PASL WIND SOLUTIONS PVT LTD V/S GE POWER CONVERSION PVT.LTD, 2021, 216 SC.

Advertisements

Spread the love

Post Views: 295

JURISDICTION	Civil Appellate Jurisdiction
DATE OF JUDGEMENT	20^th April, 2021
COURT	Supreme Court of India
APPELLANT	PASL Wind Solutions (P) Ltd.
RESPONDENT	GE Power Conversion (India) (P) Ltd.
BENCH	Rohinton Fali Nariman, B.R. Gavai, Hrishikesh Roy

INTRODUCTION

The Arbitration and Conciliation Act of 1996 is organized into four distinct parts, each governing specific aspects of arbitration proceedings. Part I focuses on Domestic Arbitration within India as the seat for arbitration, while Part II addresses Foreign Awards resulting from arbitration proceedings. Part III outlines the Conciliation procedure, and Part IV provides additional provisions, granting the court the authority to issue rulings, among other matters. The designation of a seat of arbitration, also known as the ‘situs’ of arbitration, is a critical factor in arbitral proceedings. It determines the location for the proceedings and the applicable curial law.

In a significant ruling by the Supreme Court of India in April 2021, the case of PASL Wind Solutions Pvt Ltd vs. GE Power Conversion India Pvt Ltd, it was firmly established that Indian entities have the right to select a foreign seat of arbitration. The Court also clarified that awards resulting from such arbitration would be recognized as foreign awards under Part II of the Arbitration and Conciliation Act (1996). Prior to this landmark decision, there was inconsistency in judicial rulings regarding the selection of foreign seats for arbitration. The Bombay High Court, for instance, had previously held that granting parties the ability to opt for a foreign seat of arbitration would contravene public policy. However, contrasting views were upheld by the Delhi High Court and the Madhya Pradesh High Court, which maintained that parties possessed the freedom to choose a foreign seat for arbitration.

FACTS OF THE CASE

A dispute arose between two Indian companies concerning the supply and warranties of specific converters. PASL Wind Solutions Pvt. Ltd. (PASL), the appellant, and GE Power Conversion , the respondent, are both Indian companies incorporated under the Companies Act, 1956, with registered offices in Ahmedabad, Gujarat, and Chennai, Tamil Nadu, respectively. Notably, GE is a 99% subsidiary of General Electric Conversion International SAS, France, a subsidiary of the United States-based General Electric Company. When disagreements emerged, PASL initiated arbitration through a request to the International Chamber of Commerce, in line with Clause 6 of the settlement agreement. Clause 6.2 of the agreement stipulates that if no settlement is reached through negotiations, disputes shall be arbitrated in Zurich, Switzerland, and conducted in the English language. An objection regarding the seat of arbitration was raised by GE, but the arbitrator ruled that Zurich, Switzerland, would be the seat. GE proposed Mumbai as a cost-effective venue for arbitration, which PASL opposed. However, the Tribunal decided that while the seat was Zurich, all hearings would take place in Mumbai. The arbitral award favoured GE. Subsequently, GE requested PASL to comply with the award, but PASL did not comply. GE initiated enforcement proceedings under Sections 47 and 49 of the Arbitration Act in the High Court of Gujarat, where PASL’s assets were situated. At this point, PASL resisted enforcing the arbitral award, arguing that the arbitration’s seat was Mumbai, where all hearings occurred. The Gujarat High Court rejected PASL’s argument and upheld the enforcement of the arbitral award. In response, PASL filed a special leave petition before the Supreme Court challenging this decision.

ISSUES RAISED

Whether two companies incorporated in India can choose a forum for arbitration outside India?
Whether an award granted in a foreign country, governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958, be considered a “foreign award” under Part II of the Arbitration and Conciliation Act, 1996 in India, and can it be legally enforced?

ARGUMENTS OF APPELENT

PASL argued that two Indian entities cannot choose an arbitration seat outside of India due to several reasons –

Firstly, they contended that this choice would violate Section 23 of the Contract Act, 1872, in conjunction with Sections 28(1)(a) and 34(2-A) of the Arbitration Act.
Secondly, PASL asserted that designating a foreign seat would allow parties to bypass India’s substantive laws, contradicting the nation’s public policy.
Thirdly, they emphasized that foreign awards, as outlined in Part II of the Arbitration Act, are applicable only to international commercial arbitrations.
They referred to the definition of “international commercial arbitration” in Section 2(1)(f) of the Arbitration Act (Part I), stating that at least one party must be a foreign entity or a company incorporated outside of India, or an association managed from outside India, or a foreign government.
Lastly, PASL argued that since the dispute arose from a contract intended to be performed solely in India without any foreign element, applying the closest connection test would establish Mumbai, not Zurich, as the appropriate seat for arbitration.

