Indian Parties Can Choose A Foreign Seat For Arbitration: Supreme Court

The Supreme Court held that parties to a contract who are Indian nationals or Companies incorporated in India can choose a forum for arbitration outside India."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", the bench headed by Justice Rohinton Fali Nariman observed.The bench was considering the question whether two companies incorporated in India can choose a forum for arbitration outside India in the case PASL Wind Solutions Private Limited Vs. GE Power Conversion India Private Limited.In this case, a contract was entered between two companies, both incorporated in India under the Companies Act, 1956. Clause 6 (Arbitration Clause) provided that the disputes between them shall be referred to and finally resolved by Arbitration in Zurich in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce. As the disputes eventually arose between the Companies, it was referred to arbitration before International Chamber of Commerce. One of the parties filed a preliminary application challenging the jurisdiction of the arbitrator on the ground that two Indian parties could not have chosen a foreign seat of arbitration. This objection was rejected by the Arbitrator who continued the proceedings and passed Final Award. The successful party filed enforcement proceedings under sections 47 and 49 of the Arbitration Act before the High Court of Gujarat. Before the Apex Court, the appellant company contended that : (1) Two Indian parties cannot designate a seat of arbitration outside India as doing so would be contrary to section 23 of the Indian Contract Act, read with section 28(1)(a) and section 34(2A) of the Arbitration Act. (2) Foreign awards contemplated under Part II of the Arbitration Act arise only from international commercial arbitrations. "International commercial arbitration", as has been defined in section 2(1)(f) of the Arbitration Act, would make it clear that there has to be a foreign element when parties arbitrate outside India, the foreign element being that at least one of the parties is, inter alia, a national of a country other than India, or habitually resident in a country other than India, or a body corporate incorporated outside India. For this reason, the award passed in the present case cannot be designated as a foreign award under Part II of the Arbitration Act. (3) When there is no foreign element involved in an award made in Zurich between two Indian companies, such award cannot be the subject matter of challenge or enforcement either under Part I or Part II of the Arbitration Act. (4) There is a head-on conflict between section 10(3) of the Commercial Courts Act and section 47 of the Arbitration Act, as a result of which the former must prevail.To address these contentions, the bench, also comprising Justices BR Gavai and Hrishikesh Roy, referred to various provisions of the Arbitration Act and various precedents and made the following observations:Part I and Part II of the Arbitration Act are mutually exclusive The Arbitration Act is in four parts. Part I deals with arbitrations where the seat is in India and has no application to a foreign-seated arbitration. It is, therefore, a complete code in dealing with appointment of arbitrators, commencement of arbitration, making of an award and challenges to the aforesaid award as well as execution of such awards. On the other hand, Part II is not concerned with the arbitral proceedings at all. It is concerned only with the enforcement of a foreign award, as defined, in India. Section 45 alone deals with referring the parties to arbitration in the circumstances mentioned therein. Barring this exception, in any case, Part II does not apply to arbitral proceedings once commenced in a country outside IndiaRe: Section 23 Contract ActFreedom of contract needs to be balanced with clear and undeniable harm to the public, even if the facts of a particular case do not fall within the crystallised principles enumerated in well-established 'heads' of public policy. The question that then arises is whether there is anything in the public policy of India, as so understood, which interdicts the party autonomy of two Indian persons referring their disputes to arbitration at a neutral forum outside India.Re Section 28, 34 Arbitration ActSection 28(1)(a) of the Arbitration Act, when read with section 2(2), section 2(6) and section 4, provides that, where the place of arbitration is situated in India, in an arbitration other than an international commercial arbitration (i.e. an arbitration where none of the parties, inter alia, happens to be a national of a foreign country or habitually resident in a foreign country), the arbitral tribunal shall decide the dispute in accordance with the substantive law for the time being in force in India. The Appellant's contention was that since two Indian parties cannot opt out of the...

Indian Parties Can Choose A Foreign Seat For Arbitration: Supreme Court

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