This article is written by Aastha Sharma, pursuing a Certificate course in Arbitration: Strategy, Procedure and Drafting from LawSikho.

Introduction 

In a recent judgment of the Gujarat High Court GE Power Conversion Pvt Ltd v PASL Wind Solution Pvt Ltd, the court clarified whether two Indian parties could choose a foreign seat for arbitration and if the award rendered therefrom would be enforceable in India. The judgement comes in contradiction to previous cases Addhar Mercantile Pvt. Ltd. v. Shree Jagadamba Agrico Exports and Seven Islands Shipping ltd v. Sah Petroleums ltd. that took a divergent approach.

Brief facts and issues 

The case concerned two Indian companies embroiled in a dispute related to wind turbines in a contract. The arbitration clause in the contract specified that the arbitration agreement would be governed by Swiss law and the seat of Arbitration as Zurich, however, the proceedings were conducted in Mumbai. 

The award was rendered in favour of GE Power Conversion Pvt Ltd. The issues arose when GE approached the Gujarat High Court seeking enforcement of the arbitral award under Part-II of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”) which concerns enforcement of foreign arbitral awards. 

PASL contended that the award could not be covered under Part-II since it was made between two Indian parties in an Indian territory and therefore could not be deemed a foreign award.

Submissions

Senior Advocate Hemani, representing PASL asserted that the award was not a foreign award nor was it an international commercial arbitration as both the parties were constituted in India and none of the conditions of section 2(1)(f) of the Act which defines an international commercial arbitration were fulfilled. He stated that since GE Power had previously invoked Section 9 of the Act and enjoyed interim relief, it was not open for the petitioner now to fall back and say that the award is a foreign award and therefore seek enforcement under Part-II of the Arbitration Act. He further avouched that “two Indian parties cannot be allowed to gain an advantage simply by designating a seat abroad in arbitration that otherwise has no other foreign element. If the parties are allowed to do so, the purpose of the Arbitration Act will be completely defeated. The mechanism given to the foreign parties for a quick redressal with a deliberate lesser judicial scrutiny to foreign parties will stand defeated if two Indian parties are allowed to choose a seat abroad”.

He also relied on the argument that an agreement which allowed two Indian parties to have a foreign seated arbitration would be contrary to section 23 and 28 of the Indian Contract Act read with section 34 and 48 of the Arbitration Act as the legal recourse available to the parties would then become limited, thereby violating public policy. Lastly, the counsel contended that Mumbai should be deemed as the seat of the arbitration for its “closest connection” and interpreted the clause containing the terminology “in Zurich” relying on Mankatsu v. Air Visual. 

When facing the dilemma of whether an award is a foreign award or not, the petitioner’s lawyer Mr. Thakore asserted that the court only had to look at whether the conditions of Section 44 under the Act have been fulfilled and conditions of Section 47 have been met. Section 44 defining foreign awards states:

unless the context otherwise requires, “foreign award” means an arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, made on or after the 11th day of October, 1960— (a) in pursuance of an agreement in writing for arbitration to which the Convention set forth in the First Schedule applies, and (b) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the said Convention applies. 

Once the court is satisfied with this, the enforcement of a foreign award shall automatically follow. Moreover, the petitioner stated that since the seat is Zurich and no challenges were brought before the Zurich court during the course of the proceedings, therefore, the award attained finality and should be enforceable under section 48 of the Act. In addition, the counsel stated relying on para 97 of the decision of the Supreme Court in case of Bharat Aluminum Company v. Kaiser Aluminum Practical Services Inc. that the court had jurisdiction to entertain the matter since the assets of the respondent against which the enforcement was sought were located under the jurisdiction of the Court. 

He further submitted that the principle of nationality had no bearing on determining whether an award is a foreign award and that the nationality of parties was not relevant as far as Part-II of the Act was concerned. In the context of section 23 and 28 of the Indian Contract Act, while banking on Atlas Exports Industries v. Kotak and Company, the petitioner asserted that there was no bar on the Indian parties to pick a foreign seat for arbitration in Indian law and asseverated that such an Act will not be against the public policy of India. 

Moreover, the petitioner relied on the Law Commission’s interpretation of the intention related to the legislature. Mr. Thakore submitted that the law deals with domestic arbitration, international commercial arbitration, and enforcement of foreign awards. Arguing that the law covers only two types of arbitration would be absurd. International commercial arbitration is premised on nationality whereas a foreign award is dependent on the situation where the award was made and the two should not be confused. 

Court’s determination

The court upheld party autonomy in rendering the decision. The respondent failed to provide for any law that prohibited two Indian parties from picking a foreign seat for arbitration. The court considered the definition of a “foreign arbitral award” under section 44 of the Act as enumerated above and came to the conclusion that all ingredients were satisfied. It further enunciated that section 44 of the Act is the sole repository to determine whether an award is a foreign award and exhaustively covers all ingredients to decide that. Lastly, it clarified that the nationality of the parties had no bearing on deciding whether Part-II of the Act was applicable or not. This decision will solely be based on what the seat of the arbitration agreement is. 

Conclusion 

In the last couple of years, numerous High Courts in India have pronounced judgments on whether two Indian parties can pick a foreign seat for arbitration. The judgments lacked consensus thus creating uncertainty. This favourable judgment comes after Sasan Power Limited v. North American Coal Corpn India Pvt Ltd and Atlas Exports Industries v. Kotak & Company with a similar stance. Since the High Court judgments only have a persuasive value, one will have to wait for the Supreme Court to take a decisive call. On a positive note, this judgment has fostered party-autonomy by allowing Indian Parties to choose a seat across many jurisdictions and has instilled confidence in the Indian arbitration regime. On the contrary, it has evoked a massive debate on public policy since many believe that permitting this action allows parties to steer clear of Indian Law. 

References

• https://indiankanoon.org/doc/91358107/
• https://www.barandbench.com/news/litigation/gujarat-high-court-on-enforcement-of-awards-in-foreign-seated-arbitration

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