TaxTMI 
TaxTMI 
2016 (7) TMI 1648
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....fs) had sought, inter alia, a declaration that there is no arbitration agreement between the plaintiffs (respondent Nos. 1 and 2) and the defendant No.1 (appellant) and an injunction restraining the appellant (defendant No.1) and the London Court of International Arbitration (defendant No.3) from proceeding with any arbitration. A declaration was also sought that the arbitration agreement contained in the Joint Venture Agreement (JVA) was illegal and/ or void and /or inoperative or incapable of performance. 2. By virtue of the impugned judgment, the learned Single Judge has restrained the appellant from pursuing the arbitration proceedings before the said Arbitral Tribunal till the disposal of the suit or alternatively till the status quo order, which was granted by the Company Law Board on 16.09.2013 and continued till further orders on 04.10.2013 in Company Petition No. 110/ND/2013, is not vacated. The learned Single Judge came to the conclusion that the plaintiffs (respondent Nos. 1 and 2) had been able to show prima facie that the arbitration agreement between the parties was inoperative or incapable of performance on account of the fact that the plaintiffs had already filed....
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....would be necessary. Forum non conveniens 4. To clarify the position with regard to forum non conveniens, a slight digression would be in order. Black's Law Dictionary, 5th Edition, defines the phrase "forum non conveniens" as follows:- "Term refers to discretionary power of court to decline jurisdiction when convenience of parties and of justice would be better served if action were brought and tried in another forum. Johnson v. Spider Staging Corp., 87 Wash.2d 577, 555 P.2d 997, 999, 1000." And further as:- "The doctrine is patterned upon the right of the court in the exercise of its powers to refuse the imposition upon its jurisdiction of the trial of cases even though the venue is properly laid if it appears that for the convenience of litigants and witnesses and in the interest of justice the action should be instituted in another forum where the action might have been brought. Hayes v. Chicago, R.I. & P. R. Co., D.C. Minn., 79 F. Supp. 821, 824. The doctrine presupposes at least two forums in which the defendant is amenable to process and furnishes criteria for choice between such forums. Wilson v. Seas Shipping Co., D.C.N.Y., 77 F.Supp. 423,424. .......
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....a stay of English proceedings the burden of proof lay on the defendant to show that the court should exercise its discretion to grant a stay. Moreover, the defendant was required to show not merely that England was not the natural or appropriate forum for the trial but that there was another available forum which was clearly or distinctly more appropriate than the English forum. In considering whether there was another forum which was more appropriate the court would look for that forum with which the action had the most real and substantial connection e.g. in terms of convenience or expense, availability of witnesses, the law governing the relevant transaction, and the places where the parties resided or carried on business. If the court concluded that there was no other available forum which was more appropriate than the English Court it would normally refuse a stay. If, however, the court concluded that there was another forum which was prima facie more appropriate the court would normally grant a stay unless there were circumstances militating against a stay e.g. if the plaintiff would not obtain justice in the foreign jurisdiction...." 6. In a more recent decision of the Ho....
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....the jurisdiction but the respondent is able to establish the existence of another competent court. 10. Clearly, the principle applies when there are competing courts, each of which has jurisdiction to deal with the subject matter of the dispute. This principle would have no application to the case at hand. First of all, there is no competing court. Here we have a court and an arbitral tribunal (which is certainly not a court). Secondly, the subject matter of dispute before this court is different from that before the arbitral tribunal. The subject matter before this court is the plea of an anti-arbitration injunction and the subject matter before the arbitral tribunal is the substantive dispute under the JVA. Thirdly, the forum of arbitration consciously chosen by the parties as an alternative forum of dispute resolution, alternative to the forum of a court, cannot be regarded as an inconvenient forum. Fourthly, the place of arbitration chosen by the parties cannot be regarded as an 'inconvenient place'. 11. As a rule, the plea of forum non conveniens can only be raised by a defendant or respondent. But, in India, there is an exception to this rule that the principle of forum....
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.... than the forum non-conveniens argument. Principally, the arguments were on the issues as to whether the court could at all interfere in the course of an arbitral proceeding and whether the arbitral proceedings could be regarded as vexatious or oppressive and whether the arbitration agreement was null and void and/ or incapable of performance and whether there was waiver of the arbitration clause on the part of the appellant because of its withdrawal of a petition under Section 45 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the said Act') which had been filed before the Company Law Board in the said Company Petition. Before we embark upon a discussion of the rival arguments, it would be necessary to set out the facts leading to the present appeal. Facts: 14. On 31.03.1995, the appellant (McDonald's India Private Limited) (MIPL), Mr Vikram Bakshi (VB) (respondent No.1) and McDonald's Corporation, USA entered into a Joint Venture Agreement (JVA) for the purposes of setting up and operating McDonald's restaurants initially within the National Capital Region of Delhi on a non-exclusive basis. Essentially, the agreement was between MIPL and VB and, M....
