The Gujarat High Court in GE Power Conversion India Pvt Ltd v PASL Wind Solutions Pvt Ltd decided whether two Indian parties could choose a foreign seat of arbitration, and then be entitled to interim measures under the Arbitration and Conciliation Act, 1996 (act).
GE supplied converters to PASL. In 2014, the parties executed an agreement (which provided for arbitration in Zurich, Switzerland) under which GE gave a warranty. Following disagreements over the warranty a sole arbitrator was appointed.
The arbitrator ruled that Zurich was the seat of arbitration. Neither party challenged this ruling. A final award was then made in favour of GE who filed applications under section 44 of the act for execution of the foreign award, and under section 9 to prevent PASL from disposing of assets.
PASL argued that this was not a foreign award as both parties were Indian; the award rewrote the terms of the agreement thus violating the funda- mental policy of Indian law, and any agreement stipulating a foreign seat of arbitration for two Indian parties was contrary to section 28 of the Indian Contract Act, 1872 (contract act), which deals with the restraint of legal proceedings, and was, therefore, against the public policy of India.
The court held that the seat of arbitration determined whether the award was foreign and that the nationality of the parties was not a determining factor. If the seat of arbitration is in a country which is a signatory to the New York Convention, the award is foreign. From the decision of the Supreme Court in BGS SGS Soma JV v NHPC Ltd, it is clear that, unless there is a significant indication to the contrary, an expressly designated venue is the juridical seat of arbitration. The GE-PASL settlement agreement provided for arbitration in Zurich; there was no indication of any other seat, and the arbitrator’s ruling regarding the seat had achieved finality. The seat of the arbitration was Zurich and the award was foreign.
The Supreme Court, in Vijay Karia v Prysmian Cavi E Sistemi Srl, held that the scope of enquiry into the enforcement of a foreign award is narrow. Enforcement cannot be refused even if the contract was perversely interpreted, or critical evidence was not considered or only considered selectively.
The court held that the designation of a foreign seat for arbitration between Indian parties did not contravene section 28 of the contract act or the public policy of India. In Renusagar Power Co Ltd v General Electric Co, the Supreme Court held that the public policy defence should be narrowly construed. The phrases public policy and laws of India are separate and mere contravention of the law will not violate public policy. Through the explanation to section 48(2) of the act, transgression of public policy must involve elements of fraud and corruption. Finally, the act itself does not prohibit two Indian parties from designating a foreign seat or foreign procedural law.
The court disagreed with the Bombay High Court judgment in Trammo DMCC v Nagarjuna Fertilizers and Chemicals Ltd and held that interim protection measures under section 9 of the act are available only in domestic and international commercial arbitrations. Interim measures under section 9 are not available for foreign awards. In TDM Infrastructure v UE Development India Pvt Ltd, the Supreme Court held that an arbitration between two Indian parties is not an international commercial arbitration.
The decision to enforce the foreign award in favour of GE is significant as it distinguishes between international commercial arbitrations and arbitrations resulting in foreign awards. While nationality is integral to the classification of international commercial arbitrations, it is not relevant when determining whether an award is foreign.
Although high courts have previously relied on TDM to hold that two Indian parties cannot designate a foreign seat, this judgment demonstrates a shift away from that position. Indeed, the Delhi High Court in Dholi Spintex Pvt Ltd v Louis Dreyfus Company India Pvt Ltd also recently upheld the right of Indian parties to choose a foreign law of arbitration.
Unfortunately, until this matter is settled by the Supreme Court, we will likely have further conflicting judgments from different high courts.
Karthik Somasundram and Sneha Jaisingh are partners at Bharucha & Partners
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