Disputes In India ─ Lessons From Mittal V Westbridge

Ⅰ．Introduction

Japan is one of the largest foreign investors in India, with around 1,500 Japanese companies operating in India¹). In many cases, Japanese companies will purchase shares in Indian entities, and together with their Indian business partners carry out business in the subcontinent. Given the sheer volume of business being conducted, Japanese companies are also finding themselves involved in disputes in India, with either their Indian business partners or Indian third parties.

Japanese companies will naturally prefer for such disputes to be submitted for international arbitration. Indeed, the relevant contract would likely have expressly specified arbitration as the choice of dispute resolution. However, when Japanese companies commence arbitration proceedings, it is not uncommon to immediately encounter a problem of arbitrability. The Indian counterparty in these disputes may claim that the dispute comes under the exclusive jurisdiction of the National Company Law Tribunal ("NCLT"), and hence is not arbitrable. The NCLT is a tribunal created under the Companies Act in India, and has certain specified powers over certain company matters. This includes, for example, claims concerning the oppression of minority shareholders.

The Japanese company is then dragged into a dispute over the proper characterization of the dispute. Is it merely a contractual dispute arising from the contract, or is it a dispute that comes under one of the specific areas which the NCLT has jurisdiction over? In the former situation, the dispute is arbitrable. In the latter, then it becomes arguable that parties cannot proceed to arbitration and can only instead deal with the matter at the NCLT.

Complicating matters further is the reality that claims do not exclusively fit into categories of "contractual" or "oppression" and can well have elements of both a contractual and a claim for oppression. Naturally, if the Indian party wishes to disrupt the arbitration proceedings, or even if it wishes to obtain a perceived "home ground" advantage, it will seek to characterize the dispute as being under NCLT's specified jurisdiction. In practice this leads to a variety of "dressed-up" claims, where claims which are contractual in nature are purposely farmed to fall under NCLT's jurisdiction.

The recent case of Anupam Mittal v Westbridge Ventures II Investment Holdings [2023] SGCA 1 ("Mittal v Westbridge") provides some practical guidance for parties who might be facing this problem. In Mittal v Westbridge, the Singapore Court of Appeal ("SGCA") was presented with the exact issue of arbitrability as mentioned above. In a shareholder dispute, the Indian party insisted that the dispute concerned minority oppression and could only be heard by the NCLT, while the other party argued that the dispute was contractual and fell under the parties' arbitration agreement. The SGCA thus had to decide whether the dispute was arbitrable. In order to reach a decision on arbitrability, the SGCA also had to decide the prior question of what was the law to apply to decide whether the dispute was arbitrable.

The SGCA decided that the arbitrability of a dispute will be determined by both the law of the arbitration agreement and the law of the seat. The court then determined that both the law of the arbitration agreement and the seat was Singapore law in this case. Given that the dispute was arbitrable under Singapore law, the arbitration could proceed. In this way, the non-Indian party was able to partially avoid the NCLT issue and proceed to the dispute resolution method originally agreed upon by the parties (i.e., arbitration).

The decision of the SGCA is thus noteworthy because it shows that by making the appropriate selection of the law of the arbitration agreement and the law of the seat, the risk of a "dressed up" claim can be mitigated. This article considers the reasons provided by the SGCA, and how they might guide future companies investing in India.

Ⅱ．The laws of arbitration

As Mittal v Westbridge discusses a variety of different applicable laws, it is useful to first consider the different laws which might be engaged in an arbitration. Typically, up to four relevant laws might be engaged:

1. The law of the underlying main contract
2. The law of the seat of arbitration
3. The law of the place of enforcement
4. The law of the arbitration agreement

The law of the main contract is the law chosen by the parties to govern their substantive contractual obligations in the main contract. This is typically expressly stated in the main contract (e.g. "This contract is governed by the laws of Country A").

The law of the seat of arbitration (sometimes called the "curial law") is the law that will be used by the court of the seat. Setting aside proceedings, for example, will apply the law of the seat. The law of the seat is usually indicated by the selection of the seat in the arbitration agreement (e.g. "The seat of the arbitration shall be Country A"). A phrase such as "arbitration in Country A" may also interpreted as a selection of the seat²).

