Indian Companies Can Arbitrate Abroad, Supreme Court Rules
No violation of public policy if Indian companies choose a foreign seat for arbitration, says the Supreme Court.
The Supreme Court has held that two Indian companies can choose a foreign jurisdiction to arbitrate their disputes. And that such an agreement will not adversely impact either parties’ ability to seek interim relief before Indian courts.
The apex court's ruling on Tuesday partially re-enforced and partially overturned the Gujarat High Court's November order in favour of GE Power Conversion India against PASL Wind Solutions Pvt. Ltd.
This landmark judgment truly showcases the evolved and pro-arbitration stance that the Supreme Court has been taking, Shaneen Parikh, partner at Cyril Amarchand Mangaldas, said. Parikh had represented GE Power in the case.
The ruling upholds and respects party autonomy, which is a fundamental part of arbitration and in doing so, also recognises the right of Indian parties to choose their preferred seat of arbitration, even if outside India.Shaneen Parikh, Partner, Cyril Amarchand Mangaldas
The ruling also clarifies that interim relief and recourse to Indian courts will be available even if domestic parties have opted for a foreign jurisdiction as the seat of arbitration. "This is a long awaited and very welcome decision for the global arbitration community," Parikh said.
Domestic Companies, Foreign Seat: Allowed?
After GE Power won an award from an arbitral tribunal in Zurich, it had approached the Gujarat High Court to enforce the directions against PASL Wind Solutions. The dispute related to purchase of converters by GE Power from PASL and warranty conditions. The arbitral tribunal had ruled in favour of GE Power and directed PASL to pay over Rs 3 crore.
PASL had contested this award saying an agreement with an object to contract out of the full extent of Indian judicial scrutiny by designating a foreign seat is in violation of the country’s public policy. And that courts can refuse enforcement if an award is contrary to India’s public policy.
The high court had dismissed this argument pointing to provisions under contract law which permit parties to arbitrate disputes.
At the time, experts had told BloombergQuint that the high court decision would prompt MNCs with Indian incorporated subsidiaries, that deal with domestic vendors, distributors, etc., to insist on a foreign seat of arbitration. Till then, as the law had been unclear, they were necessarily required to seat arbitration in India. The high court decision cleared the way for Indian subsidiaries of foreign companies to pick jurisdictions preferred by the foreign parent on account of familiarity and speed of disposal of cases, experts had pointed out.
The apex court’s ruling on Tuesday has now cemented the high court’s conclusion.
The Supreme Court pointed to the provision under contract law which makes an agreement void if a party’s legal right to approach Indian courts is curtailed. But, this provision makes an exception for arbitration proceedings, the apex court noted. The provision, it explained, specifically saves the arbitration of disputes between two persons without reference to the nationality of persons who may resort to arbitration.
“…it cannot be held, by some tortuous process of reasoning, to interdict two Indian parties from resolving their disputes at a neutral forum in a country other than India.” - Supreme Court
Domestic Companies, Foreign Seat: Interim Relief?
While seeking to enforce the award, GE Power had also asked for certain interim reliefs. PASL had contested ithose saying the award by the Zurich tribunal is not an “international commercial arbitration” since neither party is incorporated outside India. And so, the provisions of the arbitration law that allow parties to seek interim relief won’t be applicable.
The high court had agreed with this reasoning. At the time, Promod Nair, founder at Arista Chambers, had explained the anomalous situation created by this conclusion. The high court’s order meant that despite it being lawful for two or more Indian parties to arbitrate offshore, a party which anticipated or received an unfavourable award would have a free hand to secret away or dispose off assets to defeat enforcement of the award- and the Indian courts would be helpless in such a situation.
To the relief of the global arbitration community, the Supreme Court has now fixed this anomaly and overturned the high court’s conclusion on this aspect.
The apex court has pointed out that in an arbitration which takes place outside India, assets of one of the parties is likely to be situated in India. And if interim orders or reliefs are required against such assets, including for preservation purposes, the courts in India may pass such orders.