In the recent decision of PASL Wind Solutions Pvt. Ltd. v. GE Power Conversion India Pvt. Ltd.,1 a three-judge bench of the Hon'ble Supreme Court was faced with the issue of whether two Indian parties could elect a foreign seat in an arbitration. The Hon'ble Supreme Court, answering in the affirmative, held that nothing stood in the way of party autonomy in designating a seat of arbitration outside India, even when both parties happened to be Indian nationals. The present article briefly examines the findings rendered by the Hon'ble Supreme Court in the aforementioned matter.

Brief Facts

In 2010, the appellant issued three purchase orders to the respondent for the supply of converters. Disputes arose between the parties concerning the expiry of the warranty of the said converters. To resolve their disputes, the parties entered into a settlement agreement (Agreement) dated 23 December 2014. Under the Agreement, the respondent agreed to provide certain modules with warranties for the operation of the converters. The Agreement contained a dispute resolution clause which provided for arbitration seated at Zurich, Switzerland.

Disputes continued to break out amongst the parties pursuant to the Agreement as the appellant alleged that warranties for the converters were still not given, whereas the respondent argued that the warranties only covered the modules and not the converters. Consequently, on 3 September 2017, the appellant issued a request for arbitration to the International Chamber of Commerce (ICC). It was agreed between the parties that the substantive law applicable to the dispute would be Indian law. The respondent filed a preliminary application challenging the arbitrator's jurisdiction on the ground that two Indian parties could not have chosen a foreign seat of arbitration. The sole arbitrator, persuaded by multiple authorities,2 dismissed the respondent's preliminary application holding that two Indian parties could arbitrate outside India. Both parties did not challenge the procedural order wherein the seat of the arbitration was stated to be Zurich, Switzerland.

Eventually, the final award dated 18 April 2019 was passed by the arbitrator, in which the appellant's claim was rejected. After the passing of the final award, the respondent called upon the appellant to pay the amounts granted vide the said award. As the appellant failed to oblige, the respondent initiated enforcement proceedings under Sections 47 and 49 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) before the High Court of Gujarat, within whose jurisdiction the assets of the appellant were located. The appellant did a complete volte-face and asserted that the actual seat of arbitration was in Mumbai. The appellant filed proceedings under Section 34 of the Arbitration Act challenging the final award. The respondent filed an application under Order 7 Rule 11 of the Civil Procedure Court, 1908 (CPC), which the Commercial Court, Ahmedabad, rejected. The proceedings under Section 34 of the Arbitration Act and the respondent's application under Order 21 of the CPC to execute the final award were brought to a halt given the instant appeal before the Hon'ble Supreme Court.

Held

  1. On the seat of the arbitration

At the outset, the Hon'ble Supreme Court relied on the decision rendered in a circumstantially similar case in Mankastu Impex (P) Ltd. v. Airvisual Limited.3 In the Mankastu case, the parties had agreed that the dispute shall be referred to and finally resolved by arbitration administered in Hong Kong, which was held to be a clear indica of the fact that the seat was at Hong Kong. Consequently, in the present case, the Hon'ble Supreme Court determined that Zurich was the juridical seat of arbitration between the parties. The Hon'ble Supreme Court also referred to the case management conference wherein the parties expressly agreed to Zurich being the seat of the arbitration.

  1. On Part I and Part II of the Arbitration Act being mutually exclusive of each other

The Hon'ble Supreme Court held that Part I and Part II of the Arbitration Act were mutually exclusive of each other. The decision in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.4 was referred to hold that the definitions contained in Sections 2(1)(a) to (h) were limited to Part I of the Arbitration Act. Thus, the definition of 'international commercial arbitration' contained under Section 2(1)(f) could not be used to interpret provisions under Part II of the Arbitration Act. This was more so because Section 2(2) explicitly states that Part I applies only where the place of arbitration was in India. With regard to the proviso to Section 2(2), the Hon'ble Supreme Court held that it was a well-settled principle that a proviso cannot travel beyond the main enacting provision.5

  1. On whether the impugned award in the instant matter was a foreign award under Section 44 of the Arbitration Act

The Hon'ble Supreme Court held that four ingredients are essential for an award designated as a foreign award under Section 44 of the Arbitration Act. Firstly, the dispute must be a commercial dispute under the law in force in India. Secondly, it must be made in pursuance of an agreement in writing for arbitration. Thirdly, it must be a dispute that arises between "persons" (without regard to their nationality, residence, or domicile). Fourthly, the arbitration must be concluded in a country that is a signatory to the New York Convention. In the instant matter, the Hon'ble Supreme Court held that all the ingredients mentioned above were fulfilled. Therefore, the impugned award was a foreign award in terms of Section 44 of the Arbitration Act.

