Stay of anti-suit injunction: upholding public policy over comity of courts

Jayesh H
Juris Corp, New Delhi
jayesh.h@jclex.com  

Madhura Kulkarni
Juris Corp, New Delhi
madhura.kulkarni@jclex.com

Palak Nenwani
Juris Corp, New Delhi
palak.nenwani@jclex.com 

Since conflict is inevitable, dispute resolution clauses often become the cardinal clause for any contract. Given the advantages of party autonomy, faster/streamlined process, confidentiality, and flexibility, parties often opt for arbitration as an alternate dispute resolution mechanism. However, when disputes traverse jurisdictions, the complexity of resolution also increases and the conflicting and varying parameters of arbitrability of the dispute in each jurisdiction may become a hindrance to the intent of the parties to opt for arbitration. This article aims to examine the sanctity of parties’ choice to arbitrate through the lens of the Bombay High Court’s recent decision in Anupam Mittal v. People Interactive (India) Pvt. Ltd. & Ors.[1] effectively disregarding an anti-suit injunction (and consequently disregarding arbitration). In the case of Anupam Mittal (Supra), the stay on the anti-suit injunction was granted on the premise that the subject matter of dispute was prima facie non-arbitrable under Indian law, and any award rendered pursuant thereto would thus become unenforceable in India.

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Party autonomy is the cornerstone of arbitration and is supposedly universal. Yet the contours of party autonomy, which are defined by judicial applications, are not universally uniform and may vary in certain jurisdictions. 

The Bombay High Court has recently nullified an anti-suit injunction restraining a party from proceeding with an oppression and mismanagement petition, on the ground of statutory non-arbitrability, thereby restricting the scope of party autonomy and giving primacy to the statutory non-arbitrability and the consequences thereof over the decision of the parties to have their disputes resolved by arbitration in Singapore, which allows arbitration of oppression and mismanagement disputes.

The concept of anti-suit injunctions was earlier only applicable in cases where it was expedient to meet the ends of justice and where refusal of a restraint order would be unfair on account of the action in the foreign court being oppressive.[2] The Supreme Court laid down the choice of law rule to determine which court had jurisdiction i.e., the jurisdiction clause may provide for submission to the courts of a particular country.[3]

However, in a recent decision, the Bombay High Court nullified an anti-suit injunction passed by the Singapore Court  restraining the Plaintiff from proceeding with its petition (alleging oppression and mismanagement) before the National Company Law Tribunal ('NCLT') in India on the ground that the parties had (previously) contracted to resolve their disputes via arbitration seated in Singapore ('Singapore Injunction'). 

What one seems to have lost sight of is the fact that one party had alleged mismanagement/ oppression and it was not a case of there being a conclusive judicial finding. Further, the party so claiming fully knew when having previously agreed to submit to arbitration what the Indian statutory framework is, and yet represented that the contractual provisions were enforceable.

In many shareholder disputes, it is not at all difficult to allege mismanagement or oppression – it is often no different from alleging fraud in a contract. So is alleging mismanagement or oppression the new ‘fraud’ weapon to delay and frustrate enforcement of contracts?

In Anupam Mittal,[1] a suit in the nature of an anti-enforcement action was filed to restrain the defendants from enforcing the Singapore Injunction and to seek a declaration that the NCLT is the only appropriate and competent forum to decide the disputes pertaining to oppression and mismanagement between the parties. 
The Bombay High Court   granted a stay on the anti-suit injunction passed by the Singapore Court, noting that while the disputes pertaining to oppression and mismanagement are arbitrable under Singapore law, only NCLT has exclusive jurisdiction to adjudicate such disputes in India. The Bombay High Court held that denying a litigant access to justice, particularly when no other forum is available, would undermine the legal remedy available to a party in India, and noted that a litigant cannot be barred from pursuing his sole legal remedies on the basis the principle of comity.   Significantly, the NCLT also passed an anti-arbitration injunction in the matter restraining the continuation of the Singapore-seated ICC arbitration proceedings.

