Author: Shefali Chaudhary, 2nd year, ICFAI University Dehradun.
Date of decision: April 20, 2021
Original copy: View
Bench: R. F. Nariman, B. R. Gawai, Hrishikesh Roy
Statutes involved: The Arbitration and Conciliation Act 1996, The Indian Contract Act 1872
Issues in question:
- Whether two Indian parties can choose a foreign seat for arbitration?
- Whether the award rendered would be enforceable in India?
Background of the case:
- PASL Wind Solutions Pvt Ltd (hereinafter, “PASL”) and GE Power Conversion India Pvt Ltd (hereinafter, “GE India”’) went into a settlement agreement in reference to the dispute which arose due to some transaction for the supply of converters. The two organizations are incorporated in India. GE India is a 99% subsidiary of General Electric Conversion International SAS (France), which thus is a completely owned subsidiary of the General Electric Company (United States). The arbitration clause in the settlement provided for arbitration as per the ICC Rules and situated in Zurich. The settlement aggrement was administered by Indian law.
- In 2017, following disputes emerging out of the settlement agreement, PASL started arbitration proceedings against GE India. Throughout the procedures, the council decided that the seat of the arbitration was Zurich; however, that hearings would be directed in Mumbai. In 2019, the court gave a final award dismissing PASL’s cases and granted GE India damages and expenses.
- GE India commenced enforcement proceedings before the Gujarat High Court under Sections 47 and 49 of the Indian Arbitration and Conciliation Act 1996 (hereinafter, the “Act”). GE India likewise sought interim help from the Court under Section 9 of the Act to keep PASL from dispersing its assets to avoid complying with the award.
- At the main instance, in GE Power Conversion India Pvt Ltd v. PASL Wind Solutions Pvt Ltd., the Gujarat High Court found that Zurich was the seat of the arbitration, and that Indian law didn’t keep two Indian parties from picking an foreign arbitral seat. As the proceedings were in Zurich, the award was a foreign one that was dependent upon the enforcement system in Part II of the Act. The Gujarat High Court, nonetheless, dismissed GE India’s request for interim relief for the premise that Section 9, contained in Part I of the Act, simply applied to “international commercial arbitration,” as characterized in Section 2(1)(f) read with Section 2(2) of the Act. It thus held that Section 9 couldn’t apply for this case as the two parties were Indian.
- PASL argued that the award was not a foreign award capable of authorisation under Sections 47 and 49 of the Act. It argued that, under the closest association test, which the Supreme Court had applied in earlier cases to decide the arbitral seat,2 the arbitral seat was Mumbai, as it was, in addition to other things, where the hearings occurred. PASL hence sought to save the award under Section 34 of the Act, which applies to Indian-situated arbitration and awards.
- PASL also filed a special leave petition before the supreme court, seeking to set aside the gujarat high court judgement. The Supreme Court dismissed PASL’s appeal and all the arguments on whether two Indian parties could pick a foreign seat. The Supreme Court additionally upheld GE India’s cross-objection and allowed it interim relief to prevent the dispersal of PASL’s resources.
- The Supreme Court disagreed that the award was not a foreign award, clarifying that the closest connection test possibly applies when the parties or the council have not assigned an arbitral seat. For this situation, it was obvious that the seat was Zurich. Thus The Supreme Court held that there was no reason to apply the closest connection test to decide the arbitral seat.
- The Supreme Court explained that there are four components that should be fulfilled for an award to be assigned a “foreign award” under Section 44:
- the dispute should be a commercial dispute as perceived under Indian law;
- the award should be settled on according to a written arbitration agreement;
- it should be a dispute that emerges between “persons” (regardless of their identity, nationality or domicile), and
- the arbitration should be led in a country that is a signatory to the New York Convention.
The Court found that the arbitral award for this case fulfilling all of the four components was a “foreign award” under Part II of the Act.
- On Section 23 of the Contract Act, the Supreme Court held that there was nothing in the public approach of India that restricted gathering party autonomy in the determination of a foreign arbitral seat by Indian parties. The Supreme Court clarified that the freedom of contract should be balanced against clear and unquestionable harm to people in general and that no such harm existed in permitting Indian parties to pick an foreign arbitral seat.
- The Supreme Court concluded that GE India’s plea for interim relief was valid, dismissing the Gujarat High Court’s decision that Section 9 of the Act couldn’t apply in aid of foreign situated arbitration between two Indian parties.
- PASL’s case rested on the vulnerability that existed under Indian law with regards to whether two Indian parties could choose a foreign seat, an issue that had divided the Indian courts.
- Some High Courts in India had adopted a favorable arbitration approach on this issue and forced the parties to choose foreign arbitral seats, while others had not. For example, in Addhar Mercantile Private Limited v. Shree Jagdamba Agrico Exports Pvt. Ltd, the Bombay High Court held that two Indian parties couldn’t pick a familiar seat in light of the fact that “the aim of the council [is] clear that Indian nationals should not be allowed to derogate from Indian law.”
- The Supreme Court’s decision provides necessary clearness on the use of foreign seats by Indian parties. The decision strongly builds up the power of party autonomy, which it describes as the brooding and guiding spirit of arbitration.