Supreme Court: Party autonomy is the backbone of arbitration

Supreme Court- Party autonomy is the backbone of arbitration

The Supreme Court in a recent landmark judgment titled PASL Wind Solutions Private Limited v GE Power Conversion India Private Limited ruled that 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. This effectively enlarges the scope of reference to arbitration under the scheme of International Commercial Arbitration (ICA) under the Arbitration and Conciliation Act, 1996, whereby two companies incorporated in India can validly designate a foreign seat for arbitration of their disputes.

The present case arose out of a settlement agreement executed between two companies duly incorporated under the laws of India, i.e., the appellant, PASL Wind Solutions Private Limited and the respondent, GE Power Conversion India.

GE Power had agreed to provide certain warranties and the scope of these became the subject of a dispute. A sole arbitrator was appointed by the International Chamber of Commerce for the proceedings to be held in Zurich.

While the rationale of the judgment can be based on the legal proposition that two Indian parties are free to designate a foreign seat for arbitrating disputes, the Supreme Court delved into two aspects of the arbitration law regime: party autonomy and interim relief under section 9 of the arbitration act in cases of international arbitration.

Observing that part I and II of the arbitration act are mutually exclusive, the Supreme Court, deeming Atlas Export Industries v Kotak & Co (1999) to be the binding precedent, went ahead to hold that the freedom 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 of public policy.

Pursuant to its rationale on party autonomy, the Supreme Court further decided on the scope and maintainability of an application made under section 9 of the arbitration act for interim relief. Setting aside the ruling of the Gujarat High Court to this extent, the Supreme Court applied its judicial wisdom in interpreting section 2(2) and section 2(1)(f) of the arbitration act and found that the scope and definition of “international commercial arbitration” under section 2(1)(f) of the arbitration act is party-centric, whereas the same under section 44 of the act signifies a place-centric approach. So, if an arbitration is convened between any two parties in a territory outside India, the New York Convention would apply, thereby making it an “international commercial arbitration”. It was held that Indian companies involved in foreign arbitration proceedings are not precluded from seeking interim relief in the Indian courts.

The Supreme Court’s decision clears the air by upholding party autonomy under the Indian arbitration regime. It enables the Indian parties to negotiate agreements to choose a seat of arbitration, i.e., domestic or foreign, and enforce such agreements under Indian law.

The dispute digest is compiled by Numen Law Offices, a multidisciplinary law firm based in New Delhi & Mumbai.

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