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  • Writer's pictureRahul Narayan

C&M E-ALERT: -Alert: Techfab International Private Limited v. Midhima Holdings Limited


In a recent judicial development, the Hon’ble High Court of Delhi (“Delhi High Court”) has granted an anti-arbitration injunction restraining one of the parties from pursuing arbitral proceedings in an international commercial arbitration[1].


 FACTS                                                                                                                            

As per the Amendment an IA means, “an application filed before the Commission in a case instituted under section 19 of the Act, except those filed in compliance of any order or direction of the Commission.”

The plaintiff filed a suit before the Delhi High Court seeking predominantly the following two reliefs:

 

First, the plaintiff sought an anti-arbitration injunction restraining the defendant from proceeding with an arbitration in PCA Case No. AA773 titled 'Midima Holdings Limited (Malawi) v. Techfab International Private Limited (India)' (“PCA Arbitration”).

 

Second, the plaintiff sought a declaration to the effect that any orders passed, or proceedings conducted by the sole arbitrator appointed by the Council for National and International Commercial Arbitration, Chennai (“CNICA”) in the PCA Arbitration are null and void.

 

In the course of its submissions before the Delhi High Court, the plaintiff submitted that the plaintiff and the defendant are party to an Agency Agreement dated 20.11.2015 (“Agency Agreement”) under which certain disputes had arisen.

 

Article 9 of the Agency Agreement contained the arbitration agreement and dispute resolution mechanism that was agreed amongst the parties. In terms of Article 9, the parties had agreed to a multi-tier clause, wherein pursuant to the failure of the pre-arbitral steps, the parties agreed to refer their disputes to arbitration. The seat of arbitration was agreed to be India or any other UNCITRAL[2] following country to be decided mutually by the parties. Similarly, the governing law was also agreed to be of the country where the arbitration was to be conducted.

 

As per the plaintiff, a notice of arbitration dated 02.09.2019 (“Arbitration Notice”) was received by it on 18.12.2019 whereby, inter alia, in relation to the same disputes the defendant had sought to invoke Article 9 of the Agency Agreement. In the Arbitration Notice, the defendant had admitted that the Agency Agreement was governed by the substantive laws of India and that the seat of the arbitration would be in India. The defendant even proceeded to nominate a sole arbitrator, along with an alternate nominee both based out of Delhi. The Arbitration Notice also proposed that the arbitral proceedings should be conducted in Delhi.

 

Subsequent to having issued the Arbitration Notice, the defendant took no further action until after a long lapse of time, an application dated 19.03.2020 (“PCA Application”) came to be filed by the defendant before the Secretary General of the Permanent Court of Arbitration, at the Hague, Netherlands (“PCA”). By way of the PCA Application, the defendant proposed that an appointing authority may be designated which in turn selected the sole arbitrator.

 

Pursuant to the PCA Application, the PCA by way of a communication dated 04.12.2023 designated CNICA as the appointing authority under UNCITRAL Arbitration Rules, 2010. Subsequently, on 19.12.2023, the CNICA appointed a sole arbitrator at the Asian International Arbitration Centre (“AIAC”), Kuala Lumpur, Malaysia to adjudicate upon the disputes in PCA Arbitration.

 

On 23.12.2023, the plaintiff was informed that the arbitral tribunal stood constituted, and the first virtual case management hearing was scheduled on 10.01.2024. As the plaintiff did not attend the case management hearing on 10.01.2024, another letter came to be issued by the sole arbitrator whereby the case management hearing was re-convened on 22.01.2024. The plaintiff was also informed that should it fail to attend the hearing, the case would proceed ex-parte. In addition, the plaintiff was directed to pay an outstanding advance arbitral fee of USD 10,600.

 

 PLAINTIFF'S CASE FOR ANTI-ARBITRAL INJUNCTION                                                               

The plaintiff made the following submissions to make a case for the grant of an interim anti-arbitration injunction restraining the defendant from proceeding with the PCA Arbitration:

 

  1. The appointment of an arbitrator by the PCA through CNICA is completely contrary to the arbitration agreement entered between the parties.

