Court Has Power To Grant Anti-Enforcement Injunction Against Proceedings In Foreign Court Which Threaten Arbitral Process Initiated In India: Delhi High Court

The bench held that:

“Though one, as noted, need actually look no further, the power to grant an anti-suit, or anti-enforcement, injunction, would also be encompassed in the power to grant interim measures of protection as may be “just and convenient”, and would in any case be included in the power to pass orders to secure the ends of justice or to prevent abuse of the process of the Court, conferred by Section 151 of the CPC.”

“Where, therefore, proceedings in a foreign Court, or any order or decree passed by a foreign Court, threatens to prejudice or derail the arbitral process which may competently be instituted in India, the Section 9 Court is amply possessed of the power to injunct the party who has instituted the foreign proceedings from further proceeding with them, or from enforcing the potentially threatening order or decree passed therein. If a civil Court, dealing with a civil suit, can do so, so can a Section 9 Court seized with the task of protecting the arbitral process from being derailed or hijacked – or, as in the present case, guillotined.”

Brief Facts:

Honasa Consumer Limited (Petitioner) and RSM General Trading LLC (Respondent) entered into an Authorized Distributorship Agreement (ADA) under which the Respondent was to distribute the Petitioner's products in the Middle East and Africa. The ADA included an arbitration clause which mandated that disputes would be resolved through arbitration under the Arbitration and Conciliation Act, 1996 with New Delhi as the arbitration venue. Additionally, the ADA contained an exclusive jurisdiction clause conferring jurisdiction over all matters related to the contract on the courts in New Delhi and specified that the agreement was to be interpreted according to Indian law.

Despite these contractual provisions, the Respondent filed a lawsuit in the Court of First Instance in Dubai alleging a breach of the ADA by the petitioner. The Dubai Court, applying Dubai law to the dispute, found the Petitioner guilty of breaching the ADA and awarded the Respondent damages amounting to AED 25,071,991 equivalent to ₹57,17,65,947. The Respondent, in its submissions, acknowledged that by obtaining this decree, it rendered the arbitration agreement and other contractual covenants unworkable. The Respondent argued that since the Dubai Court had already decided the matter, arbitration was no longer feasible.

In response, the Petitioner approached the High Court under Section 9 of the Arbitration Act and sought an injunction to prevent the respondent from enforcing the Dubai Court's decree. The Petitioner argued that the Dubai lawsuit was initiated in bad faith to bypass the arbitration agreement and the exclusive jurisdiction clause in the ADA. The Petitioner also contended that the inclusion of additional defendants in the Dubai suit, who had no real connection to the dispute, was a strategic move by the Respondent to justify its approach to the Dubai Court. However, the Dubai Court itself found that none of the other defendants were liable and the damages were awarded solely against the Petitioner.

The Dubai Court's judgment was challenged by the Petitioner through an appeal which is currently pending before the Dubai Court of Appeal. In the meantime, the Respondent sought to execute the Dubai Court's judgment. The Petitioner, therefore, sought interim relief from the High Court, which was granted, restraining the Respondent from enforcing the Dubai decree within India or elsewhere.

The Petitioner's counsel, Rajiv Nayar, argued that the Respondent's actions in filing the Dubai suit were both oppressive and vexatious as they directly contravened the arbitration and exclusive jurisdiction clauses of the ADA. Mr. Nayar contended that the suit was a calculated effort to deprive the Petitioner of its right to arbitration by obtaining a decision from a foreign court thereby presenting the Petitioner with a fait accompli. He argued that the Dubai Court's application of Dubai law, in complete disregard of the contractually agreed Indian law and jurisdiction, further justified the need for an anti-suit injunction. Mr. Nayar also highlighted that the Respondent's inclusion of unrelated parties in the Dubai suit was an attempt to evade the arbitration agreement, a strategy that was ultimately unsuccessful, as evidenced by the Dubai Court's judgment holding only the Petitioner liable.

On the other hand, the Respondent's counsel, Mr. Mudit Sharma, raised a preliminary objection to the maintainability of the petition under Section 9 of the Arbitration Act and argued that the court did not have the power to grant an anti-enforcement injunction against a foreign court's decree. He further argued that any such injunction would not be in aid of the final claim in any arbitral proceedings, which the Respondent claimed could no longer take place due to the Dubai Court's decision.

