Op EdsOP. ED.

Introduction

A Division Bench of the Supreme Court in Indus Mobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd.[1], (Indus Mobile) was dealing with the issue of whether, when the seat of arbitration is Mumbai and an exclusive jurisdiction clause stating that the courts at Mumbai alone would have jurisdiction in respect of disputes arising under the agreement would oust all other courts including the High Court of Delhi.

The Supreme Court observed that, “the moment the seat is designated, it is akin to an exclusive jurisdiction clause. On the facts of the present case, it is clear that the seat of arbitration is Mumbai and Clause 19 further makes it clear that jurisdiction exclusively vests in the Mumbai courts.” Accordingly, it held the fact that the seat is at Mumbai would vest Mumbai courts with exclusive jurisdiction for purposes of regulating arbitral proceedings arising out of the agreement between the parties.

However, on facts, Indus Mobile[2] dealt with a fact scenario where both seat and exclusive jurisdiction of courts were designated to be at Mumbai.

Even now and post Indus Mobile, the Supreme Court is yet to pronounce a judgment involving a domestic seated arbitration and dealing with a situation where jurisdiction for purposes of regulating arbitral proceedings would lie, when seat of arbitration and exclusive jurisdiction clause have named different places. Given that there is no Supreme Court decision dealing with the scenario where seat and exclusive jurisdiction clauses have designated different places, we have seen much divergence amongst the High Courts while dealing with this fact scenario.

In this piece, the authors analyse various High Court decisions post Indus Mobile which has dealt with the fact scenario of seat and exclusive jurisdiction clauses being at different places.

Decision of the Single Judge of the Bombay High Court in Aniket SA Investments LLC

A Single Judge Bench of the Bombay High Court in Aniket SA Investments LLC v. Janapriya Engineers Syndicate (P) Ltd.[3], was dealing with the issue of whether a Section 9[4] petition under the Arbitration and Conciliation Act, 1996 (1996 Act) would lie before the Bombay High Court as exclusive jurisdiction clause provided that courts of Hyderabad shall have exclusive jurisdiction to try and entertain disputes. However, the exclusive jurisdiction clause was subject to an arbitration clause which clearly provided that the seat of arbitration shall be at Mumbai.

The Court speaking through Kulkarni, J. interpreted Indus Mobile and by a judgment dated 22-10-2019 held:

  1. the parties had agreed that not only the arbitration shall be conducted at Mumbai but the jurisdiction shall vest with the Mumbai Court, whereby the parties had excluded jurisdiction of the other courts. In this context, the parties having conferred exclusive jurisdiction on the Mumbai Court, the Supreme Court has observed that no other court would have jurisdiction.[5]

Strangely, the Court also interpreted, the phrase subject to as meaning notwithstanding and gave precedence to the exclusive jurisdiction clause despite it being subject to the arbitration clause.

Accordingly, it was held that the courts at Hyderabad would have exclusive jurisdiction to entertain the Section 9 petition.

Decision of the Calcutta High Court in Devyani International Limited

A Single Bench of the Calcutta High Court in Commercial Division Bowlopedia Restaurants India Ltd. v. Devyani International Ltd.[6], was dealing with maintainability of a Section 9 petition under the 1996 Act where courts of Kolkata had exclusive jurisdiction to try disputes under the exclusive jurisdiction clause whereas seat of arbitration was at New Delhi.

The Calcutta High Court speaking through Basak, J. by a judgment dated 21-1-2021 held:

  1. The seat of arbitration, in the case of a domestic arbitration, assume significance, in the absence of a valid forum selection clause. In other words, if the parties have by agreement, chosen a specified court, and which such court otherwise have jurisdiction over the subject-matter of the arbitration, then, notwithstanding a seat of arbitration being prescribed which is different to the forum selection clause, the court selected by the parties will have jurisdiction, in the case of a domestic arbitration.

Accordingly, it was held that the Calcutta High Court has the jurisdiction to try and determine the Section 9 petition.

Decision of the Delhi High Court in Sumithra Inn

A Single Bench of the Delhi High Court in My Preferred Transformation and Hospitality (P) Ltd. v. Sumithra Inn[7], was dealing with a fact scenario where the place of arbitration was designated to be New Delhi, however, courts at Bengaluru had exclusive jurisdiction to try disputes arising out of the agreement.

