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Supreme Court’s decision on allowing Indian companies to choose a foreign jurisdiction for arbitration

September 22, 2021

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This article is written by Dhruv Dubey, from Jagran Lakecity University Bhopal. This article talks about the decision of the Supreme Court on choosing foreign arbitration.

Introduction

The Supreme Court of India has cleared that the Indian parties involved in civil disputes may choose to arbitrate in a non-Indian forum, and such measures will be available in the Indian courts. This ruling has resolved several doubts.

Earlier, a few courts had held that, to choose a foreign jurisdiction for arbitration, one of the parties would have to be a Non-Indian.

The Court explained the position and held that an award given by an arbitral council in such conditions would be enforceable in India and that the parties could likewise look for interim help in India.

Brief background

The choice becomes very important in any arbitration. As a legal home of arbitration, the seat decides different significant parts of the arbitration. For example, the parties’ right of appeal, accessibility of interim measures, and the legal framework that will, at last, have administrative jurisdiction over the matters.

Parties joined in a similar jurisdiction could pick, for different reasons, to have their arbitration situated outside their home.

In India, before the Supreme Court’s choice in PASL Wind Solutions v. GE Power,(2021) it was unclear if there was one Indian party; whether they could look for interim measures in Indian courts.

Pasl Wind Solutions Private v. Ge Power Conversion India Private

PASL Wind Solutions Pvt Ltd (“PASL”) and GE Power Conversion India Pvt Ltd (“GE India”) had a dispute with the stock exchange. This case brought various important principles which were very important.

The two organizations were incorporated in India. GE India is an almost 100% subsidiary of General Electric Conversion International SAS (France), which thus is an entirely claimed subsidiary of the General Electric Company (United States). The arbitration provision in the settlement agreement was given to arbitration as per the ICC Rules and was situated in Zurich. The settlement agreement was represented by Indian law.
In 2017, following debates emerging out of the settlement agreement, PASL started discretionary procedures against GE India. Throughout the proceedings, the court decided that the seat of the arbitration was Zurich; however, that hearings would be directed in Mumbai. In 2019, the tribunal gave the last award, excusing PASL’s cases and granting GE India damages and expenses.
GE India accordingly started authorization procedures before the High court of Gujarat under Sections 47 and 49 of the Indian Arbitration and Conciliation Act 1996 (the “Act”), contained in Part II of the Act, which applies to the implementation of foreign awards. Part II of the Act offers impact to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). GE India likewise sought interim relief from the Court under Section 9 of the Act to keep PASL from dispersing its assets for trying not to follow the award.
PASL contended that the award was not a foreign award fit for enforcement under Sections 47 and 49 of the Act. It argued that, under the nearest connection test, which the Supreme Court had applied in earlier cases to decide the arbitral seat, the arbitral seat was Mumbai, as it was, in addition to other things, where the hearings occurred. PASL subsequently sought to save the award under Section 34 of the Act, which applies to Indian-situated arbitrations and awards.
PASL’s case laid on the vulnerability that existed under Indian law with regards to whether two Indian parties could pick a foreign seat; an issue that had divided the Indian courts. Some High Courts in India had adopted a favourable arbitration strategy on this issue and forced the party to decide on a foreign arbitral seat, while others had not.

Obiter Dictum

Observation of the Supreme Court on choosing a foreign seat.

The Supreme Court of India has cleared that two Indian parties indulged in a dispute can choose a foreign arbitration. This case also cleared that there is nothing in the Indian Contract Act 1872 that can Bar two Indian parties from choosing foreign arbitral seats. But it was stated that the contract should not be against public policy.

The Supreme Court heavily depended on the thoughts taken on by the court in Atlas Export. An opposite decision was taken by a Single Judge Bench of the Supreme Court in TDM Infrastructure Private Limited v. UE Development India Limited (2008)[“TDM”], wherein with regards to a Section 11 application naming an arbitrator, it decided that intervention between Indian parties can’t be named as ‘International Commercial Arbitration. For this situation, the Court confirmed that since TDM was a choice of a Single Judge, it can’t be a limiting point of reference and along these lines overruled all cases that depended on TDM.

On availability of interim relief

The Supreme Court struck down the Gujarat High Court’s findings wherein it held that the Section 9 remedies would not be accessible. The Court held that the Section 9 application for interim reliefs will be maintainable to Indian parties who decide to take foreign arbitration. The Court contended that the proviso to Section 2(2) of the Act makes explicit segments of Part I, for example, Section 9 of the Act, which is generally applied to just domestic arbitrations, relevant even to “International Commercial Arbitration, regardless of whether the place of arbitration is outside India”. It is thought that the term International Commercial Arbitration at the current time does not refer to the definition contained in Section 2(1)(f) of the Act, rather it is a seat-centric terminology that identifies arbitration occurring outside India.

Accordingly, considering the previously mentioned conversation, the Supreme Court decided that in “International Commercial Arbitration taking place outside India including Indian parties, the reliefs under Section 9 of the Act will stay accessible except if contracted to the contrary.

On the choice of Foreign Law

Section 28(1)(a) read with Section 2(2), Section 2(6), and Section 4 recommends that besides in an “International Commercial Arbitration, principally when the place of arbitration is situated in India, the arbitral council will choose the dispute as accordance with the Substantive law for the time being in India. PASL raised this contention that two Indian parties can’t pick a foreign law administering their arbitration under Section 28(1)(a) of the Act.

The Court dismissed this conflict by expressing that Section 28(1)(a) falls under Part I of the Act and, subsequently, is simply relevant to India-situated arbitrations. The Court saw that the Indian law would apply in such conditions, however, assuming two Indian parties pick a foreign law, a particular decision can be evaluated while enforcing the Award in India. The award won’t be implemented in India whenever the decision of foreign law was in opposition to the public policy of India or was in disregard of the basic principle of Indian law.

Ratio Decidendi

This judgment is based on various provisions of the Contract Act Arbitration and Conciliation Act. The provisions highlighted in this case are discussed above. In this case, the emphasis was given to provision 2(2) and section 9 of the Act. Also, provisions under sections 47 and 49 of the Arbitration Act were discussed. Also, some of the provisions mentioned in this case are Section 23 of the Indian Contract Act, and Sections 2 (1)(f), 2(2), 2(6), 4, 28 (1)(A) and 34 (2A) of the Arbitration Act.

Conclusion

In recent years, International Arbitration has encountered enormous development, turning into the most favoured mechanism of dispute resolution for International Commercial transactions. The Supreme Court’s decision is welcomed with worldwide improvements in the arbitration worldview. This move by the Supreme Court could be seen as a vigorous advance in fulfilling the fantasy about making India a worldwide arbitration centre.

The essential target of the Act is to advance arbitration for settling disputes. To achieve this objective, party autonomy should be the guiding force. A basic component of this party’s autonomy is permitting the concerned parties to pick their seat and law.

The court, through this judgment, supported this thought by carefully reinforcing party autonomy with public approach concerns.

References

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Supreme Court’s decision on allowing Indian companies to choose a foreign jurisdiction for arbitration

Introduction

Brief background