Calcutta High Court
The Board Of Trustees Of The Port Of ... vs Louis Dreyfus Armatures Sas & Ors on 29 September, 2014
Author: Soumen Sen
Bench: Soumen Sen
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
ORIGINAL SIDE
Present :
The Hon'ble Justice Soumen Sen
G.A. 1997 of 2014
CS No. 220 of 2014
The Board of Trustees of the Port of Kolkata.......................
Petitioner
Versus
Louis Dreyfus Armatures SAS & Ors......................... Respondents
For the Petitioner : Mr. Abhrajit Mitra, Sr. Adv.
Mr. Anirban Roy
Mr. Soumavo Ghoshe
Mr. Saurabh Gupta
Mr. K.K. Pandey
Mr. Aparna Banerjee
Ms. Manisha Gupta
Mr. Sayon Ganguly
For the Respondent No.1 : Mr. Sudipto Sarkar, Sr. Adv.
Mr. Jishnu Saha, Sr. Adv.
For Union of India : Dipanjan Dutta
Heard on : 11.08.2014, 29.08.2014. 03.09.2014,
05.09.2014, 10.09.2014, 22.09.2014
Judgment on : 29.09.2014
Soumen Sen, J:- The initiation of proceeding under the arbitration rules of
the United Nations Commission on International Trade Law, 1976 by a
French National being the respondent no.1 on the basis of a Bilateral Treaty
Agreement (hereinafter referred to as BIT) between the Government of India
and the Government of France on the Reciprocal Promotion and protection
of investments 1997 is the subject matter of challenge in this proceeding.
Mr. Sudipto Sarkar the learned Senior Counsel appearing with Mr. Jishnu
Chaudhury the Senior Advocate on behalf of the respondent no.1 submits
invited this Court to decide the matter without affidavit since it is contended
that it is purely a jurisdictional issue for which no affidavit as such is
required.
This is an application for injunction restraining the respondent no.1 from
taking further steps on the basis of a notification of claim dated 11th
November, 2013 and the notices of arbitration dated 17th April, 2014 and
19th May, 2014 respectively.
The plaintiff/petitioner essentially seeks restrain order upon the respondent
no.1 to proceed with the arbitration proceeding in terms of the aforesaid
notices.
The arbitration reference has been made by one Louis Dreyfus Armatures
SAS (hereinafter referred to as LDA) respondent no.1 against the
Government of India.
The genesis of the dispute is the awarding of a contract executed by Port
Trust in favour of the Haldia Bulk Terminals Private Limited (hereinafter
referred to as HBT) for operation and maintenance of berth nos. 2 and 8 of
the Haldia Dock Complex of the Port Trust.
The plaintiff and HBT had entered into a contract on 16th October, 2009.
The said contract contains an arbitration clause. The said Arbitration
Agreement has already been invoked and arbitral tribunal has been
constituted thereafter. The respondent no.3 as claimant has filed the
statement of claim. The claim of the respondent no.3 against the
plaintiff/petitioner is essentially one for damages allegedly suffered by the
respondent no.3, as a result of alleged breach of contract dated 16th October,
2009 by the petitioner. The arbitral reference is continuing on a regular
basis. The petitioner has also filed its counter statement and counter claim.
The counter claim of the petitioner also arises out of the said contract. The
petitioner alleged to have suffered loss and damages and hence made the
counterclaim against the respondent no.3. On 11th of November, 2013 the
Government of India, State of West Bengal and the Port Trust received
notice of claim issued on behalf of the defendant no.1, in respect of
investment in the contract for the supply, operation and maintenance of
cargo handling equipment at berth nos. 2 and 8 of Haldia Dock Complex in
West Bengal. The said notification of claim is purported to have been issued
under Article 9 of a Bilateral Treaty Agreement between the Government of
India and the Government of Republic of France on the reciprocal,
promotion and protection of investment of 1997 (hereinafter referred to as
the Treaty).
Mr. Abhrajit Mitra the Ld. Senior Counsel appearing on behalf of the
petitioner submits that a bare reading of notification of claim would show
that the claim relates entirely to the disputes already pending before the
arbitral Tribunal. The claim is directed against Port Trust. The subject matter
of the dispute is wholly and completely connected with the dispute arising
out of the said Agreement dated October 16, 2009 between the Port Trust
and H.B.T which is pending before the Arbitral Tribunal. There is no
Arbitration Agreement between the petitioner and the respondent no.1 or the
respondent nos. 4, 5 and the respondent no.1.
The respondent no. 1 is not a contracting party to the Treaty. It is also not an
investor, either direct or indirect within the meaning of Article 2 of the said
Treaty. The respondent no. 1 is not claiming to have made any investment
in the respondent no.3 which is the company who allegedly suffered loss by
entering into the said contract with the petitioner. The respondent no.1 is
claiming to be an investor in the respondent no.2. From the annual report of
ABG-LDA Bulk Handling Private Limited it appears that the respondent
no.1 is a 49% shareholder of the respondent no.2. The respondent no.1 is
thus, not having any stake in the respondent no.3 leave aside 51% stake as
shareholder. The defendant no.1 is thus not a qualifying investor. It is
submitted that neither the petitioner nor the respondent no.5 is a contracting
party to the said Treaty. Even the respondent no.3 could not have invoked
the arbitration Agreement on the basis of the Treaty as against the petitioner
or in respect of any matter arising out of the said contract with the petitioner.
A notice of arbitration dated 31st March, 2014 and a notice of appointment
of arbitrator dated 17th April, 2014 issued by the Advocate representing the
respondent no.1 to the respondent no.4 are therefore not enforceable and
binding on the plaintiff. The notice of arbitration is purported to have been
issued under Article 9(3)(b) of the Treaty and with reference to the claim of
the respondent no.1 dated 11th November, 2013. The respondent no.4
replied to the said notice in which the said respondents denied and disputed
the right of the respondent no.1 to invoke the arbitration Agreement under
the said Treaty. Notwithstanding such denial the respondent no.1 again by a
notice dated 19th May, 2014 once again called upon the respondent no.4 to
enter appearance in the arbitration. It is submitted that the petitioner is
directly affected by the said purported commencement of reference of
arbitration by the respondent no.1 since the claim of the respondent no. 1
arises out of the said contract to which the respondent no.3 and the petitioner
are parties. It is argued that the scope of the said Treaty does not cover the
claim or dispute raised in the impugned arbitration notice. The said Treaty
mandates a fair and equitable treatment of the investment and the grounds of
most favoured nation status to the investments made by investors in the
respective contracting countries. The said Treaty also contains terms for the
free transfer of interest, royalties etc. The substratum of the dispute raised in
the impugned arbitration notice does not in any way attract any of the
provisions or protections envisaged in the said Treaty. The dispute as raised
in the impugned arbitration notice is not a dispute between the respondent
no.1 claiming to be the investor and the Government of India. The
substratum of the charge is the dispute between the HBT and the Port Trust.
It would appear from the notification of claim of the respondent no.1 dated
November 11, 2003 that the claim of LDA is essentially against the
petitioner. In view thereof such claim and dispute is not arising between the
French investor and the Government of India and the dispute is ex facie
outside the scope of the said Treaty the impugned arbitration notice is
nothing but an attempt to overreach the arbitral proceedings already
commenced and continuing between the petitioner and the respondent no.3.
There is no case of unfair or inequitable treatment by the Government of
India against the so called investments by the respondent no.1 as made out in
the statement of claim. The impugned arbitration is also an abuse of process
and if commenced it would result in multiplicity of proceedings. The
reference made by the respondent no.1 is oppressive, vexatious and
malafide. The initiation and continuation of such proceeding affects the
interest of the plaintiff who is being implicated directly and in the alternative
indirectly in the impugned reference. The entire cause of action of
defendant no.1 as pleaded is against the plaintiff and the impleadment of the
defendant no.4 is formal in nature and only for the purpose of invoking the
arbitral provision in the said Treaty. The plaintiff is a public sector
undertaking of limited financial resources. Conducting arbitration before an
international body would be prohibitive for the plaintiff and the plaintiff
would not be having means to conduct such proceeding effectively. Two
separate proceedings in respect of the same subject matter is also likely to
result in conflicting decisions.
The Ld. Senior Counsel has referred to Enercon (India) Ltd. & Ors. Vs.
Enercon GMBH reported at 2014 (5) SCC page 1, to submit that the seat of
arbitration is in India and arbitration proceedings of both the places namely
at India and France would lead to unnecessary complication and
inconvenience. The whole aim and object of the arbitration is to resolve the
dispute speedily, economically and financially. The policy of the law must
be to favour the litigation of issues only once in the most appropriate forum.
The interests of justice require that one should take into account as a factor,
the risks of injustice and oppression that arise from concurrent proceedings
in different jurisdictions in relation to the same subject matter. Once the seat
of arbitration has been fixed in India, the jurisdiction of Indian courts would
be in nature of exclusive jurisdiction to exercise a supervisory power over
the arbitration. Intricate complexities might arise in case of Courts of India
and France were to exercise the concurrent jurisdiction in these matters. An
agreement as to the seat is analogous to an exclusive jurisdiction clause and
having regard to the fact that arbitration proceedings have already
commenced between the petitioner and the respondent no.3 covering the
same subject matter the natural forum for all remedies in the facts of the
present case is only India. Furthermore the main contract is to be performed
in India. The governing law is the law of India. The enforcement of the
arbitral award will be in India.
Any interim measures which are to be sought against the assets of the
plaintiff ought to be in India as the assets are situated in India. The
defendant/respondent no.3 has also participated in the proceedings in
Calcutta and more particularly in the Calcutta High Court. All these factors
should indicate that the respondent no.3 does not even consider Indian
Courts as forum inconvenience. The only consideration for the defendant
no.1 to invoke the arbitration clause in terms of Article 9 of the Treaty is that
he is an investor and if the investor so decides the dispute shall be referred
to an ad hoc arbitral tribunal in accordance with the Arbitration Rules of the
United Nations Commission on International Trade Law, as adopted by the
General Assembly on December 15, 1976.
The Ld. Senior Counsel has referred to Chatterjee Petrochem Co. and Anr
vs. Haldia Petrochemicals Ltd. and Ors reported at 2014 (1) CAL LT 83
(SC) for the proposition that the fact that LDA was a non-signatory to the
said contract does not jeopardise the arbitration proceedings that is pending
before the arbitral tribunal arising out of the contract dated 16th October,
2009.