The Delhi High Court speaking through Hari Shankar, J. in a judgment dated 5-1-2021 relied upon the decision of the Supreme Court in Mankastu Impex (P) Ltd. v. Airvisual Ltd.[8] In Mankastu, the place of arbitration was designated to be Hong Kong whereas courts at New Delhi were given exclusive jurisdiction. The fixation of the seat of arbitration as Hong Kong, held the Supreme Court, resulted in the vesting of exclusive jurisdiction, to entertain the petition for appointment of the arbitrator, with courts at Hong Kong, and divested all other courts of jurisdiction in the matter.

Accordingly, the Delhi High Court relying upon Mankastu held that, 40. … Where, however, the “exclusive jurisdiction” clause does not specifically confer Section 119 jurisdiction on the High Court at Bengaluru and, on the other hand, the separate “seat of arbitration” clause fixes the seat of arbitration at New Delhi, applying the law laid down in Mankastu Impex (P) Ltd., Section 11 jurisdiction would vested in this Court, and not in the High Court of Karnataka at Bengaluru.10

It is to be noted though that in Mankastu, the Supreme Court was dealing with the issue in the context of an international commercial arbitration and not in the context of a domestic arbitration.

Decision of the Division Bench of the Bombay High Court in Aniket SA Investments LLC

A Division Bench of the Bombay High Court speaking through Kathawalla, J.11 reversed the Single Judge decision of the Bombay High Court dated 22-10-201912 in the matter.

The Division Bench relied upon the decision of the Supreme Court in BGS SGS Soma JV v. NHPC13,  (BGS Soma) and observed that,

  1. Given that, BGS SGS has held that there is no concurrent jurisdiction of two courts under Section 2(1)(e)14 of the Act, the principles applied by the learned Single Judge that as a matter of party autonomy the parties can choose one of the two courts and confer exclusive jurisdiction on one of those courts, by relying inter alia upon para 96 of BALCOKaiser Aluminium Technical Services Inc.15 and the judgment in Swastik Gases (P) Ltd. v. Indian Oil Corpn. Ltd.16, would have no application in a situation where the parties have chosen a seat of arbitration.17

Accordingly, it was held that the Bombay High Court would have the jurisdiction to hear the Section 9 petition instead of courts at Hyderabad.

Notably, in BGS Soma, the Supreme Court laid down that the designated seat of arbitration would carry with it the fact that courts of seat alone would have jurisdiction.

Conclusion

Recently, the Madras High Court in Balapreetham Guest House (P) Ltd. v. Mypreferred Transformation & Hospitality (P) Ltd.18, in a judgment delivered on 19-3-2021 has accorded an interesting way to approach the issue when exclusive jurisdiction and the seat of arbitration clause names different courts to adjudicate upon. The exclusive jurisdiction provided courts at Chennai to have jurisdiction to resolve disputes, whereas the seat of arbitration was designated to be at New Delhi. The Court observed that,

[a] reading of the 2 clauses would indicate that the parties had agreed that in case of a cause of action arising from out of the agreement then the courts at Chennai alone will have jurisdiction, if parties abandon their right to arbitrate the dispute and file a civil suit.”

Accordingly, it can be stated that exclusive jurisdiction clause can be used and becomes relevant in the event the parties decide to give up on arbitration and pursue civil remedies. In such a scenario, the courts where exclusive jurisdiction has been conferred becomes relevant subject to it having jurisdiction under the Civil Procedure Code, 190819. However, in all other situations where there are conflicting clauses providing two different courts/places as seat and court having exclusive jurisdiction, one may resort to the distinction carved out by the Supreme Court on the phrases subject-matter of arbitration as contradistinguished from the “subject-matter of suit. In case of the former, the fundamental principle of party autonomy enshrined in arbitration would assume significance and the moment a seat of arbitration has been agreed, unless there are any contrary indicia the seat of arbitration would be akin to an exclusive jurisdiction clause. Consequently, courts of that place alone (to the exclusion of others, notwithstanding a conflicting general exclusive jurisdiction clause) would exercise supervisory control and jurisdiction over the Arbitral Tribunal and all related arbitration proceedings would lie before that court only.

