Can Two Indian Parties choose foreign law to govern their arbitration agreement - The Delhi High Court answers in the Affirmative

Introduction:

Recognising that an arbitration agreement between parties is an agreement independent of the substantive contract, the Delhi High Court in Dholi Spintex Pvt. Ltd. v. Louis Dreyfus Company India Pvt. Ltd.[1] has held that two Indian parties can choose a foreign law as the law governing the arbitration between them. The Court has also reiterated the legal position on limited interference by Courts in international arbitrations. Continue Reading Can Two Indian Parties choose foreign law to govern their arbitration agreement? The Delhi High Court answers in the Affirmative

RERA or Consumer Fora – Homebuyers can make the choice!

Can allottees approach Consumer Forum under the Consumer Protection Act, 1986[1] (the “CP Act”), despite the remedies available under the Real Estate (Regulation and Development) Act, 2016 (the “RERA”), if they don’t want to take a recourse under the latter? This question was long debated and the Supreme Court of India (“Supreme Court”) finally answered it in the case of Imperial Structures Limited v. Surinder Anil Patni and Another[2]. The Supreme Court held that the RERA does not bar the jurisdiction of the CP Act to deal with the complaints filed by consumers who are homebuyers or allottees of real estate projects registered under RERA. While this finding may create more challenges and complexities, such as parallel litigations and claims initiated under both RERA and CP Act, we will analyse the rationale behind this judgment. Continue Reading RERA or Consumer Fora?  – Homebuyers can make the choice!

Anti-Arbitration Injunctions - Judicial trends and finding the middle path

An Anti-Arbitration Injunction (“AAI”) is an injunction granted by courts to restrain parties or an arbitral tribunal from either commencing or continuing with arbitration proceedings.[1]  An AAI is generally sought before an arbitration commences or in the course of the arbitration hearing or after the conclusion of substantive hearing but before the rendering of final award.

Critics of AAI argue that this remedy strips the arbitral tribunal of its power to determine its own jurisdiction (the kompetenz-kompetenz principle, elaborated below), increases judicial intervention, and can be used by unscrupulous parties to evade or delay the agreed arbitration mechanism..  On the other hand, the proponents of AAI argue it is a well-recognised legal concept, which streamlines the remedy of arbitration itself, weeding out those cases where the arbitration agreement may be vitiated by fraud, where there is no valid arbitration agreement or where to proceed with arbitration could be considered vexatious, oppressive or unconscionable. This effectively assists in saving costs and time by deciding such issues at an earlier stage than at the stage of setting aside or enforcement of awards.  There appears to be merit on both sides of the debate. 

Statutory Framework – Does Arbitration Act allow AAIs?

AAIs are increasingly becoming a powerful tool in the hands of parties to an arbitration.  However, both the UNCITRAL Model Law 1985 and the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 which forms the basis for the Arbitration and Conciliation Act, 1996 (the “Act”), do not provide for an express provision authorising the grant of AAIs by courts.  Neither does the Act explicitly prohibit it.

Opponents of AAI argue that courts have a mandatory obligation to refer the parties to arbitration without first hearing any challenges on the jurisdiction of an arbitral tribunal. For this, they place reliance on the express provisions contained in Section 16 read with Section 5 of the Act.  Section 16 enshrines the principle of Kompetenz-Kompetenz in our national laws, thereby establishing the ability of the arbitral tribunal to rule on its own jurisdiction, including any objections with respect to the existence and validity of the agreement[2].  Further, the non-obstante clause in Section 5 provides that ‘notwithstanding anything contained in any other law for time being in force’, no judicial authority should intervene except when so provided under the Act .

However, such critics fail to acknowledge that a reference to arbitration may not be absolute. In substantive proceedings before a civil court, Section 8 of the Act empowers courts to “refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.” Similarly, with regard to foreign-seated arbitrations, Section 45 of the Arbitration Act empowers courts to make a reference to arbitration unless it finds “that the said agreement is null and void, inoperative or incapable of being performed.”  Further, Section 45 is also a non obstante clause and hence, it is not limited by Section 5 or the principle of Kompetenz-Kompetenz as enshrined in Section 16.  It may, however, be noted that a court’s review under these provisions can only be carried out in substantive proceedings before a civil court.

