Does SBP & Co. v. Patel Engineering Overrule Kvaerner Cementation India Ltd. v. Bajranglal Agarwal? : A Contrarian Perspective

In Bina Modi, the Court noted that there were various judgments of the Supreme Court as also of the High Courts that had taken the position that a Civil Court did have the jurisdiction to, in appropriate cases, entertain and pass an injunction against an arbitration proceeding even though such discretion had to be exercised exceedingly sparingly. The Court, however, observed that none of these decisions had noticed or engaged with the binding precedent in the form of Kvaerner and, therefore, did not reflect the correct position in law. The judgment of the Single Bench in Bina Modi was subsequently appealed before a Division Bench, and which appeal is currently pending adjudication with the arbitration proceedings having been stayed in the meantime.

The decision of the High Court of Delhi in Bina Modi was recently taken note of and discussed by the High Court of Calcutta in Balasore Alloys Limited v. Medima LLC [MANU/WB/0616/2020] ('Balasore Alloys') delivered on 12.08.2020 when Bina Modi was cited before the High Court of Calcutta in support of the proposition that an anti-arbitration injunction suit was simply not maintainable. The High Court of Calcutta, however, adopted a different course and held that the decision in Bina Modi was not good law and that its reliance of Kvaerner was to no avail inasmuch as Kvaerner stood implicitly overruled by a subsequent judgment of the seven-judge Constitution Bench in SBP & Co. v. Patel Engineering Ltd. & Ors. [(2005) 8 SCC 618] ('SBP & Co.'). Based upon this finding as to the implicit overruling of Kvaerner, the High Court of Calcutta reiterated that a Civil Court did indeed have the jurisdiction to at least examine the merits of an anti-arbitration injunction suit when brought before it. However, on the facts of the case, while reiterating the very narrow scope for interfering with the arbitration proceedings, the Court ultimately refused to grant the injunction as prayed for. The judgment of the Single Bench in Balasore Alloys was subsequently appealed before a Division Bench, which at the interim stage has sustained the same on a consideration of the facts of the case, without commenting on the larger issues raised and answered therein.

Though the issue as to the maintainability of an anti-arbitration injunction suit is indeed a complex one on first principles, the fundamental basis of the determination of the High Court of Calcutta in Balasore Alloys rests on the argument that SBP & Co. overrules Kvaerner. However, a perusal of the background and specific findings in SBP & Co. do not seem to bear out such a reading of the judgment and its consequential impact on Kvaerner. Before embarking on a more detailed analysis of why this is so, it is relevant to set out some of the basic underlying principles at play.

SECTION 16 OF THE ARBITRATION ACT AND THE KOMPETENZ-KOMPETENZ PRINCIPLE

The judgment of the Supreme Court in Kvaerner and that of the High Court of Delhi in Bina Modi relied on the normative precept enshrined under Section 5 of the Arbitration Act which proscribes any interference in the arbitration process by a Civil Court unless expressly permitted by the statute. This proscription against interference by a Civil Court is coupled with the explicit empowerment of the Arbitral Tribunal in adjudicating upon matters of its jurisdiction, or the lack thereof, under Section 16 of the Arbitration Act. This principle, as reflected in the text of Section 16, is widely recognized as the kompetenz-kompetenz principle. In the opinion of the High Court of Calcutta in Balasore Alloys, the aforesaid principle of kompetenz-kompetenz was read down in SBP & Co. The relevant finding of the High Court is in the following terms:

"10. Mr. Mookherjee has also argued that where arbitration has commenced without the intervention of the court, as is the case herein, no injunction should be granted to impede the progress of such an arbitral proceeding. He has placed his reliance on Kvaerner Cementation (supra), to lend credibility to this limb of his argument. However, I do place my overwhelming reliance on the authoritative dictum of the majority opinion of the Supreme Court in SBP & Co. (supra) Constitution Bench ruling, wherein the majority of six of the seven learned judges, had conclusively rejected the argument that an arbitral tribunal solely has competence, to the complete exclusion of civil courts, to determine its own jurisdiction."

CONTEXT AND FINDINGS IN SBP & CO.

