- September 1, 2021
- Posted by: Maestro Legal
By Harmanpreet Kaur
In recent years, the procedure of arbitration has been preferred as the most appropriate way of settling disputes between the parties at both the national and the international levels. The parties adopt arbitration as a dispute resolution procedure because they intend to resolve their issues in confidentiality and get an enforceable award as quickly as possible. Arbitration is an informal process. The procedure begins with the agreement to arbitrate and concludes with the decision of the arbitral tribunal and its enforcement, all on the basis of consensus and party autonomy.
The present case of PASL Wind Solutions Private Ltd v GE Power Conversion India Private Ltd has been regarded as a landmark judgment in the realm of arbitration procedures, as it has highlighted the significance of recognizing or choosing a seat in the process of arbitration, whether domestic or international. The seat of arbitration has an essential practical importance in arbitration. It determines the number of issues namely arbitrability, determination of governing laws and regulations i.e. substantive and procedural laws, and an annulment of arbitral awards i.e, the recognition and enforcement of the award. The seat of arbitration is the most essential consideration in deciding the arbitration procedure.
The respondent company named PASL Wind Solutions Private Ltd has its registered office at Ahmedabad, Gujarat and the appellant company named GE Power Conversion India Private Ltd has its registered office at Chennai, Tamil Nadu, and is a subsidiary of the general electric company in the United States. The companies were respectively registered under The Companies Act, 2013. In 2010, the respondent company issued orders to the appellant for the supply of six converters to the appellant company. After the converters were properly supplied to the appellants, disagreements began between the firms, with the appellant claiming that the respondent failed to provide adequate working of the converter and that the warranties had also expired, leading to the deceit in the services of the respondents.
As a result, in order to address the issues, the parties agreed to a mutual settlement agreement with appropriate terms and conditions in 2017.
The firms’ financial obligations were settled in compliance with the relevant terms of the agreement.
However, the agreement included a provision about the seat of the arbitration. It stated that if a disagreement arose between the parties, it should be settled amicably within a period of sixty years, and the seat for arbitration was decided in Zurich, i.e., The arbitration shall be handled in Zurich in accordance with the terms of the arbitration and conciliation of the International chamber of commerce. The respondent stated that disagreements should be resolved by arbitration, in line with the norms of the International Chamber of Commerce, and so requested that the issues be resolved through arbitration, as has been mentioned in the clause of the agreement.
The main point of issues that were to be decided between the contending parties was:
- Would it be feasible for corporations, i.e., parties, to select a forum for arbitration outside of India’s jurisdiction, i.e., a foreign seat, to resolve their disputes?
- Whether the award granted to the parties would be classified as a ‘foreign award’ under Part II of the Arbitration Act?
Arguments raised by the appellant’s company:
- The counsel for the appellant’s company claimed that the Indian parties have no obligation or authority to designate a seat of arbitration outside of India, since this would be in violation of Section 23 of the Indian Contract Act, 1872 and Sections 28(1)(A) and 34(2A) of the Indian Arbitration Act, 1996.
- He further indicated that foreign awards covered by Part II of the Arbitration Act of 1940 emerge exclusively from cases involving International Commercial Arbitration.
- He argued that Section 44 of the Arbitration Act, 1940 applies exclusively to instances involving International Commercial Arbitration, i.e., the section does not apply to foreign awards made between Indian parties in a dispute if there is no involvement of a foreign element.
- He also mentioned in his argument that the arbitration act being a self-contained code, does not comprehend the apprehension that if there is no foreign element involved in an award then the award would not be the subject matter of challenge and enforcement under Part I and Part II of the Act.
- He inferred that Section 10 of the Commercial Courts Act has only given recognition to International commercial arbitration and all other types, and stated that the above case is not categorized under International commercial arbitration, but other than International commercial arbitration.
- He argued that the seat of arbitration between the parties in dispute can only be chosen to be an Indian seat i.e., within the Indian jurisdiction. While making the above argument, he referred to the case of Enercon ltd v Enercon in which the court concluded that if a foreign element is not involved in the case, then the seat of arbitration should be chosen within an Indian Jurisdiction. The counsel also stated that the seat of arbitration in Zurich can only be referred to as a ‘salutary seat’.
Arguments raised by the respondent’s company
- The respondent responded to the appellant’s allegations by noting that, with the parties’ consent, the seat of arbitration might be chosen in the foreign jurisdiction, namely Zurich. He further claimed that once the judgment has been rendered against the appellant, he cannot contend on the issue of selecting a foreign seat.
- The lawyer argued and pointed out the absurdity in the appellant’s reasoning, stating that Section 44 is founded on the New York convention.
- He claimed that Sections 23 and 28 of the Indian Contract Act do not necessitate the designation of a foreign seat in arbitration. Counsel, on the other hand, stated that under the exception to Section 28, the parties have the essential characteristic of power autonomy and can thus designate the seat of arbitration of their choice.
- The counsel also stated that Section 44 and Section 2(1)(f) of the Arbitration Act, 1940 are independent of each other.
