In Techfab International Private Limited v. Midima Holdings Limited the Delhi High Court granted an ad-interim anti-arbitration injunction on a prima-facie finding that the appointment of an arbitrator affiliated with a foreign institution violated the agreed arbitral procedure - which designated Delhi as the seat of the arbitration and Indian law as the governing law of the agreement. Arjun Gupta, Ritika Bansal and Soumya Gulati, from the Dispute Resolution Team at Nishith Desai Associates, analyse how this judgment may deviate from established principles governing grant of anti-arbitration injunctions.
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00:00In the
00:23recent case of Techfab Vs. Medema, the Delhi High Court recently passed an ad into him
00:28ex parte anti-arbitration injunction on a prima facie view that the appointment of the
00:34arbitrator affiliated to a foreign institute is not as per the agreed arbitration procedure.
00:40So what are your views on that? What is the facts of the case that led to this decision?
00:45Thanks Amar. I think we should actually go into what the facts of this case were.
00:50So the parties had an arbitration, had an agreement between them in which they had an
00:53arbitration clause which had multiple requirements but one very interesting thing was they said that
01:00the seat of the arbitration will be India or any other country but the parties were later agreed
01:05that the seat will be India. Now when disputes arose between the parties, one of the parties
01:11initiated arbitration and they went to an appointing authority which in this case was PCA
01:16and the authority appointed an arbitrator who was affiliated with an arbitral institution based in
01:23Kuala Lumpur. Now the argument which was brought before the court in this case and on basis which
01:30an anti-arbitration injunction was sought was that they said that because this arbitrator
01:35who was appointed was affiliated to a Kuala Lumpur institution, this was going against
01:40the arbitral procedure which said that India was the seat of the arbitration. On that basis,
01:46the Delhi High Court ended up giving the anti-arbitration injunction. So basically the two
01:50assumptions that they sort of made is that first that if you have an arbitrator who is affiliated
01:56with a Kuala Lumpur institution that means he will necessarily be conducting proceedings in Malaysia
02:03and second they're saying that if and the second logical extension that they're driving at is that
02:09if they do conduct these proceedings in Malaysia then you're going against the procedure which
02:13says that the seat will be India. So there is some confusion between venue and seat
02:18and the affiliation with the Kuala Lumpur institution has something to do with seat
02:24no longer being in Davis, the fear they had. So on this basis they granted the anti-arbitration
02:30injunction. So thank you for that Hrithika. I've read through the arbitration clause. Do you think
02:35there are any problems with the arbitration clause? Yes and as you would have read it as well there
02:39are multiple problems but let's first put down what the clause says. For example, first the clause
02:45leaves it open for the parties to decide the number of arbitrators and the avoiding authority
02:51at the later time. It says the seat will be India or any other ancestral countries that the parties
02:56mutually decide. It says that governing law will be where the arbitration will be conducted. So
03:02there are multiple you know ambiguities which have been left in the clause. Now the problem
03:06which this leads to is that because it requires parties to agree on these things subsequently
03:12it's practically very difficult that the parties will end up agreeing to any of these things once
03:17the dispute has actually arisen. So I think that's the fundamental problem with this clause that it's
03:21leaving open these things. Now some things you can possibly still leave open. For example, if you are
03:28leaving open like some parts of it is still fine like you want to leave some part of procedures
03:33open is fine. But if you leave out something like the appointing authority, in the best
03:38the basic details that it becomes very difficult to then subsequently agree upon these things.
03:43So I think that is the main problem which also happened here that in fact the number of
03:47arbitrators is because something the parties couldn't agree upon. One party proposed a single
03:51arbitrator, the other party never responded. But the parties are proceeding on the basis that they
03:55have now agreed upon a sole arbitrator. So things like that are going to be difficult.
04:01And I think that is what is the main thing here that parties should keep in mind that
04:05you know there's certain basic details they should definitely agree upon in their arbitration
04:09agreement. Otherwise things like this are likely to keep arising. Okay, thank you for that Riddhika.
04:14I think I'd want to ask Arjun some questions now. Hi Arjun, thanks for being part of this discussion.
04:21So you just heard Riddhika on the arbitration clause and how it had so many problems in the
04:26context of his judgment. What are your views on this? I think the arbitration clause by itself
04:34is an impractical clause and I think if there is a dispute pertaining to the dispute resolution
04:40mechanism that poses a great problem to both parties to an agreement. Because then you will
04:46have to most probably subject yourself to the jurisdiction of a court to figure out what your
04:51actual intention to resolve disputes were. And that is definitely not a good starting point to
04:58resolve your disputes. So I think that having absolute clarity about the method and manner of
05:06your dispute resolution mechanism is an imperative requirement when you are drafting your transaction
05:14documents. We have seen in other cases as well where even a small level of ambiguity regarding
05:23the law governing the arbitration or the express or implied manner in which part one of the
05:30arbitration act is being excluded to foreign seated arbitrations. These kind of aspects are
05:38allowing parties to raise threshold arguments before an arbitrator or an appointing authority.
05:46So therefore having all bases covered at the time of drafting of transaction documents in your
05:52dispute resolution mechanism is definitely going to save you time from moving on from
05:59jurisdictional objections to actually reaching the meat of the dispute and going into the merits.
06:04So therefore the idea is always to have a robust and all-rounded dispute resolution.
06:12And let us get back to the judgment. How do you think this judgment is in the context of
06:17the previous precedents that have been there? Well, this judgment, we have to keep in mind that
06:24this judgment was passed without the presence of the respondents. So it's an ex parte order.
06:30Keeping that in mind, the fact that the court went ahead to actually stall the ongoing arbitration
06:38proceedings seems to be a situation which is not too conducive for the general arbitration landscape
06:47of the country. There are defined principles governing grant of anti-arbitration injunctions.
06:55You need to have a situation where there is evidence of forgery or that both parties or
07:00one of the parties did not give consent to arbitration or if the intention of the parties
07:06was to do some other form of dispute resolution. In these kind of situations, we have obviously
07:12seen instances in the past where courts have granted anti-arbitration injunctions.
07:17But we are also seeing some instances where courts or tribunals, for example, the NCLT
07:24Mumbai batch had granted an anti-arbitration injunction in the Anubhav Mittal Saga. So these
07:29kind of injunctions which are, one, not very happily worded, which are not going into the
07:38historic jurisprudence surrounding such grant of such injunctions, might actually stall or
07:47pose a significant roadblock in the continuation of either domestic or international arbitrations.
07:54And keeping in mind the general history of litigation in India and the fact that
08:01dilatory tactics as a litigation strategy is not uncommon, this just might be picked up as
08:08one of those ways where people try their luck at getting an injunction on an ongoing arbitration.
08:14So I think for tribunals and courts to be very circumspect and to stay their hand and not at the
08:23asking give an injunction on ongoing arbitrations should be the rule and only as a method of
08:31exception should such an injunction be granted. Thank you for that. Thank you.
08:38Thank you.