# PASL WIND SOLUTIONS PRIVATE LIMITED v. GE POWER CONVERSION INDIA PRIVATE LIMITED

- **Citation:** [2021] 4 S.C.R. 532
- **Court:** Supreme Court of India
- **Decided:** 2021-04-20
- **Case number:** Civil Appeal No. 1647 of 2021
- **Bench:** Rohinton Fali Nariman, B.R. Gavai, Hrishikesh Roy
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/pasl-wind-solutions-private-limited-v-ge-power-conversion-india-private-limited-35240
- **Pages:** 101

## Headnote

Arbitration and Conciliation Act, 1996:
ss. 44, 2(1)(f), 2(2), 49 - Enforcement of foreign award -
Dispute between appellant and respondent, two Indian companies,
wherein the respondent company, subsidiary of a French company
- Execution of settlement agreement by the parties which provided
for arbitration in Zurich in accordance with the Rules of Conciliation
and Arbitration of the International Chamber of Commerce - Parties
agreeing to resolve the dispute by sole arbitrator appointed by the
ICC and the substantive law would be Indian law - Respondent
challenged the jurisdiction on the ground that two Indian parties
could not have chosen a foreign seat - However, the arbitrator
held that the arbitration clause in the Settlement agreement as valid
and governing law to be Swiss law because the seat of arbitration
was Zurich, Switzerland, though Mumbai was designated as the
venue - Final award passed in favour of respondent - Respondent
filed enforcement proceedings before the High Court while appellant
challenged the final award - High Court upheld the enforcement of
the arbitral award - On appeal, held: Seat of the arbitration remains
Zurich, Switzerland and venue of the hearing would be Mumbai,
India - Closest connection test not applicable as seat was designated
by the parties and by the tribunal - Part I and Part II of the Act are
mutually exclusive - It cannot be said that proviso to s. 2(2) is a
bridge that joined Part II to Part I - Furthermore, disputes are
between two persons-two Indian companies, and the arbitration is
conducted at the seat designated by the parties, i.e. Zurich, being
in Switzerland, a signatory to the New York Convention - Context
of s. 44 is party-neutral, having reference to the place at which the
award is made - Elusive expression "public policy" appearing in s.
23 of the Contract Act is a relative concept capable of modification
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- There is nothing in either s. 23 or s. 28 which interdicts two Indian
parties from getting their disputes arbitrated at a neutral forum
outside India - Effect is to be given to the party autonomy, being
the brooding and guiding spirit of arbitration - Plea that s. 10 of
the Commercial Courts Act would apply, and thus, impugned
judgment is to be set aside, as it was without jurisdiction, cannot be
accepted - Thus, two Indian parties can choose a foreign seat of
arbitration to which New York Convention applies and the award
passed by such forum is enforceable in India - Convention on the
Recognition and Enforcement of Foreign Arbitral Awards, 1958 -
Contract Act, 1872 - ss. 23 and 28 - Commercial Courts, Commercial
Division and Commercial Appellate Division of High Courts Act,
2015 - s. 10.
s. 44 - Foreign award - Meaning of - Necessary ingredients
- Explained.
s. 2(1)(f) - Expression "international commercial arbitration"
- Definition of.
s. 28(1)(a) - Rules applicable to substance of dispute -
Interpretation of s. 28(1)(a) - Held: s. 28(1)(a) makes no reference
to an arbitration being conducted between two Indian parties in a
country other than India - It cannot be held to interdict two Indian
parties from resolving their disputes at a neutral forum in a country
other than India.
Disposing of the appeal, the Court
HELD: 1.1 Clause 6 of the settlement agreement would
show that arbitration is to be resolved "in Zurich" in accordance
with the Rules of Conciliation and Arbitration of the ICC. As per
this clause, Zurich was therefore, determined to be the juridical
seat of arbitration between the parties. At the Case Management
Conference, the arbitrator specifically decided that the venue of
the hearing shall be Mumbai, India and the seat of the arbitration
of course remains Zurich, Switzerland. This arrangement has been
accepted by both parties. [Paras 7, 8][561-E-F; 562-C-E, F-G]
1.2 The closest connection test would only apply if it is
unclear that a seat has been designated either by the parties or
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER
CONVERSI

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 [2021] 4 S.C.R. 532
532
PASL WIND SOLUTIONS PRIVATE LIMITED
v.
GE POWER CONVERSION INDIA PRIVATE LIMITED
(Civil Appeal No. 1647 of 2021)
APRIL 20, 2021
[ROHINTON FALI NARIMAN, B.R. GAVAI AND
HRISHIKESH ROY, JJ.]