  1. On whether the enforcement of a foreign award could be refused since it was rendered in an arbitration held between two Indian parties

The Hon'ble Supreme Court referred to the decision in Atlas Export Industries v. Kotak & Co.6 wherein it was held under pari materia provisions of the Foreign Awards Act, 1961 (Foreign Awards Act) that a foreign award could not be refused to be enforced merely because it was made between two Indian parties. The Hon'ble Supreme Court then approved of the findings rendered in Sasan Power Limited v. North American Coal Corporation (India) Pvt. Ltd.,7 wherein it was held that two Indian companies or parties are permitted in law to arbitrate at a seat out of India. The Hon'ble Supreme Court explained that when the parties chose to have the seat of arbitration in a foreign country, Part I does of the Arbitration Act does not apply. Hence, the foreign awards between two Indian parties would be subject to Part II of the Arbitration Act.

  1. On the arguments of the appellant based on Sections 23 and 28 of the Indian Contract Act, 1872

The Hon'ble Supreme Court noted that exception 1 to Section 28 of the Indian Contract Act, 1972 (Contract Act) saves explicitly the arbitration of disputes between two persons without reference to the nationality of persons who may resort to arbitration. For this reason, the Hon'ble Supreme Court in the Atlas case referred to the said exception to Section 28 and found that there is nothing in either Section 23 or Section 28 of the Contract Act which interdicts two Indian parties from getting their disputes arbitrated at a neutral forum outside India. Therefore, the Hon'ble Supreme Court concluded that Section 28(1)(a) of the Arbitration Act could not be held, by some tortuous process of reasoning, to interdict two Indian parties from resolving their disputes at a neutral forum in a country other than India.

  1. On the argument of the appellant based on Section 10 of the Commercial Courts Act, 2015

The Hon'ble Supreme Court observed that Section 10(1) of the Commercial Courts Act, 2015 (Commercial Courts Act) applied to international commercial arbitrations and applications or appeals arising therefrom, under both Parts I and II of the Arbitration Act. In applications or appeals under Part I, where the place of arbitration is in India, the definition of "international commercial arbitration" contained in Section 2(1)(f) of the Arbitration Act will be attracted. However, under Part II of the Arbitration Act, "international commercial arbitration" refers to arbitration taking place outside India. Thus construed, the Hon'ble Supreme Court held that there is no clash at all between section 10 of the Commercial Courts Act and the explanation to Section 47 of the Arbitration Act

  1. Conclusion

The Hon'ble Supreme Court relying on multiple decisions,8 held that 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. In light of such findings, the Hon'ble Supreme Court upheld the impugned judgment of the Gujarat High Court in part, and the appeal was disposed of accordingly.

Comments

The instant judgment was an eagerly awaited amongst the stakeholders of the arbitration landscape in India, given the strides made by the Indian courts in adapting principles of modern arbitration jurisprudence in recent times. It is a natural consequence of the principle of party autonomy that two Indian parties are allowed to select a neutral foreign seat to resolve their disputes. The present judgment will inspire confidence amongst Indian parties to have foreign seated arbitrations, integrating the Indian arbitration regime with other global jurisdictions.

The authors wish to acknowledge the research and assistance rendered by Harshvardhan Korada, a student of the Amity Law School, Delhi.

Footnotes

1. PASL Wind Solutions Pvt. Ltd. v. GE Power Conversion India Pvt. Ltd., Civil Appeal No. 1647 of 2021.

2. Reliance Industries Ltd v. Union of India, (2014) 7 SCC 603; Sasan Power Limited v. North American Coal Corporation India Private Limited, (2016) 10 SCC 813; Atlas Export Industries v. Kotak & Company (1999) 7 SCC 61; GMR Energy Ltd. v. Doosan Power Systems India Pvt. Ltd., 2017 (6) ArbLR 447 (Delhi).

3. Mankastu Impex (P) Ltd. v. Airvisual Ltd., (2020) 5 SCC 399.

4. Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., 2012 9 SCC 552.

5. Union of India v. Dileep Kumar Singh, 2015 4 SCC 421; DMRC v. Tarun Pal Singh, 2018 14 SCC 161; Kandla Export Corpn. v. OCI Corpn., 2018 14 SCC 715; Mavilayi Service Co-operative Bank Ltd. v. Commissioner of Income Tax, Calicut, 2021 SCC OnLine SC 16.

6. Atlas Export Industries v. Kotak & Co., (1999) 7 SCC 61.

7. Sasan Power Limited v. North American Coal Corporation (India) Pvt. Ltd., 2015 SCC OnLine MP 7417.

8. Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., 2016 4 SCC 126; Centrotrade Minerals & Metal Inc. v. Hindustan Copper Ltd., 2017 2 SCC 228; Union of India v. U.P. State Bridge Corpn. Ltd., 2015 2 SCC 52.

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