PASL Wind vs. GE Power: A Boon for Party Autonomy in Arbitration
The Supreme Court of India, in a recent significant judgment, in PASL Wind Solutions Private Ltd. vs. GE Power Conversion India Private Ltd.1, settled an important question of law regarding party autonomy in arbitration proceedings by holding that two Indian parties can choose a foreign seat of arbitration and that there is no bar in filing a petition under Section 9 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) in such cases. The Supreme Court held that an award passed in cases where two Indian parties opt for a foreign seat of arbitration, would be considered as a foreign award enforceable under the provisions of Part II of the Arbitration Act. Even though not expressly ruled by the Supreme Court, the judgment indicates that there may not be any bar upon the Indian parties to select a foreign law as the substantive law of the contract for arbitration proceedings, provided the seat of arbitration is outside India.
EARLIER POSITION
Before this decision of the Supreme Court, there were several conflicting opinions of various High Courts and the Supreme Court itself on this issue. While some High Courts like the Bombay High Court in the case of Addhar Mercantile Private Limited vs. Shree Jagdamba Agrico Exports Pvt. Ltd.2 placed reliance on TDM Infrastructure Pvt. Ltd. vs. UE Development India Ltd.3 and held that under Indian law, two Indian parties are not permitted to agree on a foreign seated arbitration, some like the High Courts of Madhya Pradesh and Delhi, in the cases of Sasan Power Ltd. vs. North American Coal Corpn. (India) (P) Ltd.4 and GMR Energy Limited vs. Doosan Power Systems India Private Limited5, respectively, relied on the Supreme Court’s judgment in Atlas Exports Industries vs. Kotak & Company6 and held that two Indian parties are free to choose a foreign seat of arbitration.
BACKGROUND
Disputes arose between two Indian companies, i.e., PASL Wind Solutions Private Ltd. (“Appellant”) and GE Power Conversion India Private Limited (“Respondent”) out of an agreement for purchase of convertors.
A settlement agreement, governed by the Indian law, was executed between the parties on 23.12.2014 (“Settlement Agreement”). The dispute resolution clause in the Settlement Agreement provided that the arbitration shall be conducted in accordance with the rules for arbitration of the International Chamber of Commerce (“ICC”) with Zurich as the seat of arbitration. However, since no curial law was prescribed under the Settlement Agreement, the dispute was governed by the laws applicable in Switzerland, which was the seat for the arbitration.
Arbitration Proceedings
In 2017, when disputes arose under the Settlement Agreement, the Appellant initiated arbitration proceedings against the Respondent before the ICC. However, the tribunal’s jurisdiction was challenged by the Respondent on the ground that two Indian parties cannot elect a foreign seat of arbitration. On the other hand, the Appellant argued that Indian law did not bar two Indian parties from electing a foreign seat for arbitration.
The tribunal dismissed the Respondent’s objection. However, on Respondent’s application, the venue of the arbitration was decided to be in Mumbai in order to save costs.
Proceedings before the Gujarat High Court
The tribunal ruled in favour of the Respondent who then called upon the Appellant to pay the award amount. Upon the Appellant’s failure to make the payment, the Respondent sought enforcement of the award under Sections 47 and 49 of the Arbitration Act before the Gujarat High Court. In order to secure the award, the Respondent also filed a petition under Section 9 of the Arbitration Act. The Appellant objected to the enforcement proceedings on the grounds that the seat of arbitration was Mumbai where all the hearings of the arbitration proceedings took place, and that choice of foreign seat by two Indian parties derogates public policy of India.
The Gujarat High Court upheld the award stating that two Indian parties can choose a foreign seat of arbitration without derogating the public policy of India. However, it refused to grant any interim relief to the Respondent under Section 9 of the Arbitration Act on the ground that recourse to Section 9 is available under the proviso to Section 2(2) of the Arbitration Act only in instances of "international commercial arbitrations", which requires at least one foreign party.
The Appellant challenged the findings of the Gujarat High Court before the Supreme Court which deliberated upon the following major issues:
SEAT OF ARBITRATION
The Appellant objected to the maintainability of the enforcement application filed by the Respondent on the ground of the “closest connection test”. In order to support its stand, the Appellant argued that the seat of arbitration was Mumbai because all the hearings in the arbitration proceedings took place in Mumbai.
