PASL v. GE Power – Indian Parties choosing Foreign Seat

Aarna Law ADR Update/I/07

PASL v. GE Power – Setting the position on Indian Parties choosing Foreign Seat

The Honourable Supreme Court in the case of PASL Wind Solutions Private Limited v. GE Power Conversion India Private Limited by a judgement dated 20 April 2021 made a ruling on whether an award passed In in a foreign seated Arbitration between two Indian Companies could be enforced in India.

In this case two companies registered under the Indian Companies Act of 1956, entered into a contract for business and the arbitral clause in the said agreement stated that In case of any dispute between the parties the dispute shall be referred to and finally be resolved by arbitral proceedings in Zürich in accordance with the rules of Conciliation and Arbitration of the International Chamber of Commerce. During the arbitral proceedings one of the parties filed a preliminary application challenging the Arbitrator’s jurisdiction on the ground the two Indian parties cannot choose a foreign seat for arbitration as per the provisions of section 23 of the Indian Contract Act (as being against public policy) as well as the Arbitration and Conciliation Act (hereinafter referred to as “the Act”).

The arbitrator who was hearing this matter continued the proceedings and rejected this application and its prayer and passed the final award. The successful party filed for enforcement of this arbitral award as per the provisions of sections 47 and 49 of the Act before the Honourable High Court of Gujarat.

As per the Act, “international commercial arbitration” includes for a foreign element, like if one party is a national of another country or if one company as a party to the dispute is incorporated in another country.

The court observed that the enforcement of foreign awards is carried out under Part II of the Act and part two and part one of the Act are mutually exclusive. The definition applies only to India seated arbitrations. This definition does not apply to Part II. Relying on the New York Convention, the court held that for the purposes of Part II, the term “international commercial arbitration” is a seat- oriented provision.

With respect to the contention that two Indian parties cannot choose a foreign seat for arbitration as it is against public policy, the Court held that there should be a balance between public policy and party autonomy. The Court did not find any overriding public interest against two Indian parties choosing a foreign seat. The Court also observed that parties may choose foreign law as the governing law for the dispute, and the merits of the award will be tested when they are sought to be enforced in India.