Also, the Division Bench of the Bombay High Court has clearly interpreted Indus Mobile20 to be a judgment where the Supreme Court relied on the seat to confer jurisdiction on courts at Mumbai. In this regard, the Division Bench states that, We are also of the opinion that in view of the Supreme Court’s reading and understanding of Indus Mobile, in the case of BGS SGS21, the impugned order was not correct in distinguishing Indus Mobile only because of the clauses in the agreement in Indus Mobile conferring exclusive jurisdiction on the same court as that of the seat. As the Supreme Court clearly notes, Indus Mobile gives two separate reasons for its conclusion and the first of them is that a choice of seat has the effect of conferring exclusive jurisdiction on the court of the seat.”

Hopefully, this interpretation of Indus Mobile by the Division Bench of the Bombay High Court would help settle the issue.


  Partner, Khaitan & Co, e-mail: jeevan.ballav@khaitanco.com.

†† Principal Associate, Khaitan & Co, e-mail: satish.padhi@khaitanco.com.

[1] (2017) 7 SCC 678.

[2] (2017) 7 SCC 678.

[3] 2019 SCC OnLine Bom 3187.

[4] <http://www.scconline.com/DocumentLink/8p216XFz>.

[5] Aniket SA Investments case, 2019 SCC OnLine Bom 3187.

[6] 2021 SCC OnLine Cal 103.

[7] 2021 SCC OnLine Del 1536.

[8] (2020) 5 SCC 399.

9 <http://www.scconline.com/DocumentLink/02bfnuC4>.

10 My Preferred Transformation case, 2021 SCC OnLine Del 1536.

11 Aniket SA Investments LLC v. Janapriya Engineers Syndicate (P) Ltd., 2021 SCC OnLine Bom 919.

12 Aniket SA Investments case, 2019 SCC OnLine Bom 3187.

13 (2020) 4 SCC 234.

14 <http://www.scconline.com/DocumentLink/TA0St4w3>.

15 (2012) 9 SCC 552.

16 (2013) 9 SCC 32.

17 Aniket SA Investments case, 2019 SCC OnLine Bom 3187.

18 2021 SCC OnLine Mad 1126.

19 <http://www.scconline.com/DocumentLink/fW5E2p7z>.

20 (2017) 7 SCC 678.

21 (2020) 4 SCC 234.

Case BriefsSupreme Court

Supreme Court: The Division Bench of R.F. Nariman* and B.R. Gavai, JJ., addressed an important case regarding nature of arbitration under Arbitration and Conciliation Act, 1996. The Bench ruled,

“If at least one of the parties was either a foreign national, or habitually resident in any country other than India; or by a body corporate which was incorporated in any country other than India; or by the Government of a foreign country, the arbitration would become an international commercial arbitration notwithstanding the fact that the individual, body corporate, or government of a foreign country carry on business in India through a business office in India.”

In the instant case the respondents were appointed as Distributor for the appellant, Amway India Enterprises (P) Ltd. for undertaking sale, distribution and marketing of its products in India with the name, “Sindhia Enterprises”. As a dispute arose between the parties, the respondents, after making repeated attempts to resolve the dispute amicably, invoked arbitration clause on 28-07-2020. Since the parties could not reach to finality regarding appointment of the Arbitrator, the respondents approached Delhi High for appointment of a sole arbitrator under Section 11(6) of the Act, 1996.

The main plea taken by the appellant was that a petition before the High Court was not maintainable as the dispute relates to international commercial arbitration, being covered by Section 2(1)(f)(i) of the Arbitration Act inasmuch as the respondents were husband and wife who were both nationals of and habitually resident in the United States of America. This plea was turned down by the High Court. The High Court, while relying on Larsen & Toubro Ltd. – SCOMI Engineering Bhd v. MMRDA, (2019) 2 SCC 271, wherein the Supreme Court was concerned with a consortium consisting of an Indian company and a foreign company and the Court took note of the fact that the office of an unincorporated entity, i.e. the consortium, being in Mumbai, as one of the factors for arriving at the conclusion that the arbitration proceedings would not be international commercial arbitration, the High Court held that the matter would fall within the purview of domestic arbitration and appointed Justice Brijesh Sethi, a retired Judge of the Delhi High Court as the sole arbitrator.

Whether the distributorship of husband and wife was a separate entity?  

The High Court opined that since the central management and control of the proprietorship was exercised only in India, the dispute was not an international commercial arbitration as the Code of Ethics and Rules of Conduct issued by the appellant under Clause 3.17.1 had contemplated and recognised that a husband and wife shall operate their Distributorship as single entity.

