The curious case of Bina Modi v. Lalit Modi: Permissibility of Anti-Arbitration Injunctions in India
27/Jul/2021, 6:19 AM, Authored by Hiroo Advani & Manav Nagpal
Anti-arbitration injunctions are reliefs that can be sought from civil courts to restrain parties that are signatories to arbitration agreements from initiating or continuing arbitral proceedings. An anti-arbitration injunction is often resorted to by parties before the commencement of the arbitral proceedings in order to prevent any delay in the resolution of disputes or to prevent unnecessary wastage of costs when there is defect that goes to the root of underlying arbitration agreement. Anti-arbitration injunctions have been a subject of controversy amongst prominent scholars in the field of international commercial arbitration worldwide. There are two schools of thought on the pros and cons of an injunction of this peculiarity. The critics argue that anti-arbitration injunctions undermine the sacrosanct doctrines of separability and kompetenz-kompetenz that give primacy to the Arbitral Tribunal to determine all issues pertaining to its own jurisdiction including the existence and validity of the arbitration agreement. There is no doubt that these doctrines are of paramount consideration and form an integral part of the ethos of the 1985 UNCITRAL Model Law on which the Arbitration and Conciliation Act, 1996 (A&C Act) is based.
It is true that a relief injuncting arbitration would definitely undermine the doctrines of separability and kompetenz-kompetenz and would not warrant application in contemporary pro-arbitral jurisprudence. However, we find it difficult to state that the opinions of the advocates of anti-arbitration injunctions do not warrant consideration. On the flipside, the advocates of anti-arbitration injunctions hold the opinion that such a relief is well within the framework of the modern day arbitration regime. They argue that it is the only effective relief in cases where the underlying arbitration agreement is ex facie invalid or where there is an express bar on subject-matter arbitrability of the dispute contemplated by the arbitration agreement. The advocates also argue that it may afford the appropriate protection to those parties with low bargaining power or where the commencement of arbitral proceedings would be oppressive or unconscionable. Lastly, it is our opinion that the advocates of the anti-arbitration injunctions make a legitimate argument that a prior direction from a court injuncting arbitration would be more appropriate in fit cases and it would nonetheless help in reducing objections at the time of setting aside and enforcement of the ensuing arbitral award.
The position in India regarding the permissibility of anti-arbitration injunctions is far from settled and is in fact obscured by conflicting jurisprudence. The Indian courts have had many opportunities to settle the ambiguity. However, the resultant judgments have only led to more controversy. The learned Single Judge of the Delhi High Court in Bina Modi v. Lalit Modi (Bina Modi) and subsequent appeal of that judgment before the Division Bench in Bina Modi v. Lalit Kumar Modi [Bina Modi (2)] has created a sudden and intriguing stir in this domain of arbitral jurisprudence in India. The present article will analyse the judgments of learned Single Judge and the Division Bench of the Delhi High Court with respect to permissibility of anti-arbitrations injunctions in Indian law.
- The Facts of the Dispute
A trust deed known as the K.K. Modi Family Trust was executed on 9-4-2014 by the late industrialist Mr K.K. Modi as the settlor and his family Bina Modi, Lalit Modi, Charu Modi and Samir Modi were the designated trustees. Clause 36 of the trust deed embodied the dispute resolution mechanism. The said clause provided that in the event disputes arose pertaining to the administration of the trust, they would be submitted to arbitration under the Rules of Arbitration of the International Chamber of Commerce (ICC) at Singapore. Subsequently, a number of disputes arose between the members of the Modi family with regard to the administration of the K.K. Modi Family Trust after a meeting in Dubai.
In the aftermath of the family dispute, Lalit Modi invoked the arbitration clause and preferred an application praying for the grant of certain emergency measures before the International Court of Arbitration of the ICC at Singapore. Lalit Modi’s mother Bina Modi and his siblings Charu Modi and Samir Modi were aggrieved by his high-handed conduct and retaliated by filing a civil suit before the Delhi High Court seeking an injunction restraining Lalit Modi from continuing with the arbitral proceedings before the ICC at Singapore. It was contended by Bina Modi that the arbitral proceedings initiated by Lalit Modi before the ICC Court at Singapore were unenforceable and were in blatant violation of the public policy of India. Bina Modi vehemently contended that the law governing the arbitral proceedings was Indian law and by virtue of that, the arbitrability of trust disputes under the Trusts Act, 1882 stood expressly barred by the recent judgments of the Supreme Court. Thus, it was contended by Bina Modi that an anti-arbitration injunction ought to be granted in her favour.