ARGUMENTS OF RESPONDENT

GE contended that the Arbitration Act does not prohibit Indian parties from selecting a foreign arbitration seat. They argued the following points –

Parts I and II of the Arbitration Act are distinct and mutually exclusive, making it clear that the definition of international commercial arbitration (ICA) from Part I cannot be applied to Section 44 by using the phrase “unless the context otherwise requires” in Section 44.
Unlike the definition of “international commercial arbitration” in Section 2(1)(f) of Part I, the nationality, domicile, or residence of parties is not relevant for the applicability of Section 44 of the Arbitration Act.
Sections 23 and 28 of the Contract Act do not mandate the selection of a foreign seat in arbitration. Moreover, the exception to Section 28 of the Contract Act explicitly excludes arbitration, acknowledging party autonomy, which is fundamental to the Arbitration Act.
The arbitration clause in the settlement agreement, along with the procedural orders by the arbitrator, designated Zurich as the seat and Mumbai as a convenient venue. Both parties accepted this arrangement, and it should govern the arbitral proceedings in this case.

JUDGEMENT

The Supreme Court held that Part I of the Arbitration Act focuses on arbitration within India, while Part II addresses New York Convention awards, both being equally enforceable as India is a signatory to the New York Convention. Therefore, foreign awards can be enforced in India. Additionally, if the arbitration seat is outside India, irrespective of the parties’ nationality, the resulting award is considered a foreign award and is governed by the New York Convention.

Furthermore, the Court emphasized that neither the Arbitration Act nor the Indian Contract Act prohibits Indian parties from resolving disputes in foreign countries. It was underscored that mentioning an arbitration seat outside India in the settlement agreement does not conflict with Indian public policy. The Court emphasized the importance of balancing the freedom of contract with transparency and a commitment to non-violation of public policy. The choice of a foreign seat for arbitration was deemed not harmful to public policy.

Regarding interim relief, the Supreme Court ruled that if the disputed asset is located in India, either party can seek relief from Indian courts, even if the arbitration seat is outside India. However, this remedy applies only if the parties have not explicitly excluded its applicability in the settlement agreement. Therefore, the application for interim relief under Section 9 of the Arbitration Act shall be considered concerning section 2(e)(ii) of the Arbitration Act, making it maintainable as per the Gujarat High Court’s judgment.

ANALYSIS

The Supreme Court’s decision in PASL Wind Solutions clarified essential aspects of arbitration law. Firstly, it addressed the determination of the seat through the closest connection test, rejecting PASL’s argument that Mumbai was the seat based on this test. The Court emphasized that the closest connection test is only applicable if the seat is unclearly designated by the parties or the tribunal, referencing a previous case where London was specified as the venue, but not the seat.

The Court also emphasized the mutual exclusivity of Part I and Part II of the Arbitration Act. Part I covers arbitrations in India, regardless of whether they are domestic or international, while Part II focuses solely on the enforcement of foreign arbitral awards. It clarified that the applicability of Part II depends on whether the award is made outside India in a New York Convention signatory country.

Additionally, the Court distinguished between international commercial arbitration (ICA) and foreign awards. ICA involves parties from different countries, while a foreign award is made outside the state where enforcement is sought. The nationality or residence of parties is irrelevant in determining a foreign award, unlike in ICA.

The judgment highlighted the broader scope of the New York Convention compared to the Geneva Convention. It discussed the definition of a foreign award under Section 44 of the Arbitration Act, emphasizing that it doesn’t align with the definition of international commercial arbitration. The Court also considered provisions of the Federal Arbitration Act of the USA, pointing out that India’s legislation doesn’t contain similar caveats, underscoring the applicability of Part II.

Prior to this judgment, various legal cases had discussed party autonomy in choosing a foreign seat of arbitration. The Court clarified that two Indian companies can choose a foreign seat for arbitration, upholding the principle of freedom of contract.

CONCLUSION

In conclusion, the Court emphasized the importance of balancing freedom of contract with any potential harm to the public. It upheld the notion that two Indian parties can choose a foreign seat for arbitration, provided it doesn’t violate public policy. The enforcement of a foreign award may be refused if it contravenes fundamental Indian policies.

RFERENCES

This Article is written by Yashasvi Sharma student of Vivekananda Institute of Professional Studies, GGSIPU; Intern at Legal Vidhiya.