Gujarat HC Says Yes To The Parties Choosing Foreign Seat Of Arbitration And Enforcing The Arbitral Award In India

SYNOPSIS

The Court was dealing with a dispute where two Indian parties to an arbitration agreement had chosen Zurich as the seat of arbitration.

This was a result of the judgment of the case GE Power Conversion Pvt. Ltd. V. PASL Wind Solutions Pvt. Ltd.

The Gujarat High Court in a landmark judgment has conclusively held that Indian parties are entitled to choose a seat of arbitration outside India as a foreign/neutral seat.

The purpose of this article is to highlight the key aspects of this judgment.

INTRODUCTION

Indian entities/parties are entitled to choose a seat of arbitration outside India as a foreign or neutral seat. Such an agreement is not in violation of public policy of India, the Gujarat High Court stated in a landmark judgement on October 3, 2020.

The order brings an end to a contentious issue of foreign seat and enforcement of its award for a number of contracts.

A recent ruling by the Gujarat High Court will force Indian companies to reconsider their choice of jurisdiction to settle disputes. While domestic companies can choose to be governed by a foreign law for arbitration purposes, they can’t approach Indian courts for interim relief, the high court has said.

GE POWER V. PASAL WIND SOLUTIONS

Hearing the arbitration petitions filed by GE Power Conversion India Pvt Ltd against Ahmedabad-based PASL Wind Solutions Pvt Ltd regarding a dispute on the purchase of power converters, the High Court observed that the applications are in context of a foreign award dated 18.04.2019 passed by the Arbitral Tribunal seated in Zurich, Switzerland.

In a dispute resolution clause of the settlement agreement, the two parties had mentioned that if no settlement can be reached through negotiations, all disputes, controversies or differences shall be referred to and finally resolved by Arbitration in Zurich in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce.

The foreign arbitrator had granted the petitioner i.e. GE Power Conversion India Pvt Ltd, $40,000 or ₹2.97 crore in legal costs and expenses with accumulated interests from the respondent.

Objecting the award, the counsel appearing for respondents had argued that under the Indian Contract Act, two Indian parties cannot designate a seat outside India. “Two Indian parties cannot be allowed to gain advantage simply by designating a seat abroad in an arbitration that otherwise has no other foreign element. If the parties are allowed to do so, the purpose of the Arbitration Act will be completely defeated,” the respondent’s counsel had argued.

The Gujarat High Court held that an award that is passed in a foreign seat is a foreign award and may be enforced under Part II of the Arbitration and Conciliation Act.

In addition, while determining whether an award is a foreign award enforceable under Part II of the Act, the nationality of the parties is not a relevant consideration.

The petitioner had filed a preliminary application challenging the jurisdiction of the arbitrator on the ground that since the two parties were Indian parties, they cannot have a foreign seat of arbitration. The move was opposed by the respondent i.e. PASL Wind Solutions.

Justice Biren Vaishnav held that an award that is passed in a foreign seat is a foreign award and may be enforced under Part II of the Arbitration and Conciliation Act.

Passing an order on whether the foreign award is enforceable in India, Justice Vaishnav stated that to determine the enforceability of the foreign award under the Part II of the Arbitration and Conciliation Act, the nationality of the parties is not relevant.

The counsel appearing for the respondent had raised a public policy defence questioning the legality of such a contract and argued it to be against the public policy of India.

But the court held that the foreign award in question is not against the policy of India, hence, enforceable in India. The court also held that a party holding a foreign award is not entitled to apply for interim relief under Section 9 (as Part I of the Act does not apply).

Giving a perspective on the High Court judgement, Shaneen Parikh, Partner, Cyril Amarchand Mangaldas, welcomed the order and termed it a far-reaching decision.

"The Gujarat High Court issued a pro-arbitration ruling by holding that two Indian parties are entitled to choose a foreign seat of arbitration – a vexatious issue that has plagued a number of contracts and the freedom of party autonomy that is the fundamental basis of arbitration."

FURTHER DETAILS

The decision pertains to an enforcement petition of a foreign award passed between two Indian parties. The petitioner was instructed by Cyril Amarchand Mangaldas partner, Shaneen Parikh.

Parikh said, "In a welcome and far reaching decision, the Gujarat High Court has issued a pro-arbitration ruling by holding that two Indian parties are entitled to choose a foreign seat of arbitration - a vexatious issue that has plagued a number of contracts and the freedom of party autonomy that is the fundamental basis of arbitration."

The judgement came in a case where the petitioner was GE Power Conversion India versus PASL Wind Solutions Private Limited as the respondent in the Gujarat High Court in Ahmedabad. Justice Biren Vaishnav of the high court delivered the judgement.

BACKGROUND OF THE CASE

Both these applications are in context of a foreign award dated April 18, 2019 passed by the Arbitral Tribunal seated in Zurich, Switzerland.

The petitioner GE Power Conversion India Private Limited is a company incorporated under the Companies Act, 1956 with registered office in Chennai.It is an energy infrastructure company that manufactures and sells advanced motor drive and control technologies as well as provides technical support and intervention.

The respondent PASL Wind Solutions Private Limited is a company incorporated under the Companies Act, 1956 with registered office in Ahmedabad.

In 2010, the respondent issued three purchase orders to the petitioner for supply of six converters.

Certain disputes and differences arose between the parties in respect of the purchase orders. This was regarding the functioning of the converters. The case of the petitioner was that it had already provided a large number of free services repeatedly pertaining to the converters; the warranty of the converters had expired, whereas, according to the respondent, the warranty of the converters was continuing. In order to resolve the dispute, the parties entered into a settlement agreement dated December 23, 2014.

The arbitrator rejected the claim of the respondent and granted the petitioner Rs 2.5 crore and $40,000 in legal costs and expenses with accumulated interest in accordance with the Indian Interest Act, 1978. The foreign award was passed within the time limit prescribed by the ICC.

Thus, in short, the petitions were filed for enforcement of the above award as no payment was paid by the respondent till date. An affidavit in reply has been filed to this arbitration petition and a rejoinder has also been filed.

Tushar Hemani, appearing for the respondent, argued that the fact that he has applied under Section 9 would indicate that the award is a domestic award because Section 9 would be applicable only when the place of arbitration is in India and when the proviso is read, it applies to international commercial arbitration only when Part II is applicable.

Hemani would submit that a plain reading of the provision would indicate that to be a foreign award, the award must be in a territory other than India where the enforcement is sought.

CONCLUSION

This judgment might bring a new turn to the arbitration laws in India. There is a hope that this brings a positive change.