunction restraining the appellant (defendant No.1) and the London Court of International Arbitration (defendant No.3) from proceeding with any arbitration. A declaration was also sought that the arbitration agreement contained in the Joint Venture Agreement (JVA) was illegal and/ or void and /or inoperative or incapable of performance. 2. By virtue of the impugned judgment, the learned Single Judge has restrained the appellant from pursuing the arbitration proceedings before the said Arbitral Tribunal till the disposal of the suit or alternatively till the status quo order, which was granted by the Company Law Board on 16.09.2013 and continued till further orders on 04.10.2013 in Company Petition No. 110/ND/2013, is not vacated. The learned Single Judge came to the conclusion that the plaintiffs (respondent Nos. 1 and 2) had been able to show prima facie that the arbitration agreement between the parties was inoperative or incapable of performance on account of the fact that the plaintiffs had already filed a petition for oppression and mismanagemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... To clarify the position with regard to forum non conveniens, a slight digression would be in order. Black's Law Dictionary, 5th Edition, defines the phrase "forum non conveniens" as follows:- "Term refers to discretionary power of court to decline jurisdiction when convenience of parties and of justice would be better served if action were brought and tried in another forum. Johnson v. Spider Staging Corp., 87 Wash.2d 577, 555 P.2d 997, 999, 1000." And further as:- "The doctrine is patterned upon the right of the court in the exercise of its powers to refuse the imposition upon its jurisdiction of the trial of cases even though the venue is properly laid if it appears that for the convenience of litigants and witnesses and in the interest of justice the action should be instituted in another forum where the action might have been brought. Hayes v. Chicago, R.I. & P. R. Co., D.C. Minn., 79 F. Supp. 821, 824. The doctrine presupposes at least two forums in which the defendant is amenable to process and furnishes criteria for choice between such forums. Wilson v. Seas Shipping Co., D.C.N.Y., 77 F.Supp. 423,424. ......." "The rule is an equitable one embracing the discretionary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercise its discretion to grant a stay. Moreover, the defendant was required to show not merely that England was not the natural or appropriate forum for the trial but that there was another available forum which was clearly or distinctly more appropriate than the English forum. In considering whether there was another forum which was more appropriate the court would look for that forum with which the action had the most real and substantial connection e.g. in terms of convenience or expense, availability of witnesses, the law governing the relevant transaction, and the places where the parties resided or carried on business. If the court concluded that there was no other available forum which was more appropriate than the English Court it would normally refuse a stay. If, however, the court concluded that there was another forum which was prima facie more appropriate the court would normally grant a stay unless there were circumstances militating against a stay e.g. if the plaintiff would not obtain justice in the foreign jurisdiction...." 6. In a more recent decision of the House of Lords [Tehrani v. Secy of State for the Home Department: [2006] UKHL 47] it was observed:- "Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e applies when there are competing courts, each of which has jurisdiction to deal with the subject matter of the dispute. This principle would have no application to the case at hand. First of all, there is no competing court. Here we have a court and an arbitral tribunal (which is certainly not a court). Secondly, the subject matter of dispute before this court is different from that before the arbitral tribunal. The subject matter before this court is the plea of an anti-arbitration injunction and the subject matter before the arbitral tribunal is the substantive dispute under the JVA. Thirdly, the forum of arbitration consciously chosen by the parties as an alternative forum of dispute resolution, alternative to the forum of a court, cannot be regarded as an inconvenient forum. Fourthly, the place of arbitration chosen by the parties cannot be regarded as an 'inconvenient place'. 11. As a rule, the plea of forum non conveniens can only be raised by a defendant or respondent. But, in India, there is an exception to this rule that the principle of forum non conveniens can only be invoked by a defendant. And, that is the case of an anti-suit action which is different and distinct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the course of an arbitral proceeding and whether the arbitral proceedings could be regarded as vexatious or oppressive and whether the arbitration agreement was null and void and/ or incapable of performance and whether there was waiver of the arbitration clause on the part of the appellant because of its withdrawal of a petition under Section 45 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the said Act') which had been filed before the Company Law Board in the said Company Petition. Before we embark upon a discussion of the rival arguments, it would be necessary to set out the facts leading to the present appeal. Facts: 14. On 31.03.1995, the appellant (McDonald's India Private Limited) (MIPL), Mr Vikram Bakshi (VB) (respondent No.1) and McDonald's Corporation, USA entered into a Joint Venture Agreement (JVA) for the purposes of setting up and operating McDonald's restaurants initially within the National Capital Region of Delhi on a non-exclusive basis. Essentially, the agreement was between MIPL and VB and, McDonald's Corporation, USA was a confirming party. The JVA stipulated that promptly after the execution of the agreement and receipt of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmination by Non-Defaulting Party. The Parties agree that any of the following events constitutes material default of this Agreement: (a) failure to make the investment required by Paragraph 3; (b) failure of the other JV Party to vote shares in JV Company for the election of Directors and/or the Managing Director in accordance with Paragraphs 6 and 7, or to otherwise vote in a Shareholders meeting in accordance with Paragraph 4; (c) the transfer of shares in JV Company or encumbrance of shares in JV Company by the other JV Party in violation of Paragraphs 4, 27, 28, 29 or 30; (d) JV Company or the other JV Party shall enter bankruptcy, composition, reorganisation, liquidation, or arrangement proceedings or shall become insolvent due to its or his inability to pay its or his debts as they become due; (e) JV Company shall have a negative net worth (as calculated on a historical basis, in accordance with generally accepted accounting principles in the United States) as of the end of any fiscal quarter exceeding the Indian Rupee equivalent of US $1,000,000; (f) All required governmental approvals to consummate this Agreement are not received within twelve (12) months after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers for dissolution and liquidation of JV Company; (iii) the JV Parties shall cause JV Company to discontinue use of and return all Property, information and materials to McDonald's; (iv) The JV Parties agree that in liquidating JV Company and in turn in disposing of existing leaseholds, freeholds and other assets, McDonald's or a company designated by it shall have a right of first refusal to acquire any such leasehold, freehold or other asset. (v) The JV Parties shall cause JV Company to cease the production of McDonald's food products and the operation of McDonald's Restaurants." xxxx xxxx xxxx xxxx "40. Miscellaneous- a. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of India and will be subject to the jurisdiction of the courts in New Delhi, India, except for any Indian choice of law or conflicts of law rules which might direct the application of the laws of any other jurisdiction. b. Arbitration. On demand of either JV Party, any unresolved dispute which may arise in connection with Paragraphs 35, 36, 37, 38 or 39 of this Agreement shall be submitted for arbitration to be administered by the London Court of Internati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld 92.95% of the total issued and paid up share capital (ordinary + preference shares). VB also invested Rs 14.56 crores towards the equity share capital, thereby both MIPL and VB held 50% each of the ordinary shares of the respondent No.3 company. 16. On 11.12.1998, a supplemental agreement, supplementary to the JVA, was entered into by virtue of which the respondent No.2 (Bakshi Holdings Private Limited) also became bound by the JVA as if it was an original party. 17. On 17.07.2013, the agreement for appointment of VB as the Managing Director of the respondent No.3 expired by afflux of time. On 06.08.2013, at a meeting of the Board of Directors of the respondent No.3, VB was not re-elected as its Managing Director. 18. On 16.08.2013, the appellant issued a notice to VB and the respondent No. 2, electing to exercise the option to purchase the shares of the respondent No.3 company held by VB and the respondent No.2 and for determination of the fair market value of such shares in terms of paragraph 33 read with paragraphs 32 and 26 of the JVA. The call option was exercised on the purported ground that VB had ceased to be the Managing Director of the respondent No.3 as the term o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disposed of, but after recording the following:- "7. Both Mr. Kaul, learned counsel for Respondent No.1 and Mr. Mukherjee; learned counsel for Respondent No.2 state on instructions and, without prejudice to the contentions of the Respondents in the CLB regarding the arbitrability of the disputes, that status quo will be maintained as regards the shareholding of Respondents 1 and 2 in CPRL, as well as in the shareholding pattern of Respondent No.2, till such time, interim directions/orders are issued in the arbitral proceedings, if any. 8. The above statement of the Respondents is taken on record and will bind them. However, it is clarified that this order is without prejudice to the contentions of the Respondents regarding the arbitrability of the disputes." (underlining added) 23. On 02.12.2013 itself, MIPL filed an application (CA No. 153/2013) before the Company Law Board bringing to its notice the subsequent events as also the termination of the JVA and the factum of initiation of arbitration proceedings and prayed for vacation of the status quo order. On 13.12.2013, VB and the respondent No. 2 filed an application (CA No. 164/2014) before the Company Law Board, inter al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply and response to the jurisdictional objections taken by VB and the respondent No. 2 in the arbitration proceedings and on 05.12.2014, VB and the respondent No. 2 filed their statement of rejoinder and reply to the response with regard to the jurisdictional objections before the London Court of International arbitration. 