Delhi High Court frustrates 'fait accompli'

"This is one of the worst instances of abuse of the legal process,  in commercial litigation, that this Court has had the misfortune of encountering."

These are the opening lines of a judgment passed by the Delhi High Court, in a recent matter [2024 SCC OnLine Del 5631]. This astonishing introduction leads to a case in which the parties entered into a contract which envisaged resolution of disputes by arbitration, to be governed by the Arbitration and Conciliation Act, 1996 [Act] with New Delhi as the arbitral venue. The contract separately contained a clause conferring exclusive jurisdiction on courts in New Delhi, in respect of all matters relating to the contract. The contract also specified that it was to be interpreted in accordance with Indian law which was, therefore, both the governing and the curial law.

The respondent, however, filed a case in the Court of First Instance, Dubai. The Dubai court found the petitioner guilty of breach and mulcted the petitioner with damages.  

The petitioner and the respondents entered into an Authorized Distributorship Agreement [ADA]. According to the contract, disputes, if any, were to be referred to arbitration, to be governed by the Arbitration and Conciliation Act, 1996, with New Delhi as the arbitral venue. The contract conferred exclusive jurisdiction in respect of all matters relating to the contract on courts in New Delhi and in accordance with Indian law. The ADA was executed in New Delhi on a stamp paper purchased at New Delhi.

As disputes arose between the parties, the petitioner vide its letter, terminated the ADA and vide various emails addressed to the respondent, sought full and final reconciliation from the respondent.  The respondent failed to reply to the emails of the petitioner.

The respondent, however filed a case before the Dubai Court and impleaded the Dubai based subsidiary company of the petitioner and the Manager of the petitioner company as defendants to the suit in Dubai.  The respondent also alluded to collusion between the petitioner and certain entities situated in the UAE to justify approaching the Dubai Court. However, the Dubai Court found the allegation of collusion to be unfounded and confirmed damages only against the petitioner.  The order passed by the Dubai Court in favour of the respondent was the subject matter of the petition before the Delhi High Court.

The petitioner preferred an appeal in the Dubai Court of Appeal, which was pending. Meanwhile, the respondent moved the Dubai Court for execution of the order. The petitioner also filed the present case before the Delhi High Court under Section 9 of the Arbitration and Conciliation Act, 1996, inter alia, to seek an injunction against the respondent from enforcing the decree of the Dubai Court in India, to enable the petitioner to invoke the contractually envisaged remedy of arbitration, to resolve its disputes with the respondent.

Vide an ad-interim order, the respondent was restrained from proceeding to execute the decree of the Dubai Court against the petitioner, within the territorial jurisdiction of the Delhi High Court or elsewhere.

The petitioner inter alia submitted that the institution of the suit in Dubai was in mala fide breach of the ADA. The respondent had attempted to frustrate the petitioner from seeking relief in arbitration by presenting the petitioner with a fait accompli. The petitioner further submitted that the allegation of a breach of the ADA against the petitioner, in the Dubai suit, was within the ADA, and was contractually required to be construed in accordance with Indian law as the ADA conferred exclusive jurisdiction in matters relating to the ADA on courts in New Delhi, and envisaged resolution of disputes by arbitration, seated in New Delhi.

The petitioner contended that even if, for any reason, the dispute raised by the respondent in the Dubai suit were to be regarded as not amenable to arbitration, the remedy would lie before the civil court in New Delhi by way of original proceedings in view of the exclusive jurisdiction Clause 24.7 in the ADA, and not in Dubai.

The petitioner had challenged the jurisdiction of the Dubai Courts but as the Court was not convinced, the petitioner approached the Delhi High Court. The Dubai Court applied Dubai law to the dispute while passing orders notwithstanding the exclusive jurisdiction clause in the ADA.

The petitioner submitted that “just and convenient”, interim measure of protection, may be granted under Section 9, and the ‘Principle of comity of courts’, could not inhibit grant of relief where the foreign court has exercised jurisdiction in violation of the terms of the agreement between the parties.

The respondent, inter alia, raised a preliminary objection to the maintainability of the present petition. It was their case that as the Court exercising jurisdiction under Section 9 does not enjoy the power of a civil court, it cannot grant an anti-enforcement injunction.  According to the respondent, the orders passed under Section 9 have to be in aid of the final claim in the arbitral proceedings and the anti-enforcement injunction sought by the petitioner is not in aid of any final claim in any proposed arbitral proceedings. 

The respondent claimed that the dispute between the parties have already been adjudicated by the Dubai Court and as such cannot be arbitrated upon again. 