It is submitted that the Government of India nominated an arbitrator on its
behalf under serious protest. He refers to the notification of claim would
show that the dispute is essential between the plaintiff and HBT of which the
defendant no.1 is a shareholder. The relief sought in the notification of
claim has been referred in order to demonstrate that the said reliefs are in the
nature of compensation and/or damages arising out of the contract which is
now the subject matter of the arbitration proceeding between the plaintiff
and the defendant no.3. The BIT is referred in order to show that an investor
would mean any national or company of a contracting party and the scope of
the agreement in Article 2(1) specifically says that the agreement shall apply
to any investment made by the investors of either contracting party in the
area of the other contracting party including an indirect investment made
through another company, wherever located, which is owned to an extent of
at least 51 per cent by such investors, whether made before or after the
coming into force of this Agreement. The defendant no.1 admittedly owns
less than 51 per cent share in HBT. Accordingly even on the basis of the
Treaty, the said defendant no.1 claiming as an investor could not have
invoked the jurisdiction of the international arbitral tribunal.
It is submitted that there is no privity of contract between the plaintiff and
the defendant no.1 in relation to the agreement dated 16th October, 2009 and
accordingly, the plaintiff could not be served with any notice of arbitration
nor any direction could be passed for participation of the plaintiff in the
arbitration. The Ld. Senior Counsel refers to the decisions in Emirates
Grains Products company LLC vs. L.M.J. International Limited
reported at 114 CWN 375, and Chatterjee Petrochem Co. & Anr vs.
Haldia Petrochemicals Ltd. & Ors reported at 2013 (3) CLT 1 (Cal) for
the proposition that unless there is a valid arbitration agreement between the
plaintiff and the defendant no.1, the dispute of the defendant no.1 cannot be
referred to arbitration. It is submitted that it is a sine quo non that the parties
should be at consensus ad idem and unless there is a valid arbitration
agreement between the parties it is not open for either of the parties to refer
the dispute to arbitration. The Civil Court has an inherent jurisdiction to
decide all such disputes that are civil in nature and unless any statute
expressly prohibits and such ouster clause is clear and unambiguous, the
jurisdiction of the Civil Court cannot be curtailed. The jurisdiction of the
Municipal Court to restrain the foreign arbitration proceedings on the ground
that no arbitration agreement exists between the parties and it is inoperative
and incapable of being performed is well recognised. The presumption in
favour of the jurisdiction of a Civil Court would continue unless it has been
expressly barred by a statute. It is submitted that though the Division Bench
judgment in Chatterjee Petrochem (supra) has been reversed by the Hon'ble
Supreme Court on other point that there is no novation of contract but the
principle enunciated in Chatterjee Petrochem still holds the field. It has
submitted that Chatterjee Petrochem (supra) had taken into consideration an
earlier Division Bench Judgment of this Court in L.M. International vs
Sleeping Industries Company Limited & Anr reported in 2013 (1)
Calcutta Law Times 301 (HC) where same view, has been expressed. It is
submitted that Section 5 of the Arbitration Conciliation Act would not apply
in relation of foreign arbitration. The defendant no.1 cannot independently
maintain an action when the company is a shareholder has already initiated
proceeding in India and an arbitral tribunal consisting of three retired judges
of the Hon'ble Supreme Court are in seisin of the matter. Parallel
proceedings at two different fora on same facts and claiming same and
similar reliefs are vexatious and harassing.
Mr. Sudipta Sarkar the learned Senior Counsel appearing on behalf of the
respondent no. 1 submits that the respondent no. 1 is appearing under
protest. It is submitted that anti-arbitration suit and/or anti-injunction suit is
ordinarily not maintainable, unless the statute gives a right to the Court to
exercise its jurisdiction against initiation of such proceeding. It is contended
that there is a distinction between a subject of international law and subject
of a domestic law. An arbitration agreement is ordinarily entered into
between private parties. The said arbitration agreement binds only the
parties to the agreement. The parties are contractually bound to refer the
dispute to arbitration in the event the disputes raised are covered under the
arbitration agreement. It necessarily follows that a party, who is not a party
to arbitration agreement, cannot invoke the arbitration clause in case of a
dispute arising out of the said contract. However, that principle is not
applicable when the rights and obligations of the parties are created by a
treaty agreement entered into by two sovereign nations. Same set of facts
can give rise to different causes of action to different parties. The bilateral
treaty gives a right to an investor of the contracting nation meaning thereby
the French National to invoke the arbitration clause in the treaty. The
respondent no.1 need not to be a party to the contract of 16th October, 2009.
The treaty is no uncertain term gives a cause of action to the respondent no.
1 to invoke the arbitration clause under the treaty, in the event, of failure on
the part of the host nation that is to say India in protecting the investment of
the French National. Section 5 of the Arbitration Conciliation Act, 1996 in
no uncertain terms prevent judicial authority to intervene in matters
governed by Part 1 of the Arbitration Conciliation Act, 1996, except where
so provided in this Part, the rights and obligations of the parties are governed
by the contract, which contends an arbitration clause. It is submitted that
although Section 5 is a provision in part I of the Arbitration Act but it has
been held in Venture Global Engineering Vs. Satyam Computer Services
Ltd. & Anr. reported at 2008 (4) SCC 190 paragraph 25 following
Bhatia International Vs. Bulk Trading S.A. & Anr. reported at 2002 (4)
SCC 105 that the general principles of Part 1 also apply to Part II of the
Arbitration Act and Section 5 is also applicable to pending Part II of the
Arbitration Act.
Mr. Sarkar refers to Kvaerner Cementation India Limited Vs. Bajranflal
Agarwal & Anr. reported at to submit that it has been the consistent view of
the Hon'ble Supreme Court that the arbitral tribunal has exclusive
jurisdiction to rule its jurisdiction even with respect to existence or validity
to the arbitration agreement and in view of Section 5 of the Arbitration
Conciliation Act 1996 civil court would have no jurisdiction to go into and
decide such question. The aforesaid decisions are cited in order to establish
that the objections raised by the Union of India with regard to the
arbitrability of the dispute and questioning the locus of the respondent no. 1
to invoke the arbitration clause of the Bilateral Treaty Agreement are matters
which fall exclusively with the domain of the arbitral tribunal which has
since been constituted.
It is submitted that in Venture Global Engineering (supra) the learned
Senior Counsel referring to Bharat Company limited and Ors. vs. Kaiser
Aluminium Technical Services in and Ors. etc. etc. reported at 2012 (9)
SCC 552 submitted that although in the said decision Bhatia and Venture
Global were held to be not good law, however, in paragraph 197 of the said
judgment it was held that the decisions in Bhatia and Venture Global would
nonetheless applicable to all arbitration agreements concluded before the
judgment in BALCO dated 6th September, 2012 and in relation to those
arbitration agreements Venture Global would be regarded as good law.
The provisions of Section 5 would apply in the instant case and no judicial
authority shall interfere with the pending arbitration proceeding. It is further
submitted that the present arbitration agreement is dated 2nd September,
1997. Accordingly in relation to arbitration proceedings arising out of such
agreement, the principle of Venture Global shall apply, that is Section 5,
shall apply and no restraint order can be passed as prayed for in the petition.
Mr. Sarkar has relied upon the judgment of the Hon'ble Supreme Court in
Chatterjee Petrochem Vs. Haldia Petrochemical in reported at (2014)1
CAL LT 83 (SC). The said judgment follows Venture Global (2008) 4
SCC 190 and also considered Chloro case (2013) 1 SCC 641 (Chloro
Controls India Private Limited v. Severn Trent Water Purification Inc.
& Ors.). An arbitration between the contracting parties is a confidential
proceedings and the award passed in such arbitration is neither binding in
any other proceedings nor can be relied upon for any other purpose in
relation to any other proceedings. In this regard reliance is placed on a
judgment reported at (2005) 1 Lloyd's Law Reports 606 (Sun Life
Assurance Company of Canada, America Phoenix Life and
Reassurance Company, Phoenix Home Life Mutual Insurance
Company vs. The Lincoln National Life Insurance Company). The
relevant paragraphs are reproduced hereinbelow:
82. "I would add that even if it were a principle of English law
that a party against whom an issue had been decided in earlier
proceedings could not reopen that issue in subsequent proceedings, it
could only doubtfully apply in the present case. The earlier
proceedings decided the issue of cover in favour of Sun/Phoenix; it
can only be said to have been decided against them in the sense that
for the purpose of the subsequent proceedings Sun/Phoenix would
prefer that the decision had gone the other way. But I doubt if the
principle on which Mr, Hunter relied (if it exists) was intended to
cover such a case.
83. The sad truth is that in the absence of any third-party or
consolidation procedure in arbitration, parties may be put into the
position of making inconsistent cases in different proceedings. IN
litigation it is possible to make inconsistent cases in the same
proceedings; doing so later, in different proceedings, may come under
the head of abuse of process. But that is no reason to extend the law
of issue estoppel in arbitration proceedings beyond its proper sphere.
84. All the above is not to deny that there may be cases in
which an award can be evidence in subsequent proceedings even
though it will not necessarily be conclusive evidence. It may, to use
Rix LJ's expression in Drake Insurance Plc v. Provident Insurance
Plc (2003) EWCA Civ 1834, be a "fact in the world". A good
example of this is to be found in The Sargasso (1994)1 Lloyds Rep.
412 where charterer had been held liable by an award in favour of
sub-charterer who had sued to recover damages for damage to cargo.
The charterer then sued the shipowner and proved breach of contract;
the measure of damages to which he was entitled was governed by the
award pursuant to which he hd been held liable to the sub-charterer. It
It quantified the loss which he had actually suffered, he was entitled to
put it in evidence for that purpose and say he should be able to recover
not less than the amount of the award, the shipowner would also be
entitled to say that the charterer should not recover more than the
amount of award. That would not have prevented the shipowner from
arguing that the charterer had not taken the right points and that he
had dthus failed to mitigate his damages or, indeed, that the award
against him had been made by reason of some fact which was not
breach of contract on the owner's part.
86. I agree with both judgments. It is worth standing back from
the detail. What Lincoln seek to do is to rely upon a non-operative (in
the sense that no actual consequences flow from it), opinion expressed
by the Cigna arbitrators. The opinion is in its nature private.
Moreover, it was unappealable. Lincoln seek more than just to rely
upon the opinion-they say it is conclusive for all purposes and so
conclusive in the later arbitration.
87. I think such a result would be obviously wrong for the
following reasons:
(a) An arbitration is an essentially private matter between the parties to
it. Only some consequence of an award (e,g. that A should pay B
money) can go further and extend beyond the privacy of the
arbitration itself - so as to become a "fact in the world."
