In India, enforcement of arbitral awards is covered in two parts under the Indian Arbitration and Conciliation Act ‘1996 (“Act”). Part I of the Act applies to arbitrations with their seat in India, and includes purely domestic arbitrations (between two Indian parties) as well as international commercial arbitrations (where at least one party is foreign). Part II of the Act applies to arbitrations which are seated outside India.  Furthermore, the Act makes it clear that arbitration between an Indian and a foreign party can be governed by foreign law and can have a foreign seat.  However, whether two Indian parties can agree to a foreign seat of arbitration is not expressly addressed by the Act.  In this regards, number of High Courts in India have tried to address this issue and due to the uncertainty caused by such judgments, which are briefly discussed below, there still remains lack of clarity on such ability of two Indian parties.

In Sasan Power Limited v North American Coal Corpn India Pvt. Ltd, [1] the Madhya Pradesh High Court allowed two Indian parties to choose a foreign seat by relying on Atlas Exports Industries v. Kotak & Company [2] in which the Supreme Court had ruled that two Indian parties could contract to have a foreign seated arbitration (though the Atlas judgment was in context of the erstwhile Arbitration Act, 1940). However, on appeal, the Supreme Court examined the facts and found a foreign nexus to the dispute, i.e., the American parent company of the respondent subsidiary was still bound by the obligations and liabilities under the relevant Agreements. Therefore, the dispute involved a foreign party and the parties could choose a foreign seat and foreign governing law. Accordingly, the Supreme Court did not feel it necessary to address the issue of two Indian parties selecting a foreign seat.

On the basis of the ruling in Sasan Power and Atlas Exports, the Delhi High Court in GMR Energy Limited v. Doosan Power Systems India Private Limited & Ors [3] ruled that there is no prohibition in two Indian parties opting for a foreign seat of arbitration and such an arrangement would attract Part II of the Act. In Reliance Industries Limited v Union of India [4], the Supreme Court implicitly acknowledged the autonomy of the Indian parties to agree on a foreign seat when in its judgment the Supreme Court enforced an award where two Indian parties were seated outside India.

However, contrary views with regards to the issue in question have been taken by the Bombay High Court in the cases of Seven Islands Shipping Ltd. v. Sah Petroleums Ltd. [5] and Addhar Mercantile Private Limited v Shree Jagdamba Agrico Exports Pvt. Ltd., [6] by referring to Supreme Court’s observations in the matter of TDM Infrastructure Private Limited v. UE Development India Private Limited [7]. In the said two cases, the Bombay High Court disregarded the validity of an arbitration clause where two Indian parties had opted for a foreign place of arbitration.

However, the Bombay High Court’s reliance on TDM Infrastructure case is supposed to be misconceived in as much as it mainly dealt with the scope of Section 28 of the Act wherein it concluded that the Indian parties are not entitled to derogate from Indian substantive law and as such did not make any explicit observations with respect to whether or not Indian companies/parties can choose a foreign seated arbitration and apply foreign law. Moreover, the Bombay High Court in Addhar Mercantile case also failed to take note of the fact that a corrigendum was added to the judgment in the TDM case making it clear that any observations made in the judgment was only for the purpose determining the jurisdiction of the court under Section 11 of the Arbitration Act, and not for any other purpose.

Conclusion:

It is well settled that the decision of one High Court is not binding precedent upon another High Court and at best can only have a persuasive value. Although, this issue can only be settled by a ruling from the Supreme Court, it is important to note that the Act does not expressly prohibit two Indian parties to choose a foreign seat of arbitration.

However, it is also pertinent to note that vide the 2015 amendment to the Act (“2015 Amendment”), Section 9, i.e., interim reliefs by Indian Courts, has now been made applicable to foreign seated international commercial arbitrations. Therefore, in light of the 2015 Amendment and the existing definition of international commercial arbitration, the position whether two Indians who choose foreign seat can seek interim reliefs in India, continues to remain untested and a conclusive finding from the Supreme Court on this issue is, therefore, much awaited.

Authors:
Vivek Bajaj, Partner
Vinay Butani, Counsel

Footnotes:

[1] (2016) 10 SCC 813
[2] (1999) 7 SCC 61
[3] (2017) SCC Online Del 11625
[4] (2014) 7 SCC 603
[5] (2012) SCC OnLine Bom 910
[6] (2015) SCC OnLine Bom 7752
[7] (2008) 14 SCC 271