20 April 2021, Tuesday

1 year ago

2. Two Indian parties can choose a foreign seat of arbitration (Supreme Court of India)

20 April 2021 | PASL Wind Solutions Private Ltd v GE Power Conversion India Private Ltd. | RF Nariman, BR Gavai & Hrishikesh Roy JJ | 2021 SCC OnLine SC 331

A settlement agreement between the parties provided for “arbitration in Zurich” under the ICC Rules. Indian law governed the main contract. Some disputes arose again, and PASL initiated arbitration claiming breach by GE Power of the settlement agreement. An award was made, and GE sought its enforcement in the Gujarat High Court. That court rejected PASL’s objections to enforcement.

The main question before the Supreme Court was whether a contract with all Indian parties could be seated outside India? Answering yes, and ruling on several other related questions, the Supreme Court held that:

  1. Part I and Part II of the ACA are mutually exclusive. The expression “international commercial arbitration” used in Part I in the definitions clause Section 2 (1) (f) ACA is party-centric. Still, when the term is used to denote an arbitration held outside India (like in Section 2(2) ACA), it is place-centric.

  2. Section 44 ACA (which defines a foreign award) is party-neutral. The nationality, domicile or residence of a party is not relevant to determine if an award is foreign. It only refers to the place where the award is made. Section 44 ACA is modelled on Article I and Article II of the New York Convention (“NYC”). The NYC was liberal than the Geneva Convention. The latter is not party neutral as Section 53 (b) ACA shows (cf. Section 44 ACA)

  3. All ingredients of a “foreign award” within the meaning of Section 44 ACA is satisfied in this case: (i) the dispute is commercial under the Indian laws, (ii) it is made in pursuance of an agreement in writing for arbitration, (iii) it arose between persons, and (iv) the arbitration was conducted in a country signatory to the NYC. 

  4. When India acceded to the NYC and enacted the Foreign Awards Act, 1961 or the ACA, it did not enter any caveat like the one set out in Section 202 of the Federal Arbitration Act in the US, which does not regard an arbitral award made between US citizens as an NYC award (unless the matter has certain foreign elements).

  5. The statement of law in Madhya Pradesh High Court’s decision in Sasan Power Limited v. North America Coal Corporation (India) Pvt. Ltd., 2015 SCC OnLine MP 7417 (that found Atlas Export Industries v. Motak & Co., (1999) 7 SCC 61 as binding precedent) “has our approval.”

  6. The decisions of the Bombay High Court in Seven Islands Shipping Ltd. v. Sah Petroleums Ltd., (2012) 5 Mah LJ 822 and Addhar Mercantile Pvt. Ltd. v. Shri Jagdamba Agrico Exports Pvt. Ltd., 2015 SCC OnLine Bom 7752 are overruled.

  7. There is nothing in the public policy of India which prohibits the party autonomy of two Indian persons referring the disputes to arbitration at a neutral forum. Atlas also ruled that Section 23 or Section 28 of the Indian Contract Act, 1872 do not prevent Indian parties from getting their disputes arbitrated in a neutral forum.

  8. Section 28 ACA does not come in the way. It does not refer to arbitration between Indian parties in a country other than India.

  9. As to the argument that by arbitrating in a foreign seat, the Indian parties may seek to circumvent Indian laws like the Benami Transactions Act, it is more than likely that two Indian nationals will apply the Indian substantive law. However, even if not, the Indian laws will be applied by the arbitrator following the conflict of laws rule of the arbitral seat.

  10. Even otherwise, a ground may be made out under Section 48 ACA later on at the time of enforcement. If it is found that Indian parties have circumvented a law relating to the fundamental policy of India, the award may not be enforced.

  11. Section 34 ACA does not apply to challenge the award in India.

  12. There is no conflict between the Explanation to Section 47 ACA and Section 10 (3), Commercial Courts Act, 2015.

  13. An application under Section 9 ACA would be maintainable in arbitration of Indian parties at a foreign seat.

Access the judgment here.

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