Anti-arbitration injunction issued against McDonalds
Recently, the High Court of Delhi (“Delhi High Court”) in Vikram Bakshi & Anr. v. Mc Donalds India Pvt. Ltd. & Ors. granted an anti-arbitration injunction, wherein the Defendants were restrained from pursuing arbitral proceedings under the London Court of International Arbitration Rules (“LCIA”). Vikram Bakshi and a company incorporated by Vikram Bakshi are the Plaintiff No. 1 and 2 respectively (collectively referred to as “Plaintiff”). Mc Donalds India Pvt. Ltd. & Connaught Plaza Restaurants Ltd. is being referred to as Defendant and 2nd Defendant respectively.
The Plaintiff and the Defendant entered into a Joint Venture Agreement (“JVA”) in 1995 and incorporated 2nd Defendant. The Defendant had issued a “Call Option” notice offering to buy out the stake of the Plaintiff in 2nd Defendant. The Plaintiff filed a company petition before the Company Law Board (“CLB”) claiming oppression and mismanagement and prayed for his re-election as the Managing Director of the 2nd Defendant, pursuant to Clause 7(e) of the JVA. The CLB in its ad interim order directed parties to maintain status quo with respect to their shareholding.
Thereafter, the Defendant filed an application under Section 45 of the Arbitration and Conciliation Act, 1996 (“Act”) before the CLB, praying that the parties be referred to arbitration, in light of the provisions of the JVA. The CLB refused to stay the arbitration proceedings and subsequently, aggrieved by the CLB Order, the Plaintiff filed an appeal; however, as the said application under Section 45 of the Act was eventually withdrawn, the appeal became infructuous.
Subsequently, the Defendant terminated the JVA and invoked the arbitration clause, and consequently the dispute was referred to arbitration under the LCIA Rules in London. Additionally, the Defendant also filed a petition under Section 9 of the Act; however, this petition was also dismissed as withdrawn. In the meantime, the Plaintiff preferred an application under Order 39 Rule 1 and 2 of Code of Civil Procedure (“CPC”), praying for an ad interim injunction against the arbitration proceedings initiated under the LCIA Rules.
The crucial question before the Delhi High Court was to ascertain whether the civil courts had jurisdiction even when the parties had agreed to resolve their dispute by arbitration. The Delhi High Court also had to decide whether LCIA arbitration in London would be forum non conveniens and that if this is a fit case where anti-arbitration injunction should be granted.
Briefly, it was submitted that:
Briefly, it was submitted that:
The Delhi High Court was of the opinion that the Plaintiff was able to show a prima facie case, the balance of convenience was in his favour and that the Plaintiff would suffer irreparable loss in case the injunction was not granted because a) prima facie it appeared that the arbitration agreement was inoperative or incapable of performance on account of the fact that the CLB petition is pending and a status quo order has been obtained with regard to the shareholding pattern; b) there will be certain overlapping disputes between the CLB petition and the arbitration proceedings sought to be conducted under LCIA Rules; c) the dispute sought to be raised before LCIA arbitration is suffering from forum non-conveniens.
The Delhi High Court reasoned its decision based on the following premises:
Although the India Courts have adopted a pro arbitration approach in the past couple of years, it might appear that the present ruling goes a step backward in so far as an anti-arbitration injunction was granted restraining the Defendant to pursue LCIA Arbitration. Notably, the Delhi High Court reconciled the conflicting decisions and concluded that the jurisdiction of civil court need not be necessarily ousted in a case where parties have contractually agreed to refer the dispute to international arbitration, and thereafter took a prima facie view that the agreement itself was inoperative, thus making the present case come under the proviso to Section 45 of the Act.
The Delhi High Court has further reaffirmed that in a dispute pertaining to allegations of oppression and mismanagement, the arbitral tribunal would not be the correct forum for adjudication of rights. However, the reasoning that LCIA would be a forum non conveniens appears to be contrary to the ruling of the Supreme Court in Modi Entertainment Network v W.S.G.Cricket Pte,9 wherein it was held that reasons such as hardship, subject matter being in India, or parties per se would not suffice to turn a forum conveniens into a forum non conveniens.
Although we have had landmark rulings on grant of anti-suit injunctions, generally anti-arbitration injunctions are rare in India and therefore the observation that in a case of an anti-arbitration injunction, in addition to a general threshold for grant of ad-interim injunction, the case should fall under one of the contingencies of Section 45 of the Act which would add necessary jurisprudence on the subject.
1 Chatterjee Petrochem (Mauritius) Co. and Anr. v. Haldia Petrochemicals Ltd., 2013 (4) Arb. L.R. 456 (SC)
2 2009 (1) SCC 267
3 2011 (125) DRJ (DB)
4 (2013) 1 SCC 641
5 2014 (1) Arb L. R. 197 (SC)
6 Supra Note at 1
7 (2005) 7 SCC 234
8 Company Appeal (L) Nos. 10, 11, 12, 13, 16, 17, 18, and 19 of 2013 and Company Appeal No. 15, 16, 17,18, 23, and 24 of 2013
9 (2003) 4 SCC 341