- The Judgment of the Learned Single Judge
The learned Single Judge of the Delhi High Court in Bina Modi did not appear to be hesitant in quickly opining in the negative on the maintainability of a suit seeking a relief of such peculiarity. The Court observed that, in the light of its earlier decisions it was not inclined to reconsider this position in law. Therefore, it was held that suits such as the present one seeking a declaration of invalidity of the arbitration agreement and injunction of arbitral proceedings are not maintainable. The Court dismissed the suit filed by Bina Modi in limine and without issuing summons and requiring Lalit Modi to file any written statement as a reply to Bina Modi’s averments.
It is interesting to analyse the reasoning employed by the Court in arriving at its conclusion. The Court at first rejected Bina Modi’s contention that the decision of the Supreme Court in Kvaerner Cementation India Ltd. v. Bajranglal Agarwal (Kvaerner Cementation) was not a binding precedent because it did not cite facts, precedents or reasons. It is pertinent to note the peculiarities of the decision in Kvaerner Cementation as it forms the basis of the ruling of the learned Single Judge. The decision in Kvaerner Cementation was an early decision of three Judges of the Supreme Court on the A&C Act that was delivered in 2001. However, oddly enough it was reported only in the year 2012. In Kvaerner Cementation, the appellant was seeking an anti-arbitration injunction on the ground that there was no valid arbitration agreement between the parties, it was contended that the Arbitral Tribunal did not have jurisdiction to proceed and decide the dispute. The Supreme Court was quick to resort to the essence of Section 16 of the A&C Act that embodies the doctrine of kompetenz-kompetenz. The Supreme Court in Kvaerner Cementation held the opinion that the civil courts did not have the jurisdiction to determine the maintainability of arbitral proceedings even when there are contentions pertaining to the invalidity of the arbitration agreement. It evidently reinforced the negative version of kompetenz-kompetenz by ousting its own jurisdiction while it gave primacy to the Arbitral Tribunal to rule on its own jurisdiction. It is in our opinion that the learned Single Judge evidently erred by blanketly applying the dictum in Kvaerner Cementation in complete ignorance of Bina Modi’s legitimate contention that disputes under the Trusts Act, 1882 were expressly barred from being adjudicated by an Arbitral Tribunal. The learned Single Judge further augmented his opinion by observing that the decision in Kvaerner Cementation was recently affirmed in other leading and notable judgments of the Supreme Court such as Sikri and Chandrachud’s JJ. seminal ruling in A. Ayyasamy v. A. Paramasivam (A. Ayyasamy).
The Court in Bina Modi further endeavoured to address Bina Modi’s reliance on two other decisions of the Delhi High Court in Mcdonald’s India (P) Ltd. v. Vikram Bakshi (Mcdonald’s India) and Union of India v. Vodafone Group Plc United Kingdom (Vodafone Group). The learned Single Judge at the first observed that judgments in Mcdonald’s India and Vodafone Group were not binding upon the Court, as these decisions were susceptible to being per incuriam as they did not notice the dictum of three-Judge Bench in Kvaerner Cementation. The Court observed that the decision in Mcdonald’s India did hold the opinion that civil courts are vested with the jurisdiction to injunct arbitration, but did not on facts grant any relief injuncting arbitration. It is in our opinion that it was rightly observed in Bina Modi that the Division Bench in Mcdonald’s India correctly observed that the principles that apply to anti-suit injunction do not apply in the case where the relief sought is anti-arbitration injunction. In Mcdonald’s India it was held that the decision of the Supreme Court in Modi Entertainment Network v. W.S.G. Cricket Pte. Ltd.pertained to the grant of anti-suit injunctions and therefore it would be incongruous to apply the same principles to a suit where an anti-arbitration injunction is sought. In Mcdonald’s India it was reasoned that the principles of the autonomy of the arbitral process and the doctrine of kompetenz-kompetenz are an alternative remedy available to parties seeking anti-arbitration injunctions and that such alternatives remedies are not available in cases where an anti-suit injunction is sought and hence it would be incorrect to equate the two propositions. Finally, the Court in Mcdonald’s India observed that it would have jurisdiction to grant anti-arbitration injunctions where the party seeking the injunction can demonstrably show that the arbitration agreement is null and void, inoperative or incapable of being performed. It is our opinion that the decision of the Delhi High Court in Mcdonald’s India is well balanced, nuanced and has appreciated the subtle limitations of the doctrine of kompetenz-kompetenz. It is in our opinion that the learned Single Judge in Bina Modi erred in holding that the decision in Mcdonald’s India as per incuriam in view of the decision in Kvaerner Cementation, as it did not warrant any application in Mcdonald’s India. It is pertinent to note at this juncture, that other notable decisions of the Supreme Court such as Chatterjee Petrochem Co. v. Haldia Petrochemicals Ltd. (Chatterjee Petrochem) and World Sport Group (Mauritius) Ltd. v. MSM Satellite (Singapore) Pte. Ltd. (World Sport Group) have affirmed that civil courts have the jurisdiction to grant injunctive relief restraining arbitral proceedings in certain cases. These decisions were evidently not considered by the learned Single Judge in Bina Modi. Nonetheless, the learned Single Judge in Bina Modi rejected the decision in Mcdonald’s India. The learned Single Judge was also quick to dismiss Bina Modi’s reliance on Vodafone Groupby observing that the case pertained to a bilateral investment treaty arbitration that evidently was outside the scope of the A&C Act. The Court indicated that the criteria laid down therein did not warrant application in the present suit.