(b) Because the determination of arbitrators is itself of a private matter it
is in its nature not intended to be available to third parties for any
purpose. A third party's rights against one of the parties to an earlier
arbitration cannot depend on the happenstance of the available of the
details of that arbitration in a latter arbitration involving that third
party. In this connection, I note that the position may be different if
the earlier decision is that of a court. In particular a decision of a
court as to the construction of a contract is a matter of law - with the
consequence that the further principle of judicial precedent on such a
question may come into play.
Where a party seeks to re-litigate in subsequent proceedings
against Y a point he fought fully in earlier proceeding against X, it may
be that, notwithstanding a lack of mutuality, he can be prevented from
doing so on the grounds of abuse of process. As to that I express no
concluded opinion for, for the reasons given by Mance LJ. There is no a
question of abuse of process here".
It is thus submitted that the fact that an arbitration is pending between
Kolkata Port Trust and HBT is of no relevance as the questions which may
arise in that arbitration or the decision passed thereat cannot be looked into
or be binding or relevant in the arbitration pending between the respondent
No.1 and Union of India. Hence, the principle of parallel proceedings and a
possibility of conflict of decision, has no application in two aribtrations.
It is submitted that in Chatterjee Petrochem (supra) the Hon'ble Supreme
Court has in no uncertain term stated that since arbitration clause is valid the
suit filed by the respondent no. 1 for declaration and permanent injunction is
unsustainable in law and the suit is liable to be dismissed. It is submitted
that in the Chatterjee International (supra) the parties were directed to
resolve their dispute through arbitration as mentioned in Clause 15 of the
letter of the agreement on 12th January, 2012, in accordance with the laws of
ICC. Since the bilateral treaty has given a cause of action to the French
National as an investor and the said treaty is binding on the two sovereigns,
the plaintiff is as much bound by the treaty obligation as any other entity.
The Indian arbitration proceeding is between the plaintiff and the respondent
no. 4 which is based on a contract entered into between two parties on 16th
October, 2009. Such proceeding is no bar to invoke the arbitration clause
under the treaty agreement by an investor against the host nation for the loss
and damage suffered by him in the host nation. It is submitted that there may
be overlapping issues but that by itself would not be a ground to stay an
arbitration proceeding commenced before the International Arbitration
Tribunal.
Mr. Sarkar distinguished the decision cited by Mr. Mitra by submitting that
none of the cases cited by Mr. Mitra would apply since they are matters not
relating to pendency of two arbitrations but relate to stay of suits on the
principle of lis pendens, that is to say an arbitration proceeding has been
initiated under a private contract between the parties and a suit filed by one
of the parties for staying of the said arbitration proceeding which is not the
case here. It is submitted that the Chloro Controls (supra) relied upon by
Mr. Mitra also does not apply since in the Chloro Controls (supra) an
application was made under Section 45, which enabled the Court to come to
the finding as it did on the basis that Section 45 covered persons claiming
through or under the parties. It is contended that it cannot be said that either
the Port Trust or the Union of India is claiming through or under either
parties. On the contrary, the arbitration is based on an international treaty
between France and India. The plaintiff is not a party to the arbitration
agreement and cannot challenge it. The plaintiff is not challenging the
arbitration agreement either but is seeking to argue that by reason of an
earlier pending arbitration between it and HBT, the second arbitration cannot
proceed. A non party cannot challenge the validity of an arbitration
agreement. The dispute in Enercon (supra) was whether the seat of
arbitration was India or London. The Supreme Court held that an arbitration
could not have two seats and hence, decided that India was the seat of
arbitration, although the venue of arbitration could be London. All the
Supreme Court judgments are judgments, which are pro arbitration and in
which the Arbitration Clause is enforced. In paragraph 90 of Enercon, it has
been held that, Courts play a supportive role in encouraging the arbitration to
proceed rather than letting it come to a grinding halt. Another equally
important principle recognized in almost all jurisdictions is the least
intervention by the Courts.
The invocation of the arbitration clause (Article 9) of the Treaty by the
defendant No. 1 has been challenged by the plaintiff in the present suit on
essentially the following grounds:
(A) The arbitraton agreement is inoperative between the defendant No.
1 and the p0roforma defendant No. 4, between the defendant No. 1
and ;the plaintiff, as well as the defendant No. 1 the proforma
defendant NO. 5;
(B) The defendant No. 1 claiming to be in control of the defendant No.
3 is bound by the arbitration clause in the agreement dated 16th
October, 2009. Even otherwise the subject matter of the arbitral
reference arising out of the said agreement dated 16th October, 2009
invoked by the defendant No. 3 as against the plaintiff is the same
as the subject matter of the defendant No. 1's notification of claim
dated 11th November, 2013.
The principle ground of challenge appears to be the arbitration agreement is
inoperative between the defendant no. 1 and proforma defendant no.4,
between the defendant no.1 and the plaintiff as well as the defendant no.1
vis-à-vis the proforma defendant no.5. It is submitted that the defendant
no.1 is claiming to be a qualifying investor under the said Treaty, the
defendant No. 1 either had to be make a direct investment in India or would
have had to have at least 51% shareholding in the company (the defendant
No. 3 in this case) which has made investment in India. The attention of the
court is drawn to the Article 1(4) and Article 2(1) which are set out
hereinbelow:
1(4) The term "investor " means any national or company of a
Contracting Party;
2(1 This agreement shall apply to any investment made by
investors of ither Contracting Party in the area of the other
Contracting Party, including an indirect investment made through
another company, whenever located, which is owned to an extent of
at least 51 per cent by such investors, whether made before or after
the coming into force of this Agreement.
It is submitted that the defendant no.1 has no direct investment
in India nor has any shareholding in the defendant No. 3. The
defendant No. 2 is the holding company of the defendant No. 3
and if at all the defendant No. 3 was a French company it may
have been a qualifying investor under the said Treaty. The
defendant No. 1 is thus not a qualifying investor. The
defendant NO. 1's shareholding even in the defendant No. 2 is
only 49%. Since the defendant has waived its right to file any
affidavit in opposition, the statements in the petition ought to be
accepted as true and correct; The defendant NO. 1 not being a
qualifying investor, the agreement is inoperative vis-à-vis the
defendant No. 1 irrespective of whether the other side is the
Union of India or any other entity; Under no circumstances, the
defendant No. 1 can be stated to be the Union of India and is
thus not one of the two contracting parties to the said Treaty.
The defendant No. 1 is seeking to get around this by describing
the defendant no. 4 (i.e. Union of India) as a compendium of
the following juristic entities;
a) Union of India itself;
b) Federal Governments (i.e. the State Governments);
c) Authorities and statutory bodies of the Republic of India.
(vi) On the above basis the notification of claim is issued against the
Chairman, Kolkata Port Trust. Accordingly, the Arbitral Tribunal
has also resorted to notifying the Kolkata Port Trust at every stage as
would appear from their letters dated 13th August, 2014 (page 33
supplementary affidavit), 15th August, 2014 (page 35 supplementary
affidavit), 26th August, 2014 (page 45 supplementary affidavit);
The second ground of challenges that KOPT (plaintiff) is not a party to the
arbitration clause is a Bilateral Treaty and accordingly could not be dragged
to the said arbitration proceeding. In this connection the Ld. Senior Counsel
has relied upon and the following passage from the judgment which states:
City of London -vs- Sancheti (2009)1 LLR 117 para 35
"In the present case the Corporation of London is a not a party to the
arbitration agreement, relevant party is the United Kingdom Government.
The fact that under certain circumstance the State may be responsible under
international law for the acts of one of its local authorities, or may have to
take steps to redress wrongs committed by one of its local authorities, does
not make that local authority a party to the arbitration agreement."
It is thus submitted that even if under the treaty obligation the Union of India
may be held responsible for any particular Act of KOPT (which is not
admitted) under no circumstances KOPT could be treated as the party to the
arbitration Agreement as the Bilateral Agreement.
On the aspect of the jurisdiction of the Civil Court to decide on the
existence on the foreign Arbitration Agreement in a suit for anti foreign
arbitration injunction the plaintiff has relied upon the following decisions:
a) (Dr. Devinder Gupta -vs- Realogy Corporation and Anr.) (2011) 3
Anb L.R. 227 paragraphs 16 and 17
b) Chatterjee Petrochem (Mauritious) Co. & Anr. - vs- Haldia
Petrochemicals & Ors. (2013) 3 CLT 1 paragraphs 67to 73, 78 and
100.
c) Excalibur LLC -vs- Texas Keystone Inc. & Ors. (2011) 2 LLR 289
paragraphs 64.
As to the power and duty of Civil Court under Section 45 to adjudicate upon
the existence and effectiveness of the arbitration agreement, reference is
made to Dr. Devinder Gupta -vs- Realogy Corporation & Anr.) (2011) 3
Anb LR 227 at paragraphs 17 and Chloro Controls India Private
Limited - vs- Seven Trent Water (2013) 1 SCC 641 paragraphs 63.
Since the defendant no. 1 claiming to be the controlling shareholder of
the defendant Nos. 2 and 3, is bound by the arbitration clause in the
agreement between the plaintiff and the defendant No. 1 dated 16th
October, 2009. In this regard reference is made to Chloro Control
India Private Limited -vs- Severn Trent Water Purification Inc.
reported at (2013) 1 SCC 641 (paras 70 to 72). It is contended that in
the said judgment in the context of Section 45 of the Arbitration and
Conciliation Act, 1996 it was held that when a company enters into an
arbitration agreement, the same would also bind its group companies,
sister concerns, parent concern as also the controlling shareholders;
It is emphasized that multiple proceeding in respect of the same
subject matter is always avoidable - (Chloro Control India Private
Limited - vs- Severn Trent Water Purification Inc. (2013) 1
SCC641 paras 89 and 90; Enercon (India) Limited & Ors.- vs-
Emercon GMBH & Anr. (2014) 5 SCC 1 paras 137 to 145 and Re:
The Abidin Daver (1984) 1 LLR 339 at 344;)
In order to emphasis on the impact of Section 45 of the Arbitration
Conciliation Act, 1996 the Ld. Senior Counsel has relied upon the decision
in
Bharat Aluminium Company -vs- Kaiser Aluminium Technical
Services Inc. (2012) 9 SCC 552 paras 120 to 122 & 125 to 130 and
submitted that it has been conclusively held that the provisions of Part I
including Section 5 will not apply to a foreign arbitration which is governed
by Part II of the said Act. The obiter dictum of the two Judges's Bench in
the case of Chatterjee Petrochemicals -vs- Haldia Petrochemicals (2014)
1 CLT 83
(SC) para 29, that Part I provisions apply to arbitration governed by Part II
by relying on Satyam Computers judgment (which judgement has been
expressly overruled in Balco) can not be a binding precedent for this
proposition;
Section 5 cannot anyway curb the power expressly vested in the Court under
Section 45 of the said Act.
