Author: Shreya (Foreign attorney: India )

In April 2021, the Supreme Court of India in a landmark judgement in PASL Wind Solutions (PASL) v. GE Power Conversion India Private Limited (GE Power), ruled that the two Indian parties can choose a foreign arbitral seat and that the arbitral award passed in such cases would be enforceable in India and the parties could also seek interim relief in India.

It is a favorable decision for all foreign investors in India, including foreign companies with local subsidiaries, as it gives them much needed clarity on these issues. These entities can now choose any foreign arbitral seats like Singapore, London and Hong Kong in their arbitration agreements, even if the subject matter of their contracts and counterparties are entirely situated within India.

Factual Background

PASL (appellant) and GE Power (Respondent) two Indian companies, GE Power being a subsidiary of a French company, entered into a settlement agreement dated December 23, 2014, as a step towards resolving the dispute arising out of a transaction for the supply of converters. The arbitration clause in the agreement stated Zurich as the arbitration seat governed by the ICC Rules.

The arbitration proceedings were initiated and the Tribunal issued an arbitral award dated 18 April 2019 in favor of GE Power, awarding costs to GE Power. GE Power then launched enforcement proceedings to enforce the award in the High Court of Gujarat, India. It also filed an application seeking interim measures to secure the sum granted by the tribunal.

The High Court of Gujarat held that the arbitral award was enforceable in India, but dismissed the interim application filed by GE Power, on grounds that interim relief under Section 9 is only available in ‘international commercial arbitrations’, where at least one party is a foreign party. PASL filed an appeal to the Supreme Court of India, and even GE Power cross-appealed against the Gujarat’s High Court decision on the availability of interim relief.

Ruling of the Supreme Court

The Supreme Court stipulated that that two Indian parties can choose a foreign seat to conduct arbitration. It also clarified that an award pronounced by an arbitral tribunal seated outside India is a foreign award, and can be enforceable under Part II of the Arbitration Act (dealing with enforcement of foreign awards) even if the parties to the arbitration are Indian. It further affirmed that for an award to be considered a foreign award under the Arbitration Act, there is no requirement for one of the parties to be a foreign (non-Indian) party.

In considering the issue whether choice of a foreign seat by two Indian parties is against the public policy of India, the Supreme Court looked into the provisions of the Arbitration Act as well as the Indian Contract Act and held that ‘the balancing act between freedom of contract and clear and undeniable harm to the public must be resolved in favor of freedom of contract as there is no clear and undeniable harm caused to the public in permitting two Indian nationals to avail of a challenge procedure of a foreign country.’ Therefore, it confirmed that allowing two Indian parties to choose a foreign seat is not acting contrary to the public policy of India.

As regards interim relief, the Supreme Court overruled the decision of the Gujarat High Court and held that Indian parties to a foreign-seated arbitration would be classified as an ‘international commercial arbitration’ and can apply for interim relief under the Arbitration Act by relying on the ‘place-centric’ approach. The Supreme Court reasoned that the term ‘international commercial arbitration’ as used in Section 2(2) of the Arbitration Act must be interpreted to mean an arbitration that take place outside India, irrespective of the nationality of the parties.

Conclusion

The Supreme Court of India with this decision, puts light on the significance of party autonomy in designating a seat of arbitration outside India even when both parties are Indian.

The decision will give parties/investors in cross-border disputes and international/ foreign companies having Indian subsidiaries the freedom to resolve domestic disputes through arbitration with other Indian parties in a neutral/foreign jurisdiction with the ability to avail interim reliefs under Section 9 of the Arbitration Act from Indian courts.

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Reference Links

https://www.barandbench.com/view-point/the-final-word-on-two-indian-parties-arbitrating-outside-india

Party autonomy in arbitration – Indian parties at liberty to select foreign seat of arbitration

https://www.businesslawchamber.com/blogs/articles/684395-supreme-court–parties-can-choose-a-foreign-seat-of-arbitration

https://www.natlawreview.com/article/india-party-autonomy-trumps-sc-allows-two-indian-parties-to-choose-foreign-seat