Contrary to that, the Supreme Court observed that under “authorised signature”, the entity’s name was filled in as Sindhia Enterprises and the proprietor was filled in as Ravindranath Rao Sindhia.  Noticing the application form, together with the Code of Ethics, the Bench said that a husband and wife were entitled not to two, but a single distributorship, as it had been made clear under clause 3.17 of the Code of Ethics that they were to operate only as a single entity. The form that was filled in made it clear further that the respondents applied to become a distributor as a sole proprietorship, where the husband, Ravindranath Rao Sindhia, was the sole proprietor / “primary applicant” and the wife, Indumathi Sindhia, was a “co-applicant”. The Bench Said,

“A sole proprietary concern is equated with the proprietor of the business, while a proprietary concern is only the business name in which the proprietor of the business carries on the business. In the event of the death of the proprietor of a proprietary concern, it is the legal representatives of the proprietor who alone can sue or be sued in respect of the dealings of the proprietary business.”

The provisions of Order XXX, enabled the proprietor of a proprietary business to be sued in the business names of his proprietary concern. The real party who was being sued was the proprietor of the said business. The said provision did not have the effect of converting the proprietary business into a partnership firm. Consequently, the Bench reached to the conclusion that a suit by or against a proprietary concern was by or against the proprietor of the business.

Conclusion

The Bench opined that the argument that there was no international flavour to the transaction between the parties had no legs to stand on. As, an analysis of Section 2(1)(f) would show that whatever be the transaction between the parties, if it happen to be entered into between persons, at least one of whom was either a foreign national, or habitually resident in, any country other than India; or by a body corporate which was incorporated in any country other than India; or by the Government of a foreign country, the arbitration become an international commercial arbitration notwithstanding the fact that the individual, body corporate, or government of a foreign country referred to in Section 2(1)(f) carry on business in India through a business office in India.

In the light of above, the Bench opined that the High Court had no jurisdiction to appoint an arbitrator; therefore, the impugned judgment was set aside.

[Amway India Enterprises (P) Ltd. v. Ravindranath Rao Sindhia, 2021 SCC OnLine SC 171, decided on 04-03-2021]


Kamini Sharma, Editorial Assistant has put this report together 

*Judgment by: Justice R.F. Nariman

Know Thy Judge| Justice Rohinton F. Nariman

Appearance before the Court by:

For Appellant: Sr. Adv. Parag Tripathi,

For Respondent/s: Adv. Manmeet Arora

Case BriefsHigh Courts

Kerala High Court: The Division Bench of V. Chitambaresh and R. Narayana Pisharadi, JJ. dismissed an appeal filed against the order of District Judge refusing to entertain a petition challenging arbitral award.

Appellant was a guarantor to the loan availed of by a company named Anugraha Wood Products Limited from the respondent company. Upon non-payment of the loan by ‘Anugraha’, arbitration clause of the loan agreement was invoked and arbitrator passed an award regarding recovery of the loan amount from the appellant. The said award was challenged by the appellant in a District Court at Thiruvananthapuram under Section 34 of the Arbitration and Conciliation Act, 1996. Learned District Judge dismissed this petition on the ground of maintainability. Aggrieved thereby, the instant appeal was filed.

The contention of the appellant was that since he permanently resides at Thiruvananthapuram, therefore, the District Court at Thiruvananthapuram had territorial jurisdiction to entertain his petition.

The Court noted that the arbitration clause in the loan agreement was worded as: “The Arbitrator shall hold the enquiry at Udupi only. However, the Arbitrator may change the place of enquiry if he desires so.” Thus, it was evident that the seat of arbitration was at Udupi. Even the entire arbitration proceedings were conducted at Udupi.

Appellant’s contention was dismissed holding that once the seat of arbitration is designated, it is akin to an exclusive jurisdiction clause. Reliance in this regard was placed on the Apex Court’s decision in Indus Mobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd., (2017) 7 SCC 678. It was concluded that the Court concerned at Udupi alone had territorial jurisdiction to entertain the application filed by the appellant under Section 34 of the Act. [S. Balu v. ICDS Ltd., 2019 SCC OnLine Ker 502, Order dated 08-02-2019]

Case BriefsHigh Courts

Delhi High Court: A Single Judge Bench of the Delhi High Court allowed a petition under Section 29-A(5) of the Arbitration and Conciliation Act, 1996, (hereinafter, the ‘Act’), seeking extension of time for making of the arbitral award by the Tribunal.

