Foreign parties contracting with Indian companies usually choose a seat outside India, and usually assume that the choice puts Indian courts out of the picture. It does not. Indian law preserves a defined set of court powers for an arbitration seated abroad, the award still has to be enforced against assets in India, and the Indian party will resist it on grounds written into the Act. This note sets out what a foreign seat changes, what it does not, and what the clause should therefore say. The firm’s work in these arbitrations is described on its page on domestic and international arbitration.
What does a foreign seat actually change?
Part I of the Arbitration and Conciliation Act, 1996 applies where the place of arbitration is in India. The proviso to Section 2(2), inserted by the subsequent amendments, then provides that, subject to an agreement to the contrary, Sections 9, 27 and clause (a) of sub-section (1) and sub-section (3) of Section 37 also apply to an international commercial arbitration even if the place of arbitration is outside India, and that an award made in such a place is enforceable and recognised under Part II.
So the seat decides three things. The courts at the seat supervise the arbitration and hear any challenge to the award. The award is not challenged in India at all; it is resisted at the enforcement stage, on the grounds in Part II. And the Indian court retains, unless the parties exclude it, the power to grant interim measures and to assist in taking evidence.
One drafting point deserves attention. The proviso preserves clause (a) of Section 37(1), while Section 37(1) as it now stands lists an order refusing to refer parties to arbitration under Section 8 in clause (a), and an order granting or refusing an interim measure under Section 9 in clause (b). In the author’s view, a clause that intends to preserve the Indian court’s interim powers should say so in terms, naming Section 9 and Section 27 and the right of appeal, rather than leaving the parties to a statutory cross-reference.
Can two Indian companies choose a seat outside India?
Yes. In PASL Wind Solutions Private Limited v GE Power Conversion India Private Limited, decided on 20 April 2021, the Supreme Court held that two Indian parties may arbitrate outside India, that the exception to Section 28 of the Contract Act, 1872 expressly excepts arbitration and so approves party autonomy, and that the resulting award is a foreign award enforceable under Part II where the requirements of Section 44 are met. The Court also confirmed that the proviso to Section 2(2) allows an application under Section 9 for the preservation of assets in India.
In the author’s view, this matters most to foreign groups whose Indian contracts are signed by an Indian subsidiary. The subsidiary can be held to a neutral seat, and the resulting award travels into India as a foreign award rather than as a domestic one open to challenge under Section 34.
Can a foreign party get interim relief over Indian assets?
It can, unless the clause has excluded it. In Raffles Design International India Private Limited v Educomp Professional Education Limited, decided on 7 October 2016, the Delhi High Court proceeded on the basis that Sections 9, 27, 37(1)(a) and 37(3) apply to an international commercial arbitration seated outside India, subject to an agreement to the contrary, and held that choosing a foreign law to govern the arbitration agreement does not by itself exclude Section 9.
Two practical consequences follow. An emergency arbitrator’s order made in a foreign-seated arbitration is not enforced in India as an order of the tribunal; the party holding it makes its own case to the Indian court under Section 9, and must be ready to prove the case afresh. And a clause that excludes Part I in blanket terms, which is common in contracts drafted abroad, removes the only route to freeze Indian assets before an award.
Which institution, and what does the choice decide?
The institution does not change Indian law, but it changes four things that decide how a dispute runs. First, the default seat and its consequences: institutional rules differ on what happens when the clause names only a city or only the rules. Second, the way the tribunal is constituted, including the default number of arbitrators and who appoints when a party will not. Third, whether emergency and expedited procedures are available, which is the difference between relief in weeks and relief in a year. Fourth, how fees are computed, because some institutions scale the tribunal and administrative fees to the amount in dispute while others charge for time spent, and the current schedule of each institution has to be read before the clause is signed rather than after the dispute starts.
The LCIA is the institution most often proposed in contracts drafted in London, and it is worth being clear about one point of vocabulary: the LCIA Court is the institution’s own appointing and administering body, not a court of law, and it does not decide the dispute. Whichever institution is chosen, the questions above are answered by that institution’s current rules and cost schedule, and by nothing in Indian law.
In the author’s view, the institution should be chosen after the enforcement question below, not before it. An elegant procedure that produces an award which cannot be enforced against the counterparty’s assets has solved nothing.
How is the award enforced in India, and what will the Indian party argue?
Section 44 defines a foreign award as an award on commercial differences, made on or after 11 October 1960, under an agreement in writing to which the Convention in the First Schedule applies, and made in a territory that the Central Government has notified in the Official Gazette as one to which the Convention applies. The notification requirement is the trap: a seat chosen for its neutrality is of no use in India if its territory has not been notified, so the seat has to be checked against the notified list before it goes into the contract.
At the enforcement stage, Section 48 sets out the only grounds on which the court may refuse enforcement. The party resisting must prove incapacity or invalidity of the agreement, want of proper notice of the appointment or of the proceedings, that the award goes beyond the submission, that the composition of the tribunal or the procedure departed from the parties’ agreement, or that the award has not become binding or has been set aside or suspended at the seat. The court may also refuse enforcement on its own footing if the subject matter is not arbitrable under Indian law or if enforcement would be contrary to the public policy of India, which the explanations confine to fraud or corruption, contravention of the fundamental policy of Indian law, and conflict with basic notions of morality or justice, without a review of the merits. Under Section 48(3), the court may adjourn the decision while a challenge is pending at the seat, and may order the other party to give suitable security.
What should the clause say?
Five sentences do most of the work. Name the seat in terms, and name separately any place where hearings may be held. Name the institution and its rules. State the law governing the arbitration agreement itself, not only the law of the contract. Say expressly whether the Indian court powers preserved by the proviso to Section 2(2) are retained or excluded, naming Section 9 and Section 27. And check, before signing, that the chosen seat sits in a territory notified under Section 44.
In the author’s view, the cost of getting these five wrong is not academic. Each of them has produced litigation in India, and each of them is settled in a few minutes at the drafting stage. The firm’s work on dispute resolution clauses is described on its page on contract drafting.
Related Services
Domestic and International Arbitration: India-seated and foreign-seated arbitrations, including under the ICC, SIAC and LCIA rules, interim relief over Indian assets, and challenges to and enforcement of awards.
Contract Drafting and Arbitration Clauses: cross-border commercial agreements and dispute resolution clauses.
Key Sources
Arbitration and Conciliation Act, 1996, Section 2(2) and its proviso
Arbitration and Conciliation Act, 1996, Section 37 (appealable orders)
Arbitration and Conciliation Act, 1996, Section 44 (definition of foreign award)
Arbitration and Conciliation Act, 1996, Section 48 (conditions for enforcement of foreign awards)
This article is for informational purposes only and does not constitute legal advice. The views expressed are those of the author. Specific legal matters should be referred to qualified advisers. Ravish Bhatt is an Advocate (Bar Council of Gujarat) and a non-practising Solicitor of England and Wales.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
