The ghost of the ‘anti-arbitration injunction’ has eventually been buried by the Supreme Court of India, vide its judgment dated 23.08.2019 in ‘National Aluminium Company Limited vs. Subhash Infra Engineers Pvt. Ltd. & Anr.’; Civil Appeal No. 6605 of 2019 arising out of SLP (C) No. 5610 of 2017, where the Hon’ble Supreme Court, speaking through Hon’ble Sri Justice R. Subhash Reddy, has held that, “if the first respondent wants to raise an objection with regard to existence or validity of the arbitration agreement, it is open for the first respondent to move an application before the arbitrator, but with such plea, he cannot maintain a suit for declaration and injunction.”.
To give a brief overview of the matter: the Appellant/Petitioner-National Aluminium Company Limited had invoked arbitration proceedings against the Respondent- Subhash Infra Engineers Pvt. Ltd. for recovery of Rs.4,86,61,440/- on account of financial loss suffered by NALCO due to execution of contract works at the cost and risk of SIE, after the latter prematurely abandoned the work undertaken by it under its tender dated 06.06.2011 and accepted by NALCO vide its work order 09.11.2011. The first Respondent/SIE disputed the claim of NALCO and resisted the arbitration notice sent by it, on the ground that there is no binding contract between the parties, and as such, the demand is illegal and unjustified.
On receipt of the notice issued by the Arbitrator to attend the preliminary meeting, SIE approached the Civil Court at Gurgaon, and filed a Civil Suit seeking relief of declaration that the appointment of the Sole Arbitrator is null and void, and that of permanent injunction to restrain the Arbitrator from proceeding with the arbitration.
The prayer for ad-interim injunction was declined by the Trial Court, which prompted SIE to approach the District Court. The District Court/Ld. ADJ, vide order dated 25.01.2016, allowed the appeal and granted the injunction, restraining the Arbitrator from proceeding further pursuant to the notice dated 07.09.2015. Aggrieved by the order of the ADJ, NALCO preferred a Civil Revision before the High Court of Punjab and Haryana at Chandigarh, which came to be dismissed vide order dated 22.10.2016.
The High Court had held that, “Section 16 of the Arbitration and Conciliation Act would operate only in the event where there was a concluded agreement between the parties in terms of Section 7 of the Arbitration and Conciliation Act. There was no consensus ad idem between the parties with reference to any terms and conditions of the offer and acceptance.”
NALCO was up in challenge against the order dated 22.10.2016 passed by the P&H High Court before the Supreme Court.
It was strenuously contended by Mr. Ashok K. Gupta, Senior Advocate that the impugned order had been passed by the P&H HC in contravention of the statutory mandate contained under Sections 5, 7 and 16 of the Arbitration Act and the settled law laid down by the Supreme Court in Kvaerner Cementation India Limited V. Bajranglal Agarwal & Another; (2012) 5 SCC 214, and reiterated in Enercon (India) Ltd. & Ors. V. Enercon Gmbh & Anr.; (2014) 5 SCC 1 and A. Ayyasamy V. A. Paramasivam & Ors.; (2016) 10 SCC 386.
It was further submitted by Mr. Gupta that the anti-arbitration injunction is a thing of the past and that when arbitration proceedings are initiated by one of the parties because of the existence of an arbitration agreement between them, Section 5 of the Act forbids any judicial intervention at that stage scuttling the arbitration proceedings.
Any objection to initiation of such arbitration proceedings on the ground that there is no arbitration agreement or validity of the arbitration clause or the competence of the Arbitral Tribunal is challenged, can be addressed before the Arbitral Tribunal itself under Section 16 of the Act. Arguendo, it was submitted that as much as the acceptance of the bid will conclude the contract in terms of Section 7 of the Indian Contract Act, and having regard to terms and conditions of NIT and General Conditions of Contract, it is a binding contract between the parties, as such, dispute is to be resolved only by way of arbitration.
The Hon’ble Supreme Court agreed with the submissions made by Mr. Gupta, and held that if SIE wants to raise an objection with regard to existence or validity of the arbitration agreement, it is open for it to move an application before the arbitrator, but with such plea, it cannot maintain a suit for declaration and injunction, thereby setting aside the impugned order passed by the P&H HC and vacating the injunction orders against the arbitration proceeding.
The Judgment clears the path for the arbitration proceedings that have been stalled owing to the interference-injunction by the Civil Court against their continuation or initiation.
It is in consonance with the legislative intent and judicial dicta of fostering the resolution of disputes through arbitration and curtailing the intervention of Courts in the conduct of arbitration proceedings.
The Supreme Court has reiterated that a suit for injunction and declaration challenging the jurisdiction of arbitrator is not maintainable, and objections apropos the existence or validity of the arbitration agreement can be raised only by way of an application under Section 16 of the Act.
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