Supreme Court on Choice of Foreign Seat of Arbitration by Indian Parties

In its latest pro-arbitration judgement delivered on 20 April 2021 in the case of PASL Wind Solutions Private Limited v. GE Power Conversion India Private Limited, a 3 judge bench of the Supreme Court settled the most frequently asked question in Indian arbitration law – whether two Indian parties can adopt a foreign seat of arbitration. The Supreme Court has decided this issue in favour of party autonomy and has, without qualification, held that two Indian parties can choose a foreign seat of arbitration. The Supreme Court has further upheld the right of parties to seek interim relief under Section 9 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) in such cases.

Factual Background

Pursuant to certain disputes, the Appellant, PASL Wind Solutions Private Limited (PASL) and the Respondent, GE Power Conversion India Private Limited (GE Power) entered into a settlement agreement whereby GE Power agreed to provide certain warranties.

Further disputes arose between the parties in relation to the scope of the warranties provided by GE Power under the settlement agreement. These disputes were referred to a sole arbitrator appointed by the International Chamber of Commerce (ICC). The relevant portion of the governing law and dispute resolution clause in the settlement agreement provided as follows:

“6.2 In case no settlement can be reached through negotiations, all disputes, controversies or differences shall be referred to and finally resolved by Arbitration in Zurich in the English language, in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce, which Rules are deemed to be incorporated by reference into this clause. The Arbitration Award shall be final and binding on both the parties.”

Initially, GE Power challenged the jurisdiction of the sole arbitrator on the ground that two Indian parties could not have chosen a foreign seat of arbitration. This argument was opposed by PASL. The sole arbitrator held that there is no bar under Indian law for two parties to freely agree to a foreign seat and accordingly held that the seat of the arbitration was Zurich, Switzerland. This procedural order was not challenged, and the arbitration proceeded further on this basis. The arbitral hearings were conducted in Mumbai. A final award dated 18 April 2019 (Award) was issued in favour of GE Power.

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