Arbitration and Conciliation Act, 1996:
ss. 44, 2(1)(f), 2(2), 49 - Enforcement of foreign award -
Dispute between appellant and respondent, two Indian companies,
wherein the respondent company, subsidiary of a French company
- Execution of settlement agreement by the parties which provided
for arbitration in Zurich in accordance with the Rules of Conciliation
and Arbitration of the International Chamber of Commerce - Parties
agreeing to resolve the dispute by sole arbitrator appointed by the
ICC and the substantive law would be Indian law - Respondent
challenged the jurisdiction on the ground that two Indian parties
could not have chosen a foreign seat - However, the arbitrator
held that the arbitration clause in the Settlement agreement as valid
and governing law to be Swiss law because the seat of arbitration
was Zurich, Switzerland, though Mumbai was designated as the
venue - Final award passed in favour of respondent - Respondent
filed enforcement proceedings before the High Court while appellant
challenged the final award - High Court upheld the enforcement of
the arbitral award - On appeal, held: Seat of the arbitration remains
Zurich, Switzerland and venue of the hearing would be Mumbai,
India - Closest connection test not applicable as seat was designated
by the parties and by the tribunal - Part I and Part II of the Act are
mutually exclusive - It cannot be said that proviso to s. 2(2) is a
bridge that joined Part II to Part I - Furthermore, disputes are
between two persons-two Indian companies, and the arbitration is
conducted at the seat designated by the parties, i.e. Zurich, being
in Switzerland, a signatory to the New York Convention - Context
of s. 44 is party-neutral, having reference to the place at which the
award is made - Elusive expression "public policy" appearing in s.
23 of the Contract Act is a relative concept capable of modification
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- There is nothing in either s. 23 or s. 28 which interdicts two Indian
parties from getting their disputes arbitrated at a neutral forum
outside India - Effect is to be given to the party autonomy, being
the brooding and guiding spirit of arbitration - Plea that s. 10 of
the Commercial Courts Act would apply, and thus, impugned
judgment is to be set aside, as it was without jurisdiction, cannot be
accepted - Thus, two Indian parties can choose a foreign seat of
arbitration to which New York Convention applies and the award
passed by such forum is enforceable in India - Convention on the
Recognition and Enforcement of Foreign Arbitral Awards, 1958 -
Contract Act, 1872 - ss. 23 and 28 - Commercial Courts, Commercial
Division and Commercial Appellate Division of High Courts Act,
2015 - s. 10.
s. 44 - Foreign award - Meaning of - Necessary ingredients
- Explained.
s. 2(1)(f) - Expression "international commercial arbitration"
- Definition of.
s. 28(1)(a) - Rules applicable to substance of dispute -
Interpretation of s. 28(1)(a) - Held: s. 28(1)(a) makes no reference
to an arbitration being conducted between two Indian parties in a
country other than India - It cannot be held to interdict two Indian
parties from resolving their disputes at a neutral forum in a country
other than India.
Disposing of the appeal, the Court
HELD: 1.1 Clause 6 of the settlement agreement would
show that arbitration is to be resolved "in Zurich" in accordance
with the Rules of Conciliation and Arbitration of the ICC. As per
this clause, Zurich was therefore, determined to be the juridical
seat of arbitration between the parties. At the Case Management
Conference, the arbitrator specifically decided that the venue of
the hearing shall be Mumbai, India and the seat of the arbitration
of course remains Zurich, Switzerland. This arrangement has been
accepted by both parties. [Paras 7, 8][561-E-F; 562-C-E, F-G]
1.2 The closest connection test would only apply if it is
unclear that a seat has been designated either by the parties or
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by the tribunal. In this case, the seat has clearly been designated
both by the parties and by the tribunal, and has been accepted by
both the parties. Thus, it is not possible to accept the submission
that the seat of arbitration ought to be held to be Mumbai in the
facts of the instant case. [Paras 9, 10][562-H; 563-A, C]
Enercon (India) Ltd. v. Enercon GmbH (2014) 5 SCC 1
: [2014] 2 SCR 855 - distinguished.
Mankastu Impex (P) Ltd. v. Airvisual Ltd. (2020) 5 SCC
399 - referred to.
2.1 The Arbitration and Conciliation Act, 1996 is in four
parts. Part I deals with arbitrations where the seat is in India and
has no application to a foreign-seated arbitration. It is, therefore,
a complete code in dealing with appointment of arbitrators,
commencement of arbitration, making of an award and challenges
to the aforesaid award as well as execution of such awards. On
the other hand, Part II is not concerned with the arbitral
proceedings at all. It is concerned only with the enforcement of a
foreign award, as defined, in India. Section 45 alone deals with
referring the parties to arbitration in the circumstances mentioned
therein. Barring this exception, in any case, Part II does not apply
to arbitral proceedings once commenced in a country outside
India. [Para 11][563-D-F]
2.2 Even before the Arbitration Act of 1996, India, being
one of the earliest signatories to the New York Convention,
legislated in accordance therewith and enacted the Foreign Awards
Act in 1961. Under section 6 of the Foreign Awards Act, where
the court is satisfied that the foreign award is enforceable, the
court shall order the award to be filed and shall proceed to
pronounce judgment according to the award. This provision has
since been done away with by the Arbitration Act, 1996 as section
49 of the Arbitration Act expressly provides that the award shall
be deemed to be a decree of the court. Thereafter, section 7 of
the Foreign Awards Act enumerates grounds on which such foreign
award may be refused to be enforced. Obviously, under the earlier
regime, there was no overlap between the Arbitration Act, 1940,
which dealt only with domestic awards, and the Foreign Awards
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Act. This situation continues in the current Arbitration Act, Part
I and Part II of which have been held to be mutually exclusive.