Historically, disputes relating to oppression and mismanagement were strictly held to be outside the purview of arbitration. Subsequently, the Supreme Court in Booz Allen & Hamilton v SBI Home Finance Ltd[4] laid down a test of arbitrability of disputes, which divided disputes into arbitrable and non-arbitrable depending upon whether the same concern rights in personam or rights in rem. However, unlike the reliance on the rights-based approach in Booz Allen (supra), the Supreme Court in Rakesh Malhotra v Rajinder Kumar Malhotra[5] laid out an approach for determining arbitrability of the dispute on the basis of the nature and source of the right/power that is sought to be invoked. 

The position on arbitrability of shareholder disputes relating to oppression and mismanagement is not a settled one and there have been various conflicting judgements in the past as to whether a dispute under a shareholders’ agreement is invariably ousted by CLB / NCLT jurisdiction. The anomaly around the arbitrability of disputes between shareholders was seen in the decision of various High Courts. The Delhi High Court in O.P. Gupta v. Shiv General Finance (P) Ltd.,[6] and Surendra Kumar[7] held that the Company Law Board under Sections 397 and 398 had the exclusive statutory jurisdiction to safeguard and protect the interest of the shareholders and any attempt to refer disputes to arbitration would only be a formality. 

However, the Gujarat High Court in Sadbhav Infrastructure v. Company Law Board[8] has held that disputes relating to oppression and mismanagement are amenable to arbitration even if the claim can be brought under Section 241 or 242 of the Companies Act 1956. The underlying point to determine is if the breach has arisen out of the contract or from the statute. In fact, NCLT has, in other cases, shown its support to the idea of promoting arbitrations of contractual disputes capable of being resolved by way of arbitration.[9] 

Breach of kompetenz kompetenz?

With increasing judicial intervention, the stay of the anti-suit injunction passed by the Bombay High Court is in stark contrast to the principle of kompetenz kompetenz and has effectively stripped the arbitral tribunal of its power to determine its own jurisdiction. This can be used (rather misused) by parties to evade or delay the agreed arbitration mechanism.

Anupam Mittal highlights the need for harmonising Indian law with an understanding of international arbitration and the laws that govern it. 

India’s developing pro-arbitration regime – the evolving jurisprudence of arbitrability of fraud 

On the other side of the fence, the scenario with respect to arbitrability of fraud has undergone a sea change. 

Previously, an agreement to arbitrate would be frustrated by claims of fraud, nullity, or that the arbitration process is oppressive, unconscionable, and/or vexatious. The law evolved to the point that disputes could be considered non-arbitrable on account of serious allegations of fraud.

Previously, anti-arbitration injunctions were granted in response to serious allegations of fraud to afford the appropriate protection to those parties with low bargaining power or where the commencement of arbitral proceedings would be oppressive or unconscionable.[10] These anti-arbitration injunctions were effectively aimed at assisting in saving costs and time by deciding such issues at an earlier stage than at the stage of setting aside or enforcement of awards. In fact, courts have historically been known to decline a 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.[11]

This anomaly revolving around arbitrability of disputes involving allegations of fraud finally achieved some level of rationalisation by a three-judge Bench of the Supreme Court[12] which held that allegations of fraud are arbitrable when they relate to a civil dispute, and only those disputes will be considered non-arbitrable where the allegations of fraud vitiate and render the arbitration clause itself invalid. To compound matters, such determination must be done by courts in India, invariably pausing the arbitral proceedings. As fraud ‘vitiates [all] solemn acts’ the principle of kompetenz kompetenz would invariably be given a go-by.

The Supreme Court had previously held in N. Radhakrishnan that a dispute would be non-arbitrable on public policy grounds if it is related to serious allegations of fraud.[13] Subsequently, the Supreme Court in A. Ayyasamy v. A. Paramasivam,[14] while holding that serious allegations of fraud are non-arbitrable noted that cases with allegations of fraud simplicitor are arbitrable. The jurisprudence around arbitrability of fraud then evolved in Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd. to hold that a dispute becomes non-arbitrable only when the court comes to the conclusion that the 'serious allegations of fraud' vitiate the arbitration agreement itself or in cases where the allegations are relating to arbitrary, fraudulent, or mala fide conduct, raising the question of public law.[15]

The Supreme Court in Vidya Drolia (supra) upheld the principle of severability and kompetenz kompetenz and cleared the air on the arbitrability of fraud and its relation to the public policy of India by overruling its decision in N. Radhakrishnan. The Supreme Court in its judgment further held that to accept the reasoning in N. Radhakrishnan, ie, that a dispute would be non-arbitrable on grounds of public policy where there are serious allegations of fraud, would be tantamount to accepting that the arbitration mechanism of the country is a flawed and compromised one, which can be set aside on ground of public policy or or on the ground that the same should be decided in court for public interest.  