The Supreme Court noted that the Appellant failed to challenge the Procedural Order passed by the tribunal vide which the venue of arbitration was decided as Mumbai for the sole purpose of saving cost of arbitration, while the seat of arbitration remained at Zurich. The Supreme Court while rejecting the Appellant’s contention observed that the "closest connection test" was applicable only if it was unclear that a seat of arbitration has been designated either by the parties or by the tribunal7. It was observed by the Supreme Court that in the present case, the seat of arbitration had been designated as Zurich.
PART I AND PART II OF THE ARBITRATION ACT ARE MUTUALLY EXCLUSIVE
The Appellant in its contentions tried to import the definition of “international commercial arbitration” under Section 2(1)(f) of the Arbitration Act into Section 44 of the Arbitration Act via the expression “unless the context otherwise requires”. The Appellant further contended that the proviso to Section 2(2) of the Arbitration Act acted as a bridge that connected Part I and Part II of the Arbitration Act.
The Supreme Court rejected the Appellant’s argument that the proviso to Section 2(2) of the Arbitration Act is a bridge which connects Part I and Part II of the Arbitration Act and observed that Section 2(2) specifically states that Part I applies only where the place of arbitration is in India. On the other hand, the Supreme Court observed that Part II of the Arbitration Act is not concerned with the arbitral proceedings at all (except Section 45 which deals with referring the parties to arbitration) and only prescribes for the enforcement of a foreign award. Accordingly, the Supreme Court concluded that Part I and II of the Arbitration Act are mutually exclusive.
INTERNATIONAL COMMERCIAL ARBITRATION VS. FOREIGN AWARDS
The Supreme Court differentiated between the “international commercial arbitration” under Part I, i.e., under Section 2(1)(f) of the Arbitration Act which is party-centric and Part II, i.e., Section 44 of the Arbitration Act which is party-neutral and place-centric.
The Supreme Court observed that for an award to be designated as a foreign award under Section 44, the following conditions were to be satisfied:
  1. the dispute must be a commercial dispute under the law in force in India,
  2. it must be made in pursuance of an agreement in writing for arbitration,
  3. it must be disputes that arise between “persons” (without regard to their nationality, residence, or domicile), and
  4. the arbitration must be conducted in a country which is a signatory to the New York Convention.
It was held by the Supreme Court that the above four conditions were undoubtedly satisfied in the instant case, making the award in the instant case a ‘foreign award’ enforceable under Part II of the Arbitration Act.
INDIAN CONTRACT ACT, PUBLIC POLICY AND PARTY AUTONOMY
The Appellant contended that pursuant to the provisions of Sections 23 and 28 of the Indian Contract Act, 1872 (“Contract Act”) it was against the public policy of India for two Indian parties to derogate the Indian law and designate a foreign seat of arbitration. While rejecting this contention, the Supreme Court held that there was nothing under Section 23 of the Contract Act limiting party autonomy in the selection of a foreign seated arbitration by two Indian parties and explicit harm to the public must be proved for invoking Section 23 of the Contract Act.
The Supreme Court also clarified that Section 28 of the Contract Act expressly excepts arbitration agreements from being in restraint of legal proceedings. It was observed by the Supreme Court that Section 28 of the Contract Act does not preclude the choice of a foreign arbitral seat by two Indian parties unless two Indian parties chose a foreign seat with the intention to circumvent Indian public policy.
The Supreme Court observed that party autonomy has been held to be the ‘brooding and guiding spirit of arbitration’8 and that there was no public harm in permitting two Indian parties from getting their disputes arbitrated at a neutral forum outside India.
RELIEF UNDER SECTION 9
The Supreme Court set aside the findings of the Gujarat High Court, wherein, it was held that the remedies under Section 9 of the Arbitration Act would not be available in such case on the principle that the term "international commercial arbitration" in the present context does not refer to the definition contained in Section 2(1)(f) of the Act, rather it is a seat-centric terminology that relates to arbitrations taking place outside India. Accordingly, in international commercial arbitrations taking place outside India involving Indian parties, the reliefs under Section 9 of the Arbitration Act will remain available unless contracted to the contrary.