As to prospective overruling of Satyam Computers and Bhatia
International in Balco that would have no impact on the present case
since there was no arbitration agreement, to which the defendant No.
1 was a party, in existence prior to Balco's judgment. The Treaty
between the Indian Government and the French government, is not an
arbitration agreement to which the defendant NO. 1 is a party since
inception. It has been held in the said judgment of City of London -
vs- Sancheti (2009) 1 LLR 117 para 3 that an arbitration agreement
in a Bilateral Treaty is at best a standing offer to arbitrate and upon
acceptance by a qualifying investor of this standing offer to arbitrate
gives to a binding arbitration agreement.
"Typically under a BIT the investor is given direct standing to
pursue his own claim against the state of the investment in
respect of any "investment dispute". The arbitration provision
to the BIT can amount to a standing offer to investor to
arbitrate, and acceptance of this standing offer to arbitrate by
an investor gives rise to binding arbitration agreement between
the investor on the one hand and the host state on the other; in
the absence of a specific choice of law, the law to which the
agreement to arbitrate between the investor and the host state
is to subject is international law; Republic of Ecuador vs
Occidental Exploration and Production Co. (2005) 2 Lloyd's
Rep 707, ETI EuroTelecom International NV v Republic of
Bolivia (2008) 2, Lloyd's Rep 421)
Therefore, it at all there is an arbitration agreement where the
defendant no. 1 is a party, the same came into existence only upon the
defendant no. 1 proposing to refer the disputes to arbitration by the
notification of claim dated 11th November, 2013 (para 661), i.e. post
Balco.
In refuting the argument made by Sudipta Sarkar with regard to absence of
an application under Section 45 of Arbitration Conciliation Act, 1996 it is
submitted that The defendant No. 1 relied on paragraphs 89 to 90 Fuerst Day
Lowson (2011 (8) SCC 333), for the proposition that the Arbitration and
Conciliation Act, 1996 is self contained court. That does not in any manner
derogate from what has been stated in paragraph 60 as to non-applicability
of Section 5 to arbitration under Part II. The said paragraph reads:
"The Ld. Senior Counsel has specifically referred that Part I and Part II of
the Act are quite separate and contain provisions that act independently in
their respective fields. The opening words of Section 2 i.e. the defeinition
caluse in Part I , make it clear that meanings assigned to the terms and
expressions defined in that section are for the purpose of that part alone.
Section 4 which deals with waiver of right to object is also specific to Part I
of the Act. Section 5 dealing with extent of judicial intervention is also
specific to part I of the Act. Section 7 that defines "arbitration agreement"
in considerable detail also confines the meaning of the term to Part I of the
Act alone. Section 8 delas with the power of a judicial authority to refer
parties to arbitration where there is an arbitration agreement and this
provision too is relatable to Part I alone (corresponding provisions are
independently made in Sections 45 and 54 of Chapters I and II, respectively
of Part II). The other provisions in Part I by their very nature shall have no
application in so far as the two chapters of Part II are concerned".
In the same vain paragraph 98 of Enercon (supra) was cited to show that
there are very strong indicators to suggest that the parties always understood
that the seat of arbitration would be in India and London would only be the
"venue" to hold the proceedings of arbitration.
It was further held in Enercon (supra): By choosing that Part I of the Indian
Arbitration Act, 1996 would apply, the parties have made a choice that the
seat of Arbitration would be in India. Section 2(2) of the Indian Arbitration
Act, 1996 provides that Part I "shall apply where the place of arbitration is in
India". In BALCO it has been categorically held that Part I of the Indian
Arbitration Act, 1996, will have no application, if the seat of arbitration is
not in India. In the present case, London is mentioned only as a "venue" of
arbitration which, in our opinion, in the facts of this case cannot be read as
the "seat" of arbitration".
It is submitted that in BALCO it has been categorically held that Part I of the
Indian Arbitration Act, 1996 will have no application if the seat for
arbitration is not in India.
It is argued that in Kvaerner (2012) 5 SCC 214, the Hon'ble Supreme
Court was considering a domestic arbitration governed by Part I and not an
international arbitration.
It is submitted that Venture Global (2008) 4 SCC 190 has been expressly
overruled in BALCO.
On this aspect the Ld. Senior Counsel has referred to a Division Bench
judgment in Coal India Limited - vs- Canadian commercial Private
Limited reported at (2013) 2 CHN 494 and submitted that in the judgment
it was held that the law prevailing even prior to BALCO by virtue of the
Supreme Court judgment in the case of Fuerst Day Lowson (2011) 8 333
and Yograj Infrastructure Limited vs. Ssangyong (2011)9 SCC 735 was
the same i.e. part I provisions will not apply to arbitrations governed by Part
II.
As to the prospective overruling it is submitted that since there was no
arbitration agreement to which the defendant no.1 was a party in existence
prior to BALCO's judgment, Venture Global would have no application.
In refuting this submission of the defendant no. 1 that the plaintiff has no
locus to institute the suit it is submitted that the plaintiff is adversely
affected by the invocation of the arbitration clause under the Bilateral treaty.
Accordingly, the plaintiff is entitled to file the present suit for the Court to
hold that the arbitration clause in the treaty is "inoperative or incapable of
being performed" vis-à-vis the defendant NO. 1 (as in, its right to invoke)
and the plaintiff (as to being implicated in the arbitration). Under Section 45
of the Arbitration and Conciliation Act, 1996 the civil court has been vested
with the power to decide the above issue. Merely because the defendant No.
1 has chosen not to file a Section 45 application that would not mean the
Court cannot exercise the power which is already vested in it and tried to
draw sustenance from paragraph 17 of Dr. Devinder Kumar Gupta's
(supra) which states :
"Since we are of the unequivocal opinion that an arbitration agreement did
not come about vis-à-vis the plaintiff, we must accept the appeal and in
exercise of powers under Section 45 of the A & A Act restrain Realogy
Corporation, respondent no.1, from preferring or prosecuting any claim
against the plaintiff/appellant in proceedings under the aegis of the
American Arbitration Association".
The plaintiff has referred to the following facts to demonstrate that the
course of event, would show that the plaintiff is being implicated in the
arbitration
In the notification of claim; the expression "India", is not used in the sense
of the juristic entity "India but is an expression coined for the purpose of
including amongst others KPT a statutory body within the definition India.
A further reference was made to page 663 which reads "hereinafter India,
which term shall include the Federal Government and authorities and
statutory body of republic of India".
It is, thus contended that if at all award is made against the so called entity
"India", it can very well be contended by the award holder that the
expression "India" includes KPT.
The entirety of the statement of claim talks about alleged berach of
contract by KPT. But for the expression "India" appearing in
frequently and out of context in the statement of claim, no cause of
action is made out against India.
At every state the plaintiff is being served with notices both by the
defendant No. 1, its advocate as well as the Arbitral Tribunal. Notice
has been given directly to the petitioner as a party to the arbitration
and not merely copies marked to the plaintiff.
The second paragraph of the letter dated 31st July, 2014 is referred to which
reads:
"We refer the parties to the UNCITRAL Arbitration Rules
1976.............................................."
The Ld. Senior Counsel has also referred to the letters dated August 15,
2014, Sept. 2, 2014 and Sept. 8, 2014 to show that he plaintiff has been
treated as a party to the arbitration agreement. It is submitted that because of
the repeated notices that the plaintiff is receiving from the Arbitral Tribunal,
the plaintiff for the purpose of chellenging/resisting the award will be treated
as a party since the plaintiff would not be able to take the ground available
under Section 48(1) (b) of the said Act at the stage of resisting the award that
may be passed.
The ld. Senior Counsel has further relied upon the following judgments for
the proposition that the Civil Court had jurisdiction to pass injunction order
restraining for an arbitration.
i) Nicco Corporation -vs- Prysmian (2010) 11 SCC 744:
ii) Ghanshyam Das Behti -vs- Jamuna Transport AIR 2011 Cal 41
P 22
iii) Bhagwandas Auto Finance Limited -vs- Citicorp AIR 2009 Cal
231 para 19.
iv) (2011) 2 Lloyds LR 510 Claxton Engineering -vs- TXM paras
34 and 41.
v) (2013) 2 Lloyds LR 421 The Barito paras 72 to 73
It is submitted that in Enercon (supra) the issues arose for consideration was
in a suit for anti arbitration injunction would the Civil Court or Arbitral
Tribunal decide the issue as to whether there exists a valid arbitration
agreement.
The Hon'ble Supreme Court decided the above issue and held that the saii
agreement is binding on the party. It is argued that in this case the
arbitration agreement in the treaty is inoperative and not-capable of being
performed vis-à-vis plaintiff and/or defendant No. 1 for the following
reasons:
(i) The plaintiff is not a qualified treaty investor within the
meaning of Article 1(4) and Article 2.
ii) KPT is not a contracting party
In dealing with the submission of Mr. Sudipta Sarkar that the Indian
Arbitration Act does not confer any power on the Civil Court unlike the
English Courts to interfere with foreign arbitration by passing anti
arbitration injunction. It is submitted that Section 72 of the English
Arbitration Act, 1996 empowers the Civil Court to decide whether an
arbitration agreement is valid. This is in Part I of the said Act. An
arbitration under New York Convention is under Part III. By virtue of
Section 2(2) and 2(3), the previsions contained in Part I of the said Act,
barring a few specified sections (within does not include Section 72) are not
applicable to arbitrations governed under Part III. Therefore, the Civil
Courts England have no special power to decide the issue as to existence of
a foreign arbitration agreement.
From a reading of the judgments of the EnglishCourt it will be evident that
such power is derived by the English Court from Section 37 of the Supreme
Courts Act, 1981, which is the general power of a Civil Court to pass
injunction and appoint Receiver.
In this regard Mr. Mitra has specifically relied upon paragraph 26 from
Claxton Engineering Services Ltd. (supra) which reads :
26. "I am accordingly satisfied that I have jurisdiction to grant an injunction.
That jurisdiction derives from Section 37 of the Senior Courts Act 1981
which provides that:
"(1) The High Court may by order (whether inter locutory or final)
grant an injunction or appoint a receiver in all cases in which it appears
to the court to be just and convenient to do so.