Observations by the High Court:

The High Court held that the law must not be reduced to an object of ridicule by allowing its misuse by unscrupulous litigants. It held that the Respondent's decision to sue the Petitioner in the Dubai court lacked any genuine intent. The Respondent's actions were a blatant attempt to breach the Agreement to Dispute Resolution (ADA) and then seek to benefit from the outcome of that breach. The High Court held that such conduct could not be condoned as it would undermine the integrity of the legal process and allow the Respondent to gain from its wrongful actions.

The bench held that:

“This is one of the worst instances of abuse of the legal process, in commercial litigation, that this Court has had the misfortune of encountering.”

Regarding the plea that the lawsuit in Dubai was not confined to the breach of the ADA, the High Court rejected this argument outright. It held that the only cause of action in the Dubai suit was the alleged breach by the Petitioner of specific clauses in the ADA's addendum, which concerned the distribution of the Petitioner's products in the UAE. This dispute was entirely within the scope of the ADA and was arbitrable under its terms. The High Court noted that the Respondent, in an attempt to avoid arbitration, unjustifiably involved additional defendants, such as Honasa Trading and its manager, Tarun Aggarwal. The Dubai Court  already dismissed these additional allegations. The High Court found it regrettable that the Respondent continued to justify its actions even though they were baseless and had been rejected by the Dubai Court.

On the issue of Sections 13 and 44A of the Code of Civil Procedure (CPC), the High Court found the Respondent's reliance on these sections to be misplaced. These provisions pertain to the execution of foreign decrees in India, a step the Respondent had not taken since it pursued execution in Dubai instead. The High Court clarified that these sections (Section 13 and 44A of CPC) do not apply to the current situation because the Petitioner didn't sought to execute the Dubai decree in India and there was no legal basis to argue that only one remedy could exist for a single impugned action.

The High Court further distinguished between the relief available under Section 9 of the Arbitration Act which protects the arbitral process, and the provisions of Sections 13 and 44A of the CPC which deal with the execution of foreign decrees. These remedies operate in different legal contexts and are not mutually exclusive. The High Court also noted that the possibility of the Petitioner seeking pre-arbitral interim relief under Section 9 does not preclude any future objections to the Dubai decree's enforceability under Section 13 of the CPC.

The High Court held that Sections 13 and 44A of the CPC do not impact the Court's authority to grant the relief sought by the Petitioner under Section 9 of the 1996 Act.

In addressing the scope of Section 9 of the Arbitration Act, Mr. Sharma argued that the provision is limited in nature. He contended that Section 9 cannot be utilized to enforce the arbitration clause in the Dispute Resolution Agreement (ADA) and further contended that the court does not possess the jurisdiction to issue an anti-enforcement injunction against a decree passed by a foreign court under Section 9.

The High Court, however, found Mr. Sharma's interpretation of Section 9 to be unduly restrictive. A plain reading of the provision reveals that its scope is indeed broad and comprehensive. Although Section 9(1)(ii) lists specific “matters” where the court may intervene, the High Court held that the inclusion of clause (e), which allows the court to grant "such other interim measure of protection as may appear to the court to be just and convenient," significantly broadens the scope of the court's powers. The terms “just and convenient” are intentionally wide in their import which enables the court to exercise discretion in granting interim relief beyond the enumerated categories.

Moreover, the High Court held that the court shall have the same powers for making orders as it has in relation to any proceedings before it further expands the court's jurisdiction under Section 9. This includes the power to order preservation, interim custody, sale of goods, securing the amount in dispute, and other measures necessary to protect the subject matter of the arbitration. This broad mandate allows the court to pass a wide range of interim orders, including interlocutory orders that would otherwise be within the purview of a civil court in regular proceedings.

The High Court held that Section 9 stands independently and is not subject to any other provision in the Arbitration and Conciliation Act or elsewhere. The Supreme Court, in its decision in Essar House Pvt Ltd v Arcellor Mittal Nippon Steel India Ltd confirmed that while the court should consider the basic principles of the CPC when deciding petitions under Section 9, it is not bound by the procedural rigors of the CPC. The bench held that the primary objective of Section 9 is to secure the ends of justice, and technicalities of the CPC should not impede the court's ability to do so.

The Supreme Court in Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc also recognized that the court's power to grant interim relief under Section 9 is traceable to the inherent powers provided by Section 151 of the CPC which allows the court to pass orders necessary for the ends of justice or to prevent abuse of the court's process.