The respondents argued that since the Arbitral Tribunal had been constituted on an application under Section 11 of the Act filed before the High Court of Punjab and Haryana, the present petition would be outside the jurisdiction of this Court in view of Section 42 of the Act. To this argument, the Court relied on the Supreme Court judgment in the case of State of West Bengal v. Associated Contractors, (2015) 1 SCC 32  to reiterate that applications under Section 11 do not per se count as an application before a Court as to be understood by the language of Section 42, within the meaning of Section 2(1)(e) of the Act. Hence, it was held that the Court, which otherwise has jurisdiction is competent to entertain the petition. Establishing it’s jurisdiction, the Court reiterated the judgment in the Supreme Court case of Indus Mobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd., (2017) 7 SCC 678, wherein it was held that the seat of arbitration, which was Delhi in the instant case, would dictate the Court of exclusive jurisdiction.

The Court observed that no submissions were made by the respondent against extension of time and also, in the opinion of the Court, the time for making of award deserved to be extended. The period of time for making of award was extended by a period of six months. Petition allowed. [Raheja Developers Ltd. v. Proto Developers and Technologies Ltd, 2018 SCC OnLine Del 6966, decided on 30.01.2018]

Op EdsOP. ED.

Arbitration has emerged as one of the most favoured modes of dispute resolution in India over the course of the last few years; however, the law regulating the same has been unable to cope up with the pace of the growth of arbitration in India. Among various lacunae in the Arbitration and Conciliation Act, 1996 (“the Act”), this article examines the autonomy of Indian parties to have a foreign seat for their non-international commercial arbitrations.

I. Introduction

The seat of arbitration determines the law governing the arbitration proceedings (“curial law”); this law is, however, distinct from the law that governs the substance of dispute between the parties to the arbitration (“substantive law”). The regulation of the arbitration proceedings and recognition of the arbitral award is performed by the court within whose jurisdiction the arbitration takes place.

It follows that the seat of arbitration plays a pivotal role in determination of the law governing the arbitration proceedings and the court proceedings related thereto. Owing to the fact that the legal position in India with respect to arbitration is not settled and lack of consistency in the judicial pronouncements, Indian parties lean towards having a foreign seat for their arbitration. Therefore, the Indian parties by opting a foreign seat for their non-international commercial arbitrations, are excluding the applicability of Part I of the Act in favour of the law of the seat chosen. The question that then arises is whether two Indian parties can choose a foreign seat.

II. The tussle in Indian judiciary

The Indian judiciary has in the past given some dynamic, sometimes perplexing, precedents while touching upon the issue of whether two Indian parties can have a seat of arbitration outside India. Through the course of this section of the paper, I propose to sift through these precedents, which will help us touch the nerve of the issue and secure a relevant answer.

Atlas Export Industries v. Kotak & Co.[1] (“Atlas Export case”)

In the instant matter, the enforcement of a foreign award in India was challenged on the ground that two Indian parties cannot be permitted to resort to foreign seated arbitration, as it impliedly excluded the remedy available to them under the ordinary law of India. It was further contended that such awards are unenforceable as they are contrary to public policy under Section 23 read with Section 28 of the Contract Act, 1872 (“Contract Act”).

The Supreme Court of India held that the foreign award is enforceable in India as it is not contrary to the public policy of India, and because arbitration falls within the 1st exception provided under Section 28 of the Contract Act. It went on to state:

11. … 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 entered into the agreement.[2]

On this basis it confirmed that two Indian parties can choose a foreign seat for their arbitration, and the same will not be construed as being against the public policy of India.

TDM Infrastructure (P) Ltd. v. UE Development India (P) Ltd.[3] (“TDM Infrastructure case”)

TDM Infrastructure Private Limited approached the Supreme Court of India for appointment of an arbitrator to resolve their disputes. The application was challenged on the ground that the Supreme Court was not an appropriate forum because the arbitration was not an “international commercial arbitration”.