This being the case, it is a little difficult to accede to any submission
that would breach the wall between Parts I and II. The submission
that the proviso to section 2(2) of the Arbitration Act is a bridge
which connects the two parts is rejected. As a matter of fact,
section 2(2) specifically states that Part I applies only where
the place of arbitration is in India. It is settled law that a
proviso cannot travel beyond the main enacting provision.
[Paras 12, 13][563-F-G; 564-B-D; 567-G-H]
Bharat Aluminium Co. v. Kaiser Aluminium Technical
Services Inc. (2012) 9 SCC 552 : [2012] 12 SCR 327
- followed.
Union of India v. Dileep Kumar Singh (2015) 4 SCC
421 : [2015] 2 SCR 882; DMRC v. Tarun Pal Singh
(2018) 14 SCC 161 : [2017] 14 SCR 202; Kandla
Export Corpn. v. OCI Corpn. (2018) 14 SCC 715 :
[2018] 1 SCR 915; Mavilayi Service Co-operative Bank
Ltd. v. Commissioner of Income Tax, Calicut 2021 SCC
OnLine SC 16 - relied on.
2.3 As a matter of fact, the reason for the insertion of the
proviso to section 2(2) by the Arbitration and Conciliation
(Amendment) Act, 2015 was because the judgment in Bhatia
International's case had muddied the waters by holding that
section 9 would apply to arbitrations which take place outside
India without any express provision to that effect. The judgment
in Bhatia' s case has been expressly overruled by a five-Judge
Bench in BALCO's case. Pursuant thereto, a proviso has now
been inserted to section 2(2) which only makes it clear that where,
in an arbitration which takes place outside India, assets of one of
the parties are situated in India and interim orders are required
qua such assets, including preservation thereof, the courts in
India may pass such orders. It is important to note that the
expression "international commercial arbitration" is specifically
spoken of in the context of a place of arbitration being outside
India, the consequence of which is an arbitral award to be made
in such place, but which is enforced and recognised under the
provisions of Part II of the Arbitration Act. The context of this
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expression is, therefore, different from the context of the
definition of "international commercial arbitration" contained in
Section 2(1)(f), which is in the context of such arbitration taking
place in India, which only applies "unless the context otherwise
requires". The four sub-clauses contained in section 2(1)(f) would
make it clear that the definition of the expression "international
commercial arbitration" contained therein is party-centric in the
sense that at least one of the parties to the arbitration agreement
should, inter alia, be a person who is a national of or habitually
resident in any country other than India. On the other hand, when
"international commercial arbitration" is spoken of in the context
of taking place outside India, it is place-centric as is provided by
section 44 of the Arbitration Act. This expression, therefore, only
means that it is an arbitration which takes place between two
parties in a territory outside India, the New York Convention
applying to such territory, thus making it an "international"
commercial arbitration. [Para 14][568-B-H]
Bharat Aluminium Co. v. Kaiser Aluminium Technical
Services Inc. (2012) 9 SCC 552 : [2012] 12 SCR 327;
Bhatia International v. Bulk Trading S.A. (2002) 4 SCC
105 : [2002] 2 SCR 411 - referred to.
3.1 Under section 44 of the Arbitration Act, a foreign award
is defined as meaning an arbitral award on differences between
persons arising out of legal relationships considered as
commercial under the law in force in India, in pursuance of an
agreement in writing for arbitration to which the New York
Convention applies, and in one of such territories as the Central
Government, by notification, declares to be territories to which
the said Convention applies. Thus, what is necessary for an award
to be designated as a foreign award under section 44 are four
ingredients: the dispute must be considered to be a commercial
dispute under the law in force in India, it must be made in
pursuance of an agreement in writing for arbitration, it must be
disputes that arise between "persons" (without regard to their
nationality, residence, or domicile), and the arbitration must be
conducted in a country which is a signatory to the New York
Convention. Ingredient (i) is undoubtedly satisfied on the facts
of this case. Ingredient (ii) is satisfied given clause 6 of the
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settlement agreement. Ingredients (iii) and (iv) are also satisfied
on the facts of this case as the disputes are between two persons,
i.e. two Indian companies, and the arbitration is conducted at the
seat designated by the parties, i.e. Zurich, being in Switzerland, a
signatory to the New York Convention. [Para 21][574-B-G]
3.2 The context of section 44 is party-neutral, having
reference to the place at which the award is made. For this reason,
it is not possible to accede to the submission that the very basis
of section 44 should be altered when two Indian nationals have
their disputes resolved in a country outside India; and that the
expression "unless the context otherwise requires" can be held
to undo the very basis of section 44 by converting it from a seatoriented provision in countries that are signatories to the New
York Convention to a person- oriented provision in which one of
the parties to the arbitration agreement has to be a foreign national
or habitually resident outside India. In any case, the context of
section 44 is very far removed from the context of an international
commercial arbitration in Part I which is defined for the purposes
of section 11, section 28, section 29A(1), section 34(2A), and
section 43I, all of which occur in Part I and deal with arbitrations
which take place in India. Also, the submission of the appellant
would involve bodily importing the expression "international
commercial arbitration" into section 44, which cannot be done
because of the opening words of section 44, "In this Chapter"
which is Chapter I of Part II, and then applying the definition
contained in section 2(1)(f) of the Arbitration Act which, being
restricted to Part I, must now be applied to Part II. No canon of
interpretation would permit acceptance of such a submission. A
foreign award cannot be refused to be enforced merely because
it was made between two Indian parties, under pari materia
provisions of the Foreign Awards Act. This Court cannot accede
to the submission that Atlas's case cannot be regarded as an
authority for the proposition that sections 23 and 28 of the Contract
Act are out of harm's way when it comes to enforcing a foreign
award under the Foreign Awards Act, 1961, where both parties
are Indian companies. [Paras 25, 26, 28 and 30][579-B-C;
580-C-F; 583-A-B; 584-F-G]
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Atlas Export Industries v. Kotak & Co. (1999) 7 SCC
61 : [1999] 2 Suppl. SCR 192 - relied on.