Taming the unruly horse of public policy – Is it possible? 

Given the conflicting jurisprudence of arbitrability of oppression and mismanagement in Singapore (where disputes pertaining to oppression and mismanagement are arbitrable) and India (where such disputes have been adjudged to be non-arbitrable), the Bombay High Court found that the Anti-Suit Injunction would render the litigation remediless, since oppression and mismanagement are non-arbitrable under Indian law, and any award rendered in an arbitration on such disputes would not be enforceable in India on grounds of public policy. 

While Indian courts have placed a higher priority on the consequences of such anti-suit injunction where the dispute is non-arbitrable in India (i.e., the venue where any such judgement may be finally enforced), the Singaporean courts appear to have placed more emphasis on the principle of party autonomy, the arbitration agreement entered into by the parties and the arbitrability of the dispute in the law of the seat.

It is interesting to note that most international jurisdictions allow arbitration for disputes relating to oppression and mismanagement, given that they generally involve the private financial interests. However, in variance with the majority, disputes relating to oppression and mismanagement have been adjudged as non- arbitrable in India on grounds of public policy, even where such arbitration is seated outside India. 

One way of reading this (and preventing parties from resiling from contractual obligations) is that courts’ (and judicial tribunals’) jurisdiction is ousted by NCLT’s jurisdiction. More so as, unlike for example rent law protection or family law matters (adoption, divorce, succession, etc.) which are non-arbitrable given their social impact, there is no discernible negative social impact of allowing allegations of mismanagement or oppression to be arbitrated.

The changing pro-arbitration stance taken by the Supreme Court on arbitrability of fraud signifies the movement of the Indian jurisprudence towards a pro-arbitration regime. It is to be hoped that, as in the case of arbitrability of fraud, the Indian Courts will rein in the unruly horse of public policy and recognise the need to uphold party autonomy and relax their position on the non-arbitrability of disputes pertaining to oppression and mismanagement.

[1] Anupam Mittal v. People Interactive (India) Pvt. Ltd. & Ors., 2023 SCC OnLine Bom 1925
[2] Oil and Natural Gas Commission v. Western Co. of North America, (1987) 1 SCC 496
[3] British India Steam Navigation Co. Ltd. v. Shanmughavilas Cashew Industries, (1990) 3 SCC 481
[4] Booz Allen & Hamilton v. SBI Home Finance Ltd. (2011) 5 SCC 532, the Court laid down the 'test of arbitrability' and held that disputes concerning: (i) rights in personam ie against a person or an individual, are capable of being adjudicated by arbitration; and (ii) rights in rem i.e. against the world at large, are to be adjudicated by courts and public tribunals only.
[5] Rakesh Malhotra v. Rajinder Kumar Malhotra 2014 SCC OnLine Bom 1146
[6] O.P. Gupta v. Shiv General Finance (P) Ltd, 1975 SCC OnLine Del 147
[7] Surendra Kumar Dhawan and Anr. v. R. Vir and Others, 1974 SCC OnLine Del 101
[8] Sadbhav Infrastructure Project Ltd. v. Company Law Board, 2014 SCC OnLine Guj 9159
[9] Indus Biotech (P) Ltd. v. Kotak India Venture Fund, 2020 SCC OnLine NCLT 1430
[10] Hiroo Advani & Manav Nagpal, The curious case of Bina Modi v. Lalit Modi: Permissibility of Anti-Arbitration Injunctions in India, SCC Online Blog Exp 60 (2021).
[11] N. Radhakrishnan v. Maestro Engineers and Ors. 2009 (13) SCALE 403, A. Ayyaswamy v. A. Paramasivam, AIR 2016 SC 4675 and Avitel Post Studioz Limited and Ors. v. HSBC PI Holdings (Mauritius) Limited and Ors. (2020) 6 MLJ 544. 
[12] Vidya Drolia & Ors. v Durga Trading Corporation (2021) 2 SCC 1
[13]  N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72
[14]  A. Ayyasamy v. A. Paramasivam (2016) 10 SCC 386
[15] Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd. 2020 SCC OnLine SC 656