28. Thereafter, on 22.12.2014, the learned Single Judge delivered the impugned judgment restraining MIPL from pursuing the arbitration proceedings until the disposal of the suit or until the status quo order passed by the Company Law Board was vacated. Being aggrieved by the impugned judgment, the present appeal has been filed. Summary of facts: From the above narration of facts, the following points emerge:- 1) The company petition pending before the Company Law Board is on account of MIPL not re-electing VB as the Managing Director of the respondent No.3 and, consequent thereupon, in MIPL exercising its call option. This conduct on the part of MIPL has been challenged in the Company Law Board by VB and respondent No.2 under sections 397 and 398 of the Companies Act, 1956 as amounting to oppression and mismanagement. An order has been passed in those proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r; 6) Thereafter, VB and Respondent No.2 participated in various steps before the arbitral tribunal. Of course, without prejudice to their objection to the competence of the arbitral tribunal and the issue of the arbitrability which was to be decided by the arbitral tribunal itself; 7) After all this, VB and Respondent No.2 filed the suit [CS(OS) 962/2014] seeking an injunction of the arbitration proceedings. In the application under Order 39 Rules 1 and 2 filed in the said suit, the learned single Judge has restrained MIPL by the impugned judgment dated 22.12.2014 from pursuing the arbitration proceedings until the disposal of the suit or until the status quo order passed by the Company Law Board was vacated. The Law: 29. In Naviera Amazonica Peruana S.A. v. Compania Internacional De Seguros Del Peru: (1988) 1 Lloyd's Rep 116 (CA), the Court of Appeal in England observed as under:- "All contracts which provide for arbitration and contain a foreign element may involve three potentially relevant systems of law: (1) the law governing the substantive contract; (2) the law governing the agreement to arbitrate and the performance of that agreement; (3) the law governing the cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining added) 31. It would be clear from the above extract that the observations of the Supreme Court were in the context of the Arbitration Act, 1940 and, particularly, with reference to Section 35 and the principles embodied in Sections 34 and 35 of that Act. Sections 34 and 35 of the Arbitration Act, 1940 read as under:- "34. Power to stay legal proceedings where there is an arbitration agreement.- Where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time before filing a written statement or taking any other steps in the proceedings, apply to the judicial authority before which the proceedings are pending to stay the proceedings ; and if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, such authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to refer the parties to arbitration. Unless, of course, in a case where Section 45 of the 1996 Act applies, the arbitration agreement is null and void, inoperative or incapable of being performed. It is clear that the principles applicable under the 1940 Act and those under the 1996 Act with regard to such references are entirely different. 33. Therefore, we are of the view that this decision would not be of any help to the respondents in support of the impugned judgment whereby an anti-arbitration injunction has been granted. 34. The decision in Oil and Natural Gas Commission v. Western Company of North America: 1987 (1) SCC 496, which was also sought to be pressed into service by the respondents, was, like the Tractoroexport case (supra), a pre-1996 Act decision and, which followed Tractoroexport (supra). Therefore, the decision in ONGC (supra) would also be of no assistance to the respondents. 35. The decision in Union of India v. Dabhol Power Company: [Suit No.1268/2003, decided on 05.05.2004] is, in any event, not binding on us because it is a decision of a learned single Judge of this court. In this case, reliance was placed on Tractoroexport (supra) and ONGC (supra), w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factors and when a question arises as to the nature of jurisdiction agreed to between the parties the court has to decide the same on a true interpretation of the contract on the facts and in the circumstances of each case; 4. A court of natural jurisdiction will not normally grant anti-suit injunction against a defendant before it where parties have agreed to submit to the exclusive jurisdiction of a court including a foreign court, a forum of their choice in regard to the commencement or continuance of proceedings in the court of choice, save in an exceptional case for good and sufficient reasons, with a view to prevent injustice in circumstances such as which permit a contracting party to be relieved of the burden of the contract; or since the date for the contract the circumstances or 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; 5. Where parties have agreed, under a non-exclusive jurisdiction clause, to approach a neutral foreign forum and be governed by the law applicable to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us would be on the respondents to establish that the arbitration proceedings are oppressive or vexatious. We may also note that the learned counsel for the respondents had categorically stated that it is not the place of arbitration or the expenses which would be incurred for the conduct of arbitration proceedings at London, which is the objection on their part. The objection is to the forum of arbitration itself being vexatious. In other words, the grievance of the respondents is not with regard to the place of arbitration, but to the arbitration proceedings itself ! 