Date of Decision: 20.04.2021
Bench Strength: 3
- ROHINTON FALI NARIMAN, J.
- B.R. GAVAI, J.
- HRISHIKESH ROY, J.
Trajectory of the decision
# Atlas Export Industries v. Kotak & Company [(1999) 7 SCC 61]
# Reliance Industries Ltd v. Union of India [(2014) 7 SCC 603] (indirectly)
# Sasan Power Limited v. North American Coal Corporation India Private Limited [(2016) 10 SCC 813]
# GMR Energy Limited v. Doosan Power Systems India [CS (COMM) 447/2017 (decided on 14.11.2017)] & # Dholi Spintex v. Louis Dreyfus [CS (COMM) 286/2020 (decided on 24.11.2020)] (Approved in PASL Wind Solutions ¶36 and ¶37)
# PASL Wind Solutions Pvt. Ltd. v GE Power Conversion India Pvt. Ltd. [2021 SCCOnline SC 331]
⇒ Primary Holding
- Autonomy of Indian parties to opt for a foreign seated arbitration upheld.
- Section 9 applications for interim measures in the above case are maintainable in line with the Proviso to Section 2(2).
📜 PDF of the Decision
- Refer to ¶3 of the decision.
Singular issue (drop-down)
- whether two companies incorporated in India can choose a forum for arbitration outside India – and whether an award made at such forum outside India, to which the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 [“New York Convention”] applies, can be said to be a “foreign award” under Part II of the Arbitration and Conciliation Act, 1996 [“Arbitration Act”] and be enforceable as such?
Referring to Mankastu Impex (P) Ltd. v. Airvisual Ltd., (2020) 5 SCC 399, the Court concluded that Zurich was settled as the juridical seat for the arbitration between the parties (¶¶7-10). There was somehow still controversy here, despite the fact that the seat of the arbitration was Zurich, the venue of the arbitration was mutually agreed upon by the parties as Mumbai in the case management hearing.
3.1. Indian Parties are free to opt for foreign seated arbitration
3.1.1. Part I and Part II of the Arbitration are Independent
- The Court relied on Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. [(2012) 9 SCC 552], where it was held that Part I and Part II of the Arbitration Act operate in different fields, without any overlap.
- Rooted in the watertight compartmentalization of the Arbitration Act, 1940 and the Foreign Awards Act, 1961, at the time when BALCO was passed, there was no overlap, by way of the 2015 Amendment, a proviso has been added to Section 2(2) of the Arbitration Act, which extends Sections 9, 27, 37(1)(a) and 37(3) to cases of 'international commercial arbitrations' [foreign seated arbitrations] under Part II (unless specifically contracted out). This was as a response to the BALCO decision, to safeguard assets situated in India in foreign seated arbitraitons.
- Controversy then arose as to the true import of the Proviso of Section 2(2) as it relates to Part I and Part II owing to the use of the term 'international commercial arbitration' in the context of foreign seated arbitrations.
- ¶14 - Interpretation of Section 2(2) of the Arbitration Act: In Section 2 of the Arbitration Act, the term 'International Commercial Arbitration' is referred to in two different contexts.
- Section 2(1)(f) - “international commercial arbitration” means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is— (i) an individual who is a national of, or habitually resident in, any country other than India; or (ii) a body corporate which is incorporated in any country other than India; or (iii) 2* an association or a body of individuals whose central management and control is exercised in any country other than India; or (iv) the Government of a foreign country;*
- Section 2(2): This Part shall apply where the place of arbitration is in India:
- Section 2(2) reads as:
- The Court thus interpreted the use of 'international commercial arbitration' only mean "International" commercial arbitration in the sense that it is foreign seated. This terminology is clearly a hold-over from the Bhatia and BALCO decisions.
First, in the color of Section 2(1)(f) R/w Section 2(2): A joint reading of these Sections would make it clear that the definition of the expression “international commercial arbitration” contained therein is party-centric in the sense that at least one of the parties to the arbitration agreement should, inter alia, be a person who is national of or habitually resident in any country other than India.
Second, Proviso to Section 2(2): In this context, when “international commercial arbitration” is spoken of in the context of taking place outside India, it is place-centric as is provided by section 44 of the Arbitration Act.
(2) This Part shall apply where the place of arbitration is in India:
Provided that subject to an agreement to the contrary, the provisions of sections 9, 27 and clause (a) of sub-section (1) and sub-section (3) of section37 shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or to be made in such place is enforceable and recognised under the provisions of Part II of this Act.