(2) Any such order maybe made either unconditionally or on such
terms and conditions as the court thinks just."
The owner before the court of appeal submitted that the arbitration Act 1996
occupies the whole grounds relating to the granting of relief in the form of
anti-suit injunctions; nothing in the AA 1996 permits a court to interfere in
the question of whether or not an arbitration agreement binds the parties to it
before that question has been referred first to the decision of arbitrators
themselves; therefore it is not open in principle for the C ourt to avail itself
of any jurisdiction togrant an anti-suit injunction which it might otherwise
possess under Section 37 of the Senior Courts Act 1981 (the SCA 1981);
and in the absence of any current or prospective arbitration, there was and
is no jurisdiction to grant relief under section 44 of the AA 1996 either.
Section 37 (1) of the SCA 1981 provides:
"The High Court may by order (whether interlocutory or final) grant an
injunction or appoint a receiver in all cases in which it appears to the court to
be just and convenient to do so".
Section I of the AA 1996 provides:
"The provisions of this Part are founded on the following principles, and
shall be construed accordingly (a) the object of arbitration is to obtain the
fair resolution of disputes by an impartial tribunal without unnecessary delay
or expense; (b) the parties should be free to agree how their disputes are
resolved, subject only to such safeguards as are necessary in the public
interest: (c) in matters governed by this part the court should not intervene
except as provided by this part".
This part of the AA 1996 there referred to is part I, which is headed
"Arbitration pursuant to an arbitration agreement". The question is raised by
the submissions before the Court as to whether section I(c)'s principle, when
stating that "the court should not intervene", is referring to intervention in
"arbitration", "arbitration agreement", or "arbitration proceedings".
The court of appeal analysis various sections of the Indian Arbitration Act
and held :
Therefore, a question of substantive jurisdiction can always be taken to the
court, either sooner, by agreement of the parties or the arbitrators' and
court's leave, under Section 32, or later by challenge to an award under
section 67, or, it seems, sooner or later by a party who takes no part in the
arbitral proceedings, under Section 72.
It is to be observed that the sections within part I (which extends down to
section 84) refer as may be appropriate to "arbitration" in general (as in
section I (a)'s "the object of arbitration"); to "the arbitration" as in section
3's the seat of the arbitration; to "arbitration agreement" (as in sections 5, 6,
7, 8 and 9); to "arbitral proceedings" (as in sections 12, 13, 14 and 32); and
to "arbitrators" and "arbitral tribunal" (as in sections 15 ff) Section 44 is
placed under a heading (which precedes section 42) named "Power of court
in relation to arbitral proceedings". Section 44(I) itself refers to the court's
power for the purposes of and in relation to arbitral proceedings.
It is not obvious from its own terms that the scope of section 44 extends to
the grant by the court of an anti-suit injunction in support of arbitral
proceedings. Section 44(2) (e) refers to the grant of an interim injunction,
but not to final injunctions: see Cetelem SA v Roust Holding Ltd(2005) I
WLR 3555. In the Cetelem case this court discussed the power of the court,
in aid of the arbitral process, to make interim injunctions for the purpose of
preserving evidence or assets, see section 44(3). In Starlight Shipping Co. v
Tai Ping Insurance Co Ltd Hubei Branch (2008)1 All ER (comm) 593, para
21 Cooke J held that his must include the contractual right to have disputes
referred to arbitration, and thus embraced the right to seek at any rate an
interim anti-suit injunction. I will assume that is correct (at any rate on the
facts of that case) and it has not been formally disputed that it is, but Mr.
Eder expressed some reservations, and I would for myself consider the
matter unsettled.
All the various issues raised before the Court of appeal in so far as the
present case concern as it concerns as it involves a jurisdiction issue. I
would confined to the observations made by the court of appeal to such
jurisdiction issue. In the words of the court of appeal "The first raises the
question whether as a matter of principle the court has effective jurisdiction
to grant a declaration or an anti-suit injunction to protect a party's rights
under an arbitration agreement in circumstances where there are no arbitral
proceedings on foot and none are intended pursuant to what agreement".
On construction of Section 1(c) 1996 Act it was held
There seems no reason in principle why the court might not want to
intervene in such a case, so as to support arbitration and not to interfere in it.
Therefore, it seems to me that section I(C) does not drive the answer to the
issue in our case. Secondly, section I(C) is only one of three principles
stated in section I. The first two principles are (a) that "the object of
arbitration is to obtain the fair resolution of disputes by an impartial tribunal
without unnecessary delay or expense" and (b) that "the parties should be
free to agree how their disputes are resolved, subject only to such safeguards
a are necessary in the public interest". As for the first of these (section I(a)),
it is not really concerned with a dispute of substantive jurisdiction which
arises from a fundamental disagreement as to whether the parties have ever
agreed to arbitrate at ll. For if they have not agreed to arbitrate, then the
arbitral tribunal can have no proper, and certainly no definitive role in
resolving their disputes; and whether they have agreed to arbitrate or not,
that issue of substantive jurisdiction can only ultimately (if the issue is alive,
and taken and not lost by any procedural bar) be resolved by the court, and
not by any arbitral tribunal. Moreover, I have already explored above (at
para 8 I) the issue of "unnecessary delay or expense" in this context, which
may well pushin favour of a preliminary issue in the courts even where an
arbitration reference is itself up and running. As for the second of these
principles (section I (b), where parties may have agreed an arbitration
agreement but are in dispute as to whether they have done so, the principle
of party autonomy suggests that the court should be prepared to assist in
finding ways for that dispute to be resolved. Thus a consideration of all
three of these principles may well suggest that a balancing exercise has to be
performed in which the private and public interests involved, and the
purposes of the AA I 1996, might well weigh in fabvour of the court playing
a necessary role. Such a conclusion seems to me moreover to reflect the
numerous cases, both before and after the AA 1996, in which the court has
been prepared to use or to recognise the use of section 37 to support
arbitration by requiring parties to refer their disputes to arbitration, rather
than to allow one party to pre-empt the issue of arbitral jurisdiction by use of
foreign courts: see, for instance, The Angelic Grace (1995) I Lloyd's Rep
78, and the XL Insurance Ltd (2001) 1 ALL ER (Comm)530, Welex (2003)
2 Lloyd's Rep 509, Through Transport (2004) 1 Lloyd's Rep206, Elektrim
(No 2) (2007) 2 Lloyd's Rep 8, and Starlight Shipping (2008)1 ALL ER
(Comm) 593 cases.
102. There is nothing in the Saville Report to suggest that use of the anti-
suit injunction, at that time so recently and so importantly highlighted in The
Angelic Grace, in support of arbitration was unjustified or inconsistent with
the principles of the new Bill".
Although various points have been raised by the plaintiff to challenge the
proceeding but the moot point appears to be that the arbitration agreement is
inoperative as between the plaintiff and the defendant no.1.
The notification of claim refers to the contract dated 16th October, 2009 for
the supply operation and maintenance of cargo handling equipment and
berth nos. 2 and 8 of Haldia Dock Complex awarded by the Board of
Trustees for the Port of Calcutta to a consortium comprising of ABG
Infralogistics and ABG Kolkata Container Terminal Private Limited. The
consortium has successful tenderer incorporated a Special Purpose Vehicle
namely the respondent no.3 HBT.
LDA is a company incorporated under the laws of France ( registered under
nb 652 012 311 Companies and Trade Registry of Nanterre) and having its
registered office at "Les ecluses" 28 Guai Gallieni, - 92158 Suresnes,
FRANCE. LDA is experienced in the dry bulk cargo transportation and
handling industry.
ABG Ports Limited (hereinafter "ABG Ports") and ABG Kolkata Terminals
Private Limited (hereinafter "ABG Kolkata"), are subsidiaries of ABG
Infralogistics Limited (hereinafter "ABG"), all of which are companies
constituted under the laws of India and are inter alia, engaged in the business
of investing in and operating infrastructures assets including cargo terminals
in ports. In or about 2008, the said Consortium secured a tender for the
supply, operation and maintenance of cargo handling equipment of Berth
nos. 2 and 8 (hereinafter the said Berths") at the Haldia Dock Complex
(hereinafter HDC) from KoPT, through a global competitive bid process As
per the terms of the tender documents, this Consortium subsequently
incorporated itself as a joint venture company namely HBT.
ALBA Asia Private Limited (previously known as ABG LDA Bulk
Handling Private Limited) (hereinafter ALBA) is a joint venture company
incorporated under the laws of India through a collaboration between LDA
and ABG Ports.
HBT is a joint venture company incorporated under the laws of India by the
Consortium, which was formed specifically for the purpose of carrying out
the activities related to the Project and which entered into the Contract with
KoPT. On or about 23rd July, 2009, HBT became a subsidiary of ALBA.
The defendant no.1 in the brief statement of facts relevant to the claim stated
that HBT was incorporated for the purpose of entering into the contract with
KoPT and implementing the aforesaid project. LDA (ALBA) as on the date
of filing of the statement of claim invested funds to the tune of INR 102
Crores approximately in the said project.
As per the terms of a letter of Intent dated 29th April 2009 (hereinafter the
LoI) issued by KoPT, HBT was to procure a large number of highly
specialized cargo handling equipment. Pursuant thereto, ALBA made
investments in HBT to the tune of approximately INR 140 crores for the
purpose of procuring the required cargo handling equipment. HBT also
furnished a performance Bank Guarantee to KoPT to the tune of INR 4
crores . In the two years of the operation of the said Project (2010-2012)
and since its termination, ALBA has had to further inject funds to the tune of
INR 68 Crores to fund operational losses in HBT arising out of India's
breach of its obligations under the Treaty, as detailed herein below:
From the very inception of the project, India the State government, KoPT,
and a number of authorities and agencies have consistently and deliberately,
through their acts and omissions:
- created impediments to the implementation of the Project in an
efficacious manner;
- compelled HBT to overstaff the project;
- created impediments to the operation of the Project facilities in an
efficacious manner in a normal, safe and conducive environment;
- failed to provide protection and safety to the Project facilities or HBT's
personnel adequately or at all;
- financially crippled the Investment and the Project;
As a result of which the Contract was rendered redundant and HBT was left
with no choice but to terminate its Contract with KoPT.
As such, India, though its acts and omissions, has denied fair and equitable
treatment to LDA, failed to provide protection and safety to LDA's
Investment in India and has ultimately indirectly expropriated LDA's
Investment in the Project, thereby causing irreparable harm, injury and loss
to LDA in clear violation of its obligations under the Treaty.