On the appellant’s request, both parties resolved and agreed to submit the matter to the Arbitral tribunal in 2017, and a solitary arbitrator from the International Chamber of Commerce was appointed. The parties agreed that the case should be determined in accordance with Indian law. Consequently, the respondent filed an application contesting the arbitrator’s jurisdiction on the grounds that two Indian parties do not have the liability to choose a foreign seat of arbitration. The respondent’s application, however, was denied by the arbitrator. As a result, the tribunal ruled and concluded that Indian parties can choose their seat and are obligated to arbitrate outside of India. The tribunal based its decision on the 2016 case of Sasan Power Limited v. North American Coal Corporation India Private Limited, in which the Madhya Pradesh High Court ruled that the parties may arbitrate outside of Indian jurisdiction. In 2019, the arbitral tribunal held that the parties have the liability to choose a foreign seat and also issued orders on the PASL for paying damages and compensation to the GE Power Conversion India Private Ltd
The tribunal’s decision was in favor of GE Power Conversion India Private Ltd, therefore the company filed enforcement procedures under Sections 47 and Section 49 of the Arbitration Act, which deals with the enforcement of foreign awards under Part I of the Arbitration and Conciliation Act 1996 and Part II of the Act gives effect to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and filed a petition under Section 9 of the Arbitration Act for the grant of interim relief. Therefore, the Gujarat High Court held that:
- The application under Section 9 of the Arbitration Act filed by the GE Power Conversion India Private Ltd was rejected
- The court stated that the order passed by the tribunal in line with the Zurich laws shall be binding on both parties and explained its reasoning by noting that the laws would not be applicable if those laws acted as a threat to public policy to Indian laws and India’s sovereignty.
- The court also stated that if the parties choose their seat for arbitration, they are not obligated to seek any type of remedy under Section 9 and will only be accessible in situations involving International Commercial Arbitration.
The business PASL Wind Solutions Private Ltd, which was dissatisfied with the Gujarat High Court’s judgment, filed a special leave petition under Article 136 of the Constitution of India, 1949, with the intention of reviewing and amending the Gujarat High Court’s already issued order, the Supreme Court rejected the company’s plea and granted interim relief to GE Power Conversion India Private Ltd to avoid the dissipation of the PASL’s assets. The supreme court clarified by stating that:
a. On the choice of foreign seat – The Supreme Court dismissed the claim of the PASL Wind Solutions Private Ltd on the grounds that the place of arbitration to be Zurich cannot be rejected because it was already mentioned in the settlement agreement of the parties. The court further said that the close connection test can only be used where the seat of arbitration is uncertain and the parties are unable to agree on a seat of arbitration. In the instant instance, the parties have previously agreed that the seat of arbitration will be Zurich, and so no claims can be raised on that grounds.
- Contention on the foreign awards – The argument was made with regards to the foreign award by the company stating that the award to be made on the Indian parties in the foreign jurisdiction cannot be enforced as a foreign award under Section 47 and Section 49 of the Arbitration Act, 1940 and thus cannot be referred to as the case of international commercial arbitration with respect to the provisions of Section 2(1)(f). The clause may only be used if there is a foreign element present, however, the current case exclusively involves conflicts between Indian parties. However, the Supreme Court, on the other hand, dismissed the company’s claim and justified it by stating that Section 2(1)(f) belong to Part I and Section 44 belongs to Part II of the Arbitration Act and both the parts of the Act are independent of each other i.e, ‘mutually exclusive’ and do not have the power to overlap in any of the circumstances.
- Party Autonomy – Party autonomy is the principle in the process of arbitration that makes it flexible. The power gives the right to the parties to choose their seat of arbitration and also the laws that are to be made applicable in the process. The company raised objections that the power to choose the seat of arbitration would act contrary to the public policy of India and violate Section 23 of the Contract Act and 28(1)(a) and 34(2A) of the Arbitration Act. The Supreme Court rejected the claim and clarified its stand by affirming that these provisions do not impose implications on the arbitration act and stated that the party autonomy in the selection of a foreign seat does not act as an infringement to the freedom of contract and does not harm the public policy of India.
Internationalization of a domestic dispute often concerns the situation, when the dispute does not report any foreign dimension, however, the parties agree on the seat of arbitration abroad. International commercial arbitration has evolved in recent years because it illustrates the complexities and uncertainties of an international society in the fields of legal, commercial, and cultural phases by providing a highly sophisticated and effective means of dealing with those complexities. The centre ensures success by providing a fair, neutral, expert, and efficient means of resolving difficult and contentious transnational problems. The authorities of India in collaboration with the parliament are taking steps for expanding the arbitration regime in the nation-state. The New Delhi International Arbitration Centre Act, 2019 is one such step in the direction of improving the arbitration domain.
The judgment withinside the case of PASL Wind Solutions Private Ltd v GE Power Conversion India Private Ltd via way of means of the Supreme Court is a welcoming clarification at the sure disputing factors of the Arbitration Act, 1996. The judgment delivered transparency to the Indian events via means of giving them the legal responsibility to choose a foreign seat for arbitration. The ruling of the courtroom docket emphasized party autonomy, by describing it as the ‘brooding and guiding spirit of arbitration’.
The article has been written by Harmanpreet Kaur, currently interning at Maestro Legal. The article will provide an emphasis on the topic PASL Wind Solutions Private Ltd v. GE Power Conversion India Private Ltd, Supreme Court Allows Indian Parties to Choose foreign Seat of Arbitration.