Vanguard Fire and General Insurance Co. Ltd. v. Fraser
and Ross [1960] 3 SCR 857; Bennett Coleman & Co.
(P) Ltd. v. Punya Priya Das Gupta (1969) 2 SCC 1 :
[1970] 1 SCR 181; Allied Motors (P) Ltd. v. CIT (1997)
3 SCC 472 : [1997] 2 SCR 780; S.K. Gupta v. K.P.
Jain (1979) 3 SCC 54 : [1979] 2 SCR 1184; State of
Gujarat v. Manoharsinhji Pradyumansinhji Jadeja
(2013) 2 SCC 300 : [2012] 11 SCR 507; Shayara Bano
v. Union of India (2017) 9 SCC 1: [2017] 9 SCR 797
- referred to.
Jacobs v. London County Council (1950) 1 All ER 737
- referred to.
3.3 Under U.S. law, an arbitration agreement or award made
between two U.S. citizens shall not fall under the New York
Convention unless such relationship involves properties located
abroad, envisages performance of a contract, entered in the U.S.,
to take place abroad, or has some reasonable connection with
one or more foreign states. No such caveat is entered when India
acceded to the New York Convention and enacted the Foreign
Awards Act and the Arbitration Act, 1996. On the contrary,
"persons" mentioned in section 44 has no reference to nationality,
residence or domicile. This is another important pointer to the
fact that, unlike the U.S. Code, section 44 of the Arbitration
Act does not enter any such caveat. [Paras 31, 32][584-G-H;
585-A, D-E]
3.4 Once it is found that parties by mutual agreement have
decided to resolve their dispute by arbitration and when they, on
their own, chose to have the seat of arbitration in a foreign country,
then in view of the provisions of s. 2(2) of the Act of 1996, Part I
of the Act, will not apply in a case where the place of arbitration is
not India and if Part I does not apply and if the agreement in
question fulfils the requirement of s. 44 then Part II will apply
and when Part II applies and it is found that agreement is not null
or void or inoperative, the bar created under s. 45 would come
into play and if bar created under s. 45 comes into play then it is
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a case where the Court below had no option but to refer the
parties for arbitration as the bar under s. 45 would also apply and
the suit itself was not maintainable. [Para 33][594-A-D]
State of West Bengal v. Associated Contractors (2015)
1 SCC 32 : [2014] 10 SCR 426 - relied on.
Sasan Power Limited v. North American Coal
Corporation (India) Pvt. Ltd. 2015 SCC OnLine MP
7417 - approved.
TDM Infrastructure (P) Ltd. v. UE Development India
(P) Ltd. (2008) 14 SCC 271 : [2008] 8 SCR 775 -
overruled.
Seven Islands Shipping Ltd. v. Sah Petroleums Ltd.
(2012) 5 Mah LJ 822; M/s. Addhar Mercantile Pvt.
Ltd. v. Shree Jagadamba Agrico Exports Pvt. Ltd.
Arbitration Application No. 197 of 2014 (decided on
12.06.2015) - disapproved.
Fuerst Day Lawson Ltd. v. Jindal Exports Ltd. (2011) 8
SCC 333 : [2011] 11 SCR 1; GMR Energy Limited v.
Doosan Power Systems India CS (COMM) 447/2017
(decided on 14.11.2017; Dholi Spintex v. Louis Dreyfus
CS (COMM) 286/2020 (decided on 24.11.2020) -
referred to.
"New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards" by Professor
Pieter Sanders (Netherlands International Law Review,
Volume 6, Issue 1, March 1959); "International
Commercial Arbitration" by Gary B. Born (Wolters
Kluwer, 3rd Edn., 2021) - referred to.