There is a dispute resolution mechanism provided in the Treaty, which
states:
ARTICLE 9:
1) Any dispute concerning the investments occurring between one
Contracting Party and an investor of other Contracting Party shall, if
possible, be settled amicably between the two parties concerned.
2) Any such dispute which has not been amicably settled within a period of
six months from written notification of a claim may be submitted to
international conciliation under the Conciliation rules of the United Nations
Commission on International Trade Law, if the parties so agree.
3) Notwithstanding paragraph 2, the dispute may be referred to arbitration at
any time as follows:
(a) If the Contracting party of the investor and other Contracting party
are both parties to the Convention on the Settlement of Investment Disputes
between States and Nationals of other States open to signature in
Washington on March 18, 1965, and the investor consents in writing to
submit the dispute to the International Centre for the Settlement of
Investment Disputes, such a dispute shall be referred to the Centre; or
(b) If the investor so decides, the dispute shall be referred to an ad
hoc arbitral tribunal in accordance with the Arbitration Rules of the United
Nations Commission of International Trade Law, as adopted by the General
Assembly on December 15, 1976. In respect of such arbitral proceeding, the
following shall apply;
The judgments cited at the bar would show that Section 5 of the Arbitration
and Conciliation Act is of general principle which would be applicable to all
arbitration proceedings, irrespective of fact whether it is a domestic
arbitration or an international arbitration.
Whether the Civil Court would exercise its jurisdiction to stay a foreign
arbitration bristles with problem and discretion.
The Hon'ble Supreme Court in Chatterjee Petrochem (supra) rejected the
argument of the Ld. Senior Counsel for HPL that Section 5 of the
Arbitration Consideration Act which bars intervention by judicial authority
in arbitration Agreement will not be applicable to International Agreement.
The Hon'ble Supreme Court relied upon the following observations of the
Apex Court in Venture Global Engineering vs. Satyam Computer Services
Limited and Anr. which reads:
"...... In order to find out an answer to the first and prime issue and whether
the decision in Bhatia International (supra) is an answer to the same, let us
go into the details regarding the suit filed by the appellant as well as the
relevant provisions of the Act. The appellant VGE filed O.S. no. 80 of 2006
on the file of the 1st Additional District Court, Secunderabad, for a
declaration that the Award dated 03.04.2006 is invalid, unenforceable and to
set aside the same. Section 5 of the Act makes it clear that in matters
governed by Part I, no judicial authority shall intervene except where so
provided. Section 5 which falls in Part I, specifies that no judicial authority
shall intervene except where so provided. The Scheme of the Act is such
that the general provisions of Part I, including section 5 will apply to all
chapters or parts of the Act".
The Hon'ble Supreme Court held that the Principal Agreement dated 12th
January, 2002 continues to be in force with its arbitration clause. It was
further held that Section 5 of the Arbitration Conciliation Act would be
applicable to para II of the Act as well. The Agreement dated 12th January,
2002, remain valid and arbitration clause with all forms would be applicable
to the parties concerned to get their disputes arbitrated and resolved in the
arbitration as per the rules of ICC.
The fact of non-signatory to the agreement was also considered in paragraph
36 of the said report in which it was held that the non-signatory to the
agreement does not jeopardize the arbitration clause in any manner. The
observation is stated below:
"The fact that CPIL, which initially was a non-signatory to the Agreement
does not jeopardize the arbitration clause in any manner. In this connection,
we are inclined to record an observation made in the three Judge Bench
decision of this Court in Chloro Controls India Pvt. Ltd. (supra), wherein it
was held as under:
"107. If one analyses the above cases and the authors' views, it becomes
abundantly clear that reference of even non-signatory parties to arbitration
agreement can be made. It may be the result of implied or specific consent
or judicial determination. Normally, the parties to the arbitration agreement
calling for arbitral reference should be the same as those to the an action.
But this general concept is subject to exceptions which are that when a third
party, i.e. non-signatory party, is claiming or issued as being directly
affected through a party to the arbitration agreement and there are principal
and subsidiary agreements and such third party is signatory to a subsidiary
agreement and not to the mother or principal agreement which contains the
arbitration clause, then depending upon the facts and circumstances of the
given case, it may be possible to say that even such third party can be
referred to arbitration."
The Hon'ble Supreme Court accordingly dismissed the suit and directed the
parties to resolve the dispute for arbitration in terms of clause 15 of the letter
of agreement dated 12th January, 2002 in accordance with the rules of ICC.
In Excalibur Ventures v. Texas Keystone reported at 2011(2) LLOYD'S
LAW REPORTS the issue was whether the Court has jurisdiction to grant an
anti arbitration injunctions when a dispute is raised as to the parties to
arbitration clause and whether there was ever an agreement to arbitrate. It
was held :
"The English Courts had jurisdiction under Section 37 of the Supreme
Courts Act 1981 to grant injunctions restraining arbitrations where the seat
of the arbitration was in a foreign jurisdiction, although it was a power only
exercised in exceptional circumstances and with caution. An English court
would be particularly slow to restrain arbitration proceedings where there
was an agreement for the arbitration to have its seat in a foreign jurisdiction
and the parties had "unquestionably agreed" to the foreign arbitration clause.
Questions relating to arbitrability or jurisdiction, or to staying the arbitration
might in appropriate circumstances better be left to the foreign courts having
supervisory jurisdiction over the arbitration. Nonetheless in exceptional
cases, for example where the continuation of the foreign arbitration
proceedings might be oppressive or unconscionable, where the very issue
was whether the parties had consented or where there was an allegations that
the arbitration was a forgery the court might exercise its power. The court
would pass an anti-arbitration injunction. The court accepted the broad and
flexible approach of Rix LJ in AES Ustkamenogorsk Hydropower Plant LLp
v Ust-Kame-nogorsk Hydropower Plant JSC (2011) 2 Lloyd's Rep 233 and
referred to paragraphs 81 to 85 and paras 98 to 100 of the said judgment
which read:
81. This analysis, in my respectful opinion, usefully underscores the
wider picture about the autonomy of the parties and the jurisdiction of
arbitrators with power to investigate their own jurisdiction, namely that,
sooner or later, the question of substantive jurisdiction is likely to come
before the court. Where parties differ as to a matter as fundamental as
whether they have agreed any contract, or any contract containing an
arbitration clause , it is most unlikely that one or other of them will rest
content with the decision of arbitration as to either their jurisdiction or as to
the parties' rights. For one or other party is saying that there is simply no
agreement that arbitrators can resolve their disputes. In such circumstances,
the issue of jurisdiction is likely to come before the courts sooner or later,
and when it does, it will have to be decided by the court from first principles
and in the light of facts which, whatever the investigation by the arbitrators
are yet to be determined on the evidence by the court. That is the learning of
Azov shipping, approved by the Supreme Court in Dallah, where I said this.
This was perhaps a case where the parties might well have come to Court,
either by agreement or upon the application by one side or the other for the
Court to determine the issues of jurisdiction, on the ground that it was likely
to produce substantial sayings in cost and that there was good reason why
the matter should be decided by the Court. With hindsight it seems to me
that even if the parties could not agree on that course, the Court would be
persuaded to allow such a determination if, of course, the tribunal had given
its own permission, which is a sine qua non in the absence of the agreement
of the parties. It might be assumed that the arbitrator may have been the
more willing to give his agreement inasmuch as the question of jurisdiction
in this case involved the prior question of whether Azov had ever become a
party to the agreement as a whole
I can quite see that there is an interest in encouraging parties to put their
arguments on jurisdiction before the arbitrator himself under Section 30. In
many cases, and perhaps in the ordinary and normal case of such a
challenge, where, for instance, there is simply an issue as to the width of an
arbitration clause and no issue a to whether a party is bound to the relevant
contract in the first place, the arbitrator's view may be accepted. If it is not,
a challenge to the court is likely to be a limited affair raising, essentially, a
point of construction on the clause and thus no problem arises. Where,
however, there are substantial issues of fact as to whether a party has made
the relevant agreement in the first place, then it seems to me that, even if
there has been a full hearing before the arbitrators the court, upon a
challenge under Section 67, should not be placed in a worse position than
the arbitrator for the purpose of determining that challenge ...'
82. Thus a question of jurisdiction may come before the court in a number
of different situation. It might arise where one party goes to court with
a claim and the defendant seeks a stay for arbitration the claimant may
say there is no contract or no arbitration agreement, and the court will
have to investigate that question for the purpose of dealing with the
application to stay. Or a party may commence an arbitration, that the
other party may say there is no agreement or no agreement to arbitrate,
in which case the matter is prima facie for the arbitrators to decide in
the first instance pursuant to Se3ction 30. In a plain case the arbitrators
may proceed to determine their own jurisdiction, but equally the parties
may agree to come straight to court to determine the question, or the
arbitrators may give permission for the issue to be taken to court and
the court may agree to accept the issue at that stage. Or the respondent
in the arbitration may stand aloof, and come to Court under Section 72,
or, following an award, under Section 67. Or, a party may start
proceedings in another country and the defendant there then comes to
the English Court to ask it to uphold their arbitration agreement by
granting an anti-suit injunction. That is the equivalent of a party
seeking a stay where an action is begun in England. Where the action in
breaches or alleged breach of an arbitration agreement is begun in a
foreign country, the respondent may or may not seek a stay there, but
here he may ask for an anti-suit injunction.
83. There are further variations thrown up by the cases. In some cases,
it is reasonably plain that an arbitration agreement has been made, but
there maybe an issue as to its scope, or as to whether there has been a
repudiation of it, or, as here, as to its surviving effectiveness. IN other
cases, there is a factual dispute as to whether any agreement has ever
been made in the first place, or a legal dispute as to whether an
arbitration clause has been incorporated into the parties' contract.
Moreover, in some cases, what is sought from the Court is an interim
injunction, which is among the subject matters of Section 44, and in
other cases what is sought is a final injunction, which is not within
Section 44 but, subject to contrary agreement by the parties, may be
within the powers of an arbitral tribunal in a final award.
84. Moreover, a distinction may have to be made between a declaration
as to the existence or effectiveness of an arbitration agreement about
which parties are in dispute, which is a form of final relief as to the
parties' legal rights, and an anti-suit injunction which, at any rate in its
interim form, is only intended to hold the ring until some tribunal,
whether it is the Court itself at some later date, or an arbitral tribunal,
can grapple with the merits of the parties' dispute.
