By Dr. G.V. RAO
Arbitration was invented as a formal mode of alternative dispute resolution (ADR), and its main purpose was to deal with the situation of pendency of cases in courts of India, which has grown to astronomical figures. ADR was to be a mechanism providing scientifically developed techniques to our legal system which would help in reducing the burden on courts. Therefore, any interpretation by the courts which obstructs or delays the processes of ADR are to be eschewed. The provisions of The Arbitration and Conciliation Act, 1996 (A&C Act) warrant interference by courts in extremely limited and rare circumstances, essentially to prohibit parties from taking unnecessary chances. Any indulgence by the courts in the name of adherence to principles of natural justice, beyond bare necessity would be detrimental to the objects of the A&C Act.
The objects and reasons of the original and first Indian Arbitration Act, Act IX of 1899, spell out the purpose of the enactment. It stated: “Whereas it is expedient to amend the law relating to Arbitration by Agreement, without the intervention of a court of Justice.” The subsequent A&C Act of 1996 spelt it out much more elaborately and was in tune with the current times and was updated as: “An Act to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards….. Preamble.—WHEREAS the United Nations Commission on International Trade Law (UNCITRAL) has adopted the UNCITRAL Model Law on International Commercial Arbitration in 1985; AND WHEREAS the General Assembly of the United Nations has recommended that all countries give due consideration to the said Model Law, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice; AND WHEREAS the UNCITRAL has adopted the UNCITRAL Conciliation Rules in 1980; AND WHEREAS the General Assembly of the United Nations has recommended the use of the said Rules in cases where a dispute arises in the context of international commercial relations and the parties seek an amicable settlement of that dispute by recourse to conciliation; AND WHEREAS the said Model Law and Rules make significant contribution to the establishment of a unified legal framework for the fair and efficient settlement of disputes arising in international commercial relations; AND WHEREAS it is expedient to make law respecting arbitration and conciliation, taking into account the aforesaid Model Law and Rules.”
Therefore, as can be seen from the above, in the A&C Act, it is modelled on the lines of UNCITRAL, which is a UN body and it has recommended that all countries give due consideration to the said model law in view of the desirability of uniformity of law in arbitral procedures and the specific needs of international commercial arbitration practice.
Hence, Indian courts must essentially respect, adopt and adhere to those principles in letter and spirit and not give the provisions of the A&C Act an interpretation which goes contrary to its purpose. In fact, the interpretation that ought to be given is to ensure that the provisions of other acts also adhere to the basic objective of the UNCITRAL arbitral procedures when it comes to liberal application of Indian jurisprudence which would only conflict and obstruct the process envisaged under the UNCITRAL model laws and rules.
While deciding cases where there is no law already legislated, the court would simply rely on Article 51 (c) of the Constitution (read with Article 253) to support its reasoning. Article 51 (c) directs the State to “endeavour to” “foster respect for international law and treaty obligations”. Article 253 reads: “Legislation for giving effect to international agreements – Constitution of India.
“Notwithstanding anything in the foregoing provisions of this Chapter, Parliament has power to make any law for the whole or any part of the territory of India for implementing any treaty, agreement or convention with any other country or countries or any decision made at any international conference, association or other body.”
There is no ambiguity that the A&C Act has been legislated in accordance with and in adherence to UNCITRAL model laws. Therefore, it is incumbent upon Indian courts to interpret the Indian legislation to give effect to those principles and rules.
The Bina Modi case highlights the conflicting position Indian courts have been taking in proceedings initiated before it with respect to injuncting parties from approaching a foreign arbitral tribunal.
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The facts of the Modi case are that the patriarch of the family, late KK Modi, settled a Trust Deed, purportedly executed in London, under the applicable law of the Indian Trusts Act 1882. He named Dr Bina Modi, his wife, and their children, Lalit Modi, and others as co-trustees. After his demise in 2014, Bina Modi assumed charge as managing trustee under the clauses of the deed. Subsequently, disputes arose among the family members, i.e. the co-trustees with respect to the sale of the trust asset as there was no amicable settlement. Lalit Modi invoked arbitration under Clause – 36 of the trust deed, which provided for arbitration in accordance with the “Rules of Arbitration of the International Chamber of Commerce, Singapore”, with the Indian law as the substantive law for deciding disputes. Following this, Dr Modi and two of her other children filed separate suits before the Delhi High Court, seeking a declaration and permanent injunction against Lalit Modi, restraining him from proceeding with the emergency measures application in the arbitration initiated by him before ICC, Singapore.
A single-judge bench of the Delhi High Court, adhering to the jurisprudence behind international commercial arbitration, strictly held that it did not have any jurisdiction to grant the relief, dismissed the suits in limine (as a preliminary matter), with liberty to the parties to take up the same pleas before the Arbitral Tribunal.
In an appeal filed by the co-trustees and Modi family members, the division bench of the Delhi High Court held to the contrary, setting aside the judgement of the single judge and granted ad interim relief by restraining Lalit Modi from proceeding with the emergency arbitration proceedings in Singapore until the final disposal of the said appeal.