Proceeding through the various clauses of Section 9(1)(ii), the High Court held that the power to grant interim injunctions is specifically provided in clause (d). This, combined with the court's broad powers to pass orders as it would in any other proceedings, is sufficient to include the power to grant anti-suit or anti-enforcement injunctions. The court held that there is no need to look beyond the express provisions of Section 9 to establish the court's jurisdiction to grant such relief.

Even if one were to consider a broader interpretation, the High Court held that the power to grant an anti-suit or anti-enforcement injunction would still be encompassed within the court's authority to provide interim measures of protection deemed "just and convenient." Additionally, the court's inherent power under Section 151 of the CPC to secure the ends of justice or prevent abuse of process would also justify such an injunction.

Therefore, the High Court held that when proceedings in a foreign court, or a decree passed by a foreign court, pose a threat to the arbitral process that may be initiated in India, the court under Section 9 has the power to injunct the party from continuing with the foreign proceedings or enforcing the potentially prejudicial decree. Just as a civil court can issue such orders in a civil suit, so too can a court exercising jurisdiction under Section 9 protect the arbitral process from being undermined.

Mr. Sharma cited the decision in Ust-Kamenogorsk to argue that the court lacks the authority under Section 9 of the Arbitration Act to restrain a party from pursuing proceedings in a foreign jurisdiction, even when those proceedings contradict the exclusive jurisdiction clause in the contract. The High Court, however, did not find this argument persuasive.

The High Court noted that Section 9 of the Indian Arbitration Act incorporates elements from both Section 44 of the UK Arbitration Act and Section 37 of the Senior Courts Act, 1981. In Ust-Kamenogorsk, the UK Supreme Court acknowledged the power to injunct foreign proceedings based on a negative covenant in an arbitration agreement, though such power stemmed from Section 37 of the Senior Courts Act rather than Section 44 of the UK Arbitration Act. By analogy, the High Court reasoned that Section 9 of the Indian Act, which blends features of both UK statutes, indeed grants Indian courts the power to issue an anti-enforcement injunction to uphold the exclusive jurisdiction clause in a contract.

The High Court held that it was not being asked to stay the enforcement of the Dubai court's decree but to enjoin the Respondent from continuing enforcement proceedings in Dubai. This injunction, therefore, was directed at the Respondent, not the Dubai court, ensuring that the Dubai court's actions were not directly impeded.

The High Court also rejected Mr. Sharma's argument that Section 9 of the Arbitration Act does not permit the enforcement of an arbitration clause. The High Court referred to Bharat Catering Corporation and Bhatia International to underscore that Section 9 is fundamentally designed to protect the integrity of the arbitration process and the subject matter of arbitration. The High Court held that the purpose of Section 9 is to prevent the arbitral clause from becoming ineffective, thus it inherently includes the power to enforce such clauses. The High Court distinguished this from specific performance of a contract which is beyond the scope of Section 9.

Moreover, the High Court addressed the contention that if Section 9 allowed the granting of an anti-enforcement injunction then the same power would extend to arbitral tribunals under Section 17. The High Court dismissed this as a logical fallacy and held that the powers under Section 9 are independent and should not be limited by the scope of Section 17. The High Court held that the question of whether an arbitral tribunal can grant similar relief under Section 17 does not restrict the court's jurisdiction under Section 9.

The High Court ruled in favor of the Petitioner and allowed the petition. Firstly, the Respondent was instructed to withdraw the execution proceedings that were initiated in Dubai.

In addition, the Respondent was ordered to deposit the damages awarded by the Dubai Court, amounting to ₹57,17,65,947, with the Registry.

Case Title: Honasa Consumer Limited Vs Rsm General Trading Llc

Citation: 2024 LiveLaw (Del) 922

Case Number: O.M.P.(I) (COMM.) 214/2024 & I.A. 32362/2024, I.A. 32363/2024, I.A. 35026/2024

Mr. Rajiv Nayar, Sr. Advocate with Ms. Amita Gupta Katragadda, Mr. Omar Ahmad, Mr. Vikram Shah, Mr. Nayani Aggarwal, Mr. Karan Motiani, Ms. Isha Choudhary, Ms. Aashna Gupta, Mr. Manthan Nagpal and Ms. Kamakshi Puri, Advs.

Mr. Mudit Sharma, Ms. Nandini Sharma, Mr. Parvez A. Khan and Mr. Abhishek Rathi, Advs.

Date of Judgment: 20.08.2024

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