REBUTTING THE ARBITRATION-INVALIDATING EFFECT OF LAW OF THE AGREEMENT: ANUPAM MITTAL V WESTBRIDGE
Updated: Sep 11
The Editorial Column is authored by Srishti Kaushal and Ishani Chakraborty, Senior Editor and Assistant Editor respectively at the RGNUL Financial & Mercantile Law Review.
The Arbitration Agreement is distinct from the main contract and both of them can be governed by distinct laws. Such arbitration agreement may be determined by the law of the seat of arbitration or by the governing law of the contract itself. It becomes important to understand which law is applicable to the Arbitration Agreement to determine if a particular dispute is arbitrable or if traditional litigation should follow.
In Anupam Mittal v Westbridge Ventures II Investment Holdings (Westbridge), the Singapore Court of Appeal (SGCA) highlighted the varying considerations in deciding the arbitrability of the subject matter in a foreign seated arbitration and formulated a composite approach for the same. In this article, we will critically analyse the decision given by the SGCA and determine its impact on Indian entities.
2.COMPOSITE APPROACH INTRODUCED BY THE SGCA IN THE CASE
People Interactive (India) Pvt Ltd. was founded by Anupam Mittal, who along with his cousins held 30.26% shares in it. Westbridge held 44.38% of the same and entered into a Shareholders Agreement (SHA) with Anupam Mittal and his cousins. The SHA provided that it would be governed by and be construed in accordance with the laws of India. It further stated that all disputes would be referred to arbitration and the place of arbitration would be Singapore. The SHA also provided that in case an Initial Public Offering (IPO) of the company was not completed within 5 years from the closing date, Westbridge would redeem all its shares and might even “drag along” other shareholders. Accordingly, upon the failure of completion of the IPO, Westbridge sought to redeem all its shares and refused to reappoint Anupam Mittal as the director of the company. Anupam Mittal thereby filed an application before the National Company Law Tribunal (NCLT) seeking an injunction to prevent Westbridge from interfering in the management of the Company. In opposition, Westbridge obtained an order for an anti-suit injunction in the Singapore High Court contending that arbitration in Singapore should follow.
Anupam Mittal accordingly filed an appeal before the SGCA against the same, contending that subject-matter arbitrability is determined in accordance with the law of the Arbitration Agreement, which was the Indian law in the present case, by virtue of which issues of corporate oppression and mismanagement were non-arbitrable. Westbridge, however, contended that the law of the seat, i.e., the Singapore law was the law governing the subject-matter arbitrability according to which such disputes are arbitrable.
The SGCA adopted a composite approach. It noted that States may bar certain types of disputes from the ambit of arbitration in line with the public interest. As such, the Singapore courts must consider public policy considerations of both India and Singapore for determining subject-matter arbitrability. However, it also highlighted that the arbitration agreement determines what disputes are to be arbitrated and how the same is to be done. Once the award is rendered, the law of the seat comes into the picture. The enforceability of the award is thus determined in line with the law of the seat. It held that a three-step procedure will be followed to strike a balance between the two considerations. Firstly, where the parties have expressly chosen the governing law of the arbitration agreement, the subject matter arbitrability would be determined in accordance with the same. Where the parties have impliedly chosen such a law, the same would apply. However, where there is no implied or express choice, the legal system having the closest and the most real connection with the arbitration agreement would apply.
The SGCA held that the parties had not chosen Indian law explicitly. It further stated that the same was not done impliedly either, as the parties of Indian nationality knowing such disputes to be non-arbitrable, specifically opted for Singapore-seated arbitration, which allowed the same. Finally, it noted that Singapore being the seat of arbitration, the law of Singapore had the most real connection with the Arbitration Agreement. It accordingly held that subject matter arbitrability would be determined according to the law of Singapore, which allowed such disputes to be arbitrated. It thereby imposed an anti-suit injunction against the NCLT proceedings initiated by Anupam Mittal in this regard.
3.DIFFERENT JURISDICTIONS SETTING CONFLICTING PRECEDENTS
The past decade has witnessed a number of proceedings before Indian courts and tribunals. However, parties expressly stating a choice of law governing the arbitration agreement is still not a part of common practice. Different courts have dealt with this situation differently in deciding the applicable law.
In the case of Reliance Industries v. Union of India, which came up as a sequel to the 2014 case with the same parties, two Production Sharing Contracts for the Tapti and Panna Mukta Fields were executed between Reliance Industries Limited, the Union of India, Enron Oil and Gas India Limited and the ONGC.
The contract was to be governed by the laws of India, and the venue of arbitration proceedings would be London. A petition was filed in the Delhi High Court, the decision of which was overturned by the Supreme Court. The final judgment read that the substantive law of the contract is of utmost importance in the process of determination of the issue of arbitrability, instead of the law of the seat or that of the arbitration agreement.
However, the court took a differing stance in the cases of Sumitomo Heavy Industries Ltd. v. ONGC Ltd. & Ors.
The appellant and the first respondent entered into a contract, whereunder the appellant agreed to install and commission on a turnkey basis an oil platform at Bombay High. The contract was to be governed by the laws of India, and the venue of arbitration proceedings was provided as London. Disputes arose subsequent to the completion of the work under the contract and the appellant served notice of arbitration on the first respondent, post which the appellant applied to the Queens Bench Division, Commercial Court in London seeking an order to confirm that the arbitrators had the power to proceed with the arbitration in default of defence having been served by the first respondent. It was heard and decided in favour of the appellant.
The arbitrators had different opinions and the second respondent entered upon the reference and made his award. The first respondent then filed a petition in the High Court at Bombay praying that the second respondent be directed to file the award in that court under Section 14 of the Indian Arbitration Act, 1940 submitting that the award was invalid, unenforceable and liable to be set aside under the provisions of the said Act. It was ultimately held that the arbitrability of the subject matter is decided by the law of the arbitration agreement.
It can be derived that India is still open to discussion over this issue and that the law has not reached a settlement. Upon analysis of precedents, it can be said that Indian courts now have four alternatives using which they can take a stance, wherein they can:
a) maintain the decision held in the Reliance Industries v Union of India case,
b) apply the law of the seat to determine arbitrability,
c) apply the law of the lex fori to determine arbitrability, or
d) follow the "composite approach" taken by the SGCA in the present case.
The judgment of the SGCA in the case at hand lays down new pathways by taking a "composite approach" and deviating from the precedents set by national courts before. When contracting parties choose arbitration, it indicates their inclination towards resolving their dispute outside of litigation, and so, it is imperative for them to choose a "pro-arbitration" jurisdiction when choosing the law which will govern the arbitration agreement. This case put the application of the law of seat at the pre-award stage to determine arbitrability to test and created possibilities for applying foreign non-arbitrability rules at the pre-award stage, along with advocating for potential application of two sets of laws to determine arbitrability. The law of the arbitration agreement now not only governs issues of validity of the arbitration agreement but also the arbitrability of the dispute.
Anupam Mittal v Westbridge has established two elements that Indian parties agreeing on a Singapore seat should carefully consider while negotiating an arbitration clause. Firstly, the parties should expressly stipulate the law applicable to the arbitration agreement, in order to prevent any uncertainty from arising with respect to what the court may determine it to be. Secondly, it is important for the parties to ensure that any anticipated dispute that could arise out of the agreement pertains to a subject, arbitrable under the law applicable to the agreement as well as the law of the seat. This process shall aid the parties and the court in saving time and expenditure on applications and satellite litigation dealing with arbitrability of claims, and suitable selection of appropriate forum for arbitration.