Anti-Arbitration Suit Giving Short-Shrift To Sec 16 A&C Act Is Hit By Order 7 Rule 11(d) Of CPC: Telangana High Court Reiterates

The Telangana High Court has reiterated and clarified that suits initiated before Civil Courts to curb arbitration proceedings ignore section 16 of the Arbitration and Conciliation Act,1996, and deserve to be rejected under Order 7, Rule 11(d) as being barred by statute.

The order was passed in a commercial court appeal by a Division Bench of Justice Moushumi Bhattacharya and Justice B.R.Madhusudhan Rao.

Relying on a series of judgements, (Kvaerner Cementation India Limited Vs. Bajranglal Agarwal, National Aluminium Company Limited Vs. Subash Infra Engineers Private Limited, Sushma Shivkumar Daga Vs. Madhurkumar Ramkrishnaji Bajaj, In Re: Interplay between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899, SBI General Insurance Com. Ltd. Vs. Krish Spinning and Cox and Kings Limited Vs. SAP India Private Limited) the Court concluded:

“The unimpeachable conclusion is that any question as to the existence or validity of the arbitration agreement or a doubt as to the invocation of the arbitration clause must inevitably be decided by the Arbitral Tribunal. The parties cannot approach the Civil Courts for thwarting the arbitral process, particularly where the arbitration agreement has not been disputed. The case sought to be made out by the appellant is contrary to the position under the 1996 Act and the decisions referred to above.”

The Bench further clarified that when directions were given to nominate an arbitrator, it cannot be said that the Arbitration Tribunal has yet to be constituted.

“We should also add that the appellant's contention of the inapplicability of section 16 at a stage before constitution of the Arbitral Tribunal is iniquitous and self-serving, to say the least…..In essence, the appellant cannot contend that section 16 of the 1996 Act will only apply after constitution of the Arbitral Tribunal.”

Background:

The dispute stems from a contract entered into by two parties for the procurement of machinery. The appellant's case was that the machinery procured from the respondent was faulty and not working as per the agreement. The respondent requested negotiations to arrive at a collaborative solution. However, the appellant yet again issued a notice to the respondent demanding large sums towards insurance and other claims. Following this, the respondent-initiated Arbitration proceedings before the International Court of Arbitration in International Chamber of Commerce.

The appellant herein filed an injunction suit before the trial court seeking to stop the Arbitration proceeding initiated by the respondent on the ground that time to enforce the Arbitration Clause had elapsed. An ex-party interim stay was granted in favour of the appellants. The Respondents filed an Order 7 Rule 11 (d) petition praying that the Court may dismiss the injunction suit, on account of it being barred by statute.

The respondents contended that the grievance of the appellant could be adjudicated before the Arbitration Tribunal, which is the competent authority as per section 16 of the A&C Act. The trial court accepted this argument and dismissed the suit filed by the appellants. Challenging the same, the present appeal is filed. The appellant contended that once time to enforce arbitration agreement had elapsed, the parties could only approach the Civil Court of competent jurisdiction for relief.

At the outset, the Division Bench noted that section 16 of the A&C Act, lays down the principle of kompetnse-kompetenz and bestows the Tribunal the power to hear objections with respect to the existence or validity of the Arbitration Agreement.

“The doctrine of kompetenz-kompetenz implies conferment of this very power on the Arbitral Tribunal and intends to minimise judicial intervention in the arbitral process.”

The High Court reiterated that an 'hands-off' approach should be taken by the Civil Courts, in arbitration matters.

“In essence, the threshold tests for an Anti-Arbitration injunction are exacting and are rarely entertained or applied by the Courts, given the all-pervasive remedy under section 16 of the 1996 Act,” the Court reiterated.

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