Both these provisions make it clear that the statutory scheme of the Act allows for grant of AAIs by courts, albeit on a few limited grounds, such as, prima facie there being no valid arbitration agreement or such agreement being null and void, inoperative or incapable of being performed, or if the courts deems it as just and convenient.

On the arbitrability of disputes, the law laid down by the Hon’ble Supreme Court in N. Radhakrishnan v. Maestro Engineers and Ors.[3], A. Ayyaswamy v. A. Paramasivam[4] and Avitel Post Studioz Limited and Ors. vs. HSBC PI Holdings (Mauritius) Limited and Ors.[5] are relevant.  These hold that courts may decline reference to arbitration if the matter involves serious and complicated allegations of fraud requiring detailed appreciation of evidence, for which courts guided by the exhaustive provisions of the Indian Evidence Act and the Codes of Civil and Criminal Procedure may be more competent fora than an arbitral tribunal.

Judicial Trend – Are Civil Courts empowered to grant AAIs?

Indian Courts have had multiple occasions to deal with AAIs; unfortunately, the jurisprudence that has evolved is far from being conclusive.

In 2001, the Hon’ble Supreme Court in the matter of Kvaerner Cementation India Limited v. Bajranglal Agarwal[6] (“Kvaerner”) held that a civil court did not have jurisdiction to determine any objection with respect to the existence or validity of an arbitration agreement owing to the principle of Kompetenz-Kompetenz enshrined under Section 16 of the Act. Regrettably, Kvaerner failed to cite any precedent or provide any elaborate reasoning for this decision, and was reported only in the year 2012, after 11 years.

In the meantime, a seven-Judge bench of the Hon’ble Supreme Court in SBP & Co. v. Patel Engineering Ltd.[7] (“SBP & Co.”), by a majority judgment, rejected the argument that there is exclusive jurisdiction of the arbitral tribunal to decide the existence or validity of the arbitration agreement. This was further strengthened by the ruling of the Hon’ble Supreme Court in World Sport Group (Mauritius) Ltd. v. MSM Satellite[8] wherein the Hon’ble Supreme Court affirmed the jurisdiction of civil courts to refuse arbitration if the grounds mentioned under Section 45 of the Act are satisfied. Subsequently, division benches of the Delhi High Court and the Calcutta High Court held that civil courts are empowered to grant AAIs; however, such power should be exercised sparingly and with abundant caution.[9]  In fact, the Hon’ble Calcutta High Court in Balasore Alloys Limited v. Medima LLC clarified that Kvaerner appears to have been impliedly overruled by the later larger bench in SBP & Co. 

Kvaerner was brought to life after 15 years when the Hon’ble Supreme Court cited it with its approval in A. Ayyasamy v. A. Paramsivam[10] (though not directly on this issue) and  subsequently in National Aluminium Company Limited v. Subhash Infra Engineers Private Limited[11].  Recently, this controversy has again come into prominence due to the Hon’ble Delhi High Court judgment in Bina Modi v. Lalit Modi and Ors[12] which held that suits to declare the invalidity of an arbitration clause/agreement and to injunct arbitration proceedings, whether falling in Part I or Part II, are not maintainable.

Finding the Middle Path

In light of the conflicting decisions of the Supreme Court and various High Court, it is imperative that the courts bring clarity to the issue.

The overarching principle remains that if there is a valid arbitration agreement between the parties, then the parties shall mandatorily be referred to the arbitration mechanism for resolution of their dispute. The Courts recognise party autonomy. Thus, it is only where exceptional circumstances exist, that AAIs can be granted by a court of law. The onus still remains on the party seeking an AAI to plead and demonstrate that it has no other efficacious or alternative remedy and that it is just and in the interests of all parties not to proceed with the arbitration process.

