Calcutta HC sets aside an order granting anti-arbitration injunction on the ground that no prima facie finding exists against the arbitration agreement being either null, void or inoperable or incapable of being performed

Dear all, A Division Bench of the Calcutta High Court on July 27, 2020, in the matter of Visa Resources Pte. Limited (“Appellant/Defendant”) v. Super Smelters and Anr.(“Respondent/Plaintiff”), set aside an order of anti-arbitration injunction passed by the Learned Single Judge for stay of arbitration proceedings pending before Singapore International Arbitration Council (‘SIAC’). Brief facts of the case The Appellant/Defendant challenged an order of the Single Judge, by which an anti-arbitration injunction in a suit was granted for stay of arbitration proceedings pending before SIAC. The Single Judge allowed such stay of proceedings because the Respondent/Plaintiff had challenged the very existence of the parent contract (‘matrix contract’) entered into between the parties. The arbitration clause was a part of the matrix agreement. The Single Judge was of the view that, under such circumstances, it would be financially taxing on the Respondent/Plaintiff’s part to approach SIAC. Hence, allowed such anti-arbitration injunction in the suit proceeding. The decision was challenged in an appeal before the Division Bench. Arguments on behalf of the Appellant/Defendant The Appellant/Defendant submitted that the emails exchanged between the parties after the date of execution of the matrix contract would not have any bearing on the arbitration agreement. The arbitration agreement incorporated in the matrix contract was a separate and severable contract in itself. The emails that were exchanged after the date of execution of the matrix contract was on account of negotiating incidental terms in the contract, which did not impact the arbitration clause. The Appellant/Defendant also argued that the language of the arbitration clause in the matrix contract was widely worded which encompassed within its purview “Any dispute arising between the parties in connection with this Contract including any question regarding its existence, validity or termination, shall be referred to and finally resolved by Arbitration...” . Therefore, the validity of the matrix contract was also an arbitrable question. Arguments on behalf of the Respondent/Plaintiff The Respondent/Plaintiff placed before the Bench communications after the date of execution of the matrix contract and contended that on reading of such emails it would demonstrate that there was no concluded contract entered into by and between the parties. Therefore, as the existence of the matrix contract was under challenge, the reference to arbitration was not permissible in law. Decision of the Division Bench The Division Bench before coming to the conclusion that the order of injunction could not be sustained in law relied on various other judicial precedents as follows In the judgment of World Sports Group (Mauritius) Limited v. MSM Satellite (Singapore) Pte. Limited , (2014) 11 SCC 639, the Apex court, while dealing with an anti-arbitration suit, emphasized on the importance of severability of the arbitration agreement from the matrix contract. In the judgment of Enercon (India) Limited and Ors. v. Enercon GMBH and Anr., (2014) 5 SCC 1, the Supreme Court held that dispute relating to the existence/validity of the underlying contract shall not affect the arbitration clause which constitutes a separate and severable contract in itself. In the matter of Uttarakhand Purv Sainik Kalyan Nigam Limited v. Northern Coal Field Limited , (2020) 2 SCC 455, the Supreme Court while referring parties to domestic arbitration under Section 11 of the Arbitration and Conciliation Act, 1996 (‘Aand C Act’) emphasised on the power of an arbitral tribunal, which is empowered and competent to rule on its own jurisdiction. Such power of the arbitral tribunal is only restricted when the arbitration agreement has been procured by fraud. While interpreting this judgment, the Division Bench opined that the exception to this power (of the arbitral tribunal) would not extend to the instant case where the dispute was regarding the existence/validity of the matrix contract. The case of Nicco Corporation Limited v. Prysmian Cavie Sistemi Energia S.R.L and Ors., deals with the pre-amended Section 45 of the Aand C Act where it was unequivocally held that judicial intervention could only be allowed when there is a prima facie finding to the effect that the arbitration agreement is either null or void, inoperable or incapable of being performed. Upon considering material documents on record and judicial precedents, the Division Bench was of the view that insofar as the order under challenge (‘Impugned Order’) was concerned, the Single Judge failed to record his prima facie satisfaction with regard to the non-existence of the matrix contract. Further, the Impugned Order also did no mention anything with respect to the arbitration agreement being non-workable. The Division Bench observed that challenge to the institution of an international arbitration under Part II of the Aand C, Act could only be sustained on limited grounds. On reading Section 45 of the Aand C Act, it is clear that a judicial authority can only interdict when there is a prima facie finding to the effect that the arbitration agreement is “null, void, inoperative or incapable of being performed”. In view thereof, the Appellate Court set aside the Impugned Order passed by the Learned Single Judge. Please find a copy of the order here. This update has been contributed by Pooja Chakrabarti (Partner) and Debjyoti Saha (Associate).