A single judge bench of the Gujarat High Court in the case of GE Power Conversion India Private Limited v. PASL Wind Solutions Private Limited (R/PETN. under Arbitration Act no. 131 of 2019 WITH R/PETN. under Arbitration Act no. 134 of 2019) by decision dated 3 November 2020 determined the scope and applicability of Section 9 and Section 47 of the Arbitration and Conciliation Act, 1996 ('Act'). Importantly, the Court while dealing with the objections under Section 48 of the Act also delved into the highly debated question as to whether two Indian parties can agree to choose a seat of arbitration outside India. This issue is now ripe to be finally decided by the Supreme Court provided that this matter reaches the apex court.
The brief facts leading to the decision are that disputes and differences arose between GE Power Conversion India Private Limited (GE Power) and PASL Wind Solutions Private Limited (PASL). To resolve the dispute, GE Power and PASL entered into a Settlement Agreement dated 23.12.2014 (Settlement Agreement). Clause 6 of the Settlement Agreement stipulated that disputes, controversies and differences shall be resolved by Arbitration in Zurich, with the Rules of Conciliation and Arbitration of the International Chamber of Commerce. The said Clause 6 neither stipulated if the substantive law of the Settlement Agreement would be Indian law nor excluded the same.
PASL issued a request on 03.07.2017 for referring the dispute to arbitration and on August 2018, the parties agreed to resolution of disputes by Mr. Ian Meakin, Ld. Sole Arbitrator. The venue of the arbitral proceeding was in Mumbai. The Petitioner/GE Power challenged the jurisdiction of the Ld. Arbitrator on the ground that since parties to the Settlement Agreement were Indian, they could not resort to a foreign seated arbitration. The Ld. Arbitrator rejected Petitioner's challenge to the jurisdiction and held that the seat of Arbitration being designated as Zurich, the Swiss Act will be applicable.
In its award, the Ld. Sole Arbitrator rejected the claim of PASL and granted GE Power costs amounting to INR 25,976,330.00 & USD 40000.00 and expenses with accumulated interest in accordance with the Indian Interest Act, 1978 (Award).
GE Power filed an application under Order XXI Rule 11 of the Code of Civil Procedure, 1908 read with Section 47 of the Act for enforcement of the Award before the High Court of Gujarat at Ahmedabad. GE Power also filed an application/petition under Section 9 of the Act against PASL to secure the amount under the Award by depositing the amount in the High Court or furnishing adequate security to the satisfaction of the Court.
The Hon'ble High Court issued notice in both the application under Section 47 and Section 9 of the Act and vide order dated 25.09.2019, granted an ad-interim protection to Petitioner/GE Power restraining the Respondent/PASL from transferring, alienating, selling or creating any right with regard to two of its properties located in Gujarat.
Contentions of the parties:
Petitioner/ GE Power/ Decree Holder:
- GE Power argued that the award is a foreign award within the meaning of Section 44 of the Act.
- On the scope of Section 48 of the Act, GE Power relied on various judgment including Vijay Karia, 2020 SCC OnLine Supreme Court 177 and argued inter-alia that a challenge under Section 48 of the Act does not entail a review on merits of the award. Further, there is no scope for setting aside of the award under Section 34 of the Act since Part-1 of the Act was not applicable after the judgment of the Hon'ble Supreme Court in BALCO, (2012) 9 SCC 552 and the 2015 amendment to the Act.
- The defence of public policy under Section 48(2)(b) of the Act is not available in this case as two Indian Parties choosing a foreign seat of arbitration does not fall foul of any provision under Indian Law. Reliance in this regard was placed on judgment of the Hon'ble Supreme Court in Atlas Exports Industries, (1999) 7 SCC 61; High Court of Delhi in GMR Energy Ltd, 2017 SCC OnLine (Del) 11625 and Hon'ble High Court of Madhya Pradesh in Sasan Power Limited, 2015 SCC OnLine MP 7417.
