Balasore Alloys v. Medima: Rethinking Anti-Arbitral Injunctions

[Aarohi Chaudhuri is a second-year B.A. LL.B. (Hons.) student at the National Law School of India University, Bangalore]

Anti-arbitration injunctions refer to injunctions granted by civil courts to stay the initiation or continuance of arbitration proceedings. Traditionally, Indian courts have laid down conflicting jurisprudence on civil courts’ powers to intervene in an arbitration by granting such injunctions. The ‘restrictive,’ or arbitration-friendly view, is that Courts must refrain from granting injunctions to stay arbitration proceedings, whereas the ‘permissive’ view is that Courts may stay arbitrations in a broad range of circumstances. In Balasore Alloys Ltd. v Medima LLC, the Calcutta High Court dealt with the powers of a civil court to issue an anti-arbitration injunction in respect of foreign seated arbitration proceedings.

This post critiques the Court’s reasoning in Balasore on two questions: first, whether at all a civil court can grant an injunction in respect of a foreign seated arbitration; and second, if so, whether the grounds to grant such an injunction are the same as those for an anti-suit injunction (as listed in Modi Entertainment Network v WSG Cricket).

Factual Background

Balasore Alloys and Medima LLC had entered into two agreements with distinct arbitration clauses. The first was entered into in 2017 (‘the 2017 agreement’), and provided for dispute settlement through arbitration seated in India. The second was entered into in 2018 (‘the 2018 agreement’) and provided for arbitration seated in the United Kingdom. After a dispute arose, Medima initiated proceedings in London under the 2018 Agreement, and Balasore Alloys in Kolkata under the 2017 Agreement. Moreover, Balasore Alloys contested the validity of the arbitration clause in the 2018 Agreement, and hence approached the Calcutta High Court for an injunction against proceedings thereunder. 

Ruling of the Court

The High Court ruled that (1) it could grant an injunction against a foreign seated arbitration; and (2) that such power would be limited to the circumstances enumerated in Modi Entertainment. However, it declined to grant an injunction in the specific fact scenario of Balasore.

Power to grant anti-arbitral injunctions

Counsels for Medima relied, inter alia, on Kvaerner Cementation v Bajranglal Agarwal to argue that the High Court could not issue an injunction against a foreign seated arbitration. In Kvaerner, the Supreme Court held that a tribunal’s power to rule on its own jurisdiction under section 16 of the Arbitration and Conciliation Act, 1996 (‘the 1996 Act’) is to the complete exclusion of civil courts. In other words, civil courts do not possess the inherent power to grant anti-arbitral injunctions against sitting tribunals, as a tribunal possesses the exclusive jurisdiction to review the validity of an arbitration clause under the 1996 Act. The High Court rejected this contention, and ruled that Kvaerner had been implicitly overruled by SBP & Co. v Patel Engineering (‘SBP’).

In SBP, the central issue before the Supreme Court was whether the Chief Justice’s power to appoint an arbitrator under section 11 of the 1996 Act was an administrative or judicial function. In its ruling, the Supreme Court found that prior to making an appointment under section 11, the Chief Justice must satisfy themselves as to the existence of a live claim under a valid arbitration agreement (at paragraph19). The High Court in Balasore read this to mean that civil courts did possess the power to decide the jurisdiction of a tribunal. It is submitted that this reliance on the ratio from SBP is incorrect for two reasons.

First, the decision in SBP was criticized as too permissive of judicial intervention, and hence overruled in Garware Wall Ropes v Coastal Marine Constructions and Engineering. In SBP, the Court ruled that the an arbitrator’s appointment under section 11 was a judicial function, which allowed for a broad standard of review at the pre-arbitral stage. In Garware¸ the Court overruled SBP, and ruled that section 11 gave the Chief Justice of a court an administrative and not judicial power- this power not allowing for an expansive review of the validity of an arbitration clause. Moreover, even normatively, reliance on SBP leads the Court down a slippery slope given that the Court in SBP found that it possessed even the power to review merits at the pre-arbitral stage. This contradicts the intended arbitration friendliness and judicial non-interventionism sought by the 1996 Act, as well as its subsequent amendments. The 246th Report of the Law Commission of India that formed the basis of the 2015 Amendment to the 1996 Act, has also criticized SBP for its expansive view on the scope of judicial interventions.

