I. Introduction

The Arbitration Act of 1899 was based precisely on the model of the English Arbitration Act 1899. Following this, the Indian sub-continent fast-tracked into making the Arbitration Act, 1940, the Foreign Awards Act, 1962 and the Arbitration (Protocol and Convention ) Act, 1937. India proceeded to become a signatory to the Geneva Convention 1927 and the New York Convention, 1958[1] , which embodied the acts. [2]These acts were the governing laws until the year 1996. The 1940 Arbitration act was plagued with the intervention of courts, leading to the development of a hostile atmosphere. Proceedings of the arbitration being mandatorily overseen by the courts became normal[3]. This situation essentially eroded the concept of alternative dispute resolution and the object that it carries. Rapid globalisation provides organisations with a wide range of options to collaborate. This inter-country business set up gives rise to various disputes which surface with an entanglement of the laws of different countries[4]. When one of the parties is not a domestic party, the parties are free to choose the country or the seat of arbitration[5]. Subsequently, Part I of the Arbitration and Conciliation Act is applicable. But in the case of two domestic parties, the act states that the Indian law is applicable when India is the seat of arbitration but is silent regarding the Indian parties choosing a foreign seat. There is rampant confusion prevalent in the country due to this absence of a uniform stance. The consecutive opposing views that the courts have taken while interpreting this grey area have added to this confusion. The recent amendments to the act also do not clarify the arbitration by domestic parties in foreign jurisdictions.[6]

II. Terminology and interpretations

The UNCITRAL Model Law and some of the best-known sets of arbitration rules use the word ‘place’; the term ‘seat’ is employed by the English Arbitration Act 1996[7] and some arbitral institutions.[8]However, nothing is thought to turn on this different usage: the ‘seat’ or ‘place’ of arbitration in the country to which arbitration is ‘legally attached’[9], establishing a link between an arbitration and a system of arbitration law. An arbitration that has its seat in England is subject to the Arbitration Act’s mandatory provisions, 1996[10].

• Research Objectives

The main objective of this research is to throw some light on the long entangled questions of jurisdiction of the Indian courts and the viability for Indian parties to exercise party autonomy while choosing the seat present in a foreign country. In addition to this, the objective is to analyse the Indian scenario considering the varied stances by the courts of law in the country.

• Research Methodology

The research leans toward an action research design. The basic protocol in this research design is that an exploratory stance has been adopted. In addition to the pragmatic solution-driven research carried out rather than the mere testing of the theories. The author’s action research will directly relate to the practice and implementation of arbitration in foreign countries.

The methodology of research is doctrinal research. The author aims to provide for extensive literature review for a broader perspective on the topic. The primary sources of data are listed to be books and the various precedents that address arbitration in foreign countries involving domestic Indian parties. There is a critical analysis of the diverse opinions of the courts, the books by experts and the overall fit for the Indian scenario.

• Choice of seat

The root for the jurisprudence and the governing laws lays in the New York Convention on recognising foreign arbitral awards, 1959. The Geneva Convention expressly spoke of the agreements between parties who belong to different countries or separate contracting states. The New York convention, unlike the Geneva Convention, treats the awards that have arisen out of the signatory countries to have the protection of the convention and as foreign awards. Therefore, the New York Convention essentially states that if two Indian parties choose a foreign seat, then the resultant award would be a foreign award. This essentially attracts Part II of the Arbitration and Conciliation Act.

The conventions have given the backing, and the fact that India is a signatory holds some obligation to follow the same under article 51[11] of the Indian Constitution. The ambiguity is not just a procedural issue that may or may not arise but has become a practical issue to subsidiary companies that are Indian but have fundamentally set up foreign companies. Suppose an agreement involves two Indian companies that are merely subsidiaries with branch offices in India, whereas the primary functions are being handled overseas. In that case, these companies essentially are kept out of the “International Commercial Arbitration “classification under section 2 (f) of the Arbitration and Conciliation Act[12]. It is quite normal that a parent company with its subsidiary in India seeks a seat of arbitration outside India, especially places like Singapore, London, and Hong Kong, where the mechanism is robust.

In addition to subsidiaries, there has been ambiguity created with tripartite agreements with the involvement of foreign companies with domestic companies. In Sasan Power Limited v. North American Coal Corporation India Pvt[13], the Supreme Court dealt with a dispute that involved three parties in a tripartite arbitration agreement. The question that was posed before the court was the agreement to a foreign seat of arbitration. With no hesitation, the Supreme Court held that the parties would have to agree to the foreign seat due to the foreign elements in the agreement. But the court chose not to delve into the aspect of two parties, both domestic but prefer a different seat of arbitration.