4.1 The appellant's submission that even if Atlas's case is
to be taken to be a binding precedent, it contains no discussion
on how section 23 of the Contract Act is not infracted and does
not, in any case, deal with the submission based on section
28(1)(a) and section 34(2A) of the Arbitration Act. The elusive
expression "public policy" appearing in section 23 of the Contract
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Act is a relative concept capable of modification in tune with
the strides made by mankind in science and law. [Paras 38,
39][602-C-D; 603-C-D]
4.2 Freedom of contract needs to be balanced with clear
and undeniable harm to the public, even if the facts of a particular
case do not fall within the crystallised principles enumerated in
well-established 'heads' of public policy. The question that then
arises is whether there is anything in the public policy of India,
as so understood, which interdicts the party autonomy of two
Indian persons referring their disputes to arbitration at a neutral
forum outside India. [Para 49][612-F-G]
Atlas Export Industries v. Kotak & Co. (1999) 7 SCC
61 : [1999] 2 Suppl. SCR 192; Gherulal Parakh v.
Mahadeodas Maiya [1959] Supp 2 SCR 406;
Murlidhar Aggarwal v. State of U.P. (1974) 2 SCC 472
: [1975] 1 SCR 575; Union of India v. Gopal Chandra
Misra (1978) 2 SCC 301 : [1978] 3 SCR 12; Central
Inland Water Transport Corpn. v. Brojo Nath Ganguly
(1986) 3 SCC 156 : [1986] 2 SCR 278; Rattan Chand
Hira Chand v. Askar Nawaz Jung (1991) 3 SCC 67 :
[1991] 1 SCR 327; Renusagar Power Co. Ltd. v.
General Electric Co. 1994 Supp (1) SCC 644 : [1993]
3 Suppl. SCR 22; Zoroastrian Coop. Housing Society
Ltd. v. District Registrar, Coop. Societies (Urban) (2005)
5 SCC 632 : [2005] 3 SCR 592; State of Rajasthan v.
Basant Nahata (2005) 12 SCC 77 : [2005] 3 Suppl.
SCR 1; Vodafone International Holdings BV v. Union
of India (2012) 6 SCC 613:[2012] 1 SCR 573 -
referred to.
Maxim Nordenfelt Guns and Ammunition Company v.
Nordenfelt [1893] 1 Ch. 630 - referred to.
4.3 It can be seen that exception 1 to section 28 of the
Contract Act specifically saves the arbitration of disputes between
two persons without reference to the nationality of persons who
may resort to arbitration. It is for this reason that this Court in
Atlas's case referred to the said exception to section 28 and found
that there is nothing in either section 23 or section 28 which
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interdicts two Indian parties from getting their disputes arbitrated
at a neutral forum outside India. [Para 50][612-G-H; 613-A]
4.4 The submission by the appellant, with specific reference
to section 28(1)(a) and section 34(2A) of the Arbitration Act, that
since two Indian parties cannot opt out of the substantive law of
India and therefore, ought to be confined to arbitrations in India,
Indian public policy, as reflected in these two sections, ought to
prevail, cannot be accepted. It will be seen that section 28(1)(a)
of the Arbitration Act, when read with section 2(2), section 2(6)
and section 4, only makes it clear that where the place of arbitration
is situated in India, in an arbitration other than an international
commercial arbitration (i.e. an arbitration where none of the
parties, inter alia, happens to be a national of a foreign country or
habitually resident in a foreign country), the arbitral tribunal shall
decide the dispute in accordance with the substantive law for the
time being in force in India. [Para 51][613-A-D]
4.5 Section 28(1)(a) of the Arbitration Act makes no
reference to an arbitration being conducted between two Indian
parties in a country other than India, and cannot be held, by some
tortuous process of reasoning, to interdict two Indian parties from
resolving their disputes at a neutral forum in a country other
than India. [Para 52][613-D-E]
4.6 Any dispute between Indian national who is habitually
resident in a country outside India and an Indian national who is
habitually resident in India would attract the provisions of section
2(1)(f)(i) and, consequently, section 28(1)(b) of the Arbitration
Act, in which case two Indian nationals would be entitled to have
their dispute decided in India in accordance with the rules of law
designated by the parties as applicable to the substance of the
dispute, which need not be Indian law. This, by itself, is a strong
indicator that section 28 of the Arbitration Act cannot be read in
the manner suggested by the appellant. [Para 53][613-E-F]
4.7 It will be seen that where the law of India prohibits a
certain act, the conflict of law rules as set down in Dicey's
authoritative treatise will take care of this situation in most cases
as the arbitrators would then apply these rules on the ground of
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international comity between nations in cases which arise between
two Indian nationals in an award made outside India, which would
fall within the definition of "foreign award" under Section 44 of
the 1996 Act. [Para 57][620-G-H]
Foster v. Driscoll 1929 1 Kings Bench 470; Regazzoni
v. KC Sethia [1958] A.C. 301 - referred to.
Dicey, Morris and Collins on the Conflict of Laws
(Sweet & Maxwell, 15th Edn.) - referred to.