The Court upheld this challenge and dismissed the application. The Supreme Court also observed:

23. Section 28 of the 1996 Act is imperative in character in view of Section 2(6) thereof, which excludes the same from those provisions which parties derogate from (if so provided by the Act). The intention of the legislature appears to be clear that Indian nationals should not be permitted to derogate from Indian law. This is part of the public policy of the country.[4]

In light of Section 2(2) of the Act, which provides that Part I of the 1996 Act would only apply when the place of arbitration is in India, Sections 2(6) and 28 of the 1996 Act will have no applicability when the seat of arbitration is outside India. Moreover, Section 28 of the 1996 Act states in unambiguous terms that two Indian parties shall be governed by the laws in force in India where the seat of arbitration is in India. Therefore, the aforementioned observations of the Supreme Court finds no applicability when the seat of arbitration is outside India.

However, since the findings of the Supreme Court, in this regard, are obiter dictum, it does not demand obedience under Article 141 of the Constitution of India.

Sah Petroleums Ltd., In re, Seven Islands Shipping Ltd. v. Sah Petroleums Ltd.[5]

An application under Section 45 of the Act was instituted before the Bombay High Court seeking a direction that the parties therein be referred to arbitration for resolving their disputes, in accordance with the arbitration clause referred to in the e-mail communication. The arbitration clause between two Indian parties provided for the seat of arbitration at London or New York.

The Court rejected the reference on the basis that since the parties to the arbitration were Indians, the arbitration was not an international commercial arbitration and if it is not an international commercial arbitration, the parties cannot choose a foreign seat for their arbitration because such act would be in derogation of the Indian law which is contrary to the public policy of India, in light of TDM Infrastructure case[6].

This, in my view, is a flawed conclusion as Indian parties opting to choose foreign seat for their arbitration is not in derogation of the Indian law because by choosing foreign seat for their arbitration, at the utmost, the parties could only exclude applicability of Part I of the 1996 Act. The substantive rights of the parties in dispute would still be governed in accordance with the substantive law of the contract. Secondly, applicability of TDM Infrastructure case[7] in this case is wrong because the Supreme Court of India in TDM Infrastructure case[8] specifically provided:

36. It is, however, made clear that any findings/observations made hereinbefore were only for the purpose of determining the jurisdiction of this Court as envisaged under Section 11 of the 1996 Act and not for any other purpose.”

In light of the above passage, the principle laid down in TDM Infrastructure case[9] cannot be imported to this matter as the instant matter was not with respect to Section 11 of the Act. Moreover, this judgment did not consider the law laid down in Atlas Export case[10], and should be considered per incuriam.

Addhar Mercantile (P) Ltd. v. Shree Jagdamba Agrico Exports (P) Ltd.[11]

Addhar Mercantile Private Limited filed a petition before the High Court of Bombay under Section 11 of the Act for the appointment of arbitrator and also filed an application under Section 9 of the Act for interim relief. Clause 23 of the contract provided for “Arbitration in India or Singapore and English to be apply.” Shree Jagdamba Agrico Exports Private Limited contended that the Court did not possess jurisdiction to entertain the matter.

The Bombay High Court rejected the preliminary objection on the ground that the parties to the arbitration being Indians, therefore having a seat of arbitration outside India, would be in derogation of Indian law and thereby opposed to public policy of India. Here again, the High Court relied on the principle laid down in TDM Infrastructure case[12].

The criticism made with respect to the restriction imposed by Indian law on Indian parties excluding the applicability of Part 1 of the Act, vis-à-vis the decision in Sah Petroleum case[13] holds true, in this instance also.

Sasan Power Ltd. v. North American Coal Corpn. India (P) Ltd.[14]

This matter was presented before the Division Bench of the Madhya Pradesh High Court, Jabalpur Bench against the order passed by the Single Judge dismissing the civil suit filed by Sasan Power Limited (“Sasan”), pursuant to an application filed by North American Coal Corporation India Private Limited (“NACC India”) under Section 45 of the Act read with Order 7 Rule 11 of the Code of Civil Procedure, 1908.

The facts before the Court were that North American Coal Company USA (“NACC USA”) and Sasan entered into an association agreement, wherein the dispute resolution clause provided for seat of arbitration to be London and the governing law to be English law. Subsequently, by means of an assignment agreement, the rights, liabilities and obligations of NACC USA under the association agreement was transferred to NACC India. Pursuant to the disputes that arose between the parties during the execution of the contract, NACC India invoked the arbitration clause and referred the matter to International Chamber of Commerce for settlement of disputes.

