India: Delhi High Court Clarifies The Scope Of Anti-Arbitration Injunction Suits In India - A Reaffirmation Of "Kompetenz-Kompetenz"

Introduction:

In a recent decision ¹, a single Judge of the High Court of Delhi ("High Court") had the occasion to delineate the meaning and scope of anti-arbitration injunction suits in India. While doing so, the High Court reiterated that anti-arbitration actions which seek a declaration that the underlying arbitration agreement is invalid and unenforceable, are within the scope and power of the arbitral under Section 16 of the Arbitration and Conciliation Act, 1996 (Arbitration Act).

Facts:

A trust deed dated April 9, 2014 ("Restated Trust Deed") executed by K.K Modi as the settlor/ managing trustee and Bina Modi, Lalit Modi, Charu Modi and Samir Modi as the trustees (collectively the "Trustees") of the K.K Modi Family Trust. Clause 36 of the Restated Trust Deed provided for the resolution of disputes arising under the Restated Trust Deed by arbitration under the Rules of Arbitration of the International Chamber of Commerce, Singapore ("ICC").

At a meeting of the Trustees held in Dubai, disputes arose in relation to the interpretation and implementation of the Restated Trust Deed and one of the trustees, Lalit Modi invoked the arbitration provision and filed an application seeking emergency measures before the International Court of Arbitration of the ICC in Singapore, against Bina Modi, Charu Modi and Samir Modi. During the arbitral proceedings, an emergency arbitrator was appointed.

Meanwhile, in respect of the arbitration proceedings initiated in Singapore, Bina Modi, Charu Modi and Samir Modi ("Plaintiffs") commenced anti-arbitration injunction suits ("Suits"), seeking a declaration of the arbitration proceedings as unenforceable and contrary to the public policy of India and sought a permanent injunction restraining the contesting defendant, Lalit Modi ("Defendant") from proceeding with the pending arbitral proceedings. The Plaintiffs further alleged that as held by the Supreme Court of India ("Supreme Court") in Vimal Kishor Shah v. Jayesh Dinesh Shah ², disputes inter se trustees or between trustees on the one hand and beneficiaries on the other hand or between beneficiaries inter se, are not arbitrable and are subject to the exclusive jurisdiction of courts under the Indian Trusts Act, 1882.

Decision:

The High Court, while examining the meaning and scope of anti-arbitration injunction suits in India, referred to the judgment passed by the Supreme Court in Kvaerner Cementation India Limited v. Bajranglal Agarwal ³ as well as an earlier judgement passed by the High Court in Mcdonald's India Pvt. Ltd. v. Vikram Bakshi ⁴, and observed that increasingly, courts in India have themselves refrained from dealing with or interfering in matters within the jurisdiction and competence of the arbitral tribunal and instead have relegated parties to agitate the same before the respective arbitral tribunals.

Accordingly, the High Court held that, ordinarily, under Section 16 of the Arbitration Act, an arbitral tribunal had competence and jurisdiction to decide questions of validity of the underlying arbitration agreement. The High Court further held that as such, civil courts ought not to restrain an arbitral tribunal from exercising its statutory jurisdiction under Section 16 of the Arbitration Act in such cases.

The High Court further held that the principles governing anti-suit injunction suits could not be applied to anti-arbitration injunction suits, since the principle of autonomy of the arbitral tribunal to deal with a challenge to its jurisdiction under Section 16 of the Arbitration Act (kompetenz-kompetenz), differentiated anti-arbitration injunctions suits from anti-suit injunction suits. While doing so, the High Court also reiterated the principle of party autonomy under the Arbitration Act and held that since the parties were from business backgrounds and had knowingly entered into and executed the Restated Trust Deed, they were bound by the terms thereof including the specific form of arbitration in Singapore.

The High Court further held that Section 41(h) of the Specific Relief Act, 1963, barred courts from granting injunctions in cases where an equal and efficacious remedy could be obtained through any other mode of proceeding, like proceedings under Section 16 of the Arbitration Act, in the present case.

Lastly, the High Court held that the amended Section 8 of the Arbitration Act did not change the bar on Indian courts to interfere in arbitration matters and therefore, would not permit a judicial authority to decide the existence of a valid arbitration agreement.

In light of the above, the High Court dismissed the Suits and directed the parties to agitate the jurisdictional issues before the arbitral tribunal, including the non-arbitrability of disputes arising out of trust deeds under Indian law.

Appeal Proceedings:

In an appeal filed by the Plaintiffs ⁵, a Division Bench of the High Court, vide an order dated March 5, 2020, restrained the Defendant from proceeding with the emergency arbitration proceedings, till further hearing of the said appeal. The said appeal is pending.

A Special Leave Petition filed by the Defendant against the stay order dated March 5, 2020 has been dismissed by the Supreme Court ⁶.

Views:

The decision is yet another step in a series of judgments upholding the all essential party autonomy and independence of arbitration proceedings in India. The decision helps send out a positive message to the international business community, aimed at fostering the growth of arbitration in India with minimum or no court interferences.

While the decision is welcome in its pro-arbitration stance and assuming that the decision of the single Judge is affirmed in appeal, it remains to be seen whether Indian courts will uphold the final award, which may be passed in the arbitration, considering the Supreme Court's decision in Vimal Kishor Shah ⁷.

Footnotes

1 Bina Modi & Ors. v. Lalit Modi & Ors. [CS (OS) 84 of 020 and CS (OS) 85 of 2020 decided on March 3, 2020]

2 (2016) 8 SCC 788

3 2012 5 SCC 214

4 2016 SCC OnLine Del 3949

5 Order dated March 5, 2020 passed in RFA (OS) 21 of 2020 and 22 of 2020

6 Lalit Modi v. Bina Modi & Ors. [Special Leave Petition (Civil) Diary No. 9214 of 2020 decided on March 9, 2020]

7 Supra

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