Pasl Wind Solutions Private Limited vs Ge Power Conversion India Private Limited

– 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 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 CONVERSION INDIA PVT. LTD.

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 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 CONVERSION INDIA PVT. LTD.

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]

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 CONVERSION INDIA PVT. LTD.

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 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 CONVERSION INDIA PVT. LTD.

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 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 CONVERSION INDIA PVT. LTD.

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]

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 CONVERSION INDIA PVT. LTD.

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.