The Supreme Court dismissed Lalit Modi’s appeal against the said order. The issues which arose for determination were mainly the validity of the arbitration agreement and whether the subject matter of the suit was arbitrable (i.e., capable of being adjudicated by the Arbitral Tribunal) and therefore, does it warrant interference by Indian courts.
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In the final analysis, the only question requiring determination was whether and in what circumstances can Indian courts grant injunctions against parties from initiating arbitration proceedings in Foreign Arbitral Tribunals. The case law that has evolved over the years under the much-amended A&C Act gives us a glimpse of the developing jurisprudence.
As is evident, there is an increasingly number of decisions serving as precedents, which have affirmed the jurisdiction of civil courts to grant anti-arbitration injunctions under limited or exceptional circumstances. The strict interpretation given in Kvaerner Cementation stood overruled by a decision of seven judges of the Supreme Court in SBP & Co. vs Patel Engg. Ltd. However, the dictum of the seven judges has been overturned by the legislature which took a contrary view by the recent amendments made to the A&C Act.
The Supreme Court in another landmark judgment in N.N. Global Mercantile (P) Ltd. vs Indo Unique Flame Ltd. further augmented and extended its ratio set out in the earlier Vidya Drolia case by reiterating the restrictive role of courts under Sections 8 and 11 of the A&C Act.
Subsequently, the Court in Chatterjee Petrochem Company and Anr. vs Haldia Petrochemicals Limited reaffirmed the jurisdiction of civil courts to grant anti-arbitration injunctions. Soon after Chatterjee Petrochem was delivered, the Supreme Court in World Sport Group (Mauritius) Ltd. vs MSM Satellite held that a civil court has inherent jurisdiction under Section 9 of the Code of Civil Procedure, 1908, to try all suits of a civil nature unless expressly or impliedly barred by the law. And in the absence of any such bar on the maintainability of an anti-arbitration suit, suits seeking injunctions in restraint of arbitration are indeed maintainable.
In a recent judgement in McDonald’s India Private Limited vs Vikram Bakshi and Ors., a division bench of the Delhi High Court relied on the decision in World Sport Group and held that civil courts have jurisdiction to grant anti-arbitration injunctions in extreme circumstances where it is proved that the existence of the arbitration clause is in peril and the arbitration agreement is “null, void, inoperative or incapable of being performed”. However, based on the facts, the Court refused to grant an anti-arbitration injunction.
The Delhi High Court in the Bina Modi case held that the Court has a duty to consider the validity of an arbitration agreement based on the facts and circumstances of the case. The Court also held: “In case of foreign arbitration enormous expenses and efforts get involved and as such the legislature in its wisdom has thought that the question relating to the validity of arbitration agreement, its cooperativeness and capability of being performed should be examined by the Court itself instead of leaving those in the hands of an Arbitrator in a foreign land.”
While holding that the disputes were incapable of being submitted to arbitration, they further held that it was the Arbitral Tribunal that evidently lacked jurisdiction and not the High Court, which has inherent jurisdiction to determine whether disputes are arbitrable. This is particularly relevant when, as in the present case, justice would otherwise not be served. Consequently, the case was decided in favour of the appellants, Bina Modi and others. Thus, the matter was remanded back to the single judge for adjudication in accordance with Indian law, while the Supreme Court also upheld the bench’s judgment by dismissing the SLP at the very threshold.
On examining both the judgments of the Delhi High Court in the Bina Modi case together with the judgments relied upon and considered, the major controversy revolves around the maintainability of suits seeking anti-arbitration injunctions in India. The division bench did not discuss the question of permissibility of anti-arbitration injunctions despite quashing and setting aside the decision of the single judge division bench.
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The judgment has taken by surprise, the international business community on the willingness of courts in granting anti-arbitration injunctions. There is no doubt that an anomalous situation has arisen. The present conundrum warrants cognisance by the Supreme Court at the earliest opportunity to prevent any further erroneous or conflicting decisions. The Supreme Court ought to finally decide on the permissibility of anti-arbitration injunctions in Indian law which would prevent any further misinterpretation of the statutory provisions of the A&C Act as the current interpretation and jurisprudence goes against the objective of the Act, which is for the prompt adjudication of commercial disputes .
The recent decision of the Supreme Court in Mankastu Impex Pvt. Ltd. vs Airvisual Ltd amply clarifies the true legal position—that the seat of arbitration is the place the law which shall be applicable to the arbitration procedure and the judicial review of the arbitral award. The venue is merely the physical location where the parties convene the arbitration proceedings. For instance, an Indian entity and an American one which have entered into arbitration, choose Singapore as the seat of arbitration. For convenience, both parties choose London as the venue of arbitration. In this instance, the arbitration proceedings shall be held in London. However, the laws of Singapore will govern the arbitration procedure, regardless of wherever the proceedings are convened. Hence, once the parties have made their choice, they cannot be then allowed to renege upon their original acceptance, and it should be solely left to the Arbitral Tribunal to decide their jurisdiction, etc.
—The writer is Senior Advocate, Supreme Court of India