If all jurisdictional issues are resolved by the supervisory court prior to the arbitration process, there is less likelihood of the award ultimately rendered by the arbitral tribunal being challenged successfully and the award stayed on the same jurisdictional grounds (which has been made possible by the recent Arbitration and Conciliation (Amendment) Ordinance, 2020).  This would undeniably provide greater certainty to negotiating parties that the award, once made, would be enforceable without delay.


[1] Julian Lew, “Control of Jurisdiction by Injunctions Issued by National Courts” in International Arbitration 2006: Back to Basics? International Council for Commercial Arbitration Congress Series No 13 (Albert Jan van den Berg ed) (Kluwer, 2007) at pp 185–220

[2] The principle of Kompetenz-Kompetenz dictates that an arbitral tribunal is empowered to rule on its own jurisdiction, including, determining all jurisdictional issues and the existence or validity of an arbitration agreement.  It is regarded by many scholars as the “bedrock principle ” of arbitration, and it finds reference in laws governing arbitration globally.

[3] 2009 (13) SCALE 403

[4] AIR 2016 SC 4675

[5] (2020) 6 MLJ 544

[6] (2012) 5 SCC 214

[7] 2005 (8) SCC 618

[8] AIR 2014 SC 968

[9] McDonald’s India Private Limited v. Vikram Bakshi and Ors, 2016 (4) ARbLR 250; Devi Resources Ltd. v. Ambo Exports Ltd, 2019 (6) ARbLR 32

[10] (2016) 10 SCC 386

[11] 2019 (5) ARbLR 254

[12] 2020 (2) ArbLR 446

Emergency Awards passed in Foreign-seated Arbitration - Enforceable or not

A recent award passed by an Emergency Arbitrator at the instance of Amazon.com NV Investment Holdings in relation to Reliance Retail Ventures Limited’s (RRVL) ongoing acquisition of Future Group’s retail, wholesale, logistics, and warehousing arm, has once again brought into sharp focus a gap in India’s aspirations to improve Ease of Doing Business in the country and create a conducive environment for enforcement of awards passed in foreign seated arbitrations.

Although the said Emergency Award directed Future Group to maintain status quo with regard to the transaction[1], recent news reports have confirmed that Future Group has already approached the Hon’ble Delhi High Court by way of a suit seeking to restrain Amazon from preventing the ₹24,713 crore deal from going through.[2] Continue Reading Emergency Awards passed in Foreign-seated Arbitration: Enforceable or not ?

Lenders as Promoters under RERA regime - Analysing Haryana Real Estate Regulation Authority’s recent Order in Supertech Hues case

Introduction

The Haryana Real Estate Regulation Authority (“HRERA”) has recently delivered an unprecedented order in the matter of Deepak Chowdhary Vs PNB Housing Finance Ltd. & Ors. (“Supertech Hues case/ Order”)[1]. This Order will have implications on banks and other financial institutions, which provide credit to real estate companies, while also bringing into focus, the conflict between the rights of such banks and financial institutions vis-à-vis the rights of allottees of such projects. Despite the Real Estate (Regulation and Development) Act, 2016 (“RERA/Act”), contemplating mortgage loans to be the “first funders” of a real estate project[2], the HRERA has passed an order, which may have implications on secured lenders when it comes to exercising their rights to enforce their security. Continue Reading Lenders as Promoters under RERA regime: Analysing Haryana Real Estate Regulation Authority’s recent Order in Supertech Hues case

GOI Notification of 12th November on Digital Media - The Beginning of the Regulatory Journey for the Digital Space?

On November 09, 2020, the President of India issued a notification under Article 77(3) of the Constitution amending the Govt of India (Allocation of Business) Rules, 1961, according to which the Information & Broadcasting  Ministry (“I&B Ministry”) will now have the power to regulate and formulate policies, issue orders, instructions, notifications etc., pertaining to online news portals and content on Over the Top (“OTT”) platforms such as Netflix, Amazon Prime Video, Hotstar and many more (“Notification”). Continue Reading GOI Notification of 9th November on Digital Media – The Beginning of the Regulatory Journey for the Digital Space?

