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Two Indian parties entitled to choose a foreign seat of arbitration: Gujarat HC

New Delhi, Nov 3 (IANS) The Gujarat High Court in a landmark judgment has conclusively held that Indian parties are entitled to choose a seat of arbitration outside India as a foreign/neutral seat.

Updated Nov 03, 2020 17:24 PM

Two Indian parties entitled to choose a foreign seat of arbitration: Gujarat HC

Such an agreement is not in violation of the public policy of India, the judgement noted.

The Gujarat High Court held that an award that is passed in a foreign seat is a foreign award and may be enforced under Part II of the Arbitration and Conciliation Act.

In addition, while determining whether an award is a foreign award enforceable under Part II of the Act, the nationality of the parties is not a relevant consideration.

Part I of the Act does not apply and will not get attracted just because the parties to the arbitration are Indian parties. A party holding a foreign award is not entitled to apply for interim relief under Section 9 (as Part I of the Act does not apply), the judgement held.

The decision pertains to an enforcement petition of a foreign award passed between two Indian parties. The petitioner was instructed by Cyril Amarchand Mangaldas partner, Shaneen Parikh.

Parikh said, "In a welcome and far reaching decision, the Gujarat High Court has issued a pro-arbitration ruling by holding that two Indian parties are entitled to choose a foreign seat of arbitration - a vexatious issue that has plagued a number of contracts and the freedom of party autonomy that is the fundamental basis of arbitration."

The judgement came in a case where the petitioner was GE Power Conversion India versus PASL Wind Solutions Private Limited as the respondent in the Gujarat High Court in Ahmedabad. Justice Biren Vaishnav of the high court delivered the judgement.

Both these applications are in context of a foreign award dated April 18, 2019 passed by the Arbitral Tribunal seated in Zurich, Switzerland.

The petitioner GE Power Conversion India Private Limited is a company incorporated under the Companies Act, 1956 with registered office in Chennai.

It is an energy infrastructure company that manufactures and sells advanced motor drive and control technologies as well as provides technical support and intervention.

The respondent PASL Wind Solutions Private Limited is a company incorporated under the Companies Act, 1956 with registered office in Ahmedabad.

In 2010, the respondent issued three purchase orders to the petitioner for supply of six converters.

Certain disputes and differences arose between the parties in respect of the purchase orders. This was regarding the functioning of the converters. The case of the petitioner was that it had already provided a large number of free services repeatedly pertaining to the converters; the warranty of the converters had expired, whereas, according to the respondent, the warranty of the converters was continuing. In order to resolve the dispute, the parties entered into a settlement agreement dated December 23, 2014.

The arbitrator rejected the claim of the respondent and granted the petitioner Rs 2.5 crore and $40,000 in legal costs and expenses with accumulated interest in accordance with the Indian Interest Act, 1978. The foreign award was passed within the time limit prescribed by the ICC.

Thus, in short, the petitions were filed for enforcement of the above award as no payment was paid by the respondent till date. An affidavit in reply has been filed to this arbitration petition and a rejoinder has also been filed.

Tushar Hemani, appearing for the respondent, argued that the fact that he has applied under Section 9 would indicate that the award is a domestic award because Section 9 would be applicable only when the place of arbitration is in India and when the proviso is read, it applies to international commercial arbitration only when Part II is applicable.

Hemani would submit that a plain reading of the provision would indicate that to be a foreign award, the award must be in a territory other than India where the enforcement is sought.

"Two Indian parties cannot be allowed to gain advantage simply by designating a seat abroad in an arbitration that otherwise has no other foreign element. If the parties are allowed to do so, the purpose of the Arbitration Act will be completely defeated. The mechanism given to the foreign parties for a quick redressal with a deliberate lesser judicial scrutiny to foreign parties will stand defeated if two Indian parties are allowed to choose a seat abroad," Hemani said.

"The plain language of provision to Section 2 (2) reads to imply that the provisions of Sections 9, 27 and Clause (a) of Sub-section (1) and Sub-section (3) of Section 37 shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or to be made in such place is enforceable and recognised under the provisions of Part II of this Act," the judgement said.

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