3.1.2. The award passed is a 'foreign award'
- Generally speaking, the regulation of arbitration consists of four steps. (i) the commencement of arbitration, (ii) the conduct of arbitration, (iii) the challenge of the award, (iv) the recognition or enforcement of the award. Part I of the Arbitration Act, 1996 regulates arbitrations at all the four stages. Part II, however, regulates arbitration only in respect of commencement and recognition or enforcement of the award.
- In the present case, since both the parties to the arbitration are Indian, the question arises, is the award rendered a 'domestic award' [Section 2(7)] or a 'Foreign Award' under Part II?
- The award rendered in this case was held to be a foreign award. First, an award is termed a foreign award for the simple reason that it is rendered in the foreign seated arbitration. This is the principle of territoriality under Part II of the Arbitration Act. On the other hand, the definition of 'international commercial arbitration' under Section 2(1)(f) is party-centric.
- The difference between foreign and domestic awards has been succinctly set out in the UNCTAD Commentary on International Commercial Arbitration which states that "an arbitration that takes place in State A is a foreign arbitration in State B. It does not matter whether the arbitration is commercial or non-commercial or whether the parties are from the same country, from different countries or that one or all are from State A. Since even a domestic arbitration in State A is a foreign arbitration in State B, the courts of State B would be called upon to apply the New York Convention to enforcement of a clause calling for arbitration in State A and to the enforcement of any award that would result."
- ¶25&26 - The Supreme Court concluded that the definition of a foreign award under Section 44 is party neutral and based on the principle of territoriality that separates Part I and II. Therefore, an award rendered in a foreign seated award between Indian parties amounts to a 'foreign award' under Part II of the Arbitration Act.
3.1.3. Not Opposed to Public Policy
- ¶54 & 59 - It was held the ability of Indian parties to opt for a foreign seated arbitration does fall foul of Section 23 and 28 of the Contract Act, 1872. The balancing act between freedom of contract and clear and undeniable harm to the public must be resolved in favour of freedom of contract as there is no clear and undeniable harm caused to the public in permitting two Indian nationals to avail of a challenging procedure of a foreign county when, after a foreign award passes muster under that procedure, its enforcement can be resisted in India on the grounds contained in section 48 of the Arbitration Act, which includes the foreign award being contrary to the public policy of India. This was considered as an adequate safeguard to upholding party autonomy.
3.1.4. Jurisprudential Breakdown
- The autonomy of Indian parties to opt for a foreign seated arbitration is not a novel proposition. In fact, pre-Arbitration Act, 1996 under the Foreign Awards (Recognition and Enforcement) Act, 1961 the same position was upheld by a division bench of the SC in # Atlas Export Industries v. Kotak & Company [(1999) 7 SCC 61] on the same lines as # PASL Wind.
- Under the 1996 Act, the Madhya Pradesh High Court in Sasan Power Limited v. North American Coal Corporation (India) Pvt. Ltd. [2015 SCC OnLine MP 7417] ('Sasan Power') upheld Indian parties' autonomy to opt for a foreign seated arbitration following # Atlas Exports. (¶72)
- In Para 33 of # PASL Wind, the SC approved the statement of law narrated in # Sasan Power (¶¶33, 46-58, 72).
- Related cases:
- A contrary view of # Atlas Exports was expressed by the SC in # TDM Infrastructure Private Limited v. UE Development India Private Limited [(2008) 14 SCC 271]. The SC held that this decision, in any case, cannot be regarded as a binding precedent, having been delivered by a Single Judge appointing an arbitrator under section 11. (¶33)
- Two decisions of the Hon'ble High Court following # Atlas Exports & # Sasan Power were approved by the SC, namely:
- # GMR Energy Limited v. Doosan Power Systems India [CS (COMM) 447/2017 (decided on 14.11.2017)] - ¶ 36 of # PASL Wind.
- # Dholi Spintex v. Louis Dreyfus [CS (COMM) 286/2020 (decided on 24.11.2020)] - ¶ 37 of # PASL Wind.
3.2. Application for interim measures
The Court clarified the true import of the Proviso to Section 2(2) in ¶14 as it relates to interim measures in foreign seated arbitrations. The Court held that an application for interim measures is maintainable within the parameters of the Proviso to Section 2(2). The Court reversed the Hon'ble Gujrat High Court's decision to the contrary.