Kara Sears
The Indian Supreme Court has ruled that two Indian parties can choose a foreign seat of arbitration, provided it does not harm the public and is not contrary to Indian public policy. This means that Indian parties can choose a foreign governing law to preside over their arbitration proceedings, even if the substantive law of the contract is Indian law. This ruling gives clarity to a previously ambiguous area of law. The Indian Contract Act does not expressly define the term public policy or opposed to public policy, but the Court has ruled that two Indian parties choosing a foreign law is not contrary to public policy.
| Characteristics | Values |
|---|---|
| Can two Indian parties choose a foreign governing law? | Yes |
| Can two Indian parties choose a foreign seat of arbitration? | Yes |
| Can Indian parties seek to enforce foreign-seated awards in India? | Yes |
| Can Indian parties apply for interim relief before Indian courts? | Yes |
| Can Indian parties apply for interim relief in a foreign-seated arbitration? | Yes |
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What You'll Learn
Indian parties can choose a foreign seat of arbitration
In India, the Indian Arbitration and Conciliation Act 1996 governs arbitration proceedings. Part I of the Act applies to proceedings seated in India, including domestic arbitrations (between Indian parties) and international commercial arbitrations (where at least one party is foreign). On the other hand, Part II of the law applies to foreign arbitration and deals with the recognition and enforcement of foreign awards.
The Indian Supreme Court has ruled that Indian parties can choose a foreign seat of arbitration. This ruling clarified that two Indian parties may elect to arbitrate in a non-Indian forum, and that interim measures for such an arbitration will be available in Indian courts. The Court also held that there is no requirement for any of the parties to be foreign. This decision gives much-needed clarity to a previously unclear area of law.
The Court's decision was based on the principle of party autonomy in arbitration, which it described as the "brooding and guiding spirit of arbitration". It was held that party autonomy and freedom of contract must be upheld. The Court also referred to the precedent set by Atlas Export Industries v Kotak, which held that two Indian parties could choose a foreign arbitral seat and that such an agreement was not contrary to public policy.
The choice of seat is a significant consideration in any arbitration as it determines various important aspects, including the parties' right of appeal, availability of interim measures, and the supervisory jurisdiction of the award. When the arbitration is seated outside India, the conflict of law rules of the seat would be applied to determine the law applicable to the substance of the dispute.
It is important to note that while Indian parties can choose a foreign seat of arbitration, they may not be entitled to seek interim measures from Indian courts under Section 9 of the Arbitration and Conciliation Act 1996. This is because Section 9 applies only to international commercial arbitrations, which require at least one of the parties to be a foreign national or entity.
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Foreign-seated arbitration awards can be enforced in India
The Supreme Court of India has clarified that two Indian parties may elect to arbitrate in a non-Indian forum, and that interim measures for such an arbitration will be available in Indian courts. This ruling gives much-needed clarity to previously unclear precedent on these points. The choice of seat is a significant consideration in any arbitration as it determines various important aspects, including the parties' right of appeal and the availability of interim measures.
The usual procedure for obtaining recognition of a foreign arbitral award is by making an application for recognition and enforcement to any competent court. This is normally the commercial division, recognised under the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015, of any high court that has jurisdiction over the subject matter of the award or over the assets of the party against whom enforcement is sought.
The enforcement court would independently determine the issue of recognition and enforceability of the foreign award, and the mere fact that the seat court upheld or set aside the award would not mean that the enforcement court is bound to refuse enforcement of the award. It would decide the issue based on the grounds set out in Section 48 of the Arbitration Act.
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Indian law does not preclude foreign law from governing arbitration
The Indian Arbitration and Conciliation Act 1996 covers the enforcement of arbitral awards in India. Part I of the act applies to arbitration proceedings seated in India, including domestic arbitrations and international commercial arbitrations. Part II applies to foreign arbitration and deals with the recognition and enforcement of foreign awards.
The Indian Supreme Court has ruled that Indian parties may choose a seat outside India for arbitration, and that there is no requirement for either party to be foreign. The Court has also clarified that two Indian parties may elect to arbitrate in a non-Indian forum, and that interim measures for such an arbitration will be available in Indian courts. This ruling gives clarity to a previously ambiguous precedent.
The Delhi High Court has also held that two Indian parties can choose a foreign law to govern the arbitration between them. In the case of Dholi Spintex Pvt. Ltd. v. Louis Dreyfus Company India Pvt. Ltd., the Court reiterated the legal position on limited interference by Courts in international arbitrations. The Court also emphasised the principle of party autonomy in arbitration, concluding that parties are allowed to adopt foreign law as their own arbitration law.