To examine if the aforesaid conclusion in Balasore Alloys is correct, one may, at the outset, briefly refer to the genesis of the reference to the Constitution Bench which ultimately resulted in the judgment in SBP & Co. It is important to note that the issue referred to the seven-judge bench was only as to whether the nature and scope of power exercised by the Chief Justice or his designate under Section 11 of the Arbitration Act was a judicial function, or an administrative function as had been held by a five-judge bench in Konkan Railway Corporation Limited v. Rani Construction Private Limited [(2002) 2 SCC 388]. The seven-judge bench in SBP & Co. ultimately held in this context that the exercise of power under Section 11 was a judicial power even though one of the members, C. K. Thakker J., dissented and came to the conclusion that it was an administrative power. Inasmuch as it extolled the reasons as to why the exercise of power under Section 11 was judicial in nature, the majority also accordingly held that this exercise of judicial power could not be overridden by the Arbitral Tribunal subsequently in exercise of jurisdiction under Section 16 of the Arbitration Act. The relevant findings in the majority judgment are reproduced hereunder in extenso:

"4. […] Section 5 indicates the extent of judicial intervention. It says that notwithstanding anything contained in any other law for the time being in force, in matters governed by Part I, no judicial authority shall intervene except where so provided in Part I. The expression 'judicial authority' is not defined. So, it has to be understood as taking in the courts or any other judicial fora. […] Then comes Section 11 with which we are really concerned in these appeals.

[…]

8. Normally, any tribunal or authority conferred with a power to act under a statute, has the jurisdiction to satisfy itself that the conditions for the exercise of that power existed and that the case calls for the exercise of that power. Such an adjudication relating to its own jurisdiction which could be called a decision on jurisdictional facts, is not generally final, unless it is made so by the Act constituting the tribunal. Here, sub-Section (7) of Section 11 has given a finality to the decisions taken by the Chief Justice or any person or institution designated by him in respect of matters falling under sub-Sections (4), (5) and (6) of Section 11. Once a statute creates an authority, confers on it power to adjudicate and makes its decision final on matters to be decided by it, normally, that decision cannot be said to be a purely administrative decision. It is really a decision on its own jurisdiction for the exercise of the power conferred by the statute or to perform the duties imposed by the statute. […]

[..]

11. Section 16 of the Act only makes explicit what is even otherwise implicit, namely, that the arbitral tribunal constituted under the Act has the jurisdiction to rule on its own jurisdiction, including ruling on objections with respect to the existence or validity of the arbitration agreement. […] The question, in the context of Sub-Section (7) of Section 11 is, what is the scope of the right conferred on the arbitral tribunal to rule upon its own jurisdiction and the existence of the arbitration clause, envisaged by Section 16 (1), once the Chief Justice or the person designated by him had appointed an arbitrator after satisfying himself that the conditions for the exercise of power to appoint an arbitrator are present in the case. Prima facie, it would be difficult to say that in spite of the finality conferred by sub- Section (7) of Section 11 of the Act, to such a decision of the Chief Justice, the arbitral tribunal can still go behind that decision and rule on its own jurisdiction or on the existence of an arbitration clause. It also appears to us to be incongruous to say that after the Chief Justice had appointed an arbitral tribunal, the arbitral tribunal can turn round and say that the Chief Justice had no jurisdiction or authority to appoint the tribunal, the very creature brought into existence by the exercise of power by its creator, the Chief Justice. …We are inclined to the view that the decision of the Chief Justice on the issue of jurisdiction and the existence of a valid arbitration agreement would be binding on the parties when the matter goes to the arbitral tribunal and at subsequent stages of the proceeding except in an appeal in the Supreme Court in the case of the decision being by the Chief Justice of the High Court or by a Judge of the High Court designated by him.

[…]

19. Section 16 is said to be the recognition of the principle of Kompetenz-Kompetenz. The fact that the arbitral tribunal has the competence to rule on its own jurisdiction and to define the contours of its jurisdiction, only means that when such issues arise before it, the Tribunal can and possibly, ought to decide them. This can happen when the parties have gone to the arbitral tribunal without recourse to Section 8 or 11 of the Act. But where the jurisdictional issues are decided under these Sections, before a reference is made, Section 16 cannot be held to empower the arbitral tribunal to ignore the decision given by the judicial authority or the Chief Justice before the reference to it was made. The competence to decide does not enable the arbitral tribunal to get over the finality conferred on an order passed prior to its entering upon the reference by the very statute that creates it. That is the position arising out of Section 11(7) of the Act read with Section 16 thereof. The finality given to the order of the Chief Justice on the matters within his competence under Section 11 of the Act, are incapable of being reopened before the arbitral tribunal. In Konkan Railway (Supra) what is considered is only the fact that under Section 16, the arbitral tribunal has the right to rule on its own jurisdiction and any objection, with respect to the existence or validity of the arbitration agreement. What is the impact of Section 11(7) of the Act on the arbitral tribunal constituted by an order under Section 11(6) of the Act, was not considered. Obviously, this was because of the view taken in that decision that the Chief Justice is not expected to decide anything while entertaining a request under Section 11(6) of the Act and is only performing an administrative function in appointing an arbitral tribunal. Once it is held that there is an adjudicatory function entrusted to the Chief Justice by the Act, obviously, the right of the arbitral tribunal to go behind the order passed by the Chief Justice would take another hue and would be controlled by Section 11(7) of the Act."

