Party Autonomy is the backbone of Arbitration: SC clears the decks on International Commercial Arbitration between Indian parties

The Indian Supreme Court in a recent landmark judgment titled ‘PASL Wind Solutions Private Limited v. GE Power Conversion India Private Limited’1 has, inter-alia, held that 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. This effectively enlarges the scope of reference to arbitration under the scheme of International Commercial Arbitration (ICA) under the Arbitration and Conciliation Act, 1996 (The Act) whereby two companies incorporated in India can validly designate a foreign seat for arbitration of their disputes.

The present case arose out of a settlement agreement executed between two companies duly incorporated under the laws of India, i.e. the Appellant, PASL Wind Solutions Private Limited (PASL) and the Respondent, GE Power Conversion India Private Limited (GE Power). Herein, GE Power agreed to provide certain warranties and the scope of the said warranties became a subject matter of dispute. Pursuant to such disagreements, a sole arbitrator was appointed by the International Chamber of Commerce for the arbitration proceedings to be held at the designated seat, i.e. Zurich.

While the ratio of the present judgment can be based on the legal proposition that two Indian parties are free to designate a foreign seat for arbitrating the disputes, the Supreme Court, however, delved into twofold aspects of arbitration law regime, i.e., a) Party Autonomy; and b) Interim Relief under Section 9 of The Act in case of ICA.

Observing that Part I and II of The Act are mutually exclusive2, the Supreme Court, deeming Atlas3 to be the binding precedent, went ahead to hold that 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 of public policy.

Pursuant to its rationale on party autonomy, the Supreme Court further decided on the scope and maintainability of an application made under Section 9 of The Act for interim relief. Setting aside the holding of the Gujarat High Court to this extent, the Apex Court applied its judicial wisdom in interpreting Section 2(2) and Section 2(1)(f) of The Act and found that scope and definition of “International Commercial Arbitration” under Section 2(1)(f) of The Act is party-centric whereas the same under Section 44 of The Act signifies a place-centric approach. Thus, if an arbitration is convened between any two parties in a territory outside India, the New York Convention would apply, thereby making it an “International Commercial Arbitration”. Resultantly, it was held that Indian Companies involved in foreign arbitration proceedings are not precluded from seeking interim relief in the Indian courts.

This decision of the Supreme Court clears the air by upholding the sacrosanctity of party autonomy under the Indian arbitration regime. It enables the Indian parties to negotiate agreements to choose a seat of arbitration, i.e. domestic or foreign, and enforce such agreements under Indian law.

By - Rishika Jain

  1. 2021 SCC OnLine SC 331.
  2. Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc (2012) 9 SCC 552.
  3. Atlas Export Industries v. Kotak & Co., (1999) 7 SCC 61.