4.8 Even otherwise, a ground may be made out under section
48 against enforcement of a foreign award where enforcement of
such award would be contrary to the public policy of India. If, on
the facts of a given case, it is found that two Indian nationals have
circumvented a law which pertains to the fundamental policy of
India, such foreign award may then not be enforced under section
48(2)(b) of the Arbitration Act. On the assumption that the
example of the Benami Transactions Act pertains to the
fundamental policy of Indian law, if the foreign award is contrary
to such fundamental policy, such award will then not be enforced
in India. [Para 58][621-A-C]
4.9 When it comes to the ground raised under section
34(2A) of the Arbitration Act, it is clear that in an international
commercial arbitration, say, between an Indian national habitually
resident outside India and an Indian national resident in India,
even when the arbitration takes place in India resulting in an
award being made in India, the ground available under section
34(2A) would not be available, as it would not apply to an
international commercial arbitration held in India. In agreeing to
a neutral forum outside India, parties agree that instead of one
bite at the cherry under section 34 of the Arbitration Act, where
an arbitration between two Indian nationals is conducted in India
[with the grounds for setting aside the award being available under
section 34(2A)], what is instead put in place by the parties is two
bites at the cherry, namely, the recourse to a court or tribunal in
a country outside India for setting aside the arbitral award passed
in that country on grounds available in that country (which may
be wider than the grounds available under section 34 of the
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Arbitration Act), and then resisting enforcement under the
grounds mentioned in section 48 of the Arbitration Act. The
balancing act between freedom of contract and clear and
undeniable harm to the public must be resolved in favour of
freedom of contract as there is no clear and undeniable harm
caused to the public in permitting two Indian nationals to avail of
a challenge procedure of a foreign county when, after a foreign
award passes muster under that procedure, its enforcement can
be resisted in India on the grounds contained in section 48 of the
Arbitration Act, which includes the foreign award being contrary
to the public policy of India. [Para 59][621-C-G]
5. The decks have now been cleared to give effect to party
autonomy in arbitration. Party autonomy has been held to be the
brooding and guiding spirit of arbitration. Nothing stands in
the way of party autonomy in designating a seat of arbitration
outside India even when both parties happen to be Indian
nationals. [Paras 60, 61][621-G-H; 622-A; 627-E-F]
Bharat Aluminium Co. v. Kaiser Aluminium Technical
Services Inc. (2016) 4 SCC 126 : [2016] 1 SCR 364;
Centrotrade Minerals & Metal Inc. v. Hindustan Copper
Ltd. (2017) 2 SCC 228 : [2016] 9 SCR 83 - relied on.
6.1 The appellant relied upon section 10 read with section
21 of the Commercial Courts Act to argue that in all cases between
Indian nationals which result in awards delivered in a country
outside India, section 10(3) would apply, as a result of which the
impugned judgment having been made by a High Court, is made
without jurisdiction, cannot be accepted. It must be remembered
that when a foreign award is sought to be enforced under Part II
of the Arbitration Act, the explanation to section 47 makes it
clear that it is the High Court alone which is the court on whose
doors the applicant must knock. This is sought to be answered
by the appellant by stating that since the explanation to section
47 is in direct collision with section 10(3) of the Commercial
Courts Act, vide section 21 of the Commercial Courts Act, section
10(3) would prevail over the explanation to section 47. [Paras
62, 63, 69][627-F-G; 628-G-H; 632-D-E]
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER
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6.2 Section 2(1)(f) of the Arbitration Act which defines the
expression "international commercial arbitration" is only for a
limited purpose, namely, for the purpose of Part I of the Arbitration
Act. Under section 2(2) of the Commercial Courts Act, words
and expressions used and not defined in the Commercial Courts
Act but defined in the CPC and the Evidence Act, 1872 shall
have the same meanings respectively assigned to them in that
Code and the Act. Conspicuous by its absence are definitions
contained in the Arbitration Act. [Para 64][629-B-C]
6.3 "International commercial arbitration", when used in
the proviso to section 2(2) of the Arbitration Act, does not refer
to the definition contained in section 2(1)(f) but would have
reference to arbitrations which take place outside India, awards
made in such arbitrations being enforceable under Part II of the
Arbitration Act. It will be noted that section 10(1) applies to
international commercial arbitrations, and applications or appeals
arising therefrom, under both Parts I and II of the Arbitration
Act. When applications or appeals arise out of such arbitrations
under Part I, where the place of arbitration is in India,
undoubtedly, the definition of "international commercial
arbitration" in section 2(1)(f) will govern. However, when applied
to Part II, "international commercial arbitration" has reference
to a place of arbitration which is international in the sense of the
arbitration taking place outside India. Thus construed, there is
no clash at all between section 10 of the Commercial Courts Act
and the explanation to section 47 of the Arbitration Act, as an
arbitration resulting in a foreign award, as defined under section
44 of the Arbitration Act, will be enforceable only in a High Court
under section 10(1) of the Commercial Courts Act, and not
in a district court under section 10(2) or section 10(3).
