What the Calcutta HC held on anti-suit injunction passed by courts in relation to foreign arbitral proceedings

Bar & Bench February 19 2019
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Ayan Ray

A Division Bench of the Calcutta High Court, comprising Justice Sanjib Banerjee and Justice Suvra Ghosh, held that an anti-suit injunction passed by an Indian court staying a foreign arbitral reference and the subsequent enforcement of such foreign award, is without jurisdiction and held to be non est, if later vacated by a superior court.

A quick gloss over of the facts are helpful. Devi Resources Ltd. (appellant), is a Hong Kong Based company that purchased iron ore vide a contract dated February 29, 2012 from Ambo Exports Ltd (respondent). The agreement was governed by English Law with the provision that all disputes would be resolved by arbitral reference conducted by the London Maritime Arbitrators’ Association (LMMA), the seat of arbitration naturally being London.

The respondent, having failed to supply the material to the appellant within the time prescribed in the agreement, persuaded the appellant to accept the material from a third party supplier, namely a Muktar Mineral Pvt Ltd. However, to the appellant’s continued misfortune, Muktar Ltd also failed to supply the material within the time prescribed, on account of which the appellant had to pay demurrage, as a result of the goods vessel being stalled at a load port.

For the sake of brevity, we skip to the arbitral phase, wherein the appellant invoked arbitration in the manner prescribed by Clause 14 of the parent agreement. The respondent vehemently objected to such arbitral reference and refused to take part in such arbitral proceedings. It challenged the very basis of the arbitral reference on the premise that a subsequent letter issued by the appellant constituted a ‘stand-alone agreement’ and was not governed by any arbitration clause.

The last leg of a series of court applications culminated in the impugned order of anti-suit injunction dated January 14, 2016, wherein the Court restrained the foreign arbitral proceedings on the basis that the appellant had continued with such proceedings notwithstanding the pendency of their application under Section 45 of the Arbitration Act. This, the Court found, was ‘vexatious, oppressive and abuse of the process’, that called for an immediate injunction. In the days to follow, the London Arbitrator passed an award for a sum $1.27 million with interest, in favour of the appellant.

In February 2016, the appellant preferred an application to vacate the order of anti-suit injunction in tandem with an application to enforce the foreign award. The latter of these applications was dismissed vide an order dated August 22, 2017 where the Court held that an award passed in violation of an injunction could not be enforced.

The issue that was to be decided by the Hon’ble High Court in this appeal, therefore, was whether the arbitral award obtained by the appellant despite a subsisting order of injunction restraining the arbitral proceedings could stall the enforcement of a foreign award? And whether the subsequent order vacating such order of injunction can have retrospective effect, as if to render such injunction null and void ab initio.

The Hon’ble Court, in its wisdom, ruling in favour of the appellant, seems to have carved out an exception to the general rule governing anti suit injunctions, or in the context of the facts of the case, an “anti-arbitration” injunction, as coined by Justice Banerjee;

“The ordinary rule is that an injunction that interferes with the proceedings before another forum, albeit such injunction being couched in terms that make it operate in personam, is without jurisdiction. If such an injunction is issued by way of an interim measure, subject to further consideration, it will no doubt remain effective during its currency; but if it is vacated at the final stage or set aside in appeal or revision by an immediate superior forum or even higher, it will date back to the institution of the petition and once vacated or set aside it will stand obliterated in the sense that it was never passed.

In the context of the strictness with which such an injunction has to be viewed, it has to be an exception to the general rule where the general rule is that notwithstanding an order of injunction being subsequently vacated or set aside – whether at the same level or higher – acts done in derogation of the injunction during its subsistence would be regarded as void acts...”

The general rule vis-à-vis an order of injunction, as espoused by Justice Banerjee above, made up the thrust of the respondent arguments, wherein an attempt was made to persuade the Hon’ble Court that carving out such an exception would open the floodgates for litigants, dangerously making way for frivolous challenges to the powers of an interlocutory court simpliciter.

In doing so, the respondent placed strong reliance on several judgments of the Supreme Court and a judgment of the English Court of Appeals, to persuade the Court on points of law.

The respondent relied on Tayabbhai M. Bagasaewalla v Hind Rubber Industries Private Limited (1997) 3 SCC 443; for the proposition that a party that has suffered an interim injunction is undoubtedly bound to obey it till such time a later ruling sets back to naught the issue of whether that court had jurisdiction over the subject matter to begin with.

To further canvass the point, the respondent strongly relied on the principles in the case Delhi Development Authority v Skipper Construction Co. (P) Limited (1996) 4 SCC 622; for the proposition that orders of civil courts should not only be obeyed but enforcing it is a duty of the court.

The English case of Albon v Naza Motor Trading Sdn Bhd (2008) 1 LLR 1; was relied for the proposition that an injunction restraining foreign arbitral proceedings must be left undisturbed.

A limb of the respondent arguments inevitably turned on whether the award itself was barred by Section 48(1) of the Act, on the ground that flouting an order of injunction passed by an Indian Court by and in itself was against ‘public policy’ of India or in the interest of ‘justice and morality’ as envisaged by s.48(2) of the Act.

While not formally citing any cases on the point, the respondent made reference to the general jurisprudence supporting the proposition.

The appellant placed strong reliance on the case of Shri Lal Mahal Limited v Progetto Spa (2014) 2 SCC 433; to counter the proposition, wherein the Hon’ble Supreme Court held that “contrary to public policy of India” in the context of Section 48 should construed very strictly. The Court was ultimately pleased to agree with the assertion made by the appellant insofar as the award was barred by s.48 principles.

An interesting concept that ran the course of the judgment and was dealt with was that the order of injunction dated 14.1.2016 was passed ‘in pesonam’, therefore, directly restraining the intended party from partaking in the foreign arbitral reference.

What this in effect meant was that the order directly impinged on the appellant’s liberty to conclusively take part in the arbitral reference but not on the arbitral tribunal’s to adjudicate a reference.

To address this legal point, the appellant relied on the Privy Council judgment in SNI Aerospatiale v Lee Kui Jak (1987) 3 All ER 510, where the court held that an order of injunction ‘in personam’ only binds an entity who is amenable to the court’s jurisdiction and therefore should be used sparingly so as to not impinge on the sovereign jurisdiction of a foreign court/forum.

In the same breath, the appellant relied on the case of Modi Entertainment Network v W.S.G Cricket Pte Limited (2003) 4 SC 341 for the proposition that anti-suit injunctions being a species of injunction is rooted in equitable relief and should be used sparingly by court in deference to the ‘ends of justice’ and the ‘rule of comity of courts’.

The main thrust of the appellant arguments turned on the proposition that the order of injunction dated 14th January, 2016 was really an ineffective order to begin with, and should be regarded a nullity since it was ultimately vacated. To canvass this point, the case of Kanwar Singh Saini v High Court of Delhi (2012) 4 SCC 307 and a  single bench judgment of the Bombay High Court in Noy Vallesina Engineering Spa v Jindal Drugs Ltd (2006) 3 Arb LR 510 was relied on.

In conclusion, I would like to end by borrowing an interesting analogy used by the appellant in the course of arguments in that the award of January 21, 2016 could never have been considered ‘still born’ simply because it was passed/obtained by the appellant after the order of injunction of January 14, 2016 was passed.

The Hon’ble Court, while ultimately agreeing with the proposition that the order of anti-suit injunction was passed without jurisdiction and therefore non est from the very outset, upheld the appeal in favour of Devi Resources Pvt Ltd.

Read the judgment:

 

Devi Resources Ltd v Ambo Exports Ltd

The author is an advocate at the Calcutta High Court and the Supreme Court of India.