Another interesting point of law addressed by the Court in Bina Modi was pertaining to the applicability of Section 41(h) of the Specific Relief Act, 1963 in cases such as the present one where an anti-arbitration injunction was sought. It is to be noted that Section 41(h) of the Specific Relief Act, 1963 bars the grant of any injunctive relief in those situations where the parties seeking the injunction can alternatively resort to an equally efficacious remedy that can be availed through another usual mode of proceeding. The Court in Bina Modi was once again quick to rely on the doctrine of kompetenz-kompetenz while conjointly relying on the dictums of the judgments in Fuerst Day Lawson Ltd. v. Jindal Exports Ltd. and Pam Developments (P) Ltd. v. State of W.B. where it was observed that the A&C Act is a complete code in itself. Applying this proposition, the Court held that it was justified in barring the injunctive relief sought under the Specific Relief Act, 1963 as it would tantamount to interfering with the procedural framework of the A&C Act, which in fact did provide an equally efficacious remedy by virtue of Section 16.
Finally, the Court in Bina Modi accepted Lalit Modi’s contention that the present case did not warrant the application of the judgments of the Supreme Court in Vimal Kishor Shah v. Jayesh Dinesh Shah (Vimal Kishor Shah) and Vidya Drolia v. Durga Trading Corpn. (Vidya Drolia) that expressly barred the arbitrability of disputes under the Trusts Act, 1882. It is our opinion that the learned Single Judge grossly erred by ignoring these judgments as an express prohibition on subject-matter arbitrability would nonetheless go the root of the underlying arbitration agreement. Ultimately, the Court held that it did not have any jurisdiction to grant the relief sought in the suit and dismissed the suits in limine, with liberty to the parties to take up the same pleas before the Arbitral Tribunal.
- The Judgment of the Division Bench
Bina Modi aggrieved by the judgment of the learned Single Judge was quick to prefer an appeal under the provision of the Code of Civil Procedure, 1908 before the Division Bench of the Delhi High Court. The Court by an order dated 5-3-2020 granted ad interim reliefs to Bina Modi by restraining Lalit Modi from proceeding with the emergency arbitration proceedings in Singapore until the final disposal of the appeal. Aggrieved by the said order, Lalit Modi invoked his constitutional remedy by filing a special leave petition (SLP) before the Supreme Court against the stay order of the Division Bench. However, to Lalit Modi’s utter dismay, the said SLP was dismissed.
The judgment of the Division Bench of the Delhi High Court in Bina Modi (2) was delivered on 24-12-2020. The Division Bench after a rather lengthy hearing vehemently expressed disagreement with the judgment of the learned Single Judge. The Court held that the learned Single Judge fundamentally erred by failing to take into consideration that the ratio propounded by the Supreme Court in Kvaerner Cementation was not attracted to the facts and circumstances of the present case and that it was not the relevant authority to determine the non-arbitrability contentions rightly raised by Bina Modi. The Court also criticised the judgment in Kvaerner Cementation as it failed to consider the exceptions carved out in Section 5 read with Section 2(3) of the A&C Act, that permitted judicial interference in certain circumstances. The Court noted that the learned Single Judge gravely erred by accepting Lalit Modi’s contention that the present case did not warrant the application of the judgments of the Supreme Court in Vimal Kishor Shah and Vidya Drolia that expressly barred the arbitrability of disputes under the Trusts Act, 1882. The Court noted that these judgments are axiomatically “law in force” within the meaning of Section 2(3) of the A&C Act.
The Division Bench further laid emphasis on the importance of extracting the correct interpretation by reading Section 5 conjointly with Section 2(3) of the A&C Act, in holding the opinion that it would be proper for the courts to interfere in cases where there is an express bar on the subject-matter arbitrability of certain disputes. It was observed that subject-matter arbitrability is decided jurisprudentially and thus the relevant judgments warranted proper attention. The Court laid emphasis on the importance of ruling of the Supreme Court in Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. (Booz Allen) that envisaged the rights test for the determination of subject-matter arbitrability. The Division Bench expressed its disagreement with learned Single Judge, that the judgment in Mcdonald’s India was per incuriam as it did not consider the dictum in Kvaerner Cementation.