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....n by reason of his death or incapacity. In the event of Partner's death or incapacity, Paragraph 29(d) shall govern; or (c) upon expiration or termination of this Agreement." xxxx xxxx xxxx xxxx "35. Termination by Non-Defaulting Party. The Parties agree that any of the following events constitutes material default of this Agreement: (a) failure to make the investment required by Paragraph 3; (b) failure of the other JV Party to vote shares in JV Company for the election of Directors and/or the Managing Director in accordance with Paragraphs 6 and 7, or to otherwise vote in a Shareholders meeting in accordance with Paragraph 4; (c) the transfer of shares in JV Company or encumbrance of shares in JV Company by the other JV Party in violation of Paragraphs 4, 27, 28, 29 or 30; (d) JV Company or the other JV Party shall enter bankruptcy, composition, reorganisation, liquidation, or arrangement proceedings or shall become insolvent due to its or his inability to pay its or his debts as they become due; (e) JV Company shall have a negative net worth (as calculated on a historical basis, in accordance with generally ac....
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....rmination in accordance with Paragraph 26 above or, (b) McDonald's may elect not to purchase all shares owned by Partner in JV Company, and in that event, the JV Parties agree that: (i) the Operating License Agreements shall be terminated or assigned as directed by McDonald's; (ii) the JV Parties agree to vote promptly in a General Meeting of Shareholders for dissolution and liquidation of JV Company; (iii) the JV Parties shall cause JV Company to discontinue use of and return all Property, information and materials to McDonald's; (iv) The JV Parties agree that in liquidating JV Company and in turn in disposing of existing leaseholds, freeholds and other assets, McDonald's or a company designated by it shall have a right of first refusal to acquire any such leasehold, freehold or other asset. (v) The JV Parties shall cause JV Company to cease the production of McDonald's food products and the operation of McDonald's Restaurants." xxxx xxxx xxxx xxxx "40. Miscellaneous- a. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of India and will be subject to the jur....
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....995, the respondent No.3 (Connaught Plaza Restaurants Private Limited) was incorporated pursuant to the JVA to operate McDonald's restaurants on a non-exclusive basis in the NCR of Delhi. In the respondent No.3 company, MIPL held Rs 14.56 crores equity share capital. In addition, MIPL also held preference share capital to the extent of Rs 177.30 crores and also licensed the respondent No.3 to use the McDonald's brand. In effect, MIPL held 92.95% of the total issued and paid up share capital (ordinary + preference shares). VB also invested Rs 14.56 crores towards the equity share capital, thereby both MIPL and VB held 50% each of the ordinary shares of the respondent No.3 company. 16. On 11.12.1998, a supplemental agreement, supplementary to the JVA, was entered into by virtue of which the respondent No.2 (Bakshi Holdings Private Limited) also became bound by the JVA as if it was an original party. 17. On 17.07.2013, the agreement for appointment of VB as the Managing Director of the respondent No.3 expired by afflux of time. On 06.08.2013, at a meeting of the Board of Directors of the respondent No.3, VB was not re-elected as its Managing Director. 18. On 16.08.2013, the a....
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.... that is, on 29.11.2013, MIPL invoked the arbitration agreement by its request for arbitration and instituted arbitration proceedings in the London Court of International Arbitration. Shortly thereafter, on 02.12.2013, MIPL filed a petition under Section 9 of the said Act before this Court seeking interim reliefs in aid of the arbitration proceedings. By an order dated 02.12.2013 passed in the said Section 9 application (OMP 1196/2013), the same was disposed of, but after recording the following:- "7. Both Mr. Kaul, learned counsel for Respondent No.1 and Mr. Mukherjee; learned counsel for Respondent No.2 state on instructions and, without prejudice to the contentions of the Respondents in the CLB regarding the arbitrability of the disputes, that status quo will be maintained as regards the shareholding of Respondents 1 and 2 in CPRL, as well as in the shareholding pattern of Respondent No.2, till such time, interim directions/orders are issued in the arbitral proceedings, if any. 8. The above statement of the Respondents is taken on record and will bind them. However, it is clarified that this order is without prejudice to the contentions of the Respondents regar....
