Anti-arbitration Injunctions in International Investment Arbitration: An Indian Overview

[Anujay Shrivastava and Anubhav Khamroi are both 4th Year B.A., LL.B. (Hons.) Students at Jindal Global Law School, Sonipat]

Introduction

The jurisprudence concerning anti-arbitration injunctions is yet to fully develop in India. Anti-arbitration injunctions must be distinguished from the more well-known anti-suit injunctions. While the latter is in the nature of injunction orders passed by a judicial authority directing a party not to initiate or pursue legal action in a foreign court, the former includes injunction orders directing a party to not initiate or continue an arbitration proceeding.  

An anti-arbitration injunction stays the arbitration proceedings and restores the parties to the position where the suit does not potentially become infructuous, unconscionable or oppressive. As held by Delhi High Court in the McDonalds India Pvt. Ltd. v. Vikram Bakshi (2016), the principles which apply to an anti-suit injunction will not necessarily apply to an anti-arbitration injunction. Interestingly, the Division Bench of the Delhi High Court in the McDonalds decision above had overruled its Single Judge decision in Vikram Bakshi and Another v. McDonalds India Pvt. Ltd. and Others (2014), which permitted granting of anti-arbitration injunctions in the case of domestic arbitration held within India.

In the Single-Judge Bench judgment of the Delhi High Court delivered by Jayant Nath J. in October 2018 in Delhi Airport Metro Express Private Ltd. (“DAMEPL”) v. Construcciones Y. Auxiliar De Ferrocarriles & Anr., where the nature of the arbitration agreement was similar to that in the Supreme Court’s decision in Roger Shashoua & Ors. v. Mukesh Sharma & Ors (2017), the Court rejected an anti-arbitration injunction to the petitioner (DAMEPL) by finding that Part I of the Indian Arbitration and Conciliation Act, 1996 (the “Act”) was inapplicable to the said case.

While courts are increasingly adopting a pro-arbitration stance when dealing with questions on anti-arbitration injunctions in the realm of international commercial arbitration, there is indeed a lack of clarity in the international investment arbitration regime. Therefore, this post shall venture into the Indian jurisprudence on anti-arbitration injunctions, with a particular focus on international investment arbitration in India.

Situations Warranting Anti-arbitration injunctions

The Calcutta High Court judgment written by Soumen Sen, J. in The Board of Trustees of the Port of Kolkata v. Louis Dreyfus Armatures SAS (“Louis Dreyfus”), G.A. 1997 of 2014 and C.S. No. 220 of 2014, is currently the only Indian judgment to have granted and applied an anti-arbitration injunction in international investment arbitration. In this case, a French company named Louis Dreyfus Armatures SAS (“LDA”), the respondent, had initiated arbitration proceedings under the United Nations Commission on International Trade Law (“UNCITL”) Rules against Kolkata Port Trust (“KPT”), the plaintiff, which was under the Government of India. This was on the basis of the Article 9 of a bilateral investment treaty (“BIT”) between the Government of India and the Government of France on the reciprocal promotion and protection of investments created during 1997, which was the subject matter of challenge. The origin of the dispute was the awarding of a contract for operation and maintenance of various berths of the Haldia Dock Complex of KPT, which was executed by KPT in favour of the Haldia Bulk Terminals Pvt. Ltd. (“HBT”). KPT had raised various points to challenge the investment arbitration proceeding, although the core of the case was the argument that the arbitration agreement incorporated in the BIT was inoperative as between the KPT and LDA.

The Court had observed that the essential consideration is the existence of a valid arbitration agreement between the parties. If such an agreement exists, there is no escape from arbitration and the parties shall be referred to arbitration. The Court also held that unless the facts and circumstances of a particular case demonstrate that the continuation of such foreign arbitration would cause “demonstrable injustice”, a civil court in India would not exercise its jurisdiction to stay the foreign arbitration. It had further observed that a BIT, which has been entered into by two sovereign nations, creates rights for the investor of a contracting party and, therefore, cannot be questioned by KPT.

The Court had laid down three circumstances under which an anti-arbitration injunction can be granted:

1. if an issue is raised whether there is any valid arbitration agreement between the parties and the Court is of the view that no agreement exists between the parties;

2. if the arbitration agreement is null and void, inoperative or incapable of being performed; or

3. continuation of foreign arbitration proceeding might be oppressive or vexatious or unconscionable.