The law of the place of enforcement governs the enforcement of any award. Under the UNCITRAL Model Law on International Commercial Arbitration 1985 with amendments as adopted in 2006 ("Model Law"), an award may be refused in certain limited circumstances under the law of the enforcing state (see Article 36 of the Model Law).

The law of the arbitration agreement governs the arbitration agreement and will apply for issues such as validity, formation, and interpretation of the arbitration agreement. This law of the arbitration is usually not expressly mentioned in the contract. This practical reality was acknowledged by the Supreme Court of the United Kingdom in Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38 ("Enka v Chubb") – "it is rare for the law governing an arbitration clause to be specifically identified (either in the arbitration clause itself or elsewhere in the contract)".

Seeing as the law of the arbitration agreement is rarely expressed, the common law has adopted a 3 stage test to determine the law of the arbitration agreement. The 3 stage test is currently adopted in both the UK (e.g. Enka v Chubb) as well as Singapore (Mittal v Westbridge). When applying the 3 stage test, the court asks the following questions:

Stage 1: Have parties made an express choice of law for the arbitration agreement?

Stage 2: If there is no express choice, have parties made an implied choice of law?

Stage 3: If the parties have not made an express or implied choice, what is the law with the closest connection to the arbitration agreement?

Ⅲ．Mittal v Westbridge – Factual Background

1. The Shareholders Dispute

Mittal was the founder of People Interactive (India) Private Limited ("Company"), a wellknown matrimonial service operating in India. Westbridge is a private equity fund incorporated in Mauritius. Westbridge invested in the Company in early 2006, and parties executed a Shareholders Agreement ("SHA"). The SHA contained a governing law and arbitration clause, that provided that the law of the main contract was Indian law, and that disputes would be referred to arbitration seated in Singapore:

• "This [SHA] ... shall be governed by ... the laws of the Republic of India"
• "In the event of a dispute relating to the management of the Company or relating to any of the matters set out in this Agreement... All such disputes... shall be referred to arbitration..."
• "The arbitration proceedings shall be carried out in accordance with the rules laid down by the International Chamber of Commerce and the place of arbitration shall be Singapore."

Under the SHA, the Company was expected to complete an initial public offering ("IPO")

within five years of the closing date. If the IPO was not carried out, Westbridge had the option to redeem its shares. The IPO was not achieved, and as a result Westbridge wished to exit the Company in 2017. Unfortunately this caused the relationship with Mittal to significantly deteriorate. Attempts were made to sell the Company to a potential buyer called Info Edge (India) Limited ("Info Edge"). However this worsened the situation, since Mittal viewed Info Edge as a competitor. With the relationship now almost irreversibly damaged, Mittal complained that he was initially not aware that Westbridge had investments in Info Edge, and further accused Westbridge of not properly disclosing sensitive information of the Company to Info Edge.

2. Initial proceedings

Mittal commenced formal dispute proceedings by submitting a complaint to the NCLT on 3 March 2021 (the "NCLT Proceedings"), arguing that he was the target of minority oppression and that Westbridge should be restrained from further oppressive behavior. In response to the NCLT Proceedings, Westbridge commenced court proceedings in Singapore (the "SG Proceedings"), seeking an anti-suit injunction against Mittal, arguing that the NCLT Proceedings had breached the arbitration agreement in the SHA.

Mittal attempted to avoid the effect of the SG Proceedings by filing a suit in the Bombay High Court (the "Bombay Proceedings"). Mittal asked the Bombay court to declare that only the NCLT was competent to hear the dispute, and to restrain Westbridge from proceeding/ enforcing with the SG Proceedings. The SG Proceedings was first heard in the Singapore High Court ("SGHC"). The SGHC decided that the law determining arbitrability was the law of the seat (Singapore law), and that under Singapore law the dispute was arbitrable. The court also decided that the disputes fell under the scope of the arbitration agreement. As a result, the SGHC confirmed the anti-suit injunction against Mittal.

Ⅳ．The Decision of the Singapore Court of Appeal (SGCA)

1. Appeal to the SGCA

Now prevented from continuing with the NCLT Proceedings, Mittal appealed to the SGCA. Mittal made two alternative arguments before the SGCA, both essentially arguing that he should be allowed to pursue the NCLT Proceedings. His first argument was that the disputes (which he characterized as disputes for oppression and mismanagement), did not fall within the scope of the arbitration agreement. According to Mittal's argument, the arbitration agreement was governed by Indian law, and under Indian law claims for mismanagement and oppression were non-arbitrable since they came under the exclusive jurisdiction of the NCLT. His second argument was similar, arguing that whether a dispute was arbitration should be determined by the law of the arbitration agreement (which he argued was Indian law) and under that law the current disputes were objectively non-arbitrable.