Vicarious Liability of Non-Executive Directors - A Case for Reform of Law

Context:

The vicarious liability provisions have been evolving ever since the evolution of law of torts. “Offence by companies” is a standard vicarious liability provision in most statutes, which is often used to fasten the liability on directors for the acts and omissions of the company. These vicarious liability provisions are borrowed from colonial-era laws and incorporated in our domestic legislations. As a rule, there is no concept of vicarious liability in criminal law. Such provisions imposing liability on directors for acts/ omissions of the company are present in most statutes.

The vicarious liability provisions have a standard language providing that the person-in-charge of and responsible for the conduct of the business of the company at the time of the commission of the offence, as well as other officers are liable for that offence. However, those provisions do not make a distinction between Managing Directors (“MDs”)/ Executive Directors (“EDs”) and Non-Executive Directors (“NEDs”)/ Independent Directors (“IDs”). Continue Reading Vicarious Liability of Non-Executive Directors: A Case for Reform of Law

Arm’s Length Pricing -Navigational Tools for the Audit Committee

India has one of the most detailed set of laws and regulations governing disclosures and approvals of related party transactions (RPT) regulating both listed and unlisted companies. The provisions of Section 188 of the Companies Act, 2013 (the Act) are applicable if:

  1. a company enters into a transaction with a ‘related party’ as defined under Section 2(76) of the Act;
  2. such transaction falls under any of the categories specified under sub-clause (a) to (g) of Section 188(1) of the Act, an approval of the board of directors will be required prior to entering into such transaction; and
  3. such transaction exceeds the monetary thresholds prescribed under Rule 15(3) of the Companies (Meeting of Board and its Powers) Rules, 2014, prior approval of the shareholders will also be required by way of an ordinary resolution.

Regulation 23 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR) provides that all material RPTs require shareholder approval through an ordinary resolution and no related party entity shall vote to approve such resolutions whether the entity is a related party to the particular transaction or not. However, all RPTs, whether material or not, require approval of the audit committee. Continue Reading Arm’s Length Pricing -Navigational Tools for the Audit Committee

Does an Arbitration Clause survive Novation of an Agreement 

Introduction:

Recently in Sanjiv Prakash v. Seema Kukreja & Ors.[1], the Delhi High Court has reiterated that novation of an agreement would necessarily result in destruction of the arbitration clause contained therein. In this regard, it was observed that an arbitration agreement being a creation of an agreement may be destroyed by agreement.

Facts of the case:

Respondent No. 3 had incorporated a company in 1971, under the name of Asian Films Laboratories Private Limited, which was subsequently renamed as ANI Media Private Limited in 1997 (“Company”). The shareholders of the said Company were Respondent No. 3’s son (“Petitioner”) and his daughter and wife (“Respondent No. 1” and “Respondent No. 2” respectively) (Petitioner and Respondents together hereinafter referred to as the “Family”). The Petitioner was the Managing Director of the Company. In 1996, Thomson Reuters Corporation Pte. Limited (“Reuters”) approached the Petitioner for a long-term equity investment in the Company on the condition that the Petitioner would play an active role in the management of the Company. Continue Reading Does an Arbitration Clause survive Novation of an Agreement?

Bureaucratic delay - No more a ground for seeking condonation of delay by State and public bodies

“… if the Government machinery is so inefficient and incapable of filing appeals/ petitions in time, the solution may lie in requesting the Legislature to expand the time period for filing limitation for Government authorities because of their gross incompetence. That is not so. Till the Statute subsists, the appeals/petitions have to be filed as per the Statues prescribed.”[1]

The recent pronouncement of the Supreme Court, a bench comprising of Hon’ble Mr. Justice Sanjay Kishan Kaul and Hon’ble Mr. Justice Dinesh Maheshwari, in State of Madhya Pradesh v. Bherulal, [2] has come straight from the shoulder. The Court has unequivocally reiterated that the government departments are under a special obligation to ensure that they perform their duties with diligence and commitment. Condoning delay is an exception and should not be used as an anticipated benefit for government departments. The Supreme Court has emphasised that the law shelters everyone under the same light and should not be swirled for the benefit of a few. Continue Reading Bureaucratic delay: No more a ground for seeking condonation of delay by State and public bodies?