85. This variety of situations suggests to my mind that is not possible
to be dogmatic about where the principle in Section 1(c) of the AA
1996 leads. It is also relevant to observe that the Saville Report has
nothing to say about anti-suit injuctions, even though it was written in
February 1996, which is comfortably after The Angelic Grace had been
decided in this Court, and even though the report's discussion of
Section 44 includes a reference to Mareva or Anton Piller relief.
98. Fourthly, it seems to me to be going too far to say that because an
arbitral tribunal 'may rule on its own substantive jurisdiction'
(emphasis added), therefore the Court ought always to regard the
position as though there is an obligation on the parties and/or on the
arbitrators for the arbitrators to rule on any dispute about their
substantive jurisdiction. Anything may happen. The potential dispute
may not be passed. The disputing pary may stand aloof and come to
court. The parties may join issue in the arbitration, but agree to go to
court for a preliminary issue on jurisdiction. The parties may not be
able to agree on such a preliminary issue, but an application may be
made to the court with the permission of the arbitrators for such a
preliminary issue. The court may or may not accept such an
application.
99. In such circumstances, I do not with respect agree with an
interpretation of Vale do Rio which regards it as laying down a rule for
jurisdiction that it is in all circumstances necessary for a party who
wishes to raise with the court an issue of the effectiveness of an
arbitration clause first to commence an arbitration and go through the
procedures and provisions of sections 30 to 32 and/or section 67 and/or
section 72. If, however, that is what Thomas J was saying in Vale do
Rio, then I would not with respect agree with that view. In any event,
since the alleged party to the charter and the arbitration agreement in
that case was not as yet a party to the court proceedings (not having
been served) and only a non-party (the brokers) were involved in the
court proceedings, I would not regard any view expressed there as other
than obiter. Thomas J did not in any event there consider the role of
section 37 of the SCA 1981. In my judgment, at any rate in a case
where no arbitration has been commenced and none is intended to be
commenced, but a party goes to court to ask it to protect its interest in a
right to have its disputes settled in accordance with its arbitration
agreement, it is open to the Court to consider whether, how best, if at
all, to protect such a right to arbitrate. Whether it will assist a claimant
at all, and if so, how, is a matter for its discretion: but it would to my
mind be an error of principle and good sense for the Court to rule that
as a matter of jurisdiction, or even as a matter of the principled exercise
of its discretion, it has no possible role in the protection and support of
arbitration agreements in such a context.
100. Thus I do not consider that Section 1 (c) of the AA 1996, which in
any event is a general principle intended to assist in the constriction of
the Act rather than a legal rule which binds the Court even in terms of
another statute, assists much in answering the question which is before
the Court in this case. First, the principle in Section 1 (c) necessitates
the asking of the question: 'should not intervene' in what? In the
conduct of an arbitration? That would seem to be the essential purpose
of such a principle. In the conduct of litigation, here or abroad, which
threatens the safty of an arbitration agreement or any possible
arbitration pursuant to it? There seems no reason in principle why the
Court might not want to intervene in such a case, so as to support
arbitration and not to interfere in it. Therefore, it seems to me that
Section 1(c) does not drive the answer to the issue in our case.
Secondly, section 1(c) is only one of three principles stated in section
1. The first two principles are (a) that "the object of arbitration is to
obtain the fair resolution of disputes by an impartial tribunal without
unnecessary delay or expense" and (b) that "the parties should be free
to afree how their disputes are resolved, subject only to such safeguards
as are resolved, subject only to such safeguards as are necessary in the
public interest". As for the first of these (section 1(a) it is not really
concerned with a dispute of substantive jurisdiction which arises from a
fundamental disagreement as to whether the parties have ever agreed to
arbitrate at all. For if they have not agreed to arbitrate then the arbitral
tribunal can have no proper and certainly no definitive role in resolving
their disputes: and whether they have argeed to arbitrate or not, that
issue of substantive jurisdiction can only ultimately (if the issue is alive
and taken and not lost by any procedural bar) be resoved by the court
and not by the arbitral tribunal. Moreover, I have already explored
above (at para 81) the issue of uncessary delay and expense in this
context, which may well push in favour of a preliminary issue in the
courts even ewhere an arbitration reference is itself up an running. As
for the second of these principles (section 1b)where parties may have
agreed an arbitration agreement but are in dispute as to whether they
have done so the pirciple of party autonomy suggests that the court
should be prepared to assist in finding ways for that dispute to be
resolved. Thus a consideration of all three of these princiles may well
suggest that a balancing exercise has to be pereformed in which the
private and public interest involved,. And the purposes of the AA 1996
might well weigh in faovur of the court playing a necessary role"
Then in paragraphs 66 and 67 the court proceeds to hold:
66. Of course, in the AES case Rix LJ was not dealing with a foreign
arbitration, but his analysis clearly supports the proposition that in
circumstances such as the present the court has jurisdiction to decide
whether itself to resolve the issue as to whether an arbitration agreement
exists.
67. Moreover in a situation converse to the one before the court ie where a
defendant is proceeding before the court applies for a stay in faovur of
foreign arbitration proceeding pursuant to section 9 of the Arbitration act if
the issue is whether an arbitration agreement was ever concluded then the
court can clearly determine such an issue, if it considers it appropriate to do
so: see Al-Naimi (supra) at page 524. Indeed if the stay is sought pursuant
to section 9, the court has to be satisfied in order to exercise its powers under
the section to grant a stay, that an arbitration agreement has in fact been
concluded. If the court decides that the arbitrators should decide the issue,
and therefore, ex hypothesi is not satisfied as to the existence of such an
agreement then the stay is granted pursuant to the inherent jurisdiction as
now set out in CPR 3.1(2) (f) : see ibid, pages 525 and 527. The court looks
for the most economical way to decide where the real dispute should be
resolved. That seems to me to be the correct approach here. But that is a
matter of discretion, not jurisdiction.
The provision of the English Prohibition Act was analysed and it was held:
"I also reject Excalibur's argument that, as a matter of jurisdiction, it is for
the tribunal, and not the English court, to determine the arbitrability of
Excalibur's claims against the Gulf Defendants. The scheme set out in the
Act shows that the court undoubtedly has jurisdiction to determine the issue
of arbitrability in circumstances very similar to the present case.
In the case of an English arbitration, section 72 of the Act expressly provides
that the court may determine whether there is an arbitration agreement
binding on a person alleged to be a party to arbitral proceedings, so long as
that person has no taken part in the arbitral proceedings.
The fact that Section 30 of the Act (on which Excalibur relies) permits, in
the case of an English arbitration (but does not require), an arbitral tribunal
to decide questions of jurisdiction is of no consequence. The Act does not
require a party who maintains that there is no arbitration agreement to have
that question decided by an arbitral tribunal Dirse Construction Ltd v. St
David Ltd (1999) BLR 194 as approved in Al Naimi v Islamic Press Agency
Inc(2000) 1 Lloyd's Rep 522 at page 525, Mr. Panayides contention that
".....the English court would, pursuant to s 30 of the Arbitration Act 1996,
defer to the tribunal on questions of jurisdiction in first instance" is wrong as
a matter of l aw. In Dallah the Supreme court quoted with approval
Fouchard, Gailard, Goldman, International Commercial Arbitration, to the
following effect:
"Even today, the competence competence principle is all to often interpreted
as empowering the arbitrators to be the sole judges of their jurisdiction.
That would be neither logical nor acceptable. In fact, the real purpose of the
rule is in no way to leave the question of the arbitrators jurisdiction in the
hands of the arbitrators alone. Their jurisdiction must instead be reviewed
by the courts if an action is brought to set aside or to enforce the award".
Lord Mance went on to say at para 26 "An arbitral tribunal's decision as to
the existence of its own jurisdiction cannot therefore bind a party who has
not submitted the question of arbitrability to the tribunal..... Domestically,
there is no doubt that, whether or not a party's challenge to the jurisdiction
has been raised, argued and decided before the arbitrator, a party who has
not submitted to the arbitrator's jurisdiction is entitled to a full judicial
determination on evidence of an issue of jurisdiction before the English
Court, on an application made in time for that purpose under Section 67 of
the Arbitration Act, 1996, just as he would be entitled under Sec. 72 if he
had taken no part before the arbitrator: see eg. Azov Shipping Co v Baltic
Shipping Co (1999) 1 AII ER 476".
"The nature of the present exercise is in my opinion, also unaffected where
an arbitral tribunal has either assumed or, after full deliberation, concluded
that it had jurisdiction".
Although there may not be same and/or similar provisions in the Indian
Arbitration Act, 1996 but he jurisdiction of the Court to interfere in such a
situation is not completely obliterated as one could found that in Sec.45
powers have been given to the Court to refuse reference in case it is found
that the said agreement is null and void, inoperative or incapable of being
performed. Even under the domestic arbitration in a reference being sought
under Section 11 of the Act the Court would be required to decide the
question of arbitratrability of the claim, validity of the arbitration agreement
and other jurisdictional matter. (SBP & Co. v Patel Engineering Ltd 2005
(8) SCC 618)
In a subsequent decision in Swiss Timing Ltd. v. Common Wealth Games
2010 Organising Committee reported at 2014(6) SCC 677 it was held that
while exercising jurisdiction under Section 11, the court can decline to refer
disputes to arbitration if contract is patently void or where it reaches a
conclusion that the contract is void on a meaningful reading of contract
document without requirement of any further proof. The court cannot
decline reference to arbitration on the allegations of fraud, coercion,
unsoundness of mind, undue influence and misrepresentation since all of the
above defects result in voidable and not void contracts. A word of caution
was given in the said judgment against misuse of the provisions of Section 5
in paragraph 25 of the said report relevant portion whereof reads:-
"5. Section 5 of the Arbitration Act provides that the Court shall
not intervene in the arbitration process except in accordance with the
provision contained in Part OI of the Arbitration Act. This policy of
lest interference in arbitration proceedings recognizes the general
principle that the function of Courts in matters relating to arbitration is
to support the arbitration process. A conjoint reading of Section 5 and
Section 16 would make it clear that all matters including the issue as
to whether the main contract was void/voidable can be referred to
arbitration. Otherwise, it would be a handy tool available to the
unscrupulous parties to avoid arbitration, by raising the bogey of the
underlying contract being void."
The instant BIT is similar to other BIT's and certain domestic legislation
provide not only for International arbitration of disputes, but also substantive
rights that investors may invoke in such proceedings. The substantive rights
are varied and overlap but there are common threads that run through them.