Second, regardless of its validity, SBP is distinguishable from and hence cannot overturn Kvaerner. SBP was concerned with the Court’s power to review the existenceof an arbitration agreement, in the event ofa section 11 application. Such an application (for the appointment of an arbitrator) necessarily happens at the pre-arbitral stage, before the tribunal is constituted. Kvaerner deals with a fully constituted tribunal’s primacy in determining its jurisdiction under section 16, to the exclusion of civil courts. In other words, after the tribunal is constituted, by virtue of the kompetenz-kompetenz principle, it may rule on its own jurisdiction. In Balasore, the Court criticized the Delhi High Court’s reliance on Kvaerner in Dr. Bina Modi v Lalit Modi. However, it is submitted that Bina Modi presents an accurate view of the applicable principles. In Bina Modi, the Court refused to grant an anti-arbitral injunction due to the existence of an ‘alternative efficacious remedy’: namely, raising the invalidity of the arbitration clause before the already constituted tribunal. Therefore, pre constitution of the tribunal, as in SBP, the Court may review the existence of an arbitration clause due to the absence of an alternative remedy before the tribunal. Post constitution of the tribunal, as in Kvaerner and Balasore, an alternative exists for the tribunal to determine its own jurisdiction under section 16; as a result, the Court must not intervene. Any challenge as to validity can be raised only during the set-side proceedings.

Conditions to grant anti-arbitral injunctions

In Balasore, the High Court ruled that the power to grant injunctions is applicable in the circumstances listed in Modi Entertainment. These circumstances include, inter alia, (1) if the parallel proceedings are oppressive and vexatious; (2) if parallel proceedings are before a forum non conveniens; (3) if without an injunction the ends of justice would be defeated; and (4) if parallel proceedings would cause injustice to the parties. However, Modi Entertainment dealt with the grounds to grant an anti-suit injunction, and not an anti-arbitral injunction. It is submitted that this equation of the grounds for granting an anti-suit injunction with those for granting an anti-arbitral injunction are problematic, for two reasons.

First, the principles that govern a suit are different from those that govern an arbitration. In McDonald’s India v Vikram Bakshi, the Delhi High Court rejected the complete applicability of Modi Entertainment to anti-arbitral injunctions, due to the principles of party autonomy and competence-competence. An arbitration agreement indicates a deliberate choice of the parties for an alternative form of dispute resolution; and as a result, the tribunal thus constituted must have the opportunity to rule on its own jurisdiction. There is no analogous principle for determining the jurisdiction of a civil court. Hence, the liberal view taken for anti-suit injunctions cannot be applied uniformly to anti-arbitration injunctions. For example, in Board of Trustees of the Port of Kolkata v Louis Dreyfus Armatures the Calcutta High Court narrowed down the grounds to grant an anti-arbitral injunction to (1) where no arbitration agreement exists between the parties; (2) where the arbitration agreement is null and void, inoperable, or incapable of being performed; or (3) where foreign proceedings would be vexatious, oppressive, or unconscionable. Therefore, it is submitted that the grounds for granting an anti-arbitration injunction are considerably narrower than those for an anti-suit injunction.

Second, the plea of forum non conveniens specifically, which is a ground for granting an anti-suit injunction, cannot apply to cases of anti-arbitral injunctions. Black’s Law Dictionary (5th edition) defines forum non conveniens as a “discretionary power of the court to decline jurisdiction”. This implies the actual existence of jurisdiction of a court, which it chooses not exercise for the parties’ convenience. Comparatively, the UK House of Lords in Tehrani v. Secretary of State for the Home Department held the invocation of forum non conveniens requires the existence of competing courts, each of which has jurisdiction over the matter. Therefore, the requirements of (1) courts having concurrent jurisdiction over the same subject matter, as well as (2) actual inconvenience of one forum, must be satisfied. In a suit for an anti-arbitration injunction, this does not arise, for two reasons: (1) an arbitral tribunal, deliberately chosen by parties, cannot be regarded as an inconvenient forum; and (2) the subject matters of the claims before the two fora are different- the tribunal deals with the merits of the dispute, whereas the civil court deals with a suit for an injunction against proceedings. Therefore, forum non conveniens cannot be a tenable ground for an anti-arbitral injunction.

Conclusion

Balasore has considerably widened the scope of judicial interference in arbitration proceedings by allowing for a liberal exercise of anti-arbitral injunctions. There still exists a lack of clarity as to a civil court’s powers to issue an anti-arbitral injunction. SBP has been relied on in Chatterjee Petrochem v Haldia Petrochemicals and World Sport Group (Mauritius) v MSM Satellite (Singapore). Meanwhile Kvaerner, which SBP allegedly overrules, has been relied on as recently as 2019 in NALCO v Subhash Infra Engineersand 2016 in Ayyasamy v Paramasivam. This ambiguity and  the wide range of grounds on which courts can grant anti-arbitral injunctions, are detrimental to India’s arbitration-friendly trend. Therefore, it is critical to identify with clarity the scope and extent of powers to grant such injunctions, as well as list a narrow range of circumstances these injunctions can be granted under.

Aarohi Chaudhuri

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