ANALYSIS AND IMPLICATION
The decision of the Supreme Court comes as a shot in the arm for the arbitration ecosystem in India as the principle of party autonomy has been upheld while recognising that there was no bar under Indian law on two Indian parties to choose a foreign seat of arbitration.
The Supreme Court in the present case has categorically held that the TDM Infrastructure case was rendered under Section 11 of the Arbitration Act and did not have binding force on the instant question of law and affirmed Atlas case to be binding.
The judgment is a step forward in attracting more foreign players to invest in India. Two Indian parties having been allowed to have a foreign seat of arbitration will definitely increase confidence of the foreign companies as they prefer having the disputes between their Indian subsidiaries settled outside India for many reasons like neutrality, efficiency of the legal system, etc.
By upholding the party autonomy, the Supreme Court has upheld the true essence of the Arbitration Act which is a step in the positive direction for making India an arbitration hub as well as making Indian economy more attractive to foreign players.

1      CIVIL APPEAL NO. 1647 OF 2021
2      2015 SCC OnLine Bom 7752
3      (2008) 14 SCC 271
4      2015 SCC OnLine MP 7417
5      2017 SCC OnLine Del 11625
6      (1997) 7 SCC 61
7      Enercon (India) Limited vs. Enercon GMBH (2014) 5 SCC 1
8      Bharat Aluminium Co. vs. Kaiser Aluminium Technical Services Inc., (2016) 4 SCC 126

authors
Suadat Ahmad Kirmani Shreya Jain
Principal Associate Associate
CASE NOTES
M/s. Inox Renewables Ltd. vs. Jayesh Electricals (Arising out of SLP (C) No. 29161 of 2019)
The Supreme Court of India recently adjudicated upon an issue relating to the change in the seat of arbitration when parties subsequently, amicably decide to change the venue.
The matter arose out of a judgment of the High Court of Gujarat at Ahmedabad where a Special Civil Application was filed by the Appellant against the order of the Commercial Court, Ahmedabad under Section 34 of the Arbitration and Conciliation Act, 1996. The Commercial Court had ruled that since the contract between the parties provided Vadodara Courts with exclusive jurisdiction, the application can only be made before the Vadodara Courts. The order of the Commercial Court was challenged before the Gujarat High Court. The High Court while deciding the appeal, held that seat of the arbitration is Jaipur, Rajasthan and not Vadodara. A Special Leave Petition was filed impugning the order of the High Court before the Supreme Court of India.
Originally, an agreement was executed between M/s. Gujarat Fluorochemicals Ltd. and the Respondent - M/s. Jayesh Electricals where the seat of arbitration was to be at Jaipur. M/s. Gujarat Fluorochemicals Ltd. subsequently transferred its business operations to the Appellant. The amended agreement between the Appellant and the Respondent provided Vadodara as the seat of arbitration vesting the Courts at Vadodara with exclusive jurisdiction to adjudicate any dispute arising between the parties. An arbitral award was rendered by the arbitral tribunal who conducted hearing in Gujarat. Thereafter, an application was filed under Section 34 of the Arbitration and Conciliation Act, 1996 for the execution of the award, which was dismissed by the Commercial Court in Vadodara citing lack of jurisdiction, this was confirmed by the Gujarat High Court. Hence, an issue emerged as to whether by the way of the subsequent mutual agreement, the parties had agreed to shift the seat of the arbitration from Jaipur to Vadodara.
The Supreme Court by reading the two clauses in the agreement together observed that the parties to dispute had, by mutual agreement, shifted the seat of arbitration from Jaipur to Vadodara. Therefore, the parties had granted exclusive jurisdiction to the Courts at Vadodara. The matter was subsequently remanded to the Court at Ahmedabad to deal with the enforcement application under Section 34 of the Arbitration and Conciliation Act, 1996.