COURTS WITHIN, AND OUTSIDE, THE ARBITRATION ECOSYSTEM

A reading of the aforesaid findings would make it evident that the Supreme Court's reading down of the principle of kompetenz-kompetenz enshrined under Section 16 was in relation to a prior determination made by the Chief Justice or his designate under Section 11 while constituting the Arbitral Tribunal in exercise of jurisdiction under Section 11, or a prior determination made by a judicial authority under Section 8 while referring the parties to arbitration. It should also be noted that the reference to the "Chief Justice or his designate" under Section 11 and the reference to a "judicial authority" under Section 8 are sui generis markers as opposed to the reference to a "Court" under certain other provisions of the Arbitration Act such as in Sections 9 and 34 thereof. It may be noted, however, that the Arbitration and Conciliation (Amendment) Act, 2015 has replaced the phrase "Chief Justice or his designate" with "High Court" or "Supreme Court".

In that sense, SBP & Co. recognizes the originating nature of a judicial order under Section 11 which gives birth to an Arbitral Tribunal and, accordingly, holds that the Arbitral Tribunal so constituted cannot subsequently seek to overcome the judicial order which birthed it in the first place. The Supreme Court, in its discussion, seems to indicate that an order passed under Section 8 is similarly sacrosanct in relation to the aspect of jurisdiction and that the Arbitral Tribunal, accordingly, cannot seek to override or upset the same.

Thus, the limitation on the otherwise overarching principle of kompetenz-kompetenz, as laid down by SBP & Co., is one which is firmly ensconced within the "arbitration ecosystem", so to speak, inasmuch as the power being exercised under Section 11 is the power of the Chief Justice or his designate as expressly sanctioned by the Arbitration Act and not de-hors it. Quite similar is the position in relation to a judicial authority, which is also specifically empowered to make such a determination under Section 8 of the Arbitration Act when a substantive action is brought before it. This hierarchy within the ecosystem is reflected at various instances within the overall normative structure of the Arbitration Act. For example, any determination in relation to kompetenz-kompetenz by the Arbitral Tribunal under Section 16 of the Arbitration Act is subsequently subject to review by an empowered Civil Court either under Section 34 (when the jurisdictional challenge is rejected by the Arbitral Tribunal) or under Section 37 (when the jurisdictional challenge in accepted by the Arbitral Tribunal). Thus, SBP & Co. exemplifies this hierarchy when it proscribes an Arbitral Tribunal from overturning a prior determination by an entity that is expressly empowered to arrive at that determination by the Arbitration Act.

In the case of anti-arbitration injunction suits, however, the fundamental relief sought in the suit is that the arbitration itself cannot be proceeded with, for whatsoever reason, and that the same be injuncted and proscribed. An anti-arbitration injunction suit represents by itself, in this sense, a pure and focused 'pre-emptive jurisdictional strike' against the arbitration as opposed to a substantive action on the merits. Thus, as opposed to a Civil Court being approached by a party to adjudicate a dispute on the merits, and the counter-party at the said stage bringing forth the existence of an arbitration agreement between the parties and seeking to rely on Section 8 or Section 45, as the case may be, to force a reference to arbitration, the aforesaid provisions have no direct application in the case of an anti-arbitration injunction suit. Though a Civil Court may ultimately take into consideration the underlying principles under Sections 8 or 45 of the Arbitration Act while deciding whether to grant an anti-arbitration injunction or not, as is the approach recommended by the Division Bench of the High Court of Delhi in McDonald's India Pvt, Ltd. v. Vikram Bakshi [232 (2016) DLT 394], a Civil Court considering an objection to an anti-arbitration injunction suit, which does not represent a substantive action on the merits, cannot be said to be exercising powers under Sections 8 or 45 of the Arbitration Act in the true sense. Therefore, when a Civil Court crosses the Rubicon of maintainability and delves into the merits of the relief sought in an anti-arbitration injunction suit, no matter how restrictive or narrow the standard that may be sought to be applied, this exercise of examination of the merits is de-hors the Arbitration Act and is effectively situated 'outside' the arbitration ecosystem.

