(PASL Wind Solutions Private Limited Vs GE Power Conversion India Private Limited)
There had been uncertainty that a foreign seated arbitration made under an arbitration agreement between Indian parties could be susceptible to challenge in the courts. On 20th April 2021, the Supreme Court of India (“Court”) in the case of PASL Wind Solutions Private Limited (“Appellant”) vs GE Power Conversions India Private Limited (“Respondent”) has settled a fundamental question in arbitration law by deciding that Indian parties are entitled to elect a foreign seated arbitration. This landmark ruling re-establishes the principle of party autonomy. The Court further placed a principle that awards passed in such cases will be characterized as a foreign award which will then be enforceable under the contours of Part II of the Arbitration and Conciliation Act, 1996 (“The Act”).
Factual Summary :
The Appellant issued three purchase orders in 2010 to the Respondent for supply of specific converters. Certain disputes arose between the parties concerning the expiry of the warranty of the said converters.
Pursuant to their dispute, the parties entered into a settlement agreement which was executed on 23rd December 2014 (“Settlement Agreement”). The Settlement Agreement contained the dispute resolution clause that stipulated that if the parties are unable to reach any settlement, they will be referred to arbitration in Zurich in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce (“ICC”). It was further agreed that the substantive law applicable to the dispute would be Indian law.
Thereafter, on 3rd July 2017, the Appellant issued a notice for arbitration to the International Chamber of Commerce (“ICC”). Subsequently, on 18th August 2017, the parties agreed to resolve disputes by a sole arbitrator appointed by ICC. The substantive law applicable to the disputes was Indian law.
The Respondent filed a preliminary application challenging the jurisdiction of the arbitral tribunal on the ground that two Indian parties cannot choose a foreign seat of arbitration, and Appellant reverted that there is no bar in the Indian law in doing the same. The Arbitrator , vide its procedural order dated 20th February 2018, dismissed the Respondent’s above-stated objection.
In the course of proceedings, the tribunal ruled that the seat of the arbitration was Zurich but hearings would be conducted in Mumbai to save the cost and, subsequently, in 2019 the arbitrator passed an arbitral award in Zurich (being seat of arbitration) against the Appellant and in favour of the Respondent.
Enforcement Proceedings (Gujarat High Court) :
The Respondent filed for the enforcement of the arbitral award under Section 47 and 49 of The Act before the Gujarat High Court. The Appellant being the judgement debtor, objected to the proceedings on the premise that the seat of arbitration was at Mumbai, and the choice of the foreign seat of the arbitration between the two Indian parties was against the public policy of India.
The Gujarat High Court upheld the enforcement proceedings and held that the two Indian parties could choose a foreign seated arbitration and further categorically held that when two parties chose a foreign seated arbitration, they cannot file an application for interim reliefs under Section 9 of The Act as recourse to the Section 9 application is only for the international commercial arbitrations in India. The High Court based its reasoning of the international commercial arbitrations in India based on the proviso of Section 2(2), which has the meaning assigned by Section 2(1)(f) of The Act.
Apex Court’s Judgement :
The Court categorically held that two Indian parties could choose a foreign seat of arbitration. The Court’s reasons for the same are enumerated below :
- The Court, by taking the reasons of the Atlas Export Industries vs Kotak Company, held that there is nothing under the Indian Contract Act, 1872 (“Contract Act”) that bars the two Indian parties for choosing arbitration seat outside India rejected the argument of the Appellant that the same will be against the public policy of India.
- The Court also held that there should be freedom of contract which should be balanced with undeniable harm to the public. The Court also said that merely Indian parties choosing a foreign seat of arbitration does not render it against the public policy of India and further stated that “public policy” under Section 23 of the Contract Act can only be triggered when public harm is proved.
- The Court also held that Section 28(1)(a) of The Act does not refer to arbitration being conducted between two Indian parties in a country other than India, and therefore, it cannot be held that two Indian parties cannot resolve their disputes through a foreign seated arbitration.
- The Court most importantly held that a ‘foreign award’ under Section 44 of The Act does not bifurcate award on the basis of nationality, residence or domicile. Further, foreign award’ under Section 44 of The Act does not require that one party has to be a foreign party as mentioned in Section 2(1)(f) of The Act. The Court further held that Section 44 of The Act is party–neutral, but seat–centric, and therefore, the place is to be considered where the award is made to determine if the award is foreign.
- The Court also set aside the Gujarat High Court’s finding that the Section 9 application was not maintainable. The Court held that interim relief under Section 9 of The Act is available to two Indian parties choosing a foreign seat for arbitration. The Court’s reasoning was on the pretext that proviso to Section 2(2) of The Act makes certain sections of Part 1 of The Act applicable to international commercial arbitration, even if the place of arbitration is outside India. The Court also held the term international commercial arbitration used under proviso of Section 2(2) of The Act does not refer to the definition stipulated under Section 2(1)(f) of The Act, which categorically requires a foreign party and proviso to Section 2(2) of The Act is a seat – centric terminology which requires even to a foreign party.
The Court has paved the way for party autonomy and opened the doors for the Indian parties to elect a foreign seated arbitration. It will be beneficial for Indian parties in cross–border transactions and parties having a global presence who wants to settle their disputes by going for a uniform seat across the globe.
While pronouncing its judgment, the Court also discussed in detail about the foreign element in the international commercial arbitration, which now will result in streamlining arbitral disputes involving the flavour of foreign element across the courts in the country.