Government of Maharashtra (Water Resource Department) vs. Borse Brothers Engineers & Contractors Pvt. Ltd. (Arising out of SLP (C) No. 665 of 2021)
The Supreme Court recently adjudicated upon the issue whether the delay in filing an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 can be condoned if filed beyond the period of limitation as provided. While deciding the present appeal, the Supreme Court had to consider the validity of the judgment in N.V. International vs. State of Assam and ors. (2020) 2 SCC 109 where it was held that a delay which is beyond the period of 120 days under Section 37 of the Arbitration and Conciliation Act, 1996 cannot be condoned.
Overruling its decision in N.V. International (Supra), it was observed by the Supreme Court that given the objective of speedy disposal sought to be achieved both under the Arbitration and Conciliation Act, 1996 and the Commercial Courts Act, for appeals filed under Section 37 of the Arbitration and Conciliation Act, 1996 that are governed by Articles 116 and 117 of the Limitation Act or Section 13 of the Commercial Courts Act, a delay beyond the period of 90 days, 30 days or 60 days, respectively can be condoned by way of exception and not by way of rule. The Supreme Court found that the aggrieved party had otherwise acted bona fide and not in a negligent manner, therefore, a short delay beyond such period can, in the discretion of the Court, be condoned, always bearing in mind that the other side of the picture is that the opposite party may have acquired both in equity and justice, what may now be lost by the first party's inaction, negligence or laches. It was further held by the Supreme Court that nothing under Section 37 of the Arbitration and Conciliation Act, 1996 bars an application of Section 5 of the Limitation Act. However, the Supreme Court also said that such power of condonation should be exercised in exceptional circumstances only where sufficient reasons are provided.
Indus Biotech Private Limited vs. Kotak India Venture (Offshore) Fund and Ors. (Arbitration Petition (Civil) No. 48 of 2019)
In a recent decision, wherein, two opposing parties had approached the NCLT, Mumbai Bench under Section 7 of the IB Code, 2016 (for initiation of CIRP proceedings) and Section 8 of the Arbitration and Conciliation Act, 1996 (for reference of dispute to arbitration), respectively in relation to a dispute arising from a shareholder agreement. The Supreme Court held that the provisions of the IB Code, 2016 shall prevail over the provisions of the Arbitration and Conciliation Act, 1996. The Supreme Court laid down that by the virtue of Section 238 of the IB Code, 2016; the IB Code, 2016 shall have an overriding effect which is consistent with the rule that when two special laws have provisions which are repugnant to each other, the one that has been enacted later in time shall prevail over the other. Hence, only after a decision under Section 7 of the IB Code, 2016 had been rendered, could the application under Section 8 of the Arbitration and Conciliation Act, 1996 be considered. Further, reliance was also placed upon the ratio laid down in Vidya Drolia & ors. vs. Durga Trading Corporation (2021) 2 SCC 1, wherein, it was held that an insolvency proceeding becomes in rem only after the same is admitted which leads to the creation of a third party right. Thus, the moment an application under Section 7 of the IB Code, 2016 is admitted, a Section 8 application under the Arbitration and Conciliation Act, 1996 shall become inadmissible. In the present case, since the Section 7 application under the IB Code, 2016 was dismissed and the Supreme Court held that as a consequence, the parties were now free to pursue their remedies under the Arbitration and Conciliation Act, 1996 including seeking appointment of an arbitrator.
In a situation where the petition under Section 7 of the IB Code is yet to be admitted and, in such proceedings, if an application under Section 8 of the Act, 1996 is filed, the Adjudicating Authority is duty bound to first decide the application under Section 7 of the IB Code by recording a satisfaction with regard to there being default or not, even if the application under Section 8 of Act, 1996 is kept along for consideration. In such event, the natural consequence of the consideration made therein on Section 7 of the IB Code application would befall on the application under Section 8 of the Act, 1996.
Dakshin Haryana Bijli Vitran Nigam Ltd. Vs. Navigant Technologies (Civil Appeal No. 791 of 2021)
A Three Judge Bench of the Supreme Court of India has decided an important issue related to the applicability of the limitation period. The question of law before the Supreme Court was whether the limitation shall commence from the date on which the draft award is circulated to the parties for pointing out any error or from the date on which the signed copy of the award was provided.