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....laint which it had filed on 14.04.2014 under Order 7 Rule 11 CPC. On 09.06.2014, MIPL filed its statement of case before the London Court of International Arbitration setting out its separate and distinct claims relating to the termination of the JVA. This was followed, on 04.08.2014 by the statement of defence filed by VB and the respondent No.2 in the said arbitration proceedings subject to its jurisdictional objections. 27. On 29.10.2014, MIPL filed its statement of reply and response to the jurisdictional objections taken by VB and the respondent No. 2 in the arbitration proceedings and on 05.12.2014, VB and the respondent No. 2 filed their statement of rejoinder and reply to the response with regard to the jurisdictional objections before the London Court of International arbitration. 28. Thereafter, on 22.12.2014, the learned Single Judge delivered the impugned judgment restraining MIPL from pursuing the arbitration proceedings until the disposal of the suit or until the status quo order passed by the Company Law Board was vacated. Being aggrieved by the impugned judgment, the present appeal has been filed. Summary of facts: From the above narration of facts, the ....
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....ngs. 5) VB and Respondent No.2 sought to challenge the termination of the JVA in the pending company petition before the Company Law Board and sought stay of the arbitral proceedings. This was declined by the Company Law Board by a reasoned order. Apparently, an appeal was filed against the order declining stay, but the same was not pursued by VB and Respondent No.2 on the purported ground that since the Section 45 application had been withdrawn by MIPL, there was no occasion to take the appeal any further; 6) Thereafter, VB and Respondent No.2 participated in various steps before the arbitral tribunal. Of course, without prejudice to their objection to the competence of the arbitral tribunal and the issue of the arbitrability which was to be decided by the arbitral tribunal itself; 7) After all this, VB and Respondent No.2 filed the suit [CS(OS) 962/2014] seeking an injunction of the arbitration proceedings. In the application under Order 39 Rules 1 and 2 filed in the said suit, the learned single Judge has restrained MIPL by the impugned judgment dated 22.12.2014 from pursuing the arbitration proceedings until the disposal of the suit or until the statu....
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.... under Section 35 such proceedings would become invalid if there was identity between the subject-matter of the reference and the suit. In the present case, when the suit is not being stayed under Section 34 of the Act it would be contrary to the principle underlying Section 35 not to grant an injunction restraining the Russian Firm from proceeding with the arbitration at Moscow. The principle essentially is that the arbitrators should not proceed with the arbitration side by side in rivalry or in competition as if it were a Civil Court." (underlining added) 31. It would be clear from the above extract that the observations of the Supreme Court were in the context of the Arbitration Act, 1940 and, particularly, with reference to Section 35 and the principles embodied in Sections 34 and 35 of that Act. Sections 34 and 35 of the Arbitration Act, 1940 read as under:- "34. Power to stay legal proceedings where there is an arbitration agreement.- Where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred....
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....d Conciliation Act, 1996 and not the Arbitration Act, 1940, which stands repealed. Under the 1996 Act, whether Part I thereof or Part II is applicable, the focus seems to have shifted towards directing the parties to arbitration rather than deciding the same subject matter as a civil suit. This is clearly discernible from Section 8 of the 1996 Act as also Section 45 thereof. In both eventualities, in an action which is brought before a court and which also happens to be the subject of an arbitration agreement, on the request made by one of the parties, the court is duty bound to refer the parties to arbitration. Unless, of course, in a case where Section 45 of the 1996 Act applies, the arbitration agreement is null and void, inoperative or incapable of being performed. It is clear that the principles applicable under the 1940 Act and those under the 1996 Act with regard to such references are entirely different. 33. Therefore, we are of the view that this decision would not be of any help to the respondents in support of the impugned judgment whereby an anti-arbitration injunction has been granted. 34. The decision in Oil and Natural Gas Commission v. Western Company of North....
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.... 2. In a case where more forums than one are available, the Court in exercise of its discretion to grant anti-suit injunction will examine as to which is the appropriate forum (Forum conveniens) having regard to the convenience of the parties and may grant anti-suit injunction in regard to proceedings which are oppressive or vexations or in a forum non-conveniens; 3. Where a jurisdiction of a Court is invoked on the basis of jurisdiction clause in a contract, the recitals therein in regard to exclusive or nonexclusive jurisdiction of the court of choice of the parties are not determinative but are relevant factors and when a question arises as to the nature of jurisdiction agreed to between the parties the court has to decide the same on a true interpretation of the contract on the facts and in the circumstances of each case; 4. A court of natural jurisdiction will not normally grant anti-suit injunction against a defendant before it where parties have agreed to submit to the exclusive jurisdiction of a court including a foreign court, a forum of their choice in regard to the commencement or continuance of proceedings in the court of choice, save in an exce....