[Para 66][629-D-G]
6.4 The substantive law as to appeals and applications is
laid down in the Arbitration Act whereas the procedure governing
the same is laid down in the Commercial Courts Act. In this
context, it has also been held that the Arbitration Act is a special
Act vis-à-vis the Commercial Courts Act which is general, and
which applies to the procedure governing appeals and applications
in cases other than arbitrations as well. It is interesting to note
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that the Arbitration and Conciliation (Amendment) Act, 2015 and
the Commercial Courts Act, 2015, both came into effect from
23.10.2015. It has been held that even a later general law which
contains a non-obstante clause does not override a special law as
both must be held to operate. [Paras 67, 68][629-G-H; 630-A-B;
631-D-E]
BGS SGS SOMA JV v. NHPC (2020) 4 SCC 234; Kandla
Export Corpn. v. OCI Corpn. (2018) 14 SCC 715 :
[2018] 1 SCR 915; R.S. Raghunath v. State of
Karnataka, (1992) 1 SCC 335 : [1991] 1 Suppl. SCR
387 - referred to.
7.1 The respondent, by way of cross objection, challenged
the finding of the Gujarat High Court by the impugned judgment
that the section 9 application was not maintainable by reason of
the expression "international commercial arbitration" appearing
in the proviso to section 2(2) having the meaning to be ascribed
by section 2(1)(f) of the Arbitration Act. This view of the law is
incorrect. Consequently, this part of the judgment is set aside, it
being held that the application made by the respondent under
section 9 would be maintainable. [Para 70][632-E-G]
7.2 The impugned judgment of the High Court is upheld,
except for the finding on the s. 9 application of the respondent
being held to be non-maintainable. [Para 71][632-G]
Sasan Power Ltd. v. North American Coal Corporation
(India) Pvt. Ltd. (2016) 10 SCC 813 : [2016] 6 SCR
809 - referred to.
Case Law Reference
[2016] 6 SCR 809
referred to
Para 4.4
(2020) 5 SCC 399
referred to
Para 7
[2014] 2 SCR 855
distinguished
Para 9
[2012] 12 SCR 327
followed
Para 12, 14
[2015] 2 SCR 882
relied on
Para 13
[2017] 14 SCR 202
relied on
Para 13
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER
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[2021] 4 S.C.R.
[2018] 1 SCR 915
relied on
Para 13
[2002] 2 SCR 411
referred to
Para 14
[2012] 12 SCR 327
referred to
Para 14
[1960] 3 SCR 857
referred to
Para 24(i)
[1970] 1 SCR 181
referred to
Para 24(ii)
[1997] 2 SCR 780
referred to
Para 24(iii)
[1979] 2 SCR 1184
referred to
Para 25
[1999] 2 Suppl. SCR 192
relied on
Para 28
[2012] 11 SCR 507
referred to
Para 29
[2017] 9 SCR 797
referred to
Para 29
[1999] 2 Suppl. SCR 192
referred to
Para 30, 38
[2011] 11 SCR 1
referred to
Para 33
[2014] 10 SCR 426
relied on
Para 33
[2008] 8 SCR 775
overruled
Para 33
(2012) 5 Mah LJ 822
disapproved
Para 36
[1959] Supp 2 SCR 406
referred to
Para 40
[1975] 1 SCR 575
referred to
Para 41
[1978] 3 SCR 12
referred to
Para 42
[1986] 2 SCR 278
referred to
Para 43
[1991] 1 SCR 327
referred to
Para 44
[1993] 3 Suppl. SCR 22
referred to
Para 45
[2005] 3 SCR 592
referred to
Para 46
[2005] 3 Suppl. SCR 1
referred to
Para 47
[2012] 1 SCR 573
referred to
Para 48
[2016] 1 SCR 364
relied on
Para 60
[2016] 9 SCR 83
relied on
Para 61
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(2020) 4 SCC 234
referred to
Para 67
[2018] 1 SCR 915
referred to
Para 67
[1991] 1 Suppl. SCR 387
referred to
Para 62
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1647
of 2021.
From the Judgment and Order dated 03.11.2020 of the High Court
of Gujarat at Ahmedabad in Petition under Arbitration Act No. 131 of
2019.
Tushar Hemani, Sr. Adv., Dhaval Shah, Sharvil Pathak, Unmesh
Shukla, Ms. Aditi Sheth, Ms. Anushree Prashit Kapadia, Adv. for the
Appellant.
Nakul Dewan, Sr. Adv., Ms. Shaheen Parikh, Ms. Shalaka Patil,
Surya Karan Sambyal, Rahul Mantri, Ms. Anushka Shah, Sambit Nanda
for M/S. Cyril Amarchand Mangaldas, Advs. for the Respondent.
The Judgment of the Court was delivered by
R. F. NARIMAN, J.
1. Leave granted.
2. The present appeal raises an interesting question - as to whether
two companies incorporated in India can choose a forum for arbitration
outside India - and whether an award made at such forum outside India,
to which the Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, 1958 ["New York Convention"] applies, can be said
to be a "foreign award" under Part II of the Arbitration and Conciliation
Act, 1996 ["ArbitrationAct"] and be enforceable as such.
Factual Background
3.1. The appellant is a company incorporated under the Companies
Act, 1956 with its registered office at Ahmedabad, Gujarat. The
respondent is a company incorporated under the Companies Act, 1956
with its registered office at Chennai, Tamil Nadu, and is a 99% subsidiary
of General Electric Conversion International SAS, France, which in turn
is a subsidiary of the General Electric Company, United States.