  2. Claims of the defendant which relate to “agency fee” did not fall within the ambit of the arbitration agreement under the Agency Agreement. In this regard, it was argued that in relation to the same claim for agency fee, the defendant had already filed a commercial suit before the commercial division of the High Court of Malawi, Republic of Malawi.

  3. The entirety of the proceedings before the sole arbitrator in PCA Arbitration were non-est since they were not rooted in the arbitration agreement contained in the Agency Agreement entered between the parties.


 DECISION AND THE OBSERVATIONS OF THE DELHI HIGH COURT                                            


The Delhi High Court opined that from a prima facie examination of the record, it appeared that the appointment of the sole arbitrator based in Kuala Lumpur (Malaysia), by the PCA through CNICA is contrary to the procedure agreed upon between the parties in Article 9 of the Agency Agreement.

 

As per the Delhi High Court, the Agency Agreement contemplated that the seat of arbitration shall be in India with the governing law being of the country where the arbitration would be conducted (i.e., India). In fact, the Agency Agreement also provided that the parties were subject to the jurisdiction of the Courts located at New Delhi.

 

Though the arbitration agreement did suggest that the arbitration could be conducted in any UNCITRAL following country, the Delhi High Court highlighted that the same was subject to a mutual decision of the parties. From a perusal of the record, there was nothing to suggest that a mutual decision was taken by the parties to deviate from the already agreed position vis-à-vis seat and the governing law of the arbitration. If anything, the Delhi High Court observed that the defendants Arbitration Notice indicated its acceptance and admission of the agreed position in terms of the arbitration agreement contained in Article 9 of the Agency Agreement.

 

The Delhi High Court underscored the importance of party autonomy in arbitration and observed that the same was a cardinal principles of arbitration jurisprudence. Accordingly, the Delhi High Court held that since arbitration is a remedy founded on consent of parties, the agreed procedure for appointment of an arbitrator ought to be followed scrupulously. This, however, appeared to not be the case in the instant matter.

 

In view of the above observations, and taking into account the surrounding circumstances, the Delhi High Court restrained the defendant from pursuing the PCA Arbitration before the sole arbitrator until the next date of hearing.


 ANTI-ARBITRATION INJUNCTIONS IN INDIA                                                


An anti-arbitration injunction aims to prevent the initiation or continuation of arbitral proceedings, either by the involved parties or, in certain cases, by the arbitral tribunal. The primary object of such injunctions is to preserve the existing state of affairs and shield the aggrieved party from being compelled to participate in arbitral proceedings that are evidently non-arbitrable. However, implementing these injunctions comes with a potential drawback – it might restrict the inherent flexibility and autonomy of the parties in the arbitration process.

 

Typically, the issuance of anti-arbitral injunctions is a rare occurrence and any challenges related to the jurisdiction and powers of the arbitral tribunal are generally addressed by the arbitral tribunal itself.[2] Not all challenges to the arbitrability of the matter or jurisdiction of the arbitral tribunal to decide upon the matter would necessarily merit the passing of an anti-arbitral injunction.

 

For an anti-arbitral injunction to be granted, in terms of the principles set out in Sections 8 and 45 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act"), a party must successfully demonstrate that the underlying arbitration agreement is either null and void, inoperative, or incapable of execution.[3] This stringent criterion highlights the exceptional nature of such injunctions and the need for a compelling and prima facie case to warrant their issuance.

 

Recently, the Hon’ble Bombay High Court gave relief to Anupam Mittal in a Singapore arbitration where the courts in Singapore had granted an anti-suit injunction against Anupam Mittal. The Hon’ble High Court allowed what can be termed as an anti-anti-suit injunction on the ground that shareholder oppression related disputes in India are non-arbitrable and that unless such an order was passed protecting him, Anupam Mittal would be left remediless[1]. Pursuant to this Order, the National Company Law Tribunal, Mumbai granted an anti-arbitration injunction against continuing of the arbitration in Singapore[2].


