I. Introduction

It is trite that arbitration is governed by the principle of party autonomy. This enables parties to have the freedom to decide upon: the curial law; the law of the contract; and the law governing the arbitration agreement.

The principle of party autonomy is often recognized as an important and basic facet of arbitration, the world over. Such right gives parties the freedom to choose their seat of arbitration, in a jurisdiction of the parties' choice. The seat in turn helps the parties determine the substantive law and/ or the law governing the arbitration agreement, as the case may be.

This article seeks to highlight the need to recognize foreign seated arbitrations by Indian parties within the ambit of Section 2 of the Arbitration & Conciliation Act, 1996 ("the Act"), and be treated on the same pedestal as foreign seated international commercial arbitrations.

II. The Present Conundrum Pertaining to Foreign Seated Arbitrations

The law of arbitration in India expressly covers domestic arbitrations under Part I and enforcement of foreign awards under Part II of the Act. However, from a bare perusal, it is abundantly clear that the Act envisioned enforcement of arbitral awards of foreign seated international commercial arbitrations to be governed by Part II of the Act. This premise is made clear by a reading of Sections 2(e) and 2(1)(f) of the Act, which seek to classify arbitration as domestic arbitration and an international commercial arbitration.

Recent arbitration practices have shown the emergence of a third subset in India, namely, the right of Indian parties to choose a foreign seat of arbitration. The issue regarding its validity continues to be unaddressed by Indian courts or the Act.

However, the applicability of Part I of the Act to foreign seated arbitrations by Indian parties was laid bare by the recent judgement of the Gujarat High Court in GE Power,1 where the court while recognising that two Indian parties may agree to a foreign seat, further held that such parties would not be able to take recourse to any provision under Part I of the Act. This is in stark contrast to the position post the 2015 amendment of the Act, where certain provisions of Part I were made applicable to foreign seated international commercial arbitrations.2 In fact, the amendment was incorporated pursuant to the recommendations of the 246th Law Commission Report which sought to ensure that the provisions for interim reliefs ought to apply "in respect of arbitrations outside India". It is pertinent to note that such measures were sought to be brought for all arbitrations governed under Part II of the Act.

However, the right of seeking interim reliefs was only extended to foreign seated international commercial arbitrations. This lacunae in the law of foreign seated arbitrations between Indian parties, requires to be urgently addressed by legislation or judicial intervention.

III. Recognition of Foreign Seated Arbitrations by Domestic Parties

The recognition of foreign seated arbitrations by domestic parties has long been recognized in Indian jurisprudence. Such practice was first accepted by the Supreme Court under the old Arbitration Act, 1940 in the case of Atlas Exports Industries case.3 The Supreme Court rejected the argument that the recognition of foreign seated arbitration by Indian parties was impliedly excluded.

The interpretation given by the Apex Court holds true till date. Foreign seated arbitrations have also been expressly recognized by the Gujarat High Court4 as well as the High Courts in Madhya Pradesh5 and Delhi.6 While the Supreme Court has not directly decided on the issue, they have implied allowed the same in Reliance Industries Limited case,7 where the Court held that the arbitration agreement between 2 Indian parties with the foreign seat of arbitration as London to be valid, despite the issue not being brought up by either party for determination before the court. The decisions above clearly demonstrate the permissibility of such arbitration agreements by domestic parties.

Barring the decisions8 of the Bombay High Court, which interpreted the Act to exclude the right of two Indian parties to choose a foreign seat of arbitration, there exists consensus amongst Indian courts regarding the acceptance of such arbitration practices.

IV. The Differential Treatment vis-à-vis International Commercial Arbitrations

A problem however arises regarding the treatment of foreign seated arbitrations involving domestic parties as against international commercial arbitrations, with a foreign seat. It is clear that despite the law governing enforcement being uniform for such arbitral proceedings, the application of Part I stands different by virtue of the 2015 amendment to the Act.9

By way of the said amendment, parties in international commercial arbitrations with their seat outside India, are now permitted to seek interim reliefs from domestic courts in India, as well as the right of appeal from certain orders by Indian courts pertaining to international commercial arbitration.10 However, such application of Part I of the Act, has not been afforded to foreign seated arbitrations by Indian parties.

The complete bar on application of Part I of the Act, especially the ban on applications seeking interim measures, causes serious impediments to domestic parties who intend to choose a foreign seat of arbitration. The dichotomy in application is in fact an indirect mechanism that hinders party autonomy when one form of arbitration is not recognized either by the Act or by Courts and is treated at a different pedestal.

Being Indian parties, the requirement of having to secure interim benefits in a foreign jurisdiction is inconvenient to the parties choosing such an arbitration mechanism. Unlike, international commercial arbitrations, where the choice of seat is intended to ensure impartiality of the domestic jurisdiction of both/ either of the parties, foreign seated arbitrations are resorted to ensure speedy disposal of arbitration and post arbitration procedures and help in reducing the burden upon national courts. They are never intended to oppose domestic jurisdictions for any other reason.

However, the inability of foreign seated arbitrations by domestic parties to be treated on the same pedestal as international commercial arbitrations, in fact severely affects domestic parties to resort to such form of arbitration. Therefore, foreign seated arbitrations by two parties from India are being affected indirectly by existing legislation.

V. Conclusion

It is apparent that current legal scenario causes an impediment to the choice of foreign seated arbitrations by local parties as a means of dispute resolution. While the decision of the Gujarat High Court in GE Power,11 is a step in the right direction, there is a need for legislative change to finally settle the issues pertaining to foreign seated arbitrations by domestic parties as well as the application of Part I of the Act to such arbitration proceedings.

While no express bar has been placed upon foreign seated arbitrations to Indian parties, there seems to be an indirect attempt to ensure that Indian parties do not choose foreign seats, as doing so would seriously jeopardize their ability to get the most convenient and expedited relief from Indian courts for interim reliefs.

Further, the non-recognition of emergency arbitral awards and the difficulty in enforcing interim reliefs ordered in foreign jurisdictions causes severe impediments for such options to be preferred by domestic parties. Therefore, Indian parties who wish to choose such measures are often deterred by the existing drawbacks in its recognition and framework within the country.

The authors believes that the best way to resolve such issues is in fact, by way of legislative amendment, to end the debate in this regard once and for all. 

Footnotes

1. GE Power Conversion India Private Limited v. PASL Wind Solutions Private Limited, 2020 SCC Online Guj 2432.

2. Section 2(2) of the Act.

3. Atlas Exports Industries v. Kotak & Company, (1999) 7 SCC 61.

4. GE Power Conversion India Private Limited v. PASL Wind Solutions Private Limited, 2020 SCC Online Guj 2432

5. Sason Power v. North American Coal Corporation, 2016 (2) Arb LR 179 (MP)

6. Dholi Spintex Pvt. Ltd. v. Louis Dreyfus Company India Pvt. Ltd., 2020 SCC OnLine Del 1476

7. Reliance Industries Limited & Anr. v. Union of India, (2014) 7 SCC 603.

8. Sah Petroleums Ltd vs Sah Petroleums Ltd., 2012 SCC OnLine Bom 910, M/s Addhar Mercantile Private Limited (Applicant) v Shree Jagdamba Agrico Exports Pvt Ltd, 2015 SCC OnLine Bom 7752

9. Section 2(2) of the Act.

10. Ibid.

11. GE Power Conversion India Private Limited v. PASL Wind Solutions Private Limited, 2020 SCC Online Guj 2432.

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