The Indian Arbitration Act has been amended quite a few times to update the same with the time and developing legal field. Arbitration is considered to be one of the fastest growing field, which are preferred by the parties for the dispute resolution mechanism. Indian Arbitration Act has been divided into two parts which deal with the enforcement of the arbitral award, Part I which applies on the domestic arbitrations and parties having foreign seat of arbitration are covered under Part II of the Act. Indian law clearly mentions that an Indian party and a foreign party can have foreign seat of arbitration to resolve the disputes. There has been a dilemma and debate which revolve around the issue of two Indian parties selecting a foreign seat of arbitration. In the light of this issue, various interpretations have been laid down by different Indian High courts and Supreme Court of India which has given birth of various confusion and lead to an unsettled question of law in Indian Arbitration Law.
Pro – Arbitration Approach
In the Arbitration Act of 1940, the issue pertaining to whether two Indian parties are allowed to arbitrate in the foreign country was a settled principle. As Supreme Court of India in the case of Atlas Export Industries v. Kotak & Company, held that two Indian parties have the liberty to select the foreign seat of arbitration and there is no bar on them under the Arbitration Act. The apex court had adopted a pro-arbitration approach while deciding the case, the same approach was diluted and enhanced by various other judgments.
The Arbitration Act of 1940 was repealed by the Arbitration and conciliation Act, 1996. The term “International commercial Arbitration” has been defined under the Section 2(2) of the Act which needs at least foreign party to be there in the commercial dispute. The Two Indian parties having liberty of choosing foreign seat of arbitration had been unsettled in the new arbitration Act. The Madhya Pradesh High Court in case of Sasan Power Limited v. North American Coal Corporation India Pvt. Ltd placed reliance on the Atlas Export case and held that two Indian parties can arbitrate in foreign country if they want to under the Arbitration Act of 1996. On the same lines Delhi High Court in the case of GMR Energy Limited v. Doosan Power Systems India Private Limited ruled that two Indian parties have the liberty under the Arbitration Act to choose foreign seat of arbitration.
The Supreme Court of India in the case of Reliance Industries Limited v. Union of India, the issue of was pertaining to the exclusion of Part I of the arbitration act in the arbitration agreement by two Indian parties which seated in London. The court indirectly held that choice of London as a seat of arbitration was valid and party autonomy principle was recognised by the court. In the recent case of GE Power Conversion India Private Limited v. PASL Wind Solutions Private Limited, Gujarat high also applied the progressive approach while deciding the matter and it was held that two Indian parties can have foreign seat of arbitration. It was also held that Section 9 (Interim relief) would not be applicable in such cases, this was interpreted in the light of 2015 Arbitration Act amendment.
Party autonomy principle is one of the basic principles in International arbitration law, according to which parties are at liberty to decide the applicable rules, procedural and substantive laws for resolving the dispute. The courts in these cases had adopted pro-arbitration approach by upholding the party autonomy principle under the Indian Arbitration Act of 1996, and had allowed the two Indian parties to arbitrate in a foreign country.
Contrary Approach
As there are always two sides to every issue, this issue has also couple of judgments which makes this issue an unsettled notion by not allowing two Indian parties arbitrate in a foreign jurisdiction. In the cases of Addhar Mercantile Private Limited v. Shree Jagdamba Agrico Exports Pvt. Ltd as well as Seven Islands Shipping Ltd. v. Sah Petroleums Ltd., Bombay high court in both of these judgments had held that Arbitration act and the definition of International commercial arbitration does not allows two Indian parties to have foreign seat of arbitration. The judgments had relied on the judgment delivered by the Supreme Court in the case of TDM Infrastructure Pvt. Ltd. v. UE Development India Pvt. Ltd., wherein It was held that Indian parties cannot derogate from the Indian law by having foreign seat of arbitration.
The courts in judgments had applied a regressive approach, in the modern day times when the principle of party autonomy and arbitration are gaining vide applicability. The few courts have taken a step backwards by sticking to the black letter interpretation of the law.
Conclusion
The International forums and country are moving away from the traditional approach of solving the disputes in the court by the means of litigation and arbitration is most preferred substituted for the same. In the commercial disputes where time is equal to the money and delay causes huge loses to the parties, arbitration is being used to solve the commercial disputes. The countries are expected to have a uniform as well as progressive approach towards the adopting the arbitration as effective method to resolve the disputes. India has been doing its part in adapting to the International standards of arbitration by bringing updates in arbitration act as well signing various international treaties. There are few issues which are being addressed and developed by the Indian courts to make the path smooth for the parties to enter into arbitration agreement.
The issue whether two parties are allowed to having foreign seat of arbitration is acting as a hurdle in the pathway of various Indian parties. The courts have delivered regressive as well as progressive judgments pertaining to this issue. The principle of party autonomy is basic principle which form the base for the arbitration law and makes the arbitration law different from the traditional method of dispute resolution. As per this principle the parties should be at freedom to choose place, law, no. of arbitrators and rules in the arbitration. The principle of party autonomy has been applied by the courts while delivering the judgements in favour of two parties having foreign seat of arbitration.
The judgment in case of TDM Infrastructure, cannot be relied on the by the courts and parties as in Supreme court did not deal with the issue of two Indian parties having foreign seat of arbitration explicitly. The court has just opined against the issue and the same was never part of ratio of the judgement which doesn’t make it as a binding principle. The Supreme Court has not dealt with this issue explicitly in any of cases and only case it was dealt explicitly was Atlas case but the same was in reference of 1940 Arbitration Act.
The ambiguity still exists surrounding this issue as there exists contrary opinion given by different high courts, which leaves the parties in middle of sea while choosing for a foreign seat of arbitration. According to authors the two Indian parties should be allowed to arbitrate in the foreign jurisdiction as arbitration law works on the liberal approach rather than a restrictive approach and party autonomy is most basic feature in arbitration law. The only way this dispute could be resolved is either Supreme Court gives verdict on this issue or Legislature makes the wordings of arbitration act clearer by the means of amendment.
Party autonomy principle is one of the basic principles in the international arbitration law, according to which parties are at liberty to decide the applicable rules, procedural and substantive laws for resolving the dispute. The courts in these cases had adopted pro-arbitration approach by upholding the party autonomy principle under the Indian Arbitration Act of 1996, and allowed the two Indian parties to arbitrate in a foreign country.