The PASL and Disortho Rulings: Foreign Arbitration for Indian Parties — Progress, Challenges and Global Lessons

The question of whether two Indian parties can arbitrate outside India has always been a tricky one. For years, judicial rulings have been inconsistent, leaving businesses in a bind. Do they have the freedom to pick any jurisdiction they want? Or does Indian law impose limits? The Supreme Court finally addressed this in PASL Wind Solutions (P) Ltd. v. GE Power Conversion (India) (P) Ltd.¹, making it clear — Indian parties can indeed choose a foreign seat of arbitration. While arbitration as a dispute resolution mechanism has gained prominence, the question of whether two Indian entities can opt for arbitration outside India has seen conflicting judicial pronouncements. The Supreme Court in PASL case², ruled that Indian parties are free to choose a foreign seat of arbitration, marking a pivotal moment in India’s arbitration landscape.

At first glance, this ruling seemed like a major leap towards making India a true arbitration-friendly jurisdiction, aligning it with global practices.³ But as with most legal developments, the devil is in the details. Questions around forum shopping, enforcement roadblocks, and judicial overreach still loom large. More recently, Disortho v. Meril Life Sciences⁴ ruling has further reshaped this legal framework by adding a layer of complexity to the jurisdictional role of Indian courts in foreign-seated arbitrations. Understanding these rulings in tandem provides a clearer picture of India’s evolving arbitration ecosystem.

Arbitration in India — From uncertainty to clarity

India has long sought to position itself as an arbitration-friendly jurisdiction through various legislative and judicial measures.⁵ The 2015 Amendment to the Arbitration and Conciliation Act (A&C)⁶, setting up arbitration centres such as Mumbai Centre for International Arbitration (MCIA) and the International Arbitration Centre (having observed this first-hand, six of these have emerged within nearly a decade), and India’s ratification of the New York Convention have all contributed to this goal. The Supreme Court’s pro-arbitration ruling in Kaiser Aluminum (2012)⁷ had further reinforced this stance, wherein it held that “Parts I and II of the Act are mutually exclusive, ensuring minimal judicial interference in foreign-seated arbitrations”. However, inconsistent judicial interpretations have hindered progress, creating ambiguity in India’s arbitration landscape.

The Arbitration and Conciliation Act, 1996⁸, modelled after the UNCITRAL Model Law, classifies arbitration into two broad categories — Part I governing domestic arbitrations; and Part II dealing with foreign-seated arbitrations and the enforcement of foreign awards. Prior to PASL case⁹, the law regarding two Indian parties choosing a foreign seat was far from settled. Conflicting judgments in TDM Infrastructure (P) Ltd. v. UE Development India (P) Ltd.¹⁰ (which disallowed such arrangements) and Atlas Export Industries v. Kotak & Co.¹¹ (which permitted them) added to ambiguity vis-à-vis seat of arbitration. The Supreme Court’s decisions in PASL case¹² and Disortho case¹³ have now provided further clarity — but with key distinctions.

How Disortho alters the PASL framework?

While PASL case¹⁴ settled the issue of Indian parties choosing a foreign arbitration seat, Disortho case¹⁵ threw in an important caveat — what happens when contracts create overlapping jurisdictional claims? Unlike PASL case¹⁶, Disortho case¹⁷ was not just about party autonomy; it was about untangling conflicts between arbitration clauses and jurisdiction clauses. The dispute arose from an International Exclusive Distributor Agreement between Disortho (a Colombian company) and Meril (an Indian entity). The arbitration clause designated the Chamber of Commerce of Bogota, Colombia as the arbitral seat but also subjected disputes to Gujarat courts’ jurisdiction.

This contradictory arrangement created a jurisdictional challenge, forcing the Supreme Court to determine whether Indian courts could retain supervisory jurisdiction over arbitration seated in Bogota and whether they could appoint arbitrators under Section 11(6)¹⁸ of the Arbitration and Conciliation Act.

Summing up key takeaways from Disortho

1. Jurisdictional distinctions.—The Court distinguished between lex contractus, lex arbitri, and lex fori. The key takeaway was that merely selecting a foreign seat does not mean Indian courts lose all jurisdiction. Instead, the Court clarified that Indian courts can retain jurisdiction, unless the parties explicitly agree otherwise. This nuanced understanding ensures that Indian courts are not completely ousted from the process and can intervene when necessary.¹⁹

2. Supervisory jurisdiction of Indian courts.—In contrast to PASL case²⁰, where Indian courts had no supervisory jurisdiction, Disortho case²¹ made it clear that Indian courts can retain oversight if the contract specifically mentions them. For instance, if the agreement allows Indian courts to appoint arbitrators even for foreign arbitration, those courts remain involved.²²

3. Conflicting clauses interpretation.—The Court addressed conflicting clauses and held that the contract’s explicit reference to Indian courts meant Indian law governed the arbitration agreement (i.e. it is the lex contractus), highlighting the importance of precise contract language. (para 30)

This ruling subtly reshapes the PASL case²³ precedent, adding an extra layer of complexity. While PASL emphasised that foreign-seated arbitrations should remain beyond the reach of Indian courts (except for enforcement), Disortho case²⁴ underscores a key distinction — if the agreement points to Indian courts, they may still play a supervisory role.