III. Violation of public policy

The research aims to solve the discrepancy in international seats of arbitration chosen by the Indian Parties. According to the Jurisdictional Theory, it does not dispute the contractual nature of arbitration but maintains that the arbitrational procedure has to be regulated by the national laws. The process will include the issue of the foreign seat for arbitration to be regulated by the Indian laws. It holds that Indian nationals and entities will not be allowed to derogate from Indian law. The Bombay High Court in the case of Addhar Mercantile Private Limited, v. Shree Jagdamba Agrico Exports Private Limited,[14] dealing with a petition filed under Section 11(6)[15] of the Arbitration and Conciliation Act, 1996 (“Arbitration Act“), seeking appointment of an arbitrator, pursuant to the invocation of the arbitration agreement that read “Arbitration in India or Singapore and English law to be applied”. The appellant contended that since both the parties were incorporated in India, they cannot derogate from Indian law and choose the seat of arbitration to be Singapore and apply English law to the arbitration proceedings. Heavy reliance was placed on the judgment of the Supreme Court in the case of TDM Infrastructure Private Limited v. U.E. Development India Private Ltd[16] , where the Supreme Court, taking note of the scope of Section 28 of the Arbitration Act[17], observed that the intention of the Legislature appears to be clear that Indian nationals should not be permitted to derogate from Indian law. In furtherance of their objections to the court’s jurisdiction, the respondent contended that two Indian parties could have the seat of arbitration in Singapore and apply English law. Still, the court held that Indian nationals should not be permitted to derogate from Indian law and that the same is part of the country’s public policy. On the facts of the case and more particularly the curiously worded arbitration clause that mentioned the seat of arbitration as either India or Singapore, the Bombay High Court proceeded to constitute the arbitral tribunal in India, to decide the disputes as per the substantive law of India in terms of Section 28 (1) (a)[18] of the Arbitration Act read with section 23[19] of the Indian Contract Act, 1872.

Interestingly, the Bombay High Court observes in Para 8 of the judgment[20] that “… If the seat of the arbitration would have to be at Singapore, certainly English law will have to be applied…” It would appear as if the Bombay High Court acknowledges that it would be possible for two Indian parties to have foreign seated arbitration with applicable foreign law. However, at Para 12 of the judgment, the Bombay High Court negates the respondent’s argument that Indian parties can have the seat of arbitration in Singapore and choose English law. The decision does lay down the law clearly and relies solely on the TDM case, while deciding the case, reiterated in the G.E. Power Conversion India Private Limited v. PASL Wind Solutions Private Limited.[21] Furthermore, contrary to the above views, in the case of Renusagar Power CO Ltd.[22] and in Glencore International A.G v. India Potash Limited and another[23], the court took the view that public policy should be narrowly constructed. More importantly, contravention of law cannot be equal to a violation of public policy.

IV. Party autonomy validity and viability

1. Theoretical Backing

As per the contractual theory, the consent of the parties must be of utmost priority. The consent given in furtherance of a foreign seat of arbitration must be unconditional and unqualified. The contract theory allows for the parties to have autonomy on their choice of arbitration seat. The issue in adopting the view is that there will be a considerable deviation from the mandatory Indian substantive law. The dilemma is whether this appointment of the seat in another country will be opposed to public policy under section 23 of the Indian Contract Act.[24]  The argument for party autonomy advocates for the supremacy of the choice of the parties. If the parties accept and agree to a particular location as their seat of jurisdiction, the law should create mechanisms to provide and facilitate this[25]. Further, this party autonomy is the norm and procedure in countries with a robust arbitration mechanism.[26]

Atlas Export Industries v. Kotak & Company[27]^, the Supreme Court permitted two Indian companies to refer their disputes to foreign seated arbitration. The Madhya Pradesh High Court treated the observations made in the TDM case to be non-binding and followed the judgment in the Atlas Exports case passed by a larger bench. The court also briefly examined the scope of part I and Part II of the Arbitration Act, its effect on the seat of arbitration and the nationality of the parties and held that two Indian companies /parties could arbitrate out of India. However, while the court elaborately discussed the right of Indian companies/parties to choose foreign seated arbitration, it did not make detailed findings on whether two Indian companies/parties can apply foreign law to the arbitration proceedings.

