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Supreme Court of India ruling allows for foreign-seated arbitrations between Indian companies

The Supreme Court of India has clarified that two Indian parties may elect to arbitrate in a non-Indian forum, and that interim measures for such an arbitration will be available in Indian courts. This ruling gives much-needed clarity to previously unclear precedent on these points.

 

Background: Choosing to arbitrate abroad

The choice of seat is a significant consideration in any arbitration. As the "legal home" of the arbitration, the seat determines various important aspects of the arbitration, such as the parties’ right of appeal, availability of interim measures, and the judicial system that will ultimately have supervisory jurisdiction over the award.

Parties incorporated in the same jurisdiction could choose, for various reasons, to have their arbitration seated outside their home jurisdiction. In India, prior to the Supreme Court’s decision in PASL Wind Solutions v GE Power,1 it was unclear whether an award resulting from a foreign-seated arbitration between two or more Indian companies would be enforceable in India, or whether the parties could even seek interim measures in Indian courts.

As set out below, the Supreme Court of India has now provided helpful clarity on these two points.

 

Decision

The Supreme Court in PASL v GE considered two key issues in the context of a situation where two companies incorporated in India have chosen a forum outside India as the seat of arbitration:

  • whether an award issued in a forum outside India is enforceable in India as a "foreign award" under the Arbitration and Conciliation Act 1996 ("Arbitration Act");2 and
  • whether Indian courts may grant interim measures under the Arbitration Act with respect to that award.

 

Relevant Facts and Procedural History

PASL Wind Solutions Private Limited ("PASL") and GE Power Conversion India Private Limited ("GE Power") are entities incorporated in India. A dispute arose out of GE Power’s supply of converters to PASL. As a step toward resolving the dispute, the parties entered into a settlement agreement dated 23 December 2012 ("Settlement Agreement"). Clause 6 of that agreement stipulated that any dispute arising out of or relating to the Settlement Agreement would be referred to arbitration in Zurich, Switzerland.

Further disputes then arose regarding the Settlement Agreement, and PASL filed for arbitration against GE Power. The tribunal issued a final award rejecting PASL’s claim and awarding costs to GE Power. GE Power then launched enforcement proceedings to enforce the award in the High Court of Gujarat. It also filed an application seeking interim measures to secure the sum granted by the tribunal.

The High Court of Gujarat held that the final arbitral award was enforceable in India.3 However, it rejected GE Power’s application for interim measures, holding that Indian parties selecting a non-Indian seat of arbitration are not entitled to interim relief in India. PASL appealed to the Supreme Court, and GE Power cross-appealed the High Court of Gujarat’s decision on the availability of interim relief.

 

Holding

The Supreme Court found in favour of the Respondent, ruling that:

  • the arbitral award was enforceable in India as a "foreign award"; and
  • the Court had jurisdiction to grant interim measures with respect to that award.

Indian parties may validly choose a foreign arbitral seat

The Supreme Court ruled that Indian parties may choose a seat outside India for an arbitration to decide a dispute between them, and that there is no requirement for any of the parties to be foreign (e.g. to reside in or be incorporated in a foreign country).

In reaching this conclusion, the Court referred with approval to the Supreme Court’s decision in Atlas Export Industries v Kotak ("Atlas"),4 which held that two Indian parties could choose a foreign arbitral seat under the predecessor legislation to the Arbitration Act,5 and that such agreement was not contrary to public policy. The Court also distinguished the case at hand from the decision in TDM Infrastructure v UE Development ("TDM"),6 which concerned a separate provision of the Arbitration Act. 

The Court also rejected PASL’s argument that allowing Indian parties to choose a foreign seat would be contrary to public policy. In resolving this question, the Court weighed the parties’ freedom to contract against the possibility of "clear and undeniable harm to the public". The Court observed that in agreeing to a foreign-seated arbitration, parties get "two bites at the cherry" (instead of one, in a domestic arbitration), as they could seek to set aside the award in the foreign jurisdiction and also resist its enforcement in India. However, the Court found no clear and undeniable harm in allowing parties to do so. As such, it decided that allowing two Indian parties to choose a foreign seat was not contrary to public policy.

Indian courts may provide interim relief where Indian parties have chosen a foreign arbitral seat

As regards interim relief, the Court held that Indian parties to a foreign-seated arbitration can apply for interim measures under the Arbitration Act. This conclusion is based on the Arbitration Act specifically extending the application of the relevant provisions (which typically apply only to domestic arbitrations) to foreign-seated arbitrations.7 Thus, the Court held that there is no requirement for any of the parties to be incorporated abroad for an Indian court to grant interim measures with respect to an arbitral award issued in a seat outside India.

 

Significance

The Supreme Court’s decision in PASL v GE has clarified that foreign-seated awards in arbitrations between Indian companies are valid and enforceable in India. This has significant implications not only for Indian companies, but also for foreign companies with Indian subsidiaries or affiliates. As seen in this case, non-Indian parent companies may opt to have their Indian subsidiaries arbitrate in jurisdictions with which the parent companies are more familiar.

Parties should note that the implementation of the New York Convention and, in particular, the interpretation of an enforceable "arbitral award" under the Convention, could differ amongst jurisdictions. Thus, even though some jurisdictions like India or Singapore8 only impose a requirement for the arbitration to be seated abroad in order for an award to be considered as a "foreign award" enforceable under the Convention, other jurisdictions might impose additional requirements. For example, under the Federal Arbitration Act in the US, an award resulting from an arbitration between US citizens would not be considered enforceable as an award under the Convention unless the parties’ relationship bears some reasonable relation with a foreign state (selecting a foreign seat, in itself, would appear insufficient to constitute such "reasonable relation").9

In addition, Indian parties seeking to enforce foreign-seated awards in India can now draw comfort from the Supreme Court’s decision to avail themselves of interim measures under the Arbitration Act, including, for example, by applying to the Indian courts to preserve assets and stop the award debtor from alienating property (as in this case). Apart from in an enforcement scenario, Indian parties may also wish to apply for interim relief before Indian courts to preserve assets before or during an arbitration. Such measures would now equally appear to be available in arbitrations seated outside India based on the PASL v GE decision.

 

1 PASL Wind Solutions Private Limited v GE Power Conversion India Private Limited (Supreme Court of India, Civil Appeal No. 1647 of 2021, 20 April 2021) ("PASL v GE").
2 The Arbitration Act is the key legislation governing arbitration in India. It is broadly based on the 1985 UNCITRAL Model Law and implements the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention"). See Arbitration Act, Preamble and section 44. 
3 High Court of Gujarat, R/Petn. under Arbitration Act No. 131 of 2019 with R/Petn. under Arbitration Act No. 134 of 2019, 3 November 2020.
4 Atlas Export Industries v Kotak & Company (1999) 7 SCC 61.
5 This predecessor to the Arbitration Act, the Arbitration Act 1940, was repealed by the Arbitration Act, s. 85.
6 TDM Infrastructure Private Limited v UE Development India Private Limited (2008) 14 SCC 271.
7 The proviso to s. 2(2) of the Arbitration Act provides that "subject to an agreement to the contrary, the provisions of section 9 [which governs interim measures] … shall also apply to international commercial arbitration". The Court held that the reference to "international commercial arbitration" in this proviso includes arbitrations seated outside India (without a requirement for any of the parties to be incorporated or based abroad). 
8 International Arbitration Act of Singapore, s. 27(1).
9 See e.g. Jones v. Sea Tow Servs., 30 F.3d 360 (2d Cir. 1994).

 

Michael McArdle (White & Case, Associate, Melbourne) contributed to the development of this publication.

 

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