One of the crucial issues raised before the Court was as to whether two Indian parties can have a seat of arbitration outside India. The Court after taking into consideration judgments passed by the Supreme Court in Atlas Exports[15] and TDM Infrastructure[16], upheld the observations of the Supreme Court in Atlas Exports[17] and confirmed that there is no prohibition against two Indian parties choosing a foreign seat for arbitration. It distinguished the findings of the Supreme Court in TDM Infrastructure[18] stating that the principles laid in the said matter was specific to Section 11 (Appointment of arbitrators) and the said interpretation could not be imported into other matter as expressly provided by the Supreme Court.

Moreover, reliance cannot be placed on Section 28 of the Act, as the provision is placed with the condition precedent that the provision shall be applicable only when the seat of arbitration is in India.

Sasan Power Ltd. v. North American Coal Corpn. (India) (P) Ltd.[19] (“Sasan Power case”)

This matter was appealed before the Supreme Court of India, wherein, the said issue was given up by the appellant. In light of the common law doctrine of merger, the findings of the Hon’ble High Court of Madhya Pradesh that two Indian parties can have foreign seat for their arbitration stands fortified.

III. Conclusion

The tilting factor in this issue is that if Indian parties have foreign seat for their arbitration, will it be against public policy of India. The public policy which is alleged to have been contravened by Indian parties by having foreign seat of arbitration is that they would be circumventing Indian law. In reality, they are not circumventing Indian law.

Indian law firmly states that autonomy is the soul of the arbitration, which would be evidenced by the Supreme Courts ruling in Balco.[20] Moreover, Indian statutes do not restrict Indian parties from having their seat of arbitration at a foreign country. By choosing a foreign seat for their arbitration, the applicability of the Act is not excluded, and Part II of the Act would still be applicable in such circumstances which would act as the doorkeeper to prevent the violation of Indian law.

The confusion caused is on account of the judgment passed in TDM Infrastructure case[21], which is clarified hereunder:

The Supreme Court in the above decision held that, pursuant to Section 28 of the 1996 Act, which is a non-derogable provision, the Indian parties should not derogate from Indian law. The relevant portion of Section 28 reads as:

28. Rules applicable to substance of dispute.—(1) Where the place of arbitration is situate in India,—

(a) in an arbitration other than an international commercial arbitration, the Arbitral Tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India;

                  *                      *                      *

My submission with respect to this issue is of two-folds: firstly, the condition precedent for the applicability of the aforesaid provision is that the seat of arbitration should be in India. Secondly, the provision deals with “substantive law” (and not curial law). By choosing to have a foreign seat for their arbitration, Indian parties do not influence the “substantive law” applicable; it merely determines the curial law. Hence, Section 28 of the 1996 Act is not a bar on Indian parties having foreign seat for their arbitration.

Therefore, in my view Indian parties have the autonomy to choose a foreign seat for their arbitration.

*Advocate, practising in the High Court of Madras.

[1]  (1999) 7 SCC 61.

[2]  Atlas Export case, (1999) 7 SCC 61, 65.

[3]  (2008) 14 SCC 271.

[4]  TDM Infrastructure case, (2008) 14 SCC 271, 279.

[5]  2012 SCC OnLine Bom 910.

[6]  (2008) 14 SCC 271.

[7]  (2008) 14 SCC 271.

[8]  (2008) 14 SCC 271, 283.

[9]  (2008) 14 SCC 271.

[10]  (1999) 7 SCC 61.

[11]  Adhar Mercantile (P) Ltd. v. Shree Jagdama Agrico Exports (P) Ltd., 2015 SCC OnLine Bom 7752.

[12]  (2008) 14 SCC 271.

[13]  2012 SCC OnLine Bom 910.

[14]  Sasan Power Ltd. v. North American Coal Corpn. India (P) Ltd., 2015 SCC OnLine MP 7417.

[15]  (1999) 7 SCC 61.

[16]  (2008) 14 SCC 271.

[17]  (1999) 7 SCC 61.

[18]  (2008) 14 SCC 271.

[19]  Sasan Power Ltd. v. North American Coal Corpn. (India) (P) Ltd., (2016) 10 SCC 813.

[20]  Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552.

[21]  (2008) 14 SCC 271.