Whether two Indian parties can choose to have an arbitration seat outside India has been a much-debated question in the Indian arbitral regime. Throughout the years the Indian high courts gave bigoted decision on the matter. While the Madhya Pradesh High Court in Sasan Power Limited v. North American Coal Corporation India Pvt. Ltd. and the Delhi High Court in GMR Energy Limited v. Doosan Power Systems India Private Limited have given pro-arbitration decisions, affirming the right of two Indian parties to validly choose a foreign seat and excluding the applicability of Part I of the Arbitration Act; the Bombay High Court in Addhar Merchantile Private Limited v. Shree Jagdamba Agrico Exports Pvt Ltd, held the opposite view, giving prominence to public policy and reasoning that choosing a foreign seat would be a derogation form Indian Laws.
The recent judgement of PASL Wind Solutions Private Limited v. GE Power Conversion India Private Limited (PASL Wind), of the Supreme Court, brought the debate to a rest and gave an affirmative answer giving due relevance to the parties’ autonomy while deciding the seat of arbitration. The court has further held that the parties will have right to seek interim relief under Section 9 of the Act, as opposed to the Gujarat High court’s decision in GE Power Conversion India Private Limited v. PASL Wind Solutions Private Limited. The decision takes a pro-arbitral outlook, which can be proved beneficial to various entities, especially to the Indian subsidiaries of international companies that have agreed for offshore arbitration in foreign jurisdictions like Singapore, Hong Kong, London etc.
The parties in the present dispute, entered into a settlement agreement which contained a resolution clause mentioning that all disputes were to be resolved through arbitration in Zurich, in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce (ICC). Once a dispute arose, the parties initially agreed to the arbitrator appointed by the ICC. However, the respondent later challenged the arbitrator’s jurisdiction citing that two parties based in India cannot choose a foreign seat of arbitration.
While the sole arbitrator refuted the contention of the Respondent, he agreed to the Respondent’s suggestion to hold all arbitration meetings in Mumbai instead of Zurich, and gave the final award in favour of the respondent. However, upon the filing of enforcement application by the respondent in the Gujarat High Court, the appellant refused to follow the award, claiming that the seat of arbitration was Mumbai, and filed an appeal under Section 34 of the Indian Arbitration Act.
The Gujarat High Court in these enforcement proceedings held that two Indian parties can validly choose a foreign seat of arbitration and in this case, Zurich was the seat of arbitration. However, they cannot make an application for interim measures under Section 9 of the Arbitration Act. An appeal against this order was brought to the Supreme Court, wherein the validity of the awards passed by foreign tribunal was thus decided.
Decision on Key issues
- Can two Indian parties opt for a foreign seat?
The court held that the two Indian parties can choose a foreign seat for arbitration. Following the judgement in the Bharat Aluminium Company vs. Kaiser Aluminium Technical Services Inc7. (BALCO), the court restated that there is a clear distinction in the scope of applicability between Part I and Part II of the Arbitration Act. Part I would applies to arbitrations having their place or having seat in India and Part II would govern the enforcement of foreign awards. Thus, the definition of ‘international commercial arbitration’ contained under Section 2(1)(f) (which is based on the nationality of the parties, is party-centric) is inapplicable in the current case as Section 2(2) explicitly states that Part I applies only where the place of arbitration was in India.
Regarding the legality of the award, the court stated that such an Award would be considered a foreign award under Section 44 of the Arbitration Act. Such an award is neutral with regards to parties, and is seat centric, requiring four conditions to be fulfilled: (i) the dispute must be considered to be a commercial dispute under the law in force in India, (ii) it must be made pursuant to a written arbitration agreement, (iii) the dispute must arise between “persons” (without regard to their nationality, residence, or domicile), and (iv) the arbitration must be conducted in a New York Convention country.
Lastly on the enforceability of the award, the court held that the such foreign award will be enforceable in India as long as it is not contrary to public policy, or in violation of the fundamental policy of Indian law.
- Whether such arbitral award is opposed to public policy
Another issue before the Court was whether an agreement between two Indian parties to arbitrate in a foreign seat went against the Section 23 and Section 28 of the Indian Contract Act, 1872. The court answered the question in the negative, holding that the freedom of contract needs to be balanced with clear and undeniable harm to the public. It cannot be said that there is any clear and undeniable harm caused to the public merely by two Indian nationals choosing a challenge procedure of a foreign country. Accordingly, the balance between public policy and freedom of contract must, in this instance, was to be resolved in favor of freedom of contract.
- Would interim relief under section 9 be available in such cases.
The court set aside the Gujarat high court’s decision that interim relief would not be available for arbitrations between Indian parties seated abroad. The Court held that the term international commercial arbitration as used in section does not refer to the definition contained in Section 2(1)(f) (requiring a foreign party) but instead, refers to arbitrations that take place outside India. Thus, international commercial arbitrations seated outside India, without any foreign parties, can avail reliefs under Section 9 of the Arbitration Act subject to an agreement to the contrary.
The above judgement is a breath of fresh relief for various stakeholders. Until now the Indian arbitral regime relied on the Supreme Court’s Judgment in Sasan Power Ltd. v. North American Coal Corporation (India) Pvt. Ltd., (2016), where it was held that Indian parties could only opt for foreign award unless there was foreign element in their contracts. Moreover, with multiple discordant high courts judgements in place, there was a state of incertitude. The above judgement puts a rest to this uncertainty and clears the path for Indian parties to freely opt for foreign seated arbitrations. This decision will appreciably aid the parties which are involved in cross-border transactions and parties having a multinational presence who may want to streamline their dispute resolution by selecting uniform seat across countries.
They are 4th year students of HPNLU, Raipur