The Division Bench held the opinion that the learned Single Judge employed a misconceived reasoning that by ousting its own jurisdiction by declining the grant of reliefs such as anti-arbitration injunctions it pre-empted the opening of floodgates and thereby prevented the courts from being flooded with unmeritorious suits praying for anti-arbitration injunctions. The Division Bench observed that by employing this fallacious line of reasoning, the learned Single Judge refrained from doing its duty of determining prima facie the issues on merits that were contended by Bina Modi. It was observed that learned Single Judge failed to exercise jurisdiction that was vested with it and should have prima facie adjudicated the suit on merits. The Division Bench concluded by making its own observations stating that the dispute was prima facie non-arbitrable in view of the decision in Vimal Kishor Shah and Vidya Drolia. It was observed that the Arbitral Tribunal inherently lacked the jurisdiction to adjudicate the present dispute. The Division Bench stated that the reference made to Section 41(h) of the Specific Relief Act, 1963 was fallacious and that the reliefs under Section 16 of the A&C Act could not provide any relief and was far from being an equally efficacious remedy.
The Division Bench allowed the appeal, quashed and set aside the judgment of the learned Single Judge and remanded the matter back to the same Bench for fresh adjudication in accordance with law from the stage of issuance of summons. Lalit Modi, aggrieved by the decision of the Division Bench in Bina Modi (2) has challenged the judgment by filing an SLP before the Supreme Court. The adjudication of this SLP is pending.
On examining the judgments of the Delhi High Court in Bina Modi and Bina Modi (2) together with the judgments cited and discussed in them, it is in our opinion that it is evident that there is a major controversy regarding the maintainability of suits praying for anti-arbitration injunctions in India. Interestingly, Division Bench in Bina Modi (2) appeared to be silent on the permissibility of anti-arbitration injunctions in spite of quashing and setting aside the decision of the learned Single Judge in Bina Modi. It is evident that this recent stir in jurisprudence has cast a shadow of uncertainty in the business community on the willingness of courts in granting anti-arbitration injunctions.
It is our opinion that there is also room for uncertainty with respect to the precedential value of Kvaerner Cementation, as it stood impliedly overruled by the decision of seven Judges of the Supreme Court in SBP & Co. v. Patel Engg. Ltd. (SBP & Co.). Moreover, the dictum of the seven Judges in SBP & Co. was legislatively overruled by the recent amendments made to the A&C Act, namely, the 2015 amendment that inserted sub-section (6-A) in Section 11. It is true that Section 11(6-A) was abolished by 2019 amendment, but the celebrated judgment of the Supreme Court in Vidya Drolia vehemently reaffirmed the restrictive role of the courts at the time of hearing applications under Sections 8 and 11 of the A&C Act by articulating the prima facie test. It is in our opinion that the prima facie test envisaged by the Supreme Court in Vidya Drolia has created a pro-reference bias in contemporary arbitral jurisprudence in India. This is apparent as the Supreme Court summed the prima facie test up as “when in doubt do refer”. The Court in Vidya Drolia has also laid emphasis on the underlying rationale of Section 16 of the A&C Act, wherein it held that non-arbitrability contentions can be decided by the Arbitral Tribunal. This evidently marked a departure from the position propounded in SBP & Co.
Moreover, the Supreme Court in another landmark judgment in N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd. further augmented and extended its ratio set out in Vidya Drolia by reiterating the restrictive role of the courts under Sections 8 and 11 of the A&C Act. On the contrary, the judgments of the Supreme Court in Chatterjee Petrochem and World Sport Group have affirmed that civil courts do have inherent jurisdiction to grant anti-arbitration injunctions, thus limiting the Arbitral Tribunal’s power to rule on its own jurisdiction. As mentioned above, decision in Mcdonald’s India has also permitted the courts to grant anti-arbitration injunctions in suitable cases.
Therefore, it appears that an anomalous situation has arisen. It is in our opinion that the present conundrum warrants cognizance by the Supreme Court at the earliest possible opportunity to prevent a further series of erroneously and conflicting rulings. It is without doubt that only an authoritative pronouncement by the Supreme Court on the permissibility of anti-arbitration injunctions in Indian law would help to prevent any further misinterpretation of the statutory provisions of the A&C Act, and thus foster the recourse to arbitration for the prompt adjudication of commercial disputes in India.