It would be interesting to note that the Atlas Exports case involved a contract where one of the parties was a company based out of Hong Kong. Therefore, it was not a case where the contract was only between two Indian parties. There was a foreign element involved. On the facts of the case, the Supreme Court held that “…Merely because the arbitrators are situated in a foreign country cannot by itself be enough to nullify the arbitration agreement when the parties have with their eyes open willingly agreed“. Besides, the plea that the arbitration agreement is null and void on account of two Indian parties choosing foreign seated arbitration was not even raised before the arbitral tribunal, and the party took part in the arbitration proceedings. On the facts of the case, the Supreme Court was persuaded to make the observations favouring foreign seated arbitration with choice of foreign law.

Further, in some cases, the ambiguity between the agreed seat may also arise due to the incorrect usage of the venue. In the case of BGS SGS SOMA JV V. NHPC Ltd[28], the court delved into the agreed venue’s aspect but an ambiguous seat and held that if there is such ambiguity, the venue will be treated as the seat of the arbitration. Besides, the closest connection test can be used to determine the intention of the parties while signing the binding contract. This test has been used to assess whether choosing a particular country would mean acceptance to the application of that specific country’s law.[29]

1. Non – availability of Remedies

Section 9 of the Arbitration Act, 1996[30] gives a party the right to apply for interim measures by the court. The party can apply for such measures before or during the proceedings, including at the time of the arbitral award being made. The central aspect being the enforceability of the award under section 36[31] should not have occurred when the application for the interim measure is made. In G.E. Power Conversion India Private Limited v. PASL Wind Solutions Private Limited[32], the Gujarat High Court held that the domestic parties but had chosen a foreign seat of arbitration won’t be entitled to relief under section 9[33]. In the present case, the arbitration occurred in Zurich under the ICC Rules of Arbitration[34], G.E. had previously raised objections on both parties being Indian, and the arbitration being presided over a sole arbitrator in a foreign country, but the same was rejected. The case resulted in favour of G.E., the award was then asked to be enforced in India as a foreign award, and a measure under section 9 of the act[35]was also sought after seeking security from PASL before the enforcement of the award.

The first aspect that needs to be considered is the classification of awards as foreign awards, section 44 of Part II of the Arbitration and Conciliation Act[36] sets out the criteria for an award to be held a foreign award, and the nationality of the parties does not form a requisite criterion.[37] The award has been made in a New York Convention Member State[38] for it to attract section 44 of the arbitration act. Another critical section to be considered is section 2(2) of the Arbitration Act[39] , which states that the part will apply to international commercial arbitration, even if the place of arbitration is outside India. Still, the issue is that an arbitration where two parties are Indians and the seat is out of the India sub-continent does not fall under the definition of commercial arbitration[40].

1. Enforceability of Award

The enforceability of an award is to be guided by a few pre-requisites as prescribed under section 47[41] of the act.[42] Section 47 states that there must be an inquiry into the enforceability of the award by the production of specific evidence supporting the same. The “court”, as mentioned in the section, is also essential to be abided by with respect to the jurisdiction of the subject-matter. Additionally, section 48 of the act[43] sets out conditions for enforceability, these conditions are exhaustive and narrow, and the court holds a large amount of discretion in deciding cases.[44]

V. Recommendation and conclusion

Having no express explanation of the stance or the legislative intent in the Arbitration and Conciliation Act, the High Courts and different benches of the Supreme Court have taken different views. In case there is a dispute between two Indian parties, choose a foreign seat for arbitration, it very likely that the losing party will question in an Indian court the validity of such an award and the contention that it opposes the fundamental policy and the sovereignty of India. This carries a great deal of subjectivity, according to the High Court that hears the suit. In the present scenario, it is advisable for two Indian parties in arbitration to pick the seat of arbitration to be within the limits of India. Contrary to this advice, many parties would prefer a seat of arbitration outside the bounds of the territory of the Indian Subcontinent in view of transparency and complete autonomy of the proceeding with minimal intervention of the state.

As mentioned above, the era of liberalisation bought to this great country a bountiful opportunity for it to grow as the next hub for alternative dispute management mechanisms like arbitration and conciliation. Parties to any dispute would deter from choosing a country where the courts of that country have a direct control and review authority to reconsider, set aside or even overturn. In addition to this, the parties getting into arbitration is independent of any substantive agreements and are self-contained in deciding to submit to the arbitration irrespective of the seat being domestic or foreign. Therefore, as a leading step to the growth of the country in the arbitration industry, the concept of party autonomy should be effectively included in the statutes governing the disputes.

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FOOTNOTES

[1] The New York Arbitration Convention on the recognition and the enforcement of Foreign Arbitral Awards , 1958

[2] Fuerest Day Lawson Ltd v. Jindal Exports Ltd, AIR 2011 8 SCC 333

[3] A.K Ganguli, ‘ Arbitration Law’ 2014, I , Annual Survey of Indian Law 22.

