The Delhi High Court yesterday refused to stay international arbitration proceedings initiated against Union of India out of a Bilateral Investment Treaty(BIT) with Mauritius, on the reasoning that question of jurisdiction has to be decided by the arbitration tribunal itself.
The High Court was dealing with a stay application in an anti-arbitration injunction suit filed by the Union of India seeking to restrain Khaitan Holdings(Mauritius) from proceeding with arbitration proceedings under the BIT.
The case is an off-shoot of the 2G licence scam. In 2008, a company Loop Telecom, was granted licenses for 21 licences for Unifiied Access Services(UAS). Later, the 2G licences were cancelled by the Supreme Court in the case Centre for Public Interest Litigation vs Union of India, after finding that the allotment was arbitrary and discriminatory.
When the licenses got cancelled, Loop approached the TDSAT for refund of the license fee.The TDSAT rejected the prayer in 2015. The matter met finality in 2016 with the SC also upholding TDSAT's rejection.
After that, the share holding pattern of Loop changed. Kaif Investments, which held 26.95% of share of Loop, merged with Khaitan Holdings(Mauritius), a company registered in Mauritius. In 2013, Khaitan issued an arbitration notice to India Government invoking Article 8.2 of the BIT entered between India and Mauritius in 1998.
In December 2017, a CBI Court in Delhi acquitted Loop Telecom, and also directors of Khaitan - Ishawri Prasad Khaitan and Kiran Khaitan- of criminal charges pertaining to 2G scam. After the acquittal, Khaitan moved the Permanent Court of Arbitration - the appointment authority under UNCITRAL, which governs the BIT- for appointment of Presiding Arbitrator in the dispute against India. On May 29. 2018, the Presiding Arbitrator was appointed. The Union of India was given notice to enter appearance on January 28, 2019.
In this backdrop, the India Government moved the anti-arbitration suit, seeking to stall the proceedings initiated by Khaitan.
ASG Sanjay Jain appearing for the Central Government contended that Khaitan cannot invoke the BIT as it cannot be regarded as a Mauritius investor. The investments were done by an Indian company, in accordance with Indian laws and the actual investors and beneficiaries of Khaitan are Indian citizens, submitted the ASG. It was further argued that the petition filed by Loop Telecom, the original investor, for refund was dismissed, and therefore, another proceedings on the same cause by a subsequent share-holder of the company will not lie.
The defendants opposed the prayer for stay contending that the HC's jurisdiction was ousted by the arbitration clause,and that the centre had acquiesced to the arbitration proceedings.
Interference in BIT dispute only on compelling circumstances
At the outset, Justice Prathiba M Singh, outlined the scope of judicial interference in matters pertaining to BIT. It was observed that domestic courts will interfere in BIT disputes only in "compelling circumstances".
Under the BIT the State holds out an assurance to protect the investments of investors from the Contracting State. An assurance given under any BIT signed by the Republic of India constitutes a solemn promise by the country for being a destination for safe foreign investment.
"The BIT provides for obligations and remedies which are not dependent on any other statutes or laws. The BIT is self-contained and is primarily governed by principles of public international law", the judge observed.
It was further noted:
The BIT is self-contained and is primarily governed by principles of public international law. It would not be wrong to say that BITs are sui generis in nature and do not depend on the applicability, interpretation and adjudication under domestic laws. Interference with the BIT dispute resolution mechanism in the case of a genuine investor dispute could lead to erosion of investor confidence and also dislodge the fundamental precincts on which BITs are based.
The HC judgment in Union of India v Vodafone Group,which held that arbitration proceedings under BITs are not governed by the Arbitration and Conciliation Act, 1996 as they are not commercial arbitrations was referred. It was held that the territorial jurisdiction of the Court would be determined on basis of prinicples under Section 20 of the Code of Civil Procedure, 1908.
Based on this, the Court held that it had territorial jurisdiction to look into the dispute, as cause of action arose in part within Delhi.
Tribunal can rule on its jurisdiction- Doctrine of kompetenz-kompetenz,
Invoking the doctrine of kompetenz-kompetenz, which was expounded in the Vodafone judgment, the Court said that a tribunal can rule on its own jurisdiction. The judgment observed :
The continuation of the arbitral proceedings under the BIT, at this stage, may per se not be contrary to public policy. It is a principle of public policy that the Government has to honour its commitments including bilateral ones. The representations made by any state under either a bilateral or multilateral treaty is what holds the community of nations together. The adherence to treaties is therefore not just a contractual stipulation but a solemn commitment by a sovereign nation. Thus, the continuation of arbitral proceedings is the rule and not the exception.
Reference was made to the Calcutta High Court decision in Board of Trustees of the Port of Kolkata Vs. Louis Dreyfus Armatures which held that the the question whether an entity is to be treated as an investor under the BIT Agreement is to be determined by the Arbitral Tribunal. Based on these principles, it was held :
While holding that the jurisdiction of this Court is not ousted from hearing the present suit and that there is no acquiescence by the Republic of India to the jurisdiction of the Arbitral Tribunal, which estops it from approaching this Court, it is held that the question as to whether Khaitan Holdings is a genuine `investor‟, based out of Mauritius, which can invoke the jurisdiction of the Arbitral Tribunal is a question to be determined by the Arbitral Tribunal constituted under the BIT Agreement.
All preliminary objections raised by Union against the invocation of arbitration are capable of being adjudged by the tribunal. The Arbitral Tribunal would, as part of its enquiry, look into this issue as to whether Khaitan Holdings is a bona fide investor and whether the invocation of the arbitration clause by Khaitan Holdings is an attempt to take unfair advantage, the Court observed while declining interim stay.
The suit proceedings will continue.