Section 31 of the Arbitration and Conciliation Act, 1996 provides that an arbitral award shall be in writing and be signed by the members of the tribunal. It is further provided that in a situation where the tribunal is comprised of more than one member, the signatures of the majority of all the members shall be sufficient so long as the reason for any omitted signature is stated. A copy of the preliminary draft award was shared with both the parties on 27.04.2018, wherein, the parties were advised to point out any error in calculation or typographical error in the award. The final signed copy of the award was shared with the parties then only on 19.05.2018. The arbitral award was passed against the Appellant and an application under Section 34 was initially moved before the Civil Court considering 19.05.2018 as the day from which limitation would be counted. However, the Ld. Civil Court dismissed the application on ground of limitation because it considered 27.04.2018 as the date from which the period of limitation is to be computed. The order of the Civil Court was further upheld by the High Court.
The Supreme Court setting aside the order held that even though the award was pronounced on 27.04.2018, the signed copy of the award was provided to the parties only on 19.05.2018. The procedural orders of the tribunal reveal that on 27.04.2018, only a copy of the award was provided to the parties to point out any computation error, any clerical or typographical error, or any other error of similar nature which may have occurred in the award on the next date. The Court was thus of the opinion that the period of limitation for filing objections would have to be reckoned from the date on which the signed copy of the award was made available to the parties i.e., on 19.05.2018.
Chief General Manager (IPC), M.P. Power Trading Co. Ltd. and ors. vs. Narmada Equipments Pvt. Ltd. (Civil Appeal No. 1051 of 2021)
The Supreme Court of India in a recent case decided a dispute as to whether the inclusion of an arbitration clause in a PPA agreement otherwise governed by the Electricity Act, 2003 would ouster the jurisdiction of the State Electricity Commission. In case in question, the Petitioner approached the High Court for appointment of an arbitrator under the arbitration clause of the PPA which was objected to by the Opposite Party on the ground that such disputes must be referred to the State Electricity Commission. The High Court accordingly appointed an arbitrator.
The Supreme Court set aside the decision of the High Court and observed that the law with respect to the appointment of arbitrators for disputes arising under the Electricity Act, 2003 has been settled by the Two Judge Bench of the Apex Court in Gujarat Urja Vikas Nigam Limited vs. Essar Power Limited (2008) 4 SCC 755, wherein, it was held that Section 86 (1)(f) of the Electricity Act, 2003 shall have an overriding effect over any other law existing at that particular point of time and Section 86(1)(f) of the Act of 2003 is a special provision for adjudication of disputes between the licensee and the generating companies. Such disputes can be adjudicated upon either by the State Commission or the person or persons to whom it is referred for arbitration. This decision was further upheld by the Three Judge Bench in Zinc Limited vs. Ajmer Vidyut Nigam Limited (2019) 17 SCC 82. Hence, the Supreme Court set aside the order of the High Court of Madhya Pradesh and granted liberty to the parties to seek recourse to other remedies as provided under the law (Electricity Act, 2003).
Amway India Enterprises Pvt. Ltd. vs. Ravindranath Rao Sindhia and ors. (Civil Appeal No. 810 of 2021)
In a recent decision, the Supreme Court has decided an important issue of whether an arbitration agreement involving a foreign national or a foreign entity as one of the parties to the agreement, having its offices in India, would amount to an international commercial arbitration as defined under Section 2(1)(f)(i) of the Arbitration and Conciliation Act, 1996.
In the instant case the Respondents who were citizens of the USA but had office in India, had a dispute with the Petitioner (Amway India) pursuant to which the Petitioner had approached the High Court of Delhi for appointment of a sole arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996. However, this was opposed by the Respondent on the ground that they were foreign citizens (Residents of the USA) and hence, the High Court of Delhi had jurisdiction under Section 11 of the Arbitration Act. However, the High Court of Delhi proceeded to appoint an arbitrator by holding that since the Respondents had an office in Delhi, their central management was in India. This order was appealed against before the Supreme Court, wherein, it was held that only because the parties had offices in India, it shall not amount to the finding that the dispute involved Indian parties. It was observed that since the Respondents were residents of the USA, the arbitration arising out of the dispute would be classified as an international commercial arbitration.
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