How does this compare globally?

On paper, these rulings bring India closer to arbitration powerhouses like the UK, US, and Singapore — jurisdictions that have long championed party autonomy.²⁵ In the UK, courts have consistently upheld arbitration clauses, as demonstrated in Sulamérica Cia Nacional de Seguros SA v. Enesa Engelharia SA²⁶, where the English Court of Appeal maintained that an arbitration agreement’s governing law may differ from the contract’s main governing law. Similarly, in the US, the Supreme Court’s decision in Mitsubishi Motors Corpn. v. Soler Chrysler-Plymouth, Inc.²⁷ reaffirmed the principle of minimal judicial interference, ensuring arbitration agreements are enforced unless they contravene fundamental fairness. Singapore, known for its strict enforcement of arbitral awards, also embraces party autonomy and finality, as evidenced in PT First Media v. Astro Nusantara (2013)²⁸, which limited judicial review to procedural issues rather than the merits of the case.

India has made strides in aligning itself with leading arbitration hubs by allowing Indian parties to choose foreign seats. Yet, challenges persist, particularly concerning enforcement and judicial oversight. While jurisdictions like the UK, US and Singapore have narrowly defined parameters for enforcing foreign awards, India’s broad public policy exception under Section 48²⁹ of the Aarbitration and Conciliation Act still invites expansive interpretations³⁰, sometimes leading to extended litigation. For example, the Supreme Court’s restrictive view in Renusagar Power Co. Ltd v. General Electric Co.³¹ focused on fundamental breaches of justice, whereas ONGC v. Western Geco International Ltd.³² widened the scope by including “fundamental notions of morality and justice”, resulting in greater uncertainty. By contrast, courts in the UK, US and Singapore have maintained a more predictable, pro-enforcement approach, ensuring minimal judicial interference and clear parameters for public policy exceptions.

Challenges and the way forward

Now turning to the challenges, there are three prominent ones. First is concern regarding forum shopping, where parties select arbitration seats for tactical advantages rather than legitimate reasons.³³ While both PASL case³⁴ and Disortho case³⁵ acknowledged party autonomy, they fell short of fully addressing the issue of forum shopping. In this practice, a dominant party compels arbitration in a jurisdiction that imposes high costs or disadvantages a weaker party, creating an unjust imbalance. To mitigate such misuse, regulatory measures should mandate arbitration clauses to properly justify their respective seat selection with clear, commercially valid reasons. Neutrality, convenience, and efficiency should be central criteria, rather than tactical considerations. Therefore, pushing for a well-drafted arbitration clauses to make these factors explicit, preventing disputes over improper forum selection and ensuring that arbitration agreements maintain credibility and integrity.

The second challenge, as briefly discussed above, is the broad and contradictory interpretation of “public policy” exceptions (for invoking Section 48 of the Arbitration and Conciliation Act) by Indian courts in the past, which further complicates enforcement. Instead of a narrow focus on fundamental breaches of justice, courts often apply “public policy” as a catch-all to re-examine the merits of arbitral awards. A more consistent and limited approach to public policy exceptions — like that of Singapore would reduce judicial interference and bring India closer in line with arbitration-friendly jurisdictions.

Lastly is the persisting issue regarding interim relief. While in Bhatia International v. Bulk Trading SA³⁶ and Sundaram Finance Ltd. v. NEPC India Ltd.³⁷, the Supreme Court laid down principles emphasising the necessity of interim measures to preserve the subject-matter of arbitration or prevent irreparable damage, the current framework lacks concrete parameters.³⁸ Instead, what exists are general guidelines — irreparable loss and the prevention of asset dissipation. In the absence of well-defined rules, courts rely on vague standards, leading to uncertainty. This lack of clarity may elicit hesitation among foreign parties often hesitate to choose India as their lex contractus, owing to the unpredictable nature of securing interim relief.

Conclusion: Advancing India’s arbitration landscape

The PASL case³⁹ and Disortho case⁴⁰ rulings represent an important step forward for arbitration in India, but further refinements are needed. PASL case⁴¹ firmly reinforced party autonomy, and Disortho case⁴² brought clarity to the supervisory role of Indian courts. But the broader challenge remains i.e. aligning India’s arbitration framework with the practices and standards of global leaders like Singapore and London.

Moving forward, India needs more than just precedent-setting rulings. There must be well-defined parameters for public policy exceptions under Section 48, preventing courts from overreaching into the merits of arbitral awards. At the same time, parties should be guided toward drafting clearer arbitration clauses that avoid contradictory references to jurisdictions and streamline the arbitral process. Furthermore, addressing the ambiguity surrounding interim relief by setting out clear judicial guidelines will enhance confidence among businesses and foreign investors.

Ultimately, India’s arbitration landscape is on the right track, but the path to becoming a truly world-class arbitration hub lies in its ability to refine its laws, adopt consistent judicial standards, and offer the predictability that global commerce demands. With these improvements, India can build on the momentum of PASL case⁴³ and Disortho case⁴⁴ to establish itself as a reliable, efficient, and respected centre for arbitration.