UNDERSTANDING THE TRUE RATIO OF SBP & CO. AND ITS IMPACT ON KVAERNER

As detailed hereinabove, SBP & Co., therefore, was only concerned in its observations with the potential overlap and sharing of power, and that too in limited circumstances, between a specifically empowered entity or authority under the Arbitration Act and an Arbitral Tribunal under Section 16 of the Arbitration Act. In no manner does the judgment in SBP & Co. relate to the powers of a Civil Court de-hors the Arbitration Act. In Kvaerner, however, the Supreme Court was concerned with precisely this issue i.e., the exclusion, or lack thereof, of the power of a Civil Court, operating outside the parameters of the Arbitration Act, to grant a stay of the arbitration proceedings. Viewed at in this light, the judgments in Kvaerner and SBP & Co. operate in completely different fields, and there cannot be said to any repugnancy between them.

In fact, there are observations in SBP & Co. which would definitely militate against the findings in Balasore Alloys inasmuch as while Balasore Alloys seemingly confers Civil Courts with jurisdiction in relation to matters that otherwise fall within the purview of Section 16 of the Arbitration Act, the Supreme Court in SBP & Co. was unequivocal in its stand that the Arbitration Act is a complete code in itself [See also Morgan Securities and Credit (P) Ltd. v. Modi Rubber Ltd. (2006) 12 SCC 642; Fuerst Day Lawson Limited v. Jindal Exports Limited (2011) 8 SCC 333 and Pam Developments Private Limited v. State of West Bengal (2019) 8 SCC 112] and, therefore, proscribes any Court interference unless expressly permitted by the Act. In this regard, a relevant finding of the majority in SBP & Co. is as under:

"44. It is seen that some High Courts have proceeded on the basis that any order passed by an arbitral tribunal during arbitration, would be capable of being challenged under Article 226 or 227 of the Constitution of India. We see no warrant for such an approach. Section 37 makes certain orders of the arbitral tribunal appealable. Under Section 34, the aggrieved party has an avenue for ventilating his grievances against the award including any in-between orders that might have been passed by the arbitral tribunal acting under Section 16 of the Act. The party aggrieved by any order of the arbitral tribunal, unless has a right of appeal under Section 37 of the Act, has to wait until the award is passed by the Tribunal. This appears to be the scheme of the Act. The arbitral tribunal is after all, the creature of a contract between the parties, the arbitration agreement, even though if the occasion arises, the Chief Justice may constitute it based on the contract between the parties. But that would not alter the status of the arbitral tribunal. It will still be a forum chosen by the parties by agreement. We, therefore, disapprove of the stand adopted by some of the High Courts that any order passed by the arbitral tribunal is capable of being corrected by the High Court under Article 226 or 227 of the Constitution of India. Such an intervention by the High Courts is not permissible."

KVAERNER'S CONTINUED SURVIVAL

Therefore, the declaration contained in Balasore Alloys of Kvaerner and by extension Bina Modi not being good law purely on account of SBP & Co. does not seem to reflect the correct position. Though the correctness of the view taken in Kvaerner can be a legitimate matter of contestation and debate on first principles, including as to whether the jurisdiction of a Civil Court can be said to be completely and unequivocally obliterated, Kvaerner cannot be wished away on the solitary ground that it purportedly stands overruled by SBP & Co.

On a concluding note, it is relevant to point out that recent statutory developments in fact seem to be chipping away at even the limited scope of the overlapping of power between Courts and Arbitral Tribunals as put in place by SBP & Co. inasmuch as the same has been sought to be narrowed down by the Arbitration and Conciliation (Amendment) Act, 2015, for instance, by the introduction of the amended Section 11(6A) which restricts the Court's determination only to whether an arbitration agreement exists or not, and the other categories of overlap as identified by the Supreme Court in National Insurance Company Limited v. Boghara Polyfab Private Limited [(2009) 1 SCC 267] have effectively been done away with including limitation, accord and satisfaction etc.

Views are personal only.

(The authors are Advocates practicing before the High Court of Delhi)