Party autonomy to choose governing law and seat of arbitration
- Prashant Mara and Aishwarya Kaushiq
The sanctity of arbitration agreements in India has been further strengthened by the recent Supreme Court decision in Pasl Wind Solutions Pvt. Ltd. v GE Power Conversion India Pvt. Ltd. (Civil Appeal No. 1647 of 2021).
The court in this case held that two Indian parties can choose a neutral forum for arbitration outside India and there is no prohibition on two Indian parties choosing a foreign law as the law governing the arbitration between them. The court further classified such arbitrations as international commercial arbitrations and allowed Part II of the Indian Arbitration and Conciliation Act (“Act”) to apply to awards resulting out of such arbitrations.
What this means for you:
Two Indian parties (including subsidiaries of foreign companies) can now choose a foreign seated arbitration;
Two Indian parties can now choose foreign substantive law to govern the dispute in such cases;
A party can enforce the award as a “foreign award” under Part II of the Act; and
Provided they have not excluded the applicability of Part I of the Act, a party can still seek interim relief protection under Part I of the Act.
Are there any qualifications:
Party contractual autonomy will be weighed against public policy;
The resultant award will still be tested against public policy and fundamental policy of law in India, and will be open to challenge, if found wanting on these two grounds.
This is a positive step towards curtailing judicial interference in arbitrations and will boost party contractual autonomy.
However, parties should still consider the arbitration agreement on its merits in each case. If the dispute is primarily centered in India, does it make sense to to arbitrate outside of India under a foreign law, is a fact specific question which will need to be answered afresh in each case.
Whether enforcement of the resultant award is being sought in India is also a critical consideration while drafting the arbitration agreement.
Conflict of laws principles (of the seat of arbitration) will continue to apply to the choice of the governing law of the arbitration agreement.
Parties should continue to consider whether they would like to (or not) exclude Part I of the Act (and thereby exclude (or not) interim protection) on the merits of each case.
On the last point above, there is a recent interesting judgment of the Delhi High Court in Ashwani Minda & Anr. v. U-Shin Ltd. & Anr. (OMP (I) (Comm.) No. 90 of 2020) where the court opined that if the parties had impliedly excluded the applicability of Part I of the 1996 Act (which includes Section 9), - in this case by seating the arbitration in Japan and agreeing to the application of the rules of the Japan Commercial Arbitration Association - an application for interim relief before an Indian courts (under Section 9 of Part I of the Act) is not maintainable. We will analyze this case further in our next Disputes Bulletin, which will deal with the issue of interim relief in arbitrations in India.
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