- GE also argued that both the petition under Section 47 and Section 9 of the Act were maintainable in light of the judgment of the Trammo DMCC, 2017 SCC OnLine Bom 8676 and Ecohidrotechnika LLC, (2010) SCC OnLine (Bom) 277.
- The filing of the petition under Section 9 of the Act by GE Power is itself an admission to the fact that the present arbitration is not an international commercial arbitration and the concerned award is a domestic award. Therefore, petition seeking enforcement under Part II of the Act is not maintainable.
- In any event, the enforcement is hit by Section 48(2)(b) of the Act as two Indian parties cannot designate a seat outside India and doing so would be against the public policy of India. The same would be violative of Section 23 of the Indian Contract Act, 1872. PASL relied on judgments of the Hon'ble Supreme Court in Shri Lacchumal, (1971) 1 SCC 619 and Murlidhar Aggarwal, (1974) 2 SCC 472 for the above arguments.
Findings and Decision:
The High Court allowed the Petition filed under Section 47 of the Arbitration Act seeking enforcement of the arbitral award and dismissed the Petition under Section 9 of the Arbitration Act seeking interim reliefs. The reasonings of the Court are as under:
The Court while declaring that the juridical seat of arbitration is in Zurich, which is a territory declared by the Central Government to which the New York Convention applies, and all other ingredients of Section 44 of the Arbitration Act being satisfied, held the award to be a Foreign Award.
The Court held that Supreme Court in Vijay Karia (supra) emphasized on the narrow scope of Section 48 of the Arbitration Act and that even if some grounds under Section 48 of the Arbitration Act are met, the Court is at the discretion to enforce the award. The Court held that grounds such as 'perverse interpretation of an agreement', 'non-consideration of critical evidence', 'scrutiny of contemporaneous evidence was selective' were not available under Section 48 of the Arbitration Act.
The Court held that parties are at the liberty to have their disputes resolved by a foreign court creating exclusive or non-exclusive jurisdiction. The Court affirmed the well settled principle that explanation to Section 28 of the Indian Contract Act, 1872 excludes arbitration from the ambit of Section 28(a) of the Indian Contract Act, 1872 and that per se, the Arbitration Act does not prohibit two Indian parties from choosing a foreign seat and vesting exclusive jurisdiction to adjudicate their dispute. The Court observed that designating a foreign seat would not amount to conflict with standard of public policy of India laid down in the judgment of the Supreme Court in Renusagar, AIR 1994 SC 860 and Glencore, 2017 (4) ArbLR 228 (Delhi).
The Court held that interpretation of the proviso to Section 2 (2) of the Arbitration Act only leads to a conclusion that a petition under Section 9 is maintainable in case of an International Commercial Arbitration. The expression in the proviso to Section 2(2) of the Arbitration Act 'even if the place of arbitration is outside India, and an arbitral award made or to be made in such place is enforceable and recognized under the provisions of Part II of this Act' is also applicable only in cases of International Commercial Arbitration. The Court held that it cannot read anything into a statutory provision which is plain and unambiguous and that the first and primary rule of construction is that the intention of the legislation must be found in the words used by the legislature itself.
The High Court has fairly reiterated the position settled by the judgment of the Delhi High Court in GMR Infra (supra) that 2 (two) Indian parties can choose a foreign seated arbitration and seek its enforcement in India. We still await a conclusive decision of the Supreme Court on this issue particularly because of the judgment in TDM Infrastructure (P) Ltd. v. UE Development India (P.) Ltd., (2008) 14 SCC 271, which although does not answer the question directly but is often sought to be applied when the Courts deal with this issue.
The judgment also clarifies the position on maintainability of a petition under Section 9 of the Arbitration Act, where Part-1 of the Act was not applicable (since the seat was outside India) and the arbitral proceeding were not an International Commercial Arbitration within the meaning of Section 2 of the Arbitration Act.
The judgment is a welcome step in the development of arbitration law in India which eased the way for enforcement of a foreign award where the parties had consciously chosen a seat outside India.
Note: The judgment may be appealed before the Division Bench of the Hon'ble High Court and/or Supreme Court.
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