The Arbitration and Conciliation Act 1996 is divided into four parts. Part I of the Act deals with the Domestic Arbitration or India as a seat for arbitration. Whereas, Part II of the Act deals with Foreign Awards passed in the arbitration proceedings. Part III governs the Conciliation procedure and Part IV contains additional provisions regarding the power of the court to make rulings, etc. Earlier there have been witnesses of inconsistency with judicial decisions regarding foreign seats of arbitration. But in April 2021, the Supreme Court clarified the status of the foreign awards and the foreign seat of arbitration in India. A seat of arbitration is an important aspect of arbitral proceedings. The seat of arbitration or the ‘situs’ of arbitration determines the place for the proceeding and also curial law which will govern the arbitration proceedings.
In the Supreme Court of India’s landmark judgement, PASL Wind Solutions Pvt Ltd Vs GE Power Conversion India Pvt Ltd, it was held that Indian parties are eligible to choose a foreign seat of arbitration. It was also mentioned by the Supreme Court that this award shall be known as foreign awards as per Part II of the Arbitration and Conciliation Act (1996). But before this matter came to the Apex Court, Bombay High Court held that granting the right to choose a foreign seat of arbitration would violate public policy. However, the Delhi High Court and the Madhya Pradesh High Court opined that the parties are free to choose their seat of arbitration even if it is a foreign seat.
Background of the Case
The companies PASL Wind Solutions Pvt Ltd and GE Power Conversion India Pvt Ltd were incorporated in India and the dispute arose within the Settlement Agreement between the companies. It was mentioned in the settlement agreement that the disputes between the parties shall be resolved by the way of arbitration under the Rules of Conciliation and Arbitration of the International chamber of commerce and Zurich would be the seat for arbitration. PASL Wind Solutions issued a request to resolve the dispute as per the Settlement Agreement. But GE Power Conversion India was not in favour of the foreign seat of arbitration. The appellant’s (PASL Wind Solutions) ground was that. Indian Arbitration law does not have any provisions which clearly states that two Indian parties can not choose a foreign seat of arbitration in a dispute. The tribunal accepted PASL Wind Solutions' petition, however, the decision was not in the favour of the Appellant and as an award PASL Wind Solutions had to compensate GE Power Conversion India.
PASL Wind Solutions refused to comply with the award, which led GE Power Conversion India to approach the Gujarat High Court for the pending payment and enforcement of the award. PASL contended that the decided award is against the public policy because the two parties cannot choose a foreign seat of arbitration as it is not expressly mentioned in the Arbitration Act, 1996. PASL Wind Solutions also argued that the seat of the arbitration should be in Mumbai since all the hearings were held in Mumbai. And if the parties were permitted to choose the foreign seat for arbitration then the proceeding shall be conducted as per the foreign substantive law.
On 3rd November 2020, the Gujarat High Court reserved its judgement in favour of GE Power Conversion India and upheld the award but it declined to provide an interim relief of assets to GE Power Conversion India as per Section 9 of the Arbitration and Conciliation Act since the said remedy is not applicable to the foreign seat of arbitration of two Indian parties.
The Decision of the Supreme Court
Both PASL Wind Solutions and GE Power Conversion India appealed the Gujarat High court’s decision in the Apex Court. PASL Conversion India argued that Indian parties cannot have a foreign seat of arbitration as it is contrary to Section 23 of the Indian Contract Act read with section 28(1) (a) and Section 34(2A) of the Arbitration and Conciliation Act. And if the foreign seat is chosen for arbitration then the proceeding shall be conducted as per the foreign substantive law. PASL Wind Solutions also contended that Part II of the Arbitration Act mentioned Foreign Awards and these awards arise as a result of International Commercial Arbitration. This means either of the parties to the dispute shall be a foreign national or habitual resident of the foreign country or any body corporate which has been incorporated outside India. So, the award provided in this case cannot be titled as a foreign award under the Arbitration and Conciliation Act.
The Supreme Court held that Part I of the Arbitration Act deals with the Indian seat of Arbitration whereas Part II of the Act deals with New York Convention awards and both are equally enforceable as India is a signatory to the New York Convention. So, a foreign award can be implemented in India. Moreover, if the seat of arbitration is outside India then irrespective of the nationality of the parties, the award passed shall be considered as a foreign award and it will be governed by the New York Convention.
It was further held that the Arbitration Act and Indian Contract Act do not prohibit Indian parties from resolving their disputes in other foreign countries. Also, it was observed that it is not a conflict with Indian public policy merely because the settlement agreement has mentioned their arbitration seat outside India. The freedom of contract between parties is balanced with transparency and non-violation to public policy and choosing a foreign seat of arbitration does not harm any public policy.
As a matter of interim relief, the Apex Court held that if the disputed asset resides in India then either of the parties can claim the relief from Indian Courts even if the seat of arbitration is outside India. But this remedy is only applicable if the parties have not specifically omitted its applicability in the Settlement Agreement. Therefore, the application of interim relief under Section 9 of the Arbitration Act shall be heard with respect to section 2 (e) (ii) of the Arbitration Act and hence it is maintainable as per the judgement given by the Gujarat High Court.
Key Inferences of the Judgement
Some of the key features of this judgement are: The parties are free to choose the seat of arbitration. For instance, if there are Indian subsidiaries of foreign companies then the neutral forum is required to avoid all the complications.
Secondly, there is no bar to choosing the governing law of the arbitration proceedings and also the foreign substantive Law could apply to determine the rights and obligations of the parties. However, the foreign award passed by the arbitrator shall be tested and comply with the provisions of the New York convention.
However, parties should select a seat that is a signatory of the New York Convention. Lastly, if two Indian parties opted for a foreign seat they can seek interim relief of assets in the Indian Courts. Its only exception is the parties shall not expressly exempt this clause from the Settlement Agreement. Such relief is available only in the High Courts of India and not the District courts. Needless to say, if two Indian Parties choose India as a seat of arbitration then Indian Law would be substantive Law and the procedures would be governed as per Part I of Arbitration Act and Conciliation Act,1996.
This landmark judgement of the Supreme Court brought certainty in the situation of the foreign seat of arbitration in India. It is a welcome step to provide a neutral forum for complex arbitrary cases. Although its impact is yet to be seen, the judicial certainty will bring clarity in the arbitration proceedings.
Assistant Legal Officer, Varal Consultancy DMCC