“Any re-agitation of the issue already decided by the Dubai Court would be barred by constructive res judicata."

The respondent submitted that there was no embargo on the petitioner commencing arbitral proceedings even while the Dubai suit was pending. Having not chosen to do so, the petitioner cannot now seek to interdict enforcement of the Dubai decree.

The respondent submitted that Dubai is a reciprocating territory, and the Dubai Court is a “superior court” within the meaning of Section 44A of the Code of Civil  Procedure, 1908 [CPC] Grant of the relief sought by petitioner in this petition in exercise of the jurisdiction vested in it by Section 9 of the 1996 Act, would amount to usurping the jurisdiction otherwise vested in the executing Court by Sections 13 and 44A of the CPC.

The respondent reiterated that the dispute travelled beyond the mere performance or non-performance of the ADA and was not within the scope of the ADA.

It was the respondent’s case that the petitioner was seeking enforcement of the arbitration agreement contained in the ADA, which was tantamount to seeking specific performance of the ADA, which cannot be sought in Section 9 proceedings.

The respondent also submitted that an anti-enforcement injunction is an extreme relief, which can be granted only in exceptional circumstances and the petitioner has not been able to make out a case justifying a prayer for grant of an anti-enforcement injunction of the decree passed by the Dubai court.

The respondent argued that the grant of indiscriminate anti-suit injunctions is destructive of the principle of comity of courts.

The Court heard the arguments and also perused the additional written arguments submitted by the parties.

The Court observed,

“25. The law is at times likened to a well known quadriped – unfairly both to the law and to the quadriped – but it cannot be made a spectacle of ridicule, which requires the Court to sit back and helplessly tolerate brutalization of the legal process by an unscrupulous litigant.”

The Court noted that the respondent has candidly acknowledged in the written submissions filed in the Delhi High Court that this strategy has rendered the arbitration agreement, as well as all other contractual covenants between the parties, unworkable. 

The Court opined that the cause of action of the pleaded in the Dubai suit was within the ADA and its covenants and the disputes were arbitrable.

The Court observed that the Dubai Court had rejected the allegations against the defendants impleaded by the respondents to justify filing of the suit in Dubai and passed orders only against the petitioner.  The respondents did not prefer any appeal against the order but have filed an execution petition in Dubai which is demonstrative of their acceptance of the order.

The Court rejected the respondent's defence of the petition based on the Sections 13 and 14A  of the CPC, as these Sections pertain to the executability of foreign decrees in India and the respondent had not moved any Indian court for execution of the Dubai decree.  The Court held that Section 9 of the 1996 Act, and Sections 13 and 44A of the CPC, cater to different circumstances, and operate in distinct spheres and the right under Section 9 does not in any way prejudice the rights under Sections 13 and 44A of the CPC.

The Court was aware it had no authority to stay the Dubai court decree, or its enforcement, but it  could stay the “prosecution of the enforcement proceedings, by the respondent,” as the injunction sought is against the respondent and not against the Dubai court. The Court noted it was constrained to pass a protective order of deposit against the respondent in the event the Dubai court proceeds with the enforcement.

The Court opined the principle of comity of courts cannot have application when a foreign court acts in excess of its jurisdiction. The principle of comity of courts would not apply where there was an exclusive jurisdiction clause in a contract and no party can be permitted to obtain an order from a judicial forum which, as per the contractual covenants, is coram non judice and, on the opposite party raising the issue in Court, plead comity as a defence.

The fact that Dubai is a reciprocating territory does not have any impact on the entitlement of the petitioner to protective relief under Section 9 of the 1996 Act, or on the power and authority of this Court to grant such relief.

In conclusion, the Court, inter alia, ordered the respondent to deposit with the Registry of the court, the damages awarded by the Dubai Court against the petitioners with directions that the amount deposited to be retained with the Registry, subject to further orders to be passed by the High Court or the arbitral tribunal as and when it is constituted.

The Court also directed that the amount could be released to the petitioner in the event of any order of execution of the decree passed by the Dubai court.

If the respondents produce sufficient proof that they had withdrawn the execution proceedings instituted in the Dubai court, the amount could be withdrawn by the respondent, the Court added.

These directions reflected a surprising and innovative solution to the mischievous attempt of the respondent to render the arbitration clause in the ADA unworkable and to jeopardise the right of the petitioner to seek resolution of disputes by arbitration.

About the Authors: Mahua Roy Chowdhury is the Managing Partner of Royzz & Co. Dhanashree Chowdhury is a Partner at the Firm.

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