[4] ALAN R EDFERN ET. AL., R EDFERN AND HUNTER ON I NTERNATIONAL ARBITRATION 211-215 (Kluwer Arbitration 2009).

[5] Naviera Amazonica v. Compania Internacional 1988 Lyod Rep; Union of India v. Mc Donnel Corportion 1993; Enercon Ltd v. Enercon Gmbb , AIR 2014 5 SCC 1.

[6] As amended by the Arbitration and Conciliation (Amendment) Act, 2015 (Act 3 of 2016) dated Dec 31, 2015.

[7] Arbitration and conciliation Act 1996, section 3, No. 26, Act  OF Parliament, 1996(India).

[8] CC Rules, art 20; SLAC Arbitration Rules, art 18.

[9] D St J Sutton, J Gill and M Gearing, Russell on Arbitration (23rd edn, Sweet & Maxwell 2007) para 2

[10] Arbitration Act 1996, section 4(1), sch 1. No. 26, Act  OF Parliament, 1996(India).

[11] IND CONST, art 51.

[12] Arbitration and conciliation Act 1996, section 2, Cl. f, No. 26, Act  OF Parliament, 1996(India).

[13] Sasan Power Limited v. North American Coal Corporation India Pvt,  (2016) 10 SCC 813 ( India).

[14] Addhar Mercantile Private Limited, v. Shree Jagdamba Agrico Exports Private Limited AIR 2015 SCC Online Bom 7752

[15] Arbitration Act 1996, section 11, cl. 6, No. 26, Act  OF Parliament, 1996(India).

[16] TDM Infrastructure Private Limited v. UE Development India Private Ltd AIR 2008 14 SCC 271

[17] Arbitration Act 1996, section 28, No. 26, Act Of Parliament, 1996(India).

[18] Arbitration Act 1996, section 28, cl. 1(a), sch. 1, No. 26, Act  Of Parliament, 1996(India).

[19] Indian Contract Act 1872, section 23 No. 26, Act  Of  Parliament, 1872(India).

[20] Supra note 14

[21] G.E. Power Conversion India Private Limited v. PASL Wind Solutions Private Limited, Petition of Arbitration Act No. 131 and 134 of 2019. (India).

[22]  Renusagar Power CO Ltd (1984) 4 SCC 679 ( India).

[23] Glencore International A.G v. India Potash Limited and another(2019) 2 SCC 49(India).at

[24] Section 23, Indian Contract Act , 1872

[25] GARY BORN, INTERNATIONAL ARBITRATION, CASES AND MATERIALS 901-963 (Wolters Kluwer, Aspen Casebook Series, 2011).

[26] MORRIS, THE CONFLICT OF LAWS 190 (David Mccclean & Kisch Beevers ed, Sweet & Maxwell, 7th ed., 2010),

[27] Atlas Export Industries v. Kotak & Company, AIR 1999 7 SCC 61

[28]  BGS SGS SOMA JV V. NHPC Ltd (2020) 4 SCC 234. ( India).

[29] BALCO v. Kaiser ALuminium services ltd.  (2012) 9 SCC 552. ( India).

[30] Arbitration and Conciliation Act 1996, section 9, No. 26, Act Of Parliament, 1996 (India).

[31] Arbitration and Conciliation Act 1996, section 36,  No. 26, Act Of Parliament, 1996 (India).

[32] GE Power Conversion India Private Limited v. PASL Wind Solutions Private Limited, AIR

[33] Supra 30.

[34] International Chamber of Commerce (ICC), Arbitration Rules.

[35] Supra 32

[36] Supra 30.

[37] Supra 29.

[38] The New York Arbitration Convention on the recognition and the enforcement of Foreign Arbitral Awards , 1958

[39] Arbitration and Conciliation Act 1996, section 2, Cl. 2, No. 26, Act Of Parliament, 1996 (India).

[40] Arbitration and Conciliation Act 1996, section 2, Cl. f, No. 26, Act Of Parliament, 1996 (India)

[41] Arbitration and Conciliation Act 1996, section 47, No. 26, Act Of Parliament, 1996 (India).

[42] Fuerest Day Lawson Limited v. Jindal Exports Limited, (2001) 6 SCC 356 ( India).

[43] Arbitration and Conciliation Act 1996, section 48, No. 26, Act Of Parliament, 1996 (India).

[44] Shre Lal Mahal Limited v. Progetto Grano SPA,  (2014) 2 SCC 433 ( India), Vijay Karia and Ors v.. Prysmian Cavi E Sistemi and Ors, 2020 SCC OnLine SC 177 ( India).