In another case, GMR Energy Ltd. v. Doosan Power Systems (India) (P) Ltd., the Delhi High Court reasoned that since Singapore is a foreign seat of arbitration, any arbitration between two Indian parties heard there would be subject to Part II of the Act rather than Part I. This is because Part II of the Act deals with foreign awards. However, it is important to note that Part II of the Act prohibits the enforcement of foreign awards that go against the "core policy of Indian law" or "the most basic ideas of justice and morality".
In summary, Indian law does not preclude foreign law from governing arbitration. Indian parties are free to choose a foreign seat of arbitration and a foreign system of law to govern their arbitration proceedings. This freedom is based on the principle of party autonomy in arbitration and the recognition that an arbitration agreement is independent of the substantive contract.
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Party autonomy is the guiding spirit of arbitration
The Indian Supreme Court has ruled that Indian parties may choose a seat outside India for an arbitration to decide a dispute between them, and that there is no requirement for any of the parties to be foreign. The Court observed that in agreeing to a foreign-seated arbitration, parties get "two bites at the cherry" (instead of one, in a domestic arbitration), as they could seek to set aside the award in the foreign jurisdiction and also resist its enforcement in India. However, the Court found no clear and undeniable harm in allowing parties to do so. As such, it decided that allowing two Indian parties to choose a foreign seat was not contrary to public policy.
The Delhi High Court has reiterated that two Indian parties can choose a foreign law as the law governing arbitration. It also held that the same is true even if, by a different clause of the contract, the substantive law of the contract was Indian law and the parties had agreed to the exclusive jurisdiction of the Delhi Courts. The Court relied on the decision of three Supreme Court justices in Centrotrade Minerals and Metal Inc. v. Hindustan Copper Ltd., which emphasized the principle of party autonomy in arbitration and concluded that parties are allowed to adopt foreign law as their own arbitration law.
The Indian Contract Act does not expressly define the term "public policy" or "opposed to public policy". Exception 1 of Section 28 of the Contract Law specifically and expressly saves the arbitration of disputes between two persons without reference to the nationality of the persons who may resort to arbitration where parties get the freedom of contract and it creates a balance with clear and undeniable harm to the public, even if the facts of a particular case do not fit within the crystallized principles listed in well-established "heads" of public policy.
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Indian parties can choose India as the seat of arbitration
The Indian Arbitration and Conciliation Act 1996 covers the enforcement of arbitral awards in two parts. Part I of the Act applies to arbitration proceedings seated in India, including domestic arbitrations (between Indian parties) and international commercial arbitrations (where at least one party is foreign). On the other hand, Part II of the law applies to foreign arbitration and deals with the recognition and enforcement of foreign awards.
The option for Indian parties to choose India as the seat of arbitration is provided under Part I of the Arbitration Act and is governed by Section 28 of the Act. Exception 1 of Section 28 of the Contract Law specifically allows arbitration of disputes between two persons without reference to their nationality. It creates a balance between the freedom of contract and clear and undeniable harm to the public.
The Supreme Court of India has clarified that two Indian parties may choose to arbitrate in a non-Indian forum, and that interim measures for such an arbitration will be available in Indian courts. This ruling provides clarity to previously ambiguous precedent. The choice of seat is a significant factor in any arbitration as it determines important aspects such as the right of appeal and the supervisory jurisdiction of the award.
In the case of PASL Wind Solutions Private Limited v. GE Power Conversion, the Supreme Court of India rejected the argument that the designation of a foreign seat between two Indian parties was contrary to public policy. Instead, the Court ruled that there was nothing in the Indian Arbitration and Conciliation Act, 1996, that prevented Indian parties from arbitrating in a foreign seat, emphasising the importance of party autonomy and freedom of contract.
In summary, Indian parties can choose India as the seat of arbitration under Part I of the Arbitration Act, governed by Section 28. The Supreme Court of India has affirmed the right of Indian parties to choose a foreign seat of arbitration while also clarifying the availability of interim measures in Indian courts for such arbitrations.
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Frequently asked questions
Yes, two Indian parties can choose a foreign law to govern arbitration proceedings. This was decided in the case of Dholi Spintex Pvt Ltd v. Louis Dreyfus Company India Pvt Ltd, where the Delhi High Court ruled that two Indian parties can choose a foreign law as the law governing arbitration.
The nationality of the parties involved is not a determining factor when choosing a foreign seat for arbitration. The Indian Supreme Court ruled that there is no requirement for any of the parties to be foreign, and that Indian parties can choose a seat outside India for arbitration.
Yes, Indian parties can enforce foreign-seated awards in India. The Supreme Court of India has allowed for foreign-seated arbitrations between Indian companies, and interim measures for such arbitrations will be available in Indian courts.
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