The Court relied on the Supreme Court of India’s judgment in Enercon (India) Ltd. v. Enercon GMBH (2014), where it was held that it is a well-recognized principle of arbitration jurisprudence in almost all the jurisdictions, especially those following the UNCITRAL Model Law, that the courts play a supportive role in encouraging the arbitration to proceed rather than letting it come to a grinding halt. Furthermore, the “least intervention by courts” is an equally well recognized principle in almost all jurisdictions.

While the Court rejected KPT’s plea for challenging the maintainability of the entire investment arbitration on various grounds, it granted an anti-arbitration injunction restraining LDA from continuing the proceedings against KPT. It held that LDA could only continue the proceedings against the Government of India. The Court passed the injunction order on the ground that the arbitration agreement is only enforceable against the Union of India and not KPT. It found that the continuation of any proceeding against KPT, at the instance of respondent, would be oppressive.

Duty of Limited Intervention by Courts in International Investment Arbitration

The Single-Judge of the Delhi High Court delivered by Manmohan J. in the case of Union of India v. Vodafone Group PLC United Kingdom & Anr. (“Vodafone UK”), CS(OS) 383/2017 and I.A. No. 9460/2017, concerned arbitration proceedings between Government of India and Vodafone Group by a Tribunal constituted under an International Investment Treaty (India-United Kingdom BIPA), and had clarified that while the courts of India have taken a far more restrictive approach on anti-arbitration injunctions, in the context of international commercial arbitration as in McDonalds (above), those judgements are only in context of the Arbitration Act.

In Vodafone UK (above), the Court also observed that, in the arbitration regime, there is a duty on the courts exercise as limited intervention as possible. Notwithstanding this duty, it is not unknown for courts to issue anti-arbitration injunction under their inherent power, especially when neither the seat of arbitration nor the curial law has been agreed upon. In the context of an anti-arbitration injunction, the Court relied on the England & Wales High Court (EWHC) judgment in Excalibur Ventures LLC v. Texas Keystone Inc., [2011] EWHC 1624 (Comm), and the precedents relied on by the Bench in that case, to reiterate that where the foreign arbitration was “oppressive or unconscionable”, the court may exercise its power to grant an injunction.

The Court noted that the jurisdiction to grant an anti-arbitration injunction must be exercised with caution and granted only if the arbitral proceedings are “vexatious or oppressive or inequitable or abuse of process”. It further noted that even though a legislation or legal action by the government may be lawful under the domestic law, it can nonetheless trigger a successful investment claim under a bilateral investment treaty. Therefore, the court has to keep the treaty provisions in mind as well.

Interestingly, the court also referred to the Louis Dreyfus (above) decision of the Calcutta High Court, stating that the Court in that case had assumed that the Act was applicable. On the contrary, the Delhi High Court in Vodafone UK (above) observed that “Investment Arbitration disputes are fundamentally different from commercial disputes as the cause of action (whether contractual or not) is grounded on State guarantees and assurances (and are not commercial in nature).” On this note, it held that since the present matter was an international investment arbitration and not an international commercial arbitration, the Act would be inapplicable to the present case.

However, referring to Excalibur Ventures LLC (above), it held that the courts can nevertheless grant an anti-arbitration injunction in compelling circumstances under their inherent jurisdiction. It was noted by the Court that “it is a matter of practice that National Courts will exercise great self-restraint and grant injunction only if there are very compelling circumstances and the Court has been approached in good faith and there is no alternative efficacious remedy available. Such a restrictive approach and jurisdiction is in consonance with any international obligation, India may have under VCLT or any other treaty.” In the present case, the Delhi High Court dismissed the Government of India’s pleas including the one to grant an anti-arbitration injunction and referred both the parties to raise their questions of law before the India-United Kingdom BIPA constituted arbitral tribunal.

Conclusion

The Indian jurisprudence on judicial interference in international investment arbitration remains hazy due to lack of legislative guidelines and judicial precedents. However, it prima facie appears that the Indian courts reserve the inherent jurisdiction to grant anti-arbitration injunctions when the continuation of the investment arbitration proceedings become vexatious, oppressive, inequitable or abuse of process. They also have a duty to exercise utmost precaution while granting an anti-arbitration injunction as it may potentially impact State relations between India and foreign signatory states to an investment treaty.  

There should not be absolute restraints on granting anti-arbitration injunctions as there can be circumstances warranting such an order due to equity between the parties, greater public interest or necessity. However, we feel that the courts should exercise extreme prudence as judicial interference can potentially lead to a violation of the bilateral treaty between India and another State under international law. We would recommend that the Indian legislature consider creation of guidelines regarding the jurisdiction of Indian courts for granting anti-arbitration injunctions in international investment arbitration as well as international commercial arbitration.

Anujay Shrivastava & Anubhav Khamroi

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