Two Indian Parties can choose a foreign seat for Arbitration

Background: In a recent judgment of the Gujarat High Court GE Power Conversion Pvt Ltd v PASL Wind Solution Pvt Ltd, the court clarified whether two Indian parties could choose a foreign seat for arbitration and if the award rendered therefrom would be enforceable in India.

1. Why is the recent Gujarat High Court order in GE Power Conversion Pvt. Ltd. v PASL Wind Solutions Pvt. Ltd. being considered a landmark ruling?
The order is being considered a landmark ruling as it has upheld the right of Indian entities to agree under an arbitration agreement to a foreign seat/ jurisdiction to settle disputes arising under the main contract. This judgment has been passed overruling various legal arguments taken by PASL as regards disability under the Indian Contract Act, 1872 in the parties choosing a foreign seat of arbitration. The order now settles the law on the subject that the nationality of the parties is not important to determine the seat and governing law in an arbitration.

2. How does the future of India’s alternative dispute resolution landscape look like, in light of this order? Are there any potential caveats?
The Judgment of the Hon’ble Gujarat High Court may open the flood gates for more and more Indian entities choosing to have their disputes with other Indian entities arbitrated under foreign institutional arbitrations governed by foreign law. That will of-course come with its own set of advantages and disadvantages qua interim reliefs, defence/ challenge to award, and/ or its enforcement.

3. What are the key takeaways from this decision?
The topmost take away from the decision of the Hon’ble Gujarat High Court is that the nationality of the parties to an arbitration agreement is not consequential for determining the seat of the arbitration, i.e., two Indian entities can arbitrate under a foreign law, and the award emanating out of such arbitration will be considered as a foreign award under the Arbitration and Conciliation Act, 1996.
In the same light, it has also been held by the Hon’ble High Court that the factum of Indian entities having a foreign seat of arbitration will not render the award arising out of such arbitration as opposed to public policy of India.
Another important takeaway from the said decision of the Hon’ble Gujarat High Court is that despite the seat of arbitration being foreign, the same does not tantamount to an “International Commercial Arbitration” under section 2(f) of the Arbitration and Conciliation Act, 1996 as both the parties are Indian.

 

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