39. Coming back to the decision of the Calcutta High Court in LMJ International Limited (supra), we find that on the facts of the case, the court decided that there was no demonstrable injustice or harassment caused by the reason of initiation of arbitral proceedings and, therefore, the plaintiff therein was not entitled to an order of injunction. A reference in that case was also made to a decision of the Court of Appeal in England in the case of Albon (T/A NA Carriage Co.) v. Naza Motor Training SDN BHD: 2008 (1) Lloyds Law Reports 1, to which we shall specifically refer later in this judgment. 40. Another decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard of Control for Cricket in India & Others: ILR (2011) V Delhi 585, the plaintiff (BCCI) had prayed for a perpetual injunction against ESPL from initiating any action against BCCI in any other judicial forum in respect of the allegations, subject matter and reliefs contained and covered in an earlier suit which was pending before the Delhi High Court. The Division Bench observed, after examining the claims and contentions of the parties, that the causes of action in the two proceedings in India and in England were substantially and materially the same. Reliance was thereafter placed on Modi Entertainment Network (supra) to observe that a subsequent suit, if held to be vexatious and oppressive could be injuncted by the Indian courts provided other necessary ingredients were also satisfied. It was observed that if a party endeavoured to invoke the jurisdiction of a foreign court to a cause of action already being prosecuted in the national forum, it would amount to vexatious litigation. It also sounded a note of caution that the courts have to be circumspect in exercising their power to issue an anti-suit injunction. But, it must do so where the ends of justice would otherwise be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r very much the same reason which the court below gave. It was considered to be a needless expense and that it would be difficult to avoid over-proliferation of pleadings and disclosure, if the parties did not know whether it would be ultimately determined that the JVA was genuine or not. Paras 16 and 17 of the said decision of the Court of Appeal are relevant. They are extracted below:- "16. That leaves for consideration the argument relating to the autonomy of the arbitration tribunal. It is said that the caution exercised by the court relating to anti-suit injunctions should be increased or even re-doubled in the case of an anti-arbitration injunction. It is further said that the judge is effectively case managing the arbitration and that it should be for the arbitrators, not the English Court, to decide whether the arbitration should proceed pending resolution of the genuineness of the JVA. 17. In the ordinary case there would be much to be said for this argument. But this is not an ordinary case because of the features set out in paragraph 13 above. It is properly arguable that the agreement to arbitrate has been forged in order to defeat proceedings properly brought in En ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited nature of the court's power to intervene under the provisions of the Arbitration Act 1996 (the English Act) the court should not simply apply the same approach as for the grant of a normal anti-suit injunction. It was also observed that questions relating to arbitrability or jurisdiction, or to staying the arbitration, may in appropriate circumstances better be left to the foreign courts having supervisory jurisdiction over the arbitration. 47. Paragraphs 56 and 57 of the said decision are relevant and they are set out hereinbelow:- "56. Nonetheless, in exceptional cases, for example where the continuation of the foreign arbitration proceedings may be oppressive or unconscionable so far as the applicant is concerned, the court may exercise its power under s37 to grant such an injunction. Those circumstances include the situation where the very issue is whether or not the parties consented to a foreign arbitration, or where, for example, there is an allegation that the arbitration agreement is a forgery. See also: Dicey, Morris & Collins: The Conflict of Laws, 14th Edition, 4th Cumulative Supplement at 16-0-88. 57. Moreover, it is clear from the decision of the Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covered by an arbitration agreement. References were made to Sections 9 and 20 of the Code of Civil Procedure, 1908 as also to Sections 5 and 45 of the 1996 Act. On the one hand, it was argued on behalf of the appellant (defendant) that because of the provisions of Sections 5 and 45 of the 1996 Act, a civil court did not have jurisdiction to intervene in a matter which was the subject of arbitration and, therefore, the suit was not maintainable. On the other hand, it was argued on behalf of the respondent (plaintiff) that there was no absolute bar to a suit being filed before a civil court to seek an injunction against an arbitration proceeding. In this context, there was a debate with regard to the impact of the decisions of the Supreme Court in the case of Chatterjee Petrochem Coompany v. Haldia Petrochemicals Limited: 2014 (14) SCC 574 and World Sport Group (Mauritious) Limited v. MSM Satellite (Singapore) Pte. Ltd: 2014 (11) SCC 639. The appellant had relied on Chatterjee Petrochem (supra) to submit that Section 5 of the 1996 Act, which bars judicial intervention by judicial authorities in respect of arbitration agreements would also be applicable to international agreements. