Indian courts continue to exercise restraint in arbitration matters. On 29 January 2019, the Delhi High Court disallowed Union of India’s application for an anti-arbitration injunction against Khaitan Holdings (Mauritius) Limited for an arbitration initiated under the India–Mauritius BIT in the aftermath of Supreme Court of India’s cancellation of various telecom licences in February 2012.[1]

1. Background

Following the cancellation of various mobile telecom licences in India, by the Supreme Court on 2 February 2012 (Telecom judgement),[1] and the ensuing court litigations and criminal investigations, India has been threatened by a number of treaty claims. One such claim was initiated by Khaitan Holdings (Mauritius) Limited (Khaitan) in September 2013, under the India–Mauritius BIT (BIT Arbitration). Khaitan is a Mauritius based investor in Loop Telecom and Trading Limited (Loop), which suffered cancellation of licences for 21 telecom circles in India, due to the Telecom judgement.

Union of India (UoI) alleges that Khaitan is merely an investment vehicle used by certain Indian citizens, who are the ultimate beneficial owners. Based on this, UoI filed a suit in the High Court of Delhi (Court) and sought an anti-arbitration injunction against the BIT Arbitration. UoI argued that since the investment made by Khaitan in Loop is essentially an Indian investment routed through Mauritius, it does not qualify for treaty protection, and the arbitration initiated under the India–Mauritius BIT is an abuse of the treaty protection intended for genuine foreign investors. Khaitan defended against UoI’s allegations on the ground that the Court did not have jurisdiction in the matter as BIT Arbitration is afoot, and the tribunal there is competent to rule on its own jurisdiction.

2. Ruling

The Court, pending final hearing in the suit filed by UoI, refused to grant an interim stay on the BIT Arbitration. On the issues canvassed before it, in the interim application filed by UoI, the Court’s key observations were.

  • Jurisdiction of courts over BIT Arbitration matters

The Court held that courts in India could exercise jurisdiction in matters involving BIT arbitration. Relying on the Vodafone judgement,[2] it was observed that the Arbitration and Conciliation Act, 1996 (Arbitration Act) does not govern a BIT arbitration, since the Arbitration Act only pertains to commercial arbitrations. Therefore, relying on the residual jurisdiction powers enshrined under Code of Civil Procedure, 1908 (CPC), under section 20,[3] courts can exercise jurisdiction in such matters.

The court also observed that the principle of estoppel does not apply in this case to stop UoI from raising the issues before the court. Although sufficient time had elapsed since the notice of arbitration, and the Government of India had nominated an arbitrator for the constitution of the tribunal, the proceedings in the arbitration had commenced only recently.

  • Judicial decisions can trigger BIT claims

The Court, relying on the treaty on Responsibility of States for Internationally Wrongful Acts, 2001, observed that claims under a BIT can be triggered by a judicial pronouncement, since courts are an organ of the state as per Article 4 of that treaty. The Court analysed this issue since Indian judiciary is independent from other organs of the state. The Court was looking to preliminarily establish whether an outcome of a domestic court’s decision can be questioned in an arbitral proceeding and whether the Government of India can be made liable for the court’s decision – since Khaitan’s entire claim arises out of the Telecom judgement.

  • Investor can invoke BIT protection, despite previously litigating in domestic court

On whether Khaitan could take recourse to India–Mauritius BIT, when Loop had already agitated related claims before the Indian tribunals, the court held that BITs provide obligations and remedies that are independent of any other domestic statutes or laws. Therefore, a court’s interference with a BIT dispute resolution mechanism is not welcome and parties are free to pursue recourse to BITs having already agitated issues before domestic courts.

  • Arbitral tribunals constituted in a BIT arbitration can rule on their own jurisdiction

While clarifying that an Indian court can exercise jurisdiction over arbitrations initiated pursuant to BITs, the Court relied on the principle of Kompetenz-Kompetenz and refused to grant any interim stay on the BIT Arbitration. The Court also ruled that the arbitral tribunal is competent to decide whether the investments in Loop by Khaitan were genuine foreign investment that deserved treaty protection under the India–Mauritius BIT.

3. Key Takeaways

It is positive to note that Indian courts are consistently setting a noninterventionist precedent, in both BIT and commercial arbitration matters. The repeated recognition of Kompetenz-Kompetenz principle in India and the courts allowing arbitral tribunals the independent bandwidth to rule on their own jurisdiction is heartening.

However, it is disappointing that the Court only chose to refuse the application for interim injunction, since it was clear that there was no basis for a permanent injunction either. The suit, seeking a permanent injunction against the BIT Arbitration, has not itself been disposed of. A final hearing is still pending, while the BIT Arbitration will proceed in the interim.

It is also concerning that both this and the Vodafone judgement[4] have set a dangerous precedent as far as applicability of Arbitration Act to BIT arbitrations is concerned. An adventurous court can use this precedent to exercise jurisdiction over non-India seated BIT arbitrations in the future. At the same time, the unavailability of Part II of the Arbitration Act (for recognition and enforcement of foreign awards in India) will make enforcement of BIT awards more challenging in India, as they would not be subjected to easier enforcement regime contemplated under the New York Convention.