Westbridge made two arguments in response. First, Westbridge argued that the law of the seat (Singapore law) should apply to the question of arbitrability and that under Singapore law the disputes were arbitrable. Second, even if the law of the arbitration agreement were relevant, the law of the arbitration agreement as per the 3 stage test was actually Singapore law. In addition to arguing that the disputes were arbitrable, Westbridge also argued that the dispute fell under the scope of the arbitration agreement. Here Westbridge argued that if Singapore law applied then the arbitration agreement was capable of encompassing all disputes, and that even if Indian law applied, the disputes are contractual in nature and hence do not trigger the NCLT's exclusive jurisdiction.

The following issues thus had to be decided by the SGCA:

1. Are questions of arbitrability determined according to the law of the seat or the law of the arbitration agreement?
2. What is the law of the arbitration agreement in the SHA?
3. What is the proper characterization of the disputes here (i.e. do they under the arbitration agreement)?
4. If the disputes are arbitrable, should the Singapore court grant a temporary stay of the anti-suit injunction?

2. What law determines arbitrability – the composite approach

The SGCA decided that at the pre-award stage, the issue of arbitrability would be decided by the law of the arbitration agreement, as well as the law of the seat. The SGCA called this the "composite approach".

The SGCA was initially presented with two possible choice of laws for deciding arbitrability – the law of the seat, or the law of the arbitration agreement. Westbridge was able to refer to substantive supporting authority that the law of the seat should be replied. For one, arbitrability at the post award stage (e.g. in a setting aside challenge) was already decided by the law of the seat under the Model Law. Under Article 34 (2)(b) of the Model Law, an award may be set aside if the "subject-matter of the dispute is not capable of settlement by arbitration under the law of this State", referring to the law of the seat. It is thus intuitive for a party to expect that arbitrability will be decided under the same set of laws at all stages.

However, in the view of the SGCA, the concept of arbitrability was closely linked to public policy, or in other words whether the dispute is of a nature as to make it contrary to public policy for that dispute to be arbitrated. Bearing this in mind, to determine arbitrability it is necessary to consider the public policy of both the law of the seat, as well as the law of the arbitration agreement. The court considered the hypothetical situation of parties expressly choosing a specific law to govern the agreement – if under that law certain disputes were not arbitrable, then parties in essence would have agreed to those disputes also not being arbitrable.

The SGCA also seem persuaded by the view that the law of the seat would only kick in when an arbitration agreement comes into effect. Prior to that, for example, where there is dispute on whether the arbitration agreement even covers certain disputes, the law of the seat has not yet taken effect since there is dispute as to the application of the arbitration agreement itself. At this point the only law that could apply was the law of the arbitration agreement to decide the arbitrability issue. However, this does not mean that the law of the seat is irrelevant to that issue. Rather, if the arbitration concerns an issue that happens to be non-arbitrable by the law of the seat, that would be an "additional" obstacle by reason of Article 34 (2)(b)(i) of the Model Law.

The SGCA was also motivated by some concerns of international comity, noting that "whilst it is public policy in Singapore to encourage arbitration, such encouragement cannot override principles of comity or insist on the application of Singapore law to a substantive matter involving a foreign system of law expressly chosen by the parties". While Singapore does generally have a "pro-arbitration" view, a Singapore court would not ignore public policy concerns of a foreign system of law when applicable.

Having decided on the composite approach, the next step was thus to decide what exactly was the law of the seat and the law of the arbitration agreement. For the law of the seat, this was relatively straight forward. Both Westbridge and Mittal seemed to accept that the words "the place of the arbitration shall be Singapore" in the SHA indicated that the seat was Singapore and that accordingly the law of the seat was Singapore law. Both parties also seem to have accepted that under Singapore law, the disputes were arbitrable.

3. What is the law of the arbitration agreement?

As for arbitrability under the law of the arbitration agreement, the SHA does not specify any express choice of law. The dispute resolution clause of the SHA is simply silent on the issue. As such, in order to find out what is the law of the arbitration agreement, the court applied the 3 stage test described above at II above. In applying the test, the cour t made observations about each stage.