3.2. In 2010, the appellant issued three purchase orders to the
respondent for supply of certain converters. Pursuant to these purchase
orders, the respondent supplied six converters to the appellant. Disputes
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER
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arose between the parties in relation to the expiry of the warranty of the
said converters. In order to resolve these disputes, the parties entered
into a settlement agreement dated 23.12.2014. Under clauses 5.1 and
5.2 of the settlement agreement, the respondent agreed to provide certain
delta modules along with warranties on these modules for the working
of the converter panel. Clause 6 of the settlement agreement contained
the dispute resolution clause which reads as follows:
"6. Governing Law and Settlement of Dispute
6.1 Any dispute or difference arising out of or relating to this
agreement shall be resolved by the Parties in an amicable way.
(A minimum of 60 days shall be used for resolving the dispute in
amicable way before same can be referred toarbitration).
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.
6.3 The Agreement (together with any documents referred to
herein) constitutes the whole agreement between the Parties and
it is hereby expressly declared that no variation and / or
amendments hereof be effective unless mutually agreed upon and
made in writing."
3.3. Disputes arose between the parties pursuant to the settlement
agreement whereby the appellant claimed that warranties that were
supposed to be given for converters were not so given, whereas the
respondent argued that the warranties covered only the delta modules
and not the converters. Thus, on 03.07.2017, the appellant issued a request
for arbitration to the International Chamber of Commerce ["ICC"]. On
18.08.2017, the parties agreed to resolution of disputes by the sole
arbitrator appointed by the ICC. It was agreed between the parties, as
was reflected in the request for arbitration and in the terms of reference
to arbitration, that the substantive law applicable to the dispute would be
Indian law.
3.4. The respondent filed a preliminary application challenging
the jurisdiction of the arbitrator on the ground that two Indian parties
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could not have chosen a foreign seat of arbitration. Importantly, the
appellant opposed the said application and asserted that there was no
bar in law from this being done. By Procedural Order No.3 dated
20.02.2018, the learned sole arbitrator, Mr. Ian Leonard Meakin, dismissed
the respondent's preliminary application, holding as follows:
"The Tribunal finds that two Indian parties can arbitrate outside
India. The Tribunal is persuaded that the Supreme Court of India's
decision in Reliance Industries Ltd v. Union of India (2014)7
SCC 603 (Exhibit CLM-3) is a leading authority. This has been
confirmed by the Supreme Court of India in Sasan Power Limited
v. North American Coal Corporation India Private Limited
(2016) 10 SCC 813 (RL-6), which at an earlier instance before
the High Court of Madhya Pradesh 2016 (2) ARBLR 179 (MP),
rendered on 11.09.2015, held that two Indiancompanies can
arbitrate outside of India.
Furthermore, the earlier case of Atlas Export Industries v. Kotak
& Company (1999) 7 SCC 61,which was applied in Sasan, found
that a contract which is unlawful under section 23 of theIndian
Contract Act 1872, because it breaches Indian public policy, would
be void but that" 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" (p.65, para f of
judgment). Such is the case here where the parties freely agreed
on Zurich as the seat of the arbitration.
This position has been followed in a recent decision of the Delhi
High Court in GMR Energy Ltd. v. Doosan Power Systems India
Pvt. Ltd. on 14 November 2017 CS (Comm) 447/2017 (RL-7)
applying Atlas in allowing two Indian parties to arbitrate outside
India. The Tribunal notes the Respondent's contention that this
case is "expected to be appealed" (Respondent's Preliminary
Application dated 9 December 2017, para 23) but the Tribunal
must deal with the law as it finds it at present and no doubt the
Final Award in the present case will precede any exhaustive appeal
in India in GMR.
Respondent's pleadings in reliance, inter alia, on TDM
Infrastructure Private Limited v. UED evelopment India
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER
CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]
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Private Limited (2008) 14 SCC 271 are, in the Tribunal's finding,
misplaced because although it is accepted that two Indian nationals
should, as a matter of Indian law, not be permitted to derogate
from Indian substantive law, this being part of the public policy of
the country, this fails to distinguish between the lex arbitri and
the lex causae. In the present case,the parties have not chosen a
foreign substantive law, only a foreign seat.
The Respondent also relied on M/s Addhar Mercantile Private
Limited v. Shree Jagadamba Agrico Exports Pvt. Ltd. (2015)
SCC Online Bom 7752, which the Respondent submitted followed
TDM (RL-4). However, although the Tribunal is aware that this
decision has been criticised because although the court did not
expressly find that two parties could not opt for arbitration outside
India, the court's finding that Indian parties cannot derogate from
Indian lawbecause that would violate Indian public policy has led
to the judgment being interpreted wrongly to imply that Indian
parties cannot choose a foreign seat. That said, Addhar is in any
event a first instance decision and the higher authorities of the
Indian Supreme Court prevail.
Finally, the cases of Enercon (India) Limited v. Enercon GMBH
(2014) 5SCC 1 and Bharat Aluminium Co. v. Kaiser Aluminium
Inc. (2012) 9 SCC 552 relied on by the Respondent in relation to
its submissions that the closest and most real connection test under
Indian law do not assist the Respondent because that test is only
relevant where the seat is unclear.