The question of whether or not Indian parties can choose foreign
law to resolve disputes through arbitration has been much debated.
While some argue that this is possible since the choice of the
party to determine the choice of law must be recognised; the more
conservative argument has been that Indian parties cannot agree to
resolve disputes choosing a foreign law, as that would mean
contracting out of Indian Law, and therefore opposed to public
policy. There has been no conclusive judgment deciding this
specific issue, though there has been some observations in this
regard in the case of TDM Infrastructure Private Limited v
UE Development India Private Limited, (2008) 14 SCC 271,
("TDM Infrastructure case"). Recent
judgment of the Bombay High Court in the case of Addhar
Mercantile Private Limited v Shree Jagdamba Agrico Exports Pvt
Ltd (Arbitration Application No 197 of 2014 along with
Arbitration Petition No 910 of 2013) has considered this pertinent
Addhar Mercantile Private
Limited("Addhar") had filed an
application seeking appointment of arbitrator under Section 11(6)
of the Arbitration and Conciliation Act, 1996, (the
"Act") as well as Section 9 of the Act
for interim relief(s) against Shree Jagdamba Agrico Exports Pvt Ltd
("Jagdamba") before the Bombay High
Court. The arbitration clause read as follows "23 Arbitration
in India or Singapore and English Law to apply". Jagdamba
opposed the applications contending that the parties are governed
by English Law and the venue of arbitration should be Singapore and
that therefore Bombay High Court had no jurisdiction to decide the
applications. It was argued that if Bombay High Court exercised
jurisdiction it would be violative of Section 28 (1) (a) of the
Act. It was contended that two Indian parties could agree to
resolve the dispute through foreign law. Addhar on the other hand
contended that since the arbitration clause stated that the
arbitration could take place in India or Singapore and considering
the fact that both parties are Indian, Bombay High Court would have
the jurisdiction. It was argued that two Indian parties could not
derogate from Indian Law and submit to a foreign law to resolve
disputes in a foreign territory and that this would be opposed to
The Bombay High Court considered the arguments and on facts held
that since the arbitration clause stated that arbitration could
take place in India or Singapore, and since the both the parties
are from India and the agreement was executed in India, the
disputes would have to resolved through arbitration in India.
Interestingly, while dealing with the arguments of both parties on
the issue of whether two Indian parties can agree to foreign law,
the court relied on some observations in the TDM Infrastructure
case, and held that since both the parties are Indian, they cannot
derogate from Indian Law. Therefore, the choice of two Indian
parties to choose foreign law in a foreign seated arbitration was
This judgment may not be conclusive as there are other judgments
of the Supreme Court recognising foreign seated arbitration between
Indian parties. This issue needs to be decided by the Supreme Court
to give clarity and finality to this issue.
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