 ANTI-ARBITRATION INJUNCTIONS – TRENDS ACROSS JURISDICTIONS                                 


The common law Courts have often affirmed their authority to enjoin international arbitrations, including foreign-seated ones on the ground that no valid or enforceable arbitration agreement exists and that permitting the arbitral proceedings to continue would be oppressive or inequitable.[1] 

 

Courts in United States of America ("USA") have in principle asserted the power to grant anti-arbitral injunctions. However, while citing principles of comity and deference to supervisory authority of foreign courts and tribunals, the Courts in USA have generally declined to issue injunctive reliefs restraining parties from participating in arbitral proceedings that are subject to the New York Convention.[2] The English Courts have followed a similar trend of asserting the power to issue an anti-arbitral injunction but have expressed great reluctance to actually do so. English Courts have recognised that anti-arbitral injunctions are rarely granted in respect of foreign seated arbitrations and only in cases where it may be unconscionable to continue the foreign arbitration proceedings would an injunctive order be passed.[3] Similar has been the case with other jurisdictions which have issued anti-arbitral injunctions such as Canada, Hong Kong, Pakistan, Bangladesh, Caribbean. [4] A common undertone in all these jurisdictions is the emphasis on the exceptional character of the anti-arbitral injunctions.[5] 

 

Other jurisdictions such as France, and Switzerland have refused to grant anti-arbitral injunctions holding that once the arbitral tribunal is constituted, only the arbitrators have the powers to deal with their jurisdictions.[6] In other words, jurisdictions such as France and Switzerland have emphasised more on the principle of competence-competence which stresses on the competence of the arbitral tribunal to deal with issues pertaining to its jurisdiction to hear and decide matters.[7] 

 

 CONCLUSION                                        


Anti-arbitration injunctions are not commonly granted and ought not to be granted easily, particularly in international commercial arbitration. Although it is never easy to generalise, it would not be out of place to mention that anti arbitration injunctions based on factual grounds present fewer difficulties than those based on law.

 

A comparison between the Anupam Mittal saga and the present case certainly makes this case.

 

The Anupam Mittal saga has involved opposing views by courts in Singapore and India due to a difference in law between the two jurisdictions on the legal issue of arbitrability- while shareholder oppression disputes are arbitrable in Singapore, they are not so in India. This is quite literally a “conflict of laws” situation that comity of the courts cannot easily resolve and shows the essential difficulty in granting anti- arbitration injunctions where the laws of more than one country are involved.

 

On the other hand, anti-arbitration injunctions granted on the basis that the arbitral tribunal has not been constituted as per the agreement is essentially a factual determination that does not present quite as many complex private international law issues.

 

All arbitration judgements essentially oscillate between situations where court intervention is warranted and where it is not. The debate is even more stark when dealing with anti suit injunctions. This judgment, impeccable in its reasoning and its careful elucidation of facts, is a valuable precedent of a case where an anti arbitration injunction was warranted and has been appropriately granted.


For any queries, clarifications, or comments, you may contact the authors below:

***

[1] Techfab International Private Limited v. Midhima Holdings Limited, C.S. (Comm) 50 of 2024, Order dated 19 January 2024

[2] United Nations Commission on International Trade Law.

[3] Kvaerner Cementation India Ltd. v. Bajranglal Agarwal, (2012) 5 SCC 214; and National Aluminium Company Ltd. v. Subhash Infra Engineers Pvt. Ltd., (2020) 15 SCC 557 – In both the decisions, the Supreme Court of India reiterated the competence-competence principle which holds that an arbitral tribunal is competent to adjudicate upon issues concerning its own jurisdiction to decide upon the subject matter of the dispute.

[4] World Sport Group (Mauritius) Limited v. MSM Satellite (Singapore) Pte. Limited, (2014) 11 SCC 639; Mc Donald's India Private Limited v. Vikram Bakshi, 2016 SCC OnLine Del 3949; and Himachal Sorang Power Private Limited v. NCC Infrastructure Holdings Limited, 2019 SCC OnLine Del 7575.

{5] Anupam Mittal v. People Interactive (India) Pvt. Ltd. & Ors, IA No. 1010/2021 in Suit No. 95/2021 (Bombay High Court) (Judgment dated 11 September 2023).

[6] Anupam Mittal v. People Interactive (India) Pvt. Ltd. & Ors., CA/392/2023 in CP/92(MB)2021 (NCLT) (Judgment dated 15 September 2023)

[7] International Commercial Arbitration, 2nd edition, Gary B. Born.

[8] Id.

[9] Id.

[10] Id.

[11] Id.

[12] Id.

[13] Id.

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