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....ve or non-exclusive jurisdiction is created, the proceedings in that court cannot per se be treated as vexatious or oppressive. Furthermore, the burden of establishing that the proceedings in the forum of choice are oppressive or vexatious would be on the party so contending to aver and prove the same. 38. The only principle on which the respondents' case is based is that the arbitration proceedings at London would be vexatious or oppressive. But, as pointed out in Modi Entertainment Network (supra), merely because an arbitration is proceeded with at the place of choice (London), would not, per se amount to a vexatious or oppressive proceeding. The onus would be on the respondents to establish that the arbitration proceedings are oppressive or vexatious. We may also note that the learned counsel for the respondents had categorically stated that it is not the place of arbitration or the expenses which would be incurred for the conduct of arbitration proceedings at London, which is the objection on their part. The objection is to the forum of arbitration itself being vexatious. In other words, the grievance of the respondents is not with regard to the place of arbitration, but to ....
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....e Court is of the view that no agreement exists between the parties. (ii) If the arbitration agreement is null and void, inoperative or incapable of being performed. (iii) Continuation of foreign arbitration proceeding might be oppressive or vexatious or unconscionable." 42. It would be noticed straightaway that the points (i) and (ii) extracted above are essentially taken from Section 45 of the 1996 Act. The only addition being point No. (iii) where it was submitted that an anti-arbitration injunction could be granted if the continuation of 'foreign' arbitration proceedings were to be oppressive, vexatious or unconscionable. 43. In Essel Sports Pvt. Ltd. v. Board of Control for Cricket in India & Others: ILR (2011) V Delhi 585, the plaintiff (BCCI) had prayed for a perpetual injunction against ESPL from initiating any action against BCCI in any other judicial forum in respect of the allegations, subject matter and reliefs contained and covered in an earlier suit which was pending before the Delhi High Court. The Division Bench observed, after examining the claims and contentions of the parties, that the causes of action in the two proceedings in India and i....
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....ly by the English Courts. The Court of Appeal noted, inter alia, that there was a good arguable case that not only Mr Albon's signature on the JVA had been forged but that the forgery was brought into existence after Mr Albon issued his proceedings and in order to stop the English proceedings in their tracks. It was further noted that the English Court was to be the final Judge on the question of authenticity of the JVA and that as such the question of authenticity could not be determined by the Arbitrators. It is in these circumstances that it was observed that the immediate and co-extensive continuance of arbitration proceedings was unconscionable (in the sense of being oppressive) for very much the same reason which the court below gave. It was considered to be a needless expense and that it would be difficult to avoid over-proliferation of pleadings and disclosure, if the parties did not know whether it would be ultimately determined that the JVA was genuine or not. Paras 16 and 17 of the said decision of the Court of Appeal are relevant. They are extracted below:- "16. That leaves for consideration the argument relating to the autonomy of the arbitration tribunal. It ....
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....had jurisdiction under Section 37 of the Senior Courts Act, 1981 (more or less equivalent to Section 151 of the Code of Civil Procedure 1908) to grant injunctions restraining arbitrations where the seat of arbitration is in a foreign jurisdiction, although that power is only to be exercised in exceptional cases and with caution. In paragraph 55, it was noted that an English court would be particularly slow to restrain arbitration proceedings where there is an agreement for the arbitration to have its seat in a foreign jurisdiction and the parties have "unquestionably agreed" to the foreign arbitration clause. That is because given the priority to be accorded to the parties choice of arbitration and the limited nature of the court's power to intervene under the provisions of the Arbitration Act 1996 (the English Act) the court should not simply apply the same approach as for the grant of a normal anti-suit injunction. It was also observed that questions relating to arbitrability or jurisdiction, or to staying the arbitration, may in appropriate circumstances better be left to the foreign courts having supervisory jurisdiction over the arbitration. 47. Paragraphs 56 and 57 of the ....
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....although the competence-competence principle was applicable and the arbitral tribunal had the requisite competence to determine its own jurisdiction, the courts in England retained the jurisdiction to determine the issue as to whether there was ever an agreement to arbitrate. In our view, the same principle would apply insofar as the courts in India are concerned. The courts in India would certainly have the jurisdiction to determine the question as to whether an arbitration agreement was void or a nullity. But, that is not the case here. Jurisdiction of the Civil Court 50. It was argued before the learned single Judge that the civil court does not have any jurisdiction to entertain a suit, the subject matter of which is also covered by an arbitration agreement. References were made to Sections 9 and 20 of the Code of Civil Procedure, 1908 as also to Sections 5 and 45 of the 1996 Act. On the one hand, it was argued on behalf of the appellant (defendant) that because of the provisions of Sections 5 and 45 of the 1996 Act, a civil court did not have jurisdiction to intervene in a matter which was the subject of arbitration and, therefore, the suit was not maintainable. On the o....