In relation to the first stage (express choice), the SGCA noted that merely having a governing law for the main contract was not sufficient to be an express choice of law. Instead, there must be explicit language choosing a law for the arbitration agreement. In short, almost nothing less than "the arbitration agreement shall be governed by the laws of Country A" would amount to an express choice of law.

In relation to the second stage (implied choice), the SGCA stated that the starting point is that the law of the main contract will be the implied choice of law for the arbitration agreement. However this starting point can be displaced by the facts of the case. In particular if using the law of the main contract would have an impact on the effectiveness of the arbitration agreement, then the normal starting point can be displaced. In the current case, the SGCA noted that if Indian law was the law of the arbitration agreement, the parties' intention to arbitrate all disputes would be affected. The normal starting point was accordingly displaced.

In relation to the third stage (i.e., the law with the closest connection to the arbitration agreement), the SGCA views that this is "a straight forward exercise". The law of the seat would normally have the closest connection with the arbitration agreement since the law of the seat will govern the procedure of the arbitration including challenges to the tribunal or its jurisdiction and the award (if issued). Accordingly, in this case, the law of the seat (Singapore law), was the law of the arbitration agreement. Thus, applying the composite approach, under the law of the seat and the law of the arbitration agreement (both being Singapore law), the disputes were arbitrable.

It is worth noting that the treatment of stage 2 in this case also appears to be an implicit approval of the "validation principle", discussed in Enka v Chubb. In short, this is an old common law principle of contractual interpretation that states that where there is ambiguity in the contract, an interpretation that upholds the validity of the agreement should be preferred. In the arbitration context, an interpretation of implied choice which upholds the validity of the arbitration agreement is likely to be preferred.

4. The proper characterization of the disputes

In addition to deciding that the disputes were arbitrable, the SGCA had to also decide on whether the commencement of the NCLT Proceedings was in breach of the arbitration agreement. Or in other words, whether Mittal ought to have brought his complaints to arbitration instead of the NCLT. On this issue, Mittal had attempted to argue that his disputes were in the nature of "oppression" and hence can only be brought to the NCLT.

The SGCA did not take the label of "oppression" at face value. Rather, the court examined the individual claims raised by Mittal to the NCLT. After examining each of the claims, the SGCA decided that practically all of the claims fell under the scope of the arbitration agreement (i.e. "dispute[s] relating to the management of the Company or relating to any of the matters set out [the SHA] ") . In the light o f this , the SGCA concluded that the commencement of the NCLT Proceedings was a breach of the arbitration agreement.

5. Whether a stay should be granted on the anti-suit injunction

Finally, the SGCA considered whether there were grounds for granting a limited stay on the anti-suit injunction to allow the Bombay and NCLT Proceedings to conclude. Even though commencing the NCLT Proceedings was in breach of the arbitration agreement, the SGCA in principle still had the discretion to impose a limited stay on the anti-suit injunction. One possible reason for this would be to avoid conflicting decisions between the Singapore courts, the Indian courts, and also the arbitration tribunal. Mittal argued for a limited stay to allow for the issue of arbitrability and the jurisdiction of NCLT to be resolved by the Bombay court, since otherwise he would be compelled to go to arbitration to obtain an award which an Indian court might refuse to enforce.

The SGCA decided not to grant a limited stay because (a) there was no clear evidence when the Bombay proceedings would end; (b) it was speculative to conclude that an arbitration would be fruitless due to the possibility of unenforceability – even if the arbitration were unenforceable in India, the arbitration process may have the effect of compelling parties to test their legal positions and assess their respective cases.

Ⅴ．Practical guidance points for commercial parties and counsel

The full impact of the decision in Mittal v Westbridge is likely to take some time to be fully understood. That being said, there are a few immediate short term learning points.

Perhaps the most important take away is the clear expression by the SGCA that the ideal situation would be for parties to expressly state the law of the arbitration agreement. Hence, for a Japanese company seeking to invest into India, it would be prudent to select a law other than Indian law to be the law of the arbitration agreement and the law of the seat. For example, if parties agree for arbitration to be seated in Singapore then the law of the arbitration agreement should also be expressly stated as being Singapore law or laws of the seat of the arbitration (e.g. "the arbitration agreement shall be governed by Singapore law"). In addition to avoiding Indian law related problems such as the exclusive jurisdiction of the NCLT, choosing the same law for the law of the seat and the law of the arbitration agreement will also provide one system of laws to decide all pre-award issues.

