Stalemate—jurisdiction and the primacy of arbitration agreements

35065920 - chess figures on the brown wooden table backgroundThe intervention of the Delhi High Court in the cases of Videocon Industries v Union of India and Cairn India limited v Union of India illustrate that courts in India are now, more than ever, taking positive steps to give primacy to an arbitration agreement. Nakul Dewan, independent advocate and arbitrator practicing out of Singapore, Delhi and London, analyses the details.

What was the background to this pair of cases?

The parties entered into a contract, through a consortium, with the Union of India for the exploration and production of hydrocarbon resources. The contract was governed by the laws of India whereas the arbitration agreement was governed by the laws of England. Parties had chosen Kuala Lumpur (Malaysia) as the seat of the arbitration.

Two separate arbitrations arose out of the contract. Under the first arbitration (Videocon v Union of India) it was contended that pursuant to an agreement between the parties to hold hearings in London, the seat of the arbitration shifted from Kuala Lumpur to London. The second arbitration (Cairn v Union of India) dealt with the issue of whether the arbitral tribunal had become functus officio after rendering its award, despite having directed that the claimant was entitled to be awarded costs. The Union of India filed applications before the Delhi High Court, seeking injunctions in both the arbitrations.

What were the decisions of the lower courts?

The single judge of the Delhi High Court assumed jurisdiction and issued anti-arbitration injunctions in both cases. The decisions were based on the reasoning that since Indian law was the substantive law applicable to the contract, courts in India were bound by an earlier Supreme Court decision in Videocon Industries v Union of India (2011) 6 SCC 161 that had pertained to the same proceedings and declared Kuala Lumpur to be the seat of the arbitration.

What was the reasoning of the appellate court?

The High Court allowed both the appeals and set aside both decisions of the lower court. It noted that the lower court had assumed jurisdiction by placing reliance on the fact that the contract was governed by the laws of India, and that this was ‘ex facie-contrary to law’.

It also stated that the proper forum to challenge an award could only be the courts of the seat of arbitration, and for this reason only a court of competent jurisdiction in Kuala Lumpur could entertain a challenge to any decision of the arbitral tribunal. A court seated in India would not have such jurisdiction.

What will the consequences be for the procedure in each arbitration?

A unique stalemate has occurred in the arbitration between Videocon and Union of India. Courts in India are bound by the Supreme Court decision to the effect that Kuala Lumpur is the seat of arbitration. Consequently, as noted by the High Court of Delhi, it would be unable to assume jurisdiction in relation to this arbitration. However, the High Court of Malaysia has also held that it has no jurisdiction, on account of the seat being shifted to London following the parties’ agreement. As Videocon has consented to not initiate any challenge before a court in London, nothing can proceed before the English courts. Therefore, unless the Court of Appeal in Malaysia overrules the decision of the High Court of Malaysia there would be very little room for moving forward. In fact, the High Court of Delhi noted:

[B]ut since the highest court in Malaysia had yet to pronounce upon the issue, we leave it at that with prayers on our lips that hopefully the highest Court in Malaysia passes an order which can break the impasse.

The only available remedy for the parties in the matter between Cairn and Union of India is also to approach the courts in Malaysia. It is likely that the Union of India would approach the competent court in Kuala Lumpur under section 44 of the Malaysian Arbitration Act which empowers the High Court to determine the quantum of costs in the event the arbitral tribunal fails to specify it in its award. However, since the tribunal has not been declared as functus officio, it could continue to proceed and ascertain the issue of quantum of costs in terms of its earlier order.

In light of this decision and of the previous history of these two cases, what are the prospects for Indian courts becoming more arbitration-friendly and deferring more regularly to tribunals and to the courts of the relevant seat?

This decision reflects that courts in India are now, more than ever, consciously taking steps to give primacy to an arbitration agreement. Apart from the instant decision, the recent judgment of the Delhi High Court in Mcdonald’s India Pvt Limited v Vikram Bakshi (FAO (OS) 9/2015), rendered on 21 July 2016 is another example of this shift. The appellate bench of the Delhi High Court in Mcdonald’s set aside the order of the single judge which had issued an anti-arbitration injunction on the ground that no arbitration agreement existed between the parties. Setting aside the anti-arbitration injunction on the ground that prima facie an arbitration agreement existed, the Delhi High Court noted that:

[C]ourts need to remind themselves that the trend is to minimise interference with arbitration process as that is the forum of choice.

The decision in Mcdonald’s lends support to the proposition that the judiciary in India is indeed making positive strides towards respecting the agreement to arbitrate.

What other lessons can be drawn from this decision?

This decision, however, brings out that even though an agreement to arbitrate would eventually be given effect, parties must be cautious against using complicated clauses in their arbitration agreements, so as not to expend precious time in long-drawn litigation. As costs are typically not awarded by Indian courts, a party averse to proceeding with arbitration can entangle the counter party in the web of an Indian court litigation, with minimalistic cost consequences.

Nakul Dewan is a barrister practicing out of Singapore, Delhi and London. He accepts appointments both as counsel for international arbitration and international litigation and as an arbitrator. He has a broad base of expertise in the fields of international arbitration, banking and finance, international commercial law, mining, energy and natural resources. He has been appointed as arbitrator by the SIAC and has extensive experience as counsel in ICC, LCIA, SIAC, UNCITRAL and ad hoc proceedings.

Interviewed by Jane Crinnion. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

 

 

 

Filed Under: Arbitration

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