Indian parties can choose a foreign seat of arbitration: Gujarat HC

Indian entities/parties are entitled to choose a seat of arbitration outside India as a foreign or neutral seat. Such an agreement is not in violation of public policy of India, the Gujarat High Court stated in a landmark judgement on Tuesday.

The order brings an end to a contentious issue of foreign seat and enforcement of its award for a number of contracts.

GE Power vs PASL Wind Solutions

Hearing the arbitration petitions filed by GE Power Conversion India Pvt Ltd against Ahmedabad-based PASL Wind Solutions Pvt Ltd regarding a dispute on the purchase of power converters, the High Court observed that the applications are in context of a foreign award dated 18.04.2019 passed by the Arbitral Tribunal seated in Zurich, Switzerland.

In a dispute resolution clause of the settlement agreement, the two parties had mentioned that if no settlement can be reached through negotiations, all disputes, controversies or differences 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.

The foreign arbitrator had granted the petitioner i.e. GE Power Conversion India Pvt Ltd, $40,000 or ₹2.97 crore in legal costs and expenses with accumulated interests from the respondent.

Objecting the award, the counsel appearing for respondents had argued that under the Indian Contract Act, two Indian parties cannot designate a seat outside India. “Two Indian parties cannot be allowed to gain advantage simply by designating a seat abroad in an arbitration that otherwise has no other foreign element. If the parties are allowed to do so, the purpose of the Arbitration Act will be completely defeated,” the respondent’s counsel had argued.

Foreign award

The petitioner had filed a preliminary application challenging the jurisdiction of the arbitrator on the ground that since the two parties were Indian parties, they cannot have a foreign seat of arbitration. The move was opposed by the respondent i.e. PASL Wind Solutions.

Justice Biren Vaishnav held that an award that is passed in a foreign seat is a foreign award and may be enforced under Part II of the Arbitration and Conciliation Act.

Passing an order on whether the foreign award is enforceable in India, Justice Vaishnav stated that to determine the enforceability of the foreign award under the Part II of the Arbitration and Conciliation Act, the nationality of the parties is not relevant.

The counsel appearing for the respondent had raised a public policy defence questioning the legality of such a contract and argued it to be against the public policy of India.

But the court held that the foreign award in question is not against the policy of India, hence, enforceable in India. The court also held that a party holding a foreign award is not entitled to apply for interim relief under Section 9 (as Part I of the Act does not apply).

Giving a perspective on the High Court judgement, Shaneen Parikh, Partner, Cyril Amarchand Mangaldas, welcomed the order and termed it a far-reaching decision.

“The Gujarat High Court issued a pro-arbitration ruling by holding that two Indian parties are entitled to choose a foreign seat of arbitration – a vexatious issue that has plagued a number of contracts and the freedom of party autonomy that is the fundamental basis of arbitration.”

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