SUPREME COURT OF INDIA PERMITS INDIAN PARTIES TO CHOOSE FOREIGN-SEATED ARBITRATION
The Supreme Court of India has recently held that two Indian parties can choose a foreign seat of arbitration. The Supreme Court’s judgment resolved the uncertainty caused by conflicting judgments delivered by high courts in different Indian states. There is a catena of judgments where courts have previously held that at least one party had to be a non-Indian person or entity for choosing a foreign seat of arbitration.
The Supreme Court’s decision has clarified that foreign-seated awards in arbitrations proceedings between Indian companies are valid and enforceable in India. The Supreme Court further held that such parties could also seek interim relief in India under the provisions of the Part-I of the Indian Arbitration and Conciliation Act, 1996 as amended by the Arbitration and Conciliation (Amendment) Act, 2019 (the “Arbitration Act”).
The judgment of Supreme Court will have significant implications as the subsidiaries of foreign companies in India may choose foreign seated arbitration in jurisdictions in which the parent companies are more familiar such as arbitration seats like Singapore, London, Paris, or Zurich.
The Supreme Court also clarified that an award rendered in a foreign-seated arbitration, even when the arbitration was between two Indian parties, will be considered a ‘foreign award’ and its enforcement in India would be governed by the New York Convention under Part II of the Arbitration Act.
Additionally, interim/ injunctive relief under Section 9 of the Arbitration Act is available even in foreign-seated arbitrations and to parties regardless of their nationality. Indian courts are permitted to protect the assets of parties in India before the commencement or during the pendency of arbitration proceedings or at any time after making of the arbitral award but before it is enforcement.
The case PASL Wind Solutions Private Limited v. GE Power Conversion India Private Limited[1], came before the Supreme Court in an appeal from the decision of the Gujarat High Court. It involved two Indian companies, one of which is a subsidiary of the French company in India, that had entered into an agreement for the sale of converters. The agreement provided for arbitration in accordance with the International Chamber of Commerce (“ICC”) Arbitration Rules with Zurich as the seat of arbitration.
PASL challenged the jurisdiction of the arbitral tribunal on the ground that two Indian parties cannot elect a foreign seat of arbitration. GE opposed PASL’s objection on the ground that Indian law does not bar Indian parties from choosing a foreign seat of arbitration. The arbitral tribunal ruled in favor of GE. GE filed for enforcement of the award under sections 47 and 49 of the Arbitration Act before the Gujarat High Court. The Gujarat High Court upheld that the award was enforceable notwithstanding that the two Indian parties had chosen a foreign seat however, denied the entitlement of interim relief in the Indian courts under Section 9 of the Arbitration Act. GE came in an appeal before the Supreme Court challenging the findings of the Gujarat High Court on the maintainability of the petition under Section 9.
The Supreme Court held that Part I is a complete code that dealt with arbitrations seated in India, including the appointment of arbitrators, the commencement of arbitration, making of an award, challenges, and execution of the award. Therefore, it had no application to foreign-seated arbitration. Similarly, Part II only prescribes for the enforcement of a foreign award, with the only exception being Section 45 which deals with referring the parties to the arbitration. Barring this exception, in any case, Part II does not apply to arbitral proceedings once commenced in a country outside India. Part II of the Arbitration Act applies to the enforcement of foreign awards in India. Accordingly, the Supreme Court concluded that Part I and II of the Arbitration Act are mutually exclusive.
The Supreme Court further held that allowing two Indian parties to choose a foreign seat of arbitration is not against the public policy: “The balancing act between freedom of contract and clear and undeniable harm to the public must be resolved in favour of freedom of contract as there is no clear and undeniable harm caused to the public, and that there was no public harm in permitting two Indian parties from getting their disputes arbitrated at a neutral forum outside India”. Where issues of fundamental Indian public policy were involved, the Court found that there were adequate safeguards in the Arbitration Act and under the conflict of laws rules.
The Supreme Court observed: “Nothing stands in the way of party autonomy in designating a seat of arbitration outside India even when both parties happen to be Indian nationals.”
The Supreme Court finally held that since the arbitral award is a foreign award, it must be enforced under Part II of the Arbitration Act. Further, the Supreme Court overruled the Gujarat High Court’s finding that interim relief would not be available for foreign-seated arbitrations between Indian parties and held that reliefs under Section 9 of the Arbitration Act will continue to be available to such parties.
The author is a Corporate, Commercial, and M&A lawyer at SARIN Partners Advocates & Legal Consultants. The views in the article should not be construed as legal advice. Please contact the author for any clarification.
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[1] AIR2021SC2517 [Civil Appeal No. 1647 of 2021 (Arising out of SLP (Civil) No. 3936 of 2021) decided on 20.04.2021 by the bench of Rohinton Fali Nariman, B.R. Gavai and Hrishikesh Roy, JJ.]