Now let’s discuss a case, which has been recently reported in a number of newspapers & magazines which is that of Union of India v. Khaitan Holdings (Mauritius) Limited & Ors., (2019) SCC Online Del 6755—which is a 2019 SC case.

BRIEF FACTS:

The Plaintiff (Union of India) entered into an agreement with the Government of Republic of Mauritius for the Promotion and Protection of Investments (BIT agreement), which was executed in 1998 with effect from 20 June 2000. The Defendant (Khaitan Holdings) is a company based in Mauritius. Its predecessors in interest are Kaif Investment Limited and Capital Global Limited.

Loop Telecom and Trading Limited, an Indian company, had applied for 21 Unified Access Services Licences with the Department of Telecommunications, Government of India. The Supreme Court in Centre for Public Interest Litigation v. Union of India, (2012) 3 SCC 1, inter alia, cancelled all 21 UAS licenses granted to Loop Telecom.

The shareholding of Loop Telecom underwent changes from time to time. Kaif Investment, which held a substantial interest in Loop Telecom merged with Khaitan Holdings. Upon the cancellation of licences by the Supreme Court, CGL & Kaif Investment issued notice under Article 8.1 of the BIT agreement, seeking settlement of disputes.

An Arbitral Tribunal was constituted under the BIT as per UNCITRAL Rules. The Plaintiff filed a suit before the Delhi High Court to restrain the Defendant from taking recourse to arbitral proceedings under the BIT Agreement. The Plaintiff alleged that the Defendant was primarily controlled by Indian citizens and the judgement of the Supreme Court did not amount to expropriation.

An application was filed by the Plaintiff in the present suit, seeking anti-arbitration injunction against arbitration proceedings, initiated under the Permanent Court of Arbitration.

ISSUE:

Now let’s take up the issues.

Whether interference by domestic courts in arbitration proceedings commenced under Bilateral Investment Treaty (BIT) is permissible or not?

HELD:

While considering the application, the Delhi High Court noted that “Interference by domestic courts in arbitral proceedings that may be commenced under BITs is permissible but only in ‘compelling circumstances’, in ‘rare cases’. Courts are hesitant to interfere in the arbitral process once the Tribunal is constituted and is seized of the dispute.”

Since the BIT Agreement in the present case was governed by the UNCITRAL Rules, the Court ruled that the Tribunal is governed by the principle of kompetenz-kompetenz, which, in effect, means that the Tribunal can rule on its own jurisdiction.

The Court relied on the judgement of Union of India v. Vodafone Group, (2018) SCC Online Del 8842, wherein it was held that “arbitration proceeding under BITs are not covered by the Arbitration and Conciliation Act, 1996 as they are not commercial arbitrations”. The Court also observed that the Plaintiff is not estopped from invoking the jurisdiction of the Delhi High Court either by acquiescence or lack of jurisdiction.

The Court held that the grounds raised by the Plaintiff to seek anti-arbitration injunction were within the domain of adjudication by the Arbitral Tribunal and therefore, it was not for the Court to adjudicate the issues.

Hence, the Court dismissed the application seeking anti-arbitration injunction under the BIT.

RATIO:

Therefore the ratio of this course is that—Interference by domestic courts in arbitral proceedings that may be commenced under BITs is permissible but only in “compelling circumstances”, and in “rare cases”. Courts are hesitant to interfere in the arbitral process once the Tribunal is constituted and is seized of the dispute.