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of judicial authority to refer parties to arbitration.-Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed." 51. The Supreme Court in World Sport Group (supra) observed that Section 45 made it clear that notwithstanding anything contained in Part I or in the Code of Civil Procedure, a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in Section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. It is evident from the said decision that even if, under Section 9 CPC read with Section 20 CPC, this court had jurisdiction to enterta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitration agreement. By contrast, the expression 'incapable of being performed' appears to refer to more practical aspects of the prospective arbitration proceedings. It applies, for example, if for some reason it is impossible to establish the arbitral tribunal." 34. Albert Jan Van Den Berg in an article titled "The New York Convention, 1958-An Overview" published in the website of ICCA [www.arbitration-icca.org/media/0/12125884227980/new_york_convention_of-1958_overview.pdf], referring to Article II(3) of the New York Convention, states: "The words "null and void" may be interpreted as referring to those cases where the arbitration agreement is affected by some invalidity right from the beginning, such as lack of consent due to misrepresentation, duress, fraud or undue influence. The word "inoperative" can be said to cover those cases where the arbitration agreement has ceased to have effect, such as revocation by the parties. The words "incapable of being performed" would seem to apply to those cases where the arbitration cannot be effectively set into motion. This may happen where the arbitration clause is too vaguely worded, or other terms of the contract co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the party which can only be inquired into by the court and not by the arbitrator. N. Radhakrishnan v. Maestro Engineers: 2010 (1) SCC 72 and Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak: AIR 1962 SC 406 were decisions rendered in the context of domestic arbitration and not in the context of arbitrations under the New York Convention to which Section 45 of the Act applies. In the case of such arbitrations covered by the New York Convention, the Court can decline to make a reference of a dispute covered by the arbitration agreement only if it comes to the conclusion that the arbitration agreement is null and void, inoperative or incapable of being performed, and not on the ground that allegations of fraud or misrepresentation have to be inquired into while deciding the disputes between the parties." 52. One of the meanings of the expression 'null and void' which was considered by the Supreme Court, was where the arbitration agreement is affected by some invalidity right from the beginning, such as lack of consent due to misrepresentation, duress, fraud or undue influence. This is clearly not the case in the present proceedings. Insofar as the word 'inoperative' is concerne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent case is incapable of performance or inoperative because of the pendency of the proceedings in the Company Law Board is clearly out of line. As pointed out above, while discussing the World Sport Group (supra) decision, it was specifically noted that the mere existence of the multiple proceedings (proceedings before the Company Law Board and those before the arbitral tribunal) is not sufficient to render the arbitration agreement inoperative or incapable of being performed. In any event, the subject matter of the proceedings before the Company Law Board fell within the ambit of the alleged oppression and mismanagement whereas the subject matter of the dispute before the arbitral tribunal related to the termination of the JVA and the rights flowing therefrom. Waiver of the arbitration clause 54. The learned single Judge was of the view that there was a waiver or abandonment of the arbitration clause by the parties. This finding is clearly erroneous. The learned single Judge was of the view that merely because the appellant withdrew its application under Section 45 which it had challenged before the Company Law Board, the appellant had abandoned the arbitration agreement. We d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitting to the jurisdiction of the Company Law Board and of the Indian courts and had abandoned the arbitration clause, is clearly erroneous. Conclusion 56. We may point out that the question as to whether Part I or Part II of the 1996 Act would apply has not been determined by us. There was some debate and discussion that the 'place of arbitration' was not London in terms of the arbitration agreement and, therefore, Part I would not apply. On the one hand, it was contended on the part of the respondents that London was only a venue and not the 'place of arbitration', which, according to them, was New Delhi. Thus, their arguments and counter-arguments as to whether Part I applied or Part II applied were based on the difference of opinion with regard to the 'place of arbitration'. There appears to be confusion even in the minds of the parties as, on the one hand, the appellant had filed an application under Section 45 of the 1996 Act (which falls in Part II) before the Company Law Board and, on the other hand, the very same appellant filed an application under Section 9 (which falls in Part I) of the 1996 Act. Of course, the appellant took the plea that because the agreement was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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