One of those threads is that host countries seek investors who would
contribute to the development of the host country and in exchange receive
certain guarantees. One of those guarantees the investor would seek is a fair
and equitable treatment by the host country. Another related provision is
that the investor would receive full security of the investments and there
would be no discrimination against the foreign investor in comparison with
the other investors. The fair and equitable treatment standard relates to the
investor's legitimate expectations as to the transparency, stability and
procedural fairness and investor reasonably expected when the investor
made the investment. However, in considering such standard the investor is
not to be protected from normal commercial risks that one assumes in
making the investment. However, where assurances have been received that
cover what in some circumstances would otherwise be normal commercial
risks, those may give rise to a claim of breach of the fair and equitable
treatment standard. The issue therefore, arises in many cases is what the
legitimate expectation of foreign investor was when the investment was
made and whether that expectation has been frustrated by the host State.
(See Handbook of UNCITRAL Arbitration, Thomas H. Webster Sweet
& Maxwell 2010 Edition). The proven breach of such obligation by the host
nation may result in pecuniary compensation. In the Indian Arbitration HBT
has also made a claim on account of loss and damages arising out of same
and the similar set of facts. While the claim of HBT is arising out of the
contract dated 16th October 2009, the claim of LDA is under the treaty. This
is where the arbitral tribunal would be required to take a conscious decision
if notwithstanding a substantive progress being made in the Indian
Arbitration Proceeding the tribunal would proceed with the reference at this
stage when the parties are yet to file their pleadings, after the respondent
no.1 could overcome the initial resistance by the Union of India about the
maintainability of the said reference. This is however, my understanding in
dealing with such a situation.
In Gujarat Nre Coke Ltd. vs. Gregarious Estates Incorporated reported at
2014(1) CHN (CAL) 64 it was held that the Court would be competent
enough to proceed with the suit under clause 12 is not revoked. The Hon'ble
Division Bench were considered the power of the Court to grant injunction
in relation to for an arbitration proceedings as relied upon an earlier Division
Bench Judgment in the case of LMJ International Limited (in which I was a
party) and referred to the following observation of the said Division Bench:
"in absence of any demonstrable injustice or harassment being caused by
reason of initiation of the arbitration proceedings or participation in such
proceedings and having regard to the fact that the agreement is not in
dispute, in our view, the plaintiff is not entitled to an order of injunction".
The Hon'ble Division Bench observed that: "The parties by consent agreed
to resolve their dispute through alternate dispute resolution, meaning thereby
they agreed to avoid the regular process of disposal of controversy through
Court of Law. The parties in their wisdom agreed, they would resolve their
dispute through arbitration in London in terms of the procedure laid down
therein and the English Law would guide the said arbitration. We fail to
appreciate, how the suits filed by the appellants in this regard would be
maintainable. We however, stop there without making further deliberation
on the issue as Mr. Mitra would caution us and in our view, very rightly in
absence of leave being revoked granted under Article 12 the suit would be
maintainable in this Court. Similarly, the second suit being brought on the
cause of action pleaded in the plaint and once entertained by the Court,
would always be maintainable unless it was held otherwise that too, through
an appropriate process known in law".
The principle the court is required to keep in mind is that if there is a valid
arbitration agreement between the parties there is no escape from arbitration
and the parties shall be referred to arbitration and resolve their dispute
through the mechanism of arbitration. It is only in exceptional
circumstances as held in Excalibur and the principle which has been
followed both by the English and Indian Courts no anti arbitration injunction
can be granted by a court of law. Mr. Sarkar has referred to the various
sections of the English Arbitration Act and more particularly Section 9 of
the English Arbitration Act and Section 8 of the Indian Arbitration Act and
submitted that there is no comparable section to Section 8(3) of the Indian
Arbitration Act in the English Arbitration Act.
Unless the facts and circumstances of a particular case demonstrate that
continuation of such foreign arbitration would cause a demonstrable
injustice in my view the civil court in India would not exercise its
jurisdiction to stay foreign arbitration. The invocation of the arbitration
clause under the treaty at the instance of the defendant no.1 as it has come
out from the argument of the defendant no.1 appears to be on a perception
that the Indian Legal Machinery is not adequate to protect the interest of
foreign investor. The delay in the pending arbitration proceeding between
the plaintiff and the defendant no.3 arising out of the same contract of 16th
October, 2009 which also is a contract referred to in the notification to the
claim appears to be the main reason for invocation of the arbitration clause
under the treaty. The plaintiff cannot question the treaty entered by the two
soverign nations creating rights for investor of a contracting party. There
cannot be any doubt that the notification of claim has referred to KOPT as
an organ of Union of India. The issues that are likely to arise in the
proposed arbitration proceedings may overlap and likely to overlap with the
issues to be decided in the Indian Arbitration proceedings. The defendant
no.1 cannot be a party to the Indian arbitration proceedings, so as the
plaintiff under the BIT. The defendant no.1 has also admitted the said
position. Since the plaintiff is not a party to BIT the plaintiff cannot
challenge the arbitration agreement. If any one at all is aggrieved is the
Union of India. KOPT cannot espouse the cause of Union of India in this
proceeding.
The defendant no. 1 is only a shareholder of the defendant no.2. The
shareholder under the said contract of October 16, 2009 cannot invoke the
arbitration clause for espousing his own right under the treaties although in
my view he could ask for joinder and with the consent of the KOPT the
matter can proceed. Mr. Mitra has pointed out that the respondent no.1
being only a 49 per cent stake holder in the defendant no.2 could not have
invoked the arbitration clause under the treaty as he is not coming within the
purview of investor appears to be some substance and significance in
absence of any evidence to the contrary as the respondent no.1 has
voluntarily decided not to use any affidavit as it possibly could have exposed
his inherent lack of locus to invoke the arbitration clause under the bilateral
treaty which objection Union of India has already urged before the arbitral
tribunal. HBT also in spite of notice did not appear. The Arbitral tribunal
which has been duly constituted would surely consider such objection with
all seriousness as it deserves along with the objection as to the commercial
nature of dispute between KOPT and HBT as urged by the Union of India
before proceeding with the matter on merits Although a distinction is
sought to be raised by Mr. Sarkar about the subject of international law and
subject of domestic law and that the same set of facts could give rise to
different causes of action, the very fact that the interest of the French
national in so far as the pending proceeding is concerned, as borne out from
the pleadings filed by the parties before the arbitral tribunal in India appears
to have been urged and adequately represented in the said proceeding.
The circumstances under which an anti-arbitration injunction can
be granted are summarised below:-
(i) If an issue is raised whether there is any valid arbitration agreement
between the parties and the 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.
Although an argument is sought to be made that the respondent No. 1
is not bound by any order that might be passed in this proceeding and
could have ignored any order passed in this proceeding with impunity
this Court is of the view that the said stand of the respondent No. 1
would not be beneficial in the interest of the said respondent. Under
the present circumstances where there is a growing trend and need to
respect the jurisdiction of other Courts LDA could not have avoided
this proceeding. It could not be ignored that LDA is the shareholder
in a company which holds a substantial share in HBT against whom
an arbitration proceeding is pending. The inextricable connection of
LDA with the other defendants belonging to its group cannot be
ignored. However, in the instant case, the Court is seized with an
issue as to the invocation of the arbitration clause under the treaty at
the instance of the LDA. The initiation of the said proceeding by
LDA appears to be on perception that the Indian Legal Machinery is
inadequate to protect the interest of foreign investor which argument I
refuse to accept not because of any national feeling but as a judge I
consider that all legal systems in the world always strive to deliver the
best in the shortest possible time and there cannot be quick justice as
justice hurried is justice buried. I reiterate that with the explosion of
litigations the Indian Courts have performed significantly well.
Mr. Mitra submits that the parallel and concurrent proceeding may
result in conflicting judgments. This Court has no doubt that if the
tribunal on the basis of the materials on record find that such events
are likely to happen then on a principle of comity of court and the
avoidance of inconsistent judgments might stay its hand till the Indian
proceeding is concluded as otherwise it would be a recipe for
confusion and injustice as Justice Cooke observed in Enercon GNBH
vs, Enercon (India) Ltd. & Ors reported at 2012 EWHC 3711
(Comm). :
"56. Comity and the avoidance of inconsistent judgments require
that I should refrain from deciding matters which are possibly going
to be decided further in India. It would be a recipe for confusion
and injustice if I were not to do so. Issue estoppel is already said to
arise on the question of the seat of arbitration and curial law, and
that raises very difficult questions for the court to decide. If the stay
was lifted, then I could decide the matter differently from Savant, J.
or from a later final decision on appeal in the Supreme Court of India, if that matter went ahead. The Indian courts are seised and should reach, in my judgment, a concludeded decision, albeit on an expedited basis.
Mr. Sarkar is correct in submitting that the approach of the Court should be towards pro-arbitration. In Enercon (supra) in paragraph 90 it has been held "90. It is a well-recognized principle of aribtration jurisprudence in almost all the jurisdictions, especially those following the UNCITRAL Model Law, that the courts play a supportive role in encouraging the arbitration to proceed rather than letting it come to a grinding halt. Another equally important principle recognized in almost all jurisdiction is the least intervention by the courts. Under the Indian Arbitration Act, 1996, Section 5 specifically lays down that:
"5. Extent of judicial intervention. - Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this part."
Although the defendant No. 1 is not a party to the said proceeding in the strict sense of the term as he has not been physically made a party but the fact remains that the interest of the defendant No. 1 has been duly represented and canvassed by HBT in the Indian arbitration proceeding. The bilateral treaty is between the two sovereign nations. An investor under the treaty has been given certain special rights and privileges which is enforceable under the treaty. Whether the notification of claim falls within such parameters and the defendant No. 1 could be treated as an investor is a matter to be decided by the arbitral tribunal duly constituted under the relevant rules. In the event, the preliminary objections are overruled and the arbitral tribunal is of the opinion that the matter can proceed and continuation of such proceeding would not be a recipe for confusion and injustice.
The Union of India would be required to contest the matter on merits.
As observed in City of London (supra) that "the fact that under certain circumstances the State may be responsible under International Law for the acts of one of its local authorities, or may have to take steps to redress wrong committed by one of its local authorities" is also applicable in the instant case.
The arbitration agreement is only enforceable against the Union of India and not against KOPT. The continuation of any proceeding against KOPT at the instance of the defendant no.1 would be oppressive for the reasons mentioned above. In view thereof KOPT would not be bound to participate in the said proceeding.
The respondent no.1 is restrained from proceeding with the arbitral proceeding only against the petitioner.
The Application succeeds.
However there shall be no order as to cost.
Urgent xerox certified copy of this judgment, if applied for, be given to the parties on usual undertaking.
(Soumen Sen, J.)