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....o and relied upon. The said provisions read as under:- "44. Definition.-In this Chapter, unless the context otherwise requires, "foreign award" means an arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, made on or after the 11th day of October, 1960- (a) in pursuance of an agreement in writing for arbitration to which the Convention set forth in the First Schedule applies, and (b) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the said Convention applies. 45. Power of judicial authority to refer parties to arbitration.-Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it fin....
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...."inoperative or incapable of being performed" in Section 45 of the Act have been taken from Article II (3) of the New York Convention as set out in para 22 of this judgment. Redfern and Hunter on International Arbitration (5th Ed.) published by the Oxford University Press has explained the meaning of these words "inoperative or incapable of being performed" used in the New York Convention at page 148, thus: "At first sight it is difficult to see a distinction between the terms 'inoperative' and 'incapable of being performed'. However, an arbitration clause is inoperative where it has ceased to have effect as a result, for example, of a failure by the parties to comply with a time-limit, or where the parties have by their conduct impliedly revoked the arbitration agreement. By contrast, the expression 'incapable of being performed' appears to refer to more practical aspects of the prospective arbitration proceedings. It applies, for example, if for some reason it is impossible to establish the arbitral tribunal." 34. Albert Jan Van Den Berg in an article titled "The New York Convention, 1958-An Overview" published in the website of ICCA [www....
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....; intent no longer to be bound by the arbitration agreement due to the expiration of this time-limit. Finally, several authorities have held that the arbitration agreement ceases to have effect if the parties waive arbitration. There are many possible ways of waiving a right to arbitrate. Most commonly, a party will waive the right to arbitrate if, in a court proceeding, it fails to properly invoke the arbitration agreement or if it actively pursues claims covered by the arbitration agreement." (emphasis in original) 36. Thus, the arbitration agreement does not become "inoperative or incapable of being performed" where allegations of fraud have to be inquired into and the court cannot refuse to refer the parties to arbitration as provided in Section 45 of the Act on the ground that allegations of fraud have been made by the party which can only be inquired into by the court and not by the arbitrator. N. Radhakrishnan v. Maestro Engineers: 2010 (1) SCC 72 and Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak: AIR 1962 SC 406 were decisions rendered in the context of domestic arbitration and not in the context of arbitrations under the New York Convention to ....
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.... deciding the dispute between the parties. It is, therefore, clear from the observations of the Supreme Court in World Sport Group (supra) that the rule is for a reference to arbitration under Section 45 unless the court comes to the clear conclusion that the arbitration agreement is null and void, inoperative or incapable of being performed. This principle would also apply in the case of a party seeking an anti-arbitration injunction in respect of an agreement under the New York Convention. In other words, unless and until a party seeking an anti-arbitration injunction can demonstrably show that the arbitration agreement is null and void, inoperative or incapable of being performed, no such relief can be granted in the suit or as an interim measure therein. 53. The finding of the learned single Judge that the arbitration agreement in the present case is incapable of performance or inoperative because of the pendency of the proceedings in the Company Law Board is clearly out of line. As pointed out above, while discussing the World Sport Group (supra) decision, it was specifically noted that the mere existence of the multiple proceedings (proceedings before the Company Law Board....
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....d respondents in Respondent No.3 as well as in the share-holding pattern of respondent No.2, till such time, interim directions / orders are issued in the arbitral proceedings, if any. The order passed by the learned single Judge specifically indicated that the said statement of the respondents was taken on record and would bind them. Thus, as an interim measure, the appellant had succeeded in getting a limited protection in the said Section 9 application. Therefore, the finding of the learned single Judge that the application was not pressed is contrary to the record. The observations of the learned single Judge contained in paragraph 68 to the effect that because of the withdrawal of the application under Section 45 and because of not taking the Section 9 application to its logical conclusion, the appellant had indicated its intention that it was submitting to the jurisdiction of the Company Law Board and of the Indian courts and had abandoned the arbitration clause, is clearly erroneous. Conclusion 56. We may point out that the question as to whether Part I or Part II of the 1996 Act would apply has not been determined by us. There was some debate and discussion that the '....