2021 (4) TMI 1322 - HC - Indian Laws

Court upholds validity of arbitration initiated by ADM, dismisses bias allegations against FOSFA

ADM International Sarl A One Business Centre and Ors. Versus Sunraja Oil Industries Private Limited and Ors.

The court found that the arbitration proceedings initiated by ADM were valid and not against public policy. The contracts between the Plaintiffs and ADM ... Validity of arbitration proceedings - seeking permanent injunction to restrain ADM from initiating, proceeding with, or continuing with arbitration proceedings - whether a case is made out to grant an anti-arbitration injunction? - HELD THAT:- The principles relating to the grant of anti-suit injunctions were examined and formulated in paragraph 24 of Modi Entertainment [2003 (1) TMI 734 - SUPREME COURT], wherein the Supreme Court held, inter alia, that an anti-suit injunction would not be granted to forbear the exercise of jurisdiction by the forum chosen by the parties - there are no contemporaneous document complaining of the non-receipt of FOSFA Form 54. On the contrary, the executed contracts contain a clause stating that the parties admit knowledge and notice of contract Form 54 of FOSFA. In this context, it is noteworthy that reciprocal obligations were fulfilled by the buyer and seller as regards some of the executed contracts, all of which used the same template, and the allegation that contract Form 54 was not received did not surface then. Therefore, the material on record does not prima facie support the contention that the respective Plaintiff did not have a copy of the contract Form 54 of FOSFA. However, in order to not prejudice the contesting parties in proceedings before the appropriate forum, I do not propose to enter conclusive findings. As regards the contention that the contract is unconscionable because it permits termination by the seller but not by the buyer; prima facie, such contention appears to be untenable in view of the incorporation of contract Form 54 in the executed contracts with the consequential recourse to the termination clause contained therein - The distinction between an arbitration clause and the other provisions of the contract becomes material in this context, and both severance and the Kompetenz-kompetenz principle are firmly entrenched in Indian jurisprudence, as is evident from Sasan and MSM. The respective Plaintiff also contended that the arbitral institution is not neutral inasmuch as it is controlled by oil seed producers. In effect, the respective Plaintiff appeared to contend that any arbitral institution which is set up by a trade organisation is not neutral - The material on record does not support a conclusion that the FOSFA arbitral institution is ex facie not neutral and I see no reason to draw such conclusion merely because FOSFA is an organisation representing the interest of traders in oil seeds and fats. The next contention that should be dealt with relates to the alleged lack of neutrality on the part of the arbitrators. Although such allegation is levelled by the respective Plaintiff, no actionable material has been placed before this Court to substantiate the contention that all the panel arbitrators of FOSFA or the specific arbitrators in the present case are not neutral. Indeed, the facts on record disclose that the respective Plaintiff proceeded to nominate its arbitrator upon receiving a notice of arbitration from ADM. The decision to abandon the arbitral process and institute proceedings before this Court was taken subsequently. In any event, any grievance on this score should be canvassed before the arbitral tribunal and/or the courts in the UK in accordance with applicable law. The respective Plaintiff has failed to demonstrate that the arbitration agreement is null and void, inoperative or incapable of being performed. In light of the above discussion and analysis, there are no reason to continue the anti-arbitration injunction. Consequently, the order of injunction granted originally on 05.07.2019 and extended periodically stands vacated. Plaintiff has failed to make out a case for an anti-arbitration injunction and that this Court does not have jurisdiction - the arbitral process need not be interfered with - application disposed off. Issues Involved:1. Validity of the arbitration proceedings initiated by ADM.2. Validity and enforceability of the contracts between the Plaintiffs and ADM.3. Jurisdiction of the Madras High Court to entertain the suits.4. Grant of interim injunction to restrain arbitration proceedings.5. Allegations of bias and lack of neutrality of FOSFA.Detailed Analysis:1. Validity of the Arbitration Proceedings Initiated by ADM:The Plaintiffs sought a declaration that the arbitration proceedings initiated by ADM before FOSFA were void and against public policy. They argued that the arbitration clause in the contracts was unenforceable because FOSFA was controlled by prominent sellers like ADM and did not permit representation by advocates. The court noted that the contracts contained an arbitration clause providing for dispute resolution by an arbitral tribunal constituted by FOSFA, governed by English law, and that court proceedings, if any, should be instituted in England. The court found that the Plaintiffs failed to demonstrate that the arbitration agreement was null and void, inoperative, or incapable of being performed. Consequently, the order of injunction restraining FOSFA from proceeding with arbitration was vacated.2. Validity and Enforceability of the Contracts Between the Plaintiffs and ADM:The Plaintiffs contended that the contracts were void and unenforceable due to various breaches by ADM, including quality issues and breaches of exclusivity conditions. They argued that the contracts were unconscionable as they allowed termination by the seller but not by the buyer. The court found that the contracts incorporated FOSFA Form 54, which provided for termination by either party. The court held that the Plaintiffs' contention that they did not receive FOSFA Form 54 was unsupported by the material on record. The court concluded that the contracts were valid and enforceable and that any challenge to the contract provisions should be made before the arbitral tribunal or the appropriate courts in the UK.3. Jurisdiction of the Madras High Court to Entertain the Suits:The court examined the arbitration clauses and governing law clauses in the contracts, which designated England as the juridical seat of arbitration and provided that the contracts would be governed by English law. The court held that the contracts disclosed the parties' intention that the governing and curial law was English law and that the arbitration would be governed by the FOSFA Rules of Arbitration and Appeal. Consequently, the court concluded that it did not have jurisdiction to entertain the suits, and the applications to revoke leave were allowed.4. Grant of Interim Injunction to Restrain Arbitration Proceedings:The Plaintiffs sought an interim injunction to restrain ADM and FOSFA from proceeding with the arbitration proceedings. The court noted that the principles for granting anti-arbitration injunctions were more exacting than those for anti-suit injunctions. The court found that the Plaintiffs failed to satisfy the threshold for an anti-arbitration injunction as they did not demonstrate that the arbitration agreement was null and void, inoperative, or incapable of being performed. Consequently, the interim injunction granted earlier was vacated.5. Allegations of Bias and Lack of Neutrality of FOSFA:The Plaintiffs alleged that FOSFA was not a neutral arbitral institution as it was controlled by oil seed producers like ADM and that the empanelled arbitrators were not neutral. The court noted that several arbitral institutions established by trade organizations represent the interests of specific trades and that domain expertise is necessary for effective adjudication of disputes. The court found that the material on record did not support the conclusion that FOSFA was not neutral. The court also noted that any grievance regarding the neutrality of arbitrators should be raised before the arbitral tribunal or the courts in the UK.Conclusion:The court vacated the interim injunction restraining FOSFA from proceeding with arbitration, allowed the applications to revoke leave, and concluded that it did not have jurisdiction to entertain the suits. The applications to refer the parties to arbitration were disposed of, and the applications to reject the plaint were closed. The court emphasized that the Plaintiffs could seek appropriate relief in the courts in the UK if so advised.