Unfortunately, while this is a potential solution, it might not be feasible in practice. As it stands, arbitration clauses are only briefly considered during contract negotiations, leaving no real opportunity for in-depth consideration of the law of the arbitration agreement. The commercial realities of contract negotiations would also place any commercial party in an awkward position to (a) raise a discussion of possible future disputes at a time when parties are normally commercially optimistic; and (b) proposing amendments which deviate from the model clauses of arbitration institutions. There may be fears that any party proposing these changes may be forced to make concessions elsewhere. The fact that an express choice of law is left out from the model clauses of major arbitration institutions also does not help. Indeed, it is questionable if parties can realistically anticipate the types of disputes that might arise in the future and decide on an appropriate law of the arbitration agreement. It is hoped that the major arbitration institutions will update their model clauses with express references to a choice of law for the arbitration agreement.

In addition to the practical problems, while the solution of making an express choice of law will avoid arbitrability problems at the pre-award stage, parties will still have to deal with arbitrability at the enforcement stage. A Japanese company which expressly selected Singapore law as the law of the arbitration agreement would likely be able to force the other party to arbitrate, however once the award is obtained and enforcement is attempted in India, it is still possible that an Indian court would refuse to enforce the award since it considers the underlying dispute as not arbitrable. That said while an express choice of law would not solve the problem entirely, it will at least mitigate the risk of parties being affected by "dressed up" oppression proceedings before the NCLT. At very least, an express choice of law would be effective at preventing claims from going directly to NCLT at the start.

Finally, the judgment also provides a note of caution to parties who may seek to use statutory tribunals such as the NCLT in order to frustrate an arbitration. In this case, Mittal commenced the NCLT Proceedings as well as the Bombay Proceedings in an attempt to avoid the arbitration. While the SGCA was still willing to consider if a limited stay should be given, it was unclear to the SGCA how long it would take for the Bombay Proceedings to conclude. Westbridge argued that it will likely take up to ten to twelve years for the Bombay Proceedings to fully conclude. While not fully accepting Westbridge's argument, the SGCA noted that it was uncertain whether the Bombay Proceedings would be resolved within the next year. This uncertainty was one of the factors that resulted in the SGCA declining to grant a limited stay since SGCA noted that any limited stay, if granted, should not run for longer than twelve months. Using domestic litigation proceedings to avoid an arbitration can thus backfire, particularly in jurisdictions where the court process may take a long time.

VI. Conclusion

Future Japanese companies seeking to invest in India should attempt as far as possible to expressly state the law of the arbitration agreement, and to choose a law other than Indian law. Doing so would at least prevent an Indian counter party from insisting on bringing the dispute before the NCLT. After all, the practical outcome of Mittal v Westbridge was that Mittal's original attempt to sue Westbridge before the NCLT was foiled. Instead, he was obliged to arbitrate the disputes instead. Japanese companies are likely to be in the same position as Westbridge, and hence should protect themselves accordingly. While in the short term there are likely to remain practical barriers to expressly stating the law of the arbitration agreement, it is hoped that in time as the issue gains greater prominence, it will also be a point discussed during the negotiation process.

The judgment in Mittal v Westbridge provides an important clarification of the law, as well as practical guidelines for commercial parties in the future. Since the law of the arbitration agreement is an essential component of any arbitration agreement, it is likely that the legal principles discussed in the case will be developed further in time to come. Also, in light of the status of Singapore as one of the most popular seats for international arbitration, it will be interesting to see if the laws of other jurisdictions will develop in a similar manner.

Footnotes

1. Data taken from the Indian Government's "Invest in India" website - https://www.investindia.gov.in/country/japan-plus

2. See the SGCA case - BNA v BNB [2020] 1 SLR 456 concerning the phrase "arbitration in Shanghai". The court stated "In our judgment, the natural meaning of the phrase "arbitration in Shanghai" is that Shanghai is the seat of the arbitration".

Originally published by Japan Commercial Arbitration Journal VOL. 4 [2023].

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.