Case Analysis on: PASL Wind Solutions (P) Ltd. v. GE Power Conversion (India)(P) Ltd

Authored By: - S Ashwath

Citation: 2021 SCC Online SC 226

Date Of Judgment: 20th April 2021

Bench: Rohinton Fali Nariman, B.R. Gavai, Hrishikesh Roy

Court: Supreme Court Of India

INTRODUCTION

The Indian Supreme Court emphasised in PASL Wind Solutions v. GE Power Conversion India that two Indian parties can choose a foreign arbitral seat and that parties to such foreign seated arbitrations can seek interim relief from Indian courts. The Supreme Court's judgment resolves a significant legal issue while preserving party autonomy. It also provides much-needed clarification on these concerns to firms operating in India, especially foreign enterprises with local subsidiaries.

Even if the subject matter of their contracts and counterparties are fully within India, these organisations can now choose foreign arbitral seats in their arbitration agreements, such as London, Dubai, Singapore, and Hong Kong. This document provides background on the PASL case before summarising the Supreme Court's key findings and the ramifications of the decision for Indian parties and foreign subsidiaries in India.

FACTS OF THE CASE[1]

A disagreement emerged between two Indian parties about the supply of particular converters and their warranties. Both the appellant and the respondent, PASL Wind Solutions Pvt. Ltd. (PASL) and GE Power Conversion India Pvt. Ltd. (GE), are corporations incorporated under the Companies Act, 19563, with registered offices in Ahmedabad, Gujarat and Chennai, Tamil Nadu, respectively. GE is also a wholly owned subsidiary of General Electric Conversion International SAS, France, which is a subsidiary of the General Electric Company, USA. When the parties' disagreements developed, PASL filed a request for arbitration with the International Chamber of Commerce, as stipulated in Cl. 6 of the settlement agreement. GE raised a preliminary objection to the arbitration's seat, but the arbitrator determined that the arbitration's seat is Zurich, Switzerland. GE recommended Mumbai as a cost-effective location for holding arbitration hearings. The plan was met with opposition from PASL.

The Tribunal, however, agreed to the notion and decided that, while the seat would be in Zurich, all proceedings would take place in Mumbai. The arbitrator ruled in GE's favour. After the final award was given, GE ordered that PASL pay the amounts awarded under the aforementioned award; however, PASL refused, and GE commenced enforcement actions in the High Court of Gujarat, where the appellant's assets were located, under Sections 47 and 49 of the Arbitration Act. At this point, PASL contested the arbitral ruling's implementation, contending that the seat of arbitration was Mumbai, where all of the arbitral sessions were held. PASL's argument was rejected by the Gujarat High Court, which affirmed the arbitral award's execution, prompting PASL to seek a special leave appeal with the Supreme Court.

ISSUES OF THE CASE

⮚ Is it possible for two Indian parties to choose a foreign arbitral seat?

ARGUMENTS

⮚ Contentions by the Appellant

1.Section 23 of the Contract Act of 1872 (the Contract Act) would be in violation, as would Sections 28(1)(a) and 34(2-A) of the Arbitration Act.

2.Parties would be allowed to opt out of India's substantive law by choosing a foreign seat, which would be counter to the country's public policy.

3.Foreign awards, as defined by Part II of the Arbitration Act, can only be obtained through international commercial arbitration. The definition of "international commercial arbitration" in Section 2(1)(f) of the Arbitration Act (Part I) was cited, according to which at least one of the parties to the arbitration is a foreign national, a company incorporated in a country other than India, an association whose central management or control is outside India, or a foreign government.

4.As there was no foreign element involved and the dispute between the two parties originated out of a contract to be fulfilled only in India, the seat of the arbitration would have to be Mumbai and not Zurich, according to the closest connection test.

⮚ Contentions by the Respondent

1.Parts I and II of the Arbitration Act are mutually exclusive, and so the definition of international commercial arbitration (ICA) cannot be transferred from Part I of the Act into Section 44 via the words "unless the context otherwise requires."

2.Nationality, domicile, or residence of parties are irrelevant for the purposes of applying Section 44 of the Arbitration Act, unlike the concept of "international commercial arbitration" in Section 2(1)(f) of Part I.

3.The choice of a foreign seat in arbitration is not mandated under Sections 23 or 28 of the Contract Act. In reality, the Contract Act's exception to Section 28 clearly exempts arbitration from Section 28, which is an unambiguous approval of party autonomy and the foundation of the Arbitration Act.

4.The arbitration clause in the settlement agreement, along with the arbitrator's procedural rules, designated Zurich as the seat and Mumbai simply as a convenient location, which all parties acknowledged and must control the arbitral procedures in this case.

JUDGMENT[2]

In PASL v. GE, the Supreme Court upheld party autonomy, ruling that two Indian parties can choose a foreign arbitration seat. In this way, it came to the same conclusion as the Supreme Court in Atlas on this legal matter, despite the fact that the bench in Atlas had only looked at the topic from the standpoint of section 28 of the Contract Act. Basically, In reaching its verdict, the court respected the autonomy of the parties. The respondent failed to cite any statute prohibiting two Indian parties from arbitrating in a foreign country. The court reviewed the above-mentioned definition of a "foreign arbitral award" under section 44 of the Act and concluded that all of the requirements were met. It went on to say that section 44 of the Act is the sole repository for determining whether an award is a foreign award, and that it fully addresses all factors that go into making that determination. Finally, it said that the parties' nationality had no influence on whether or whether Part-II of the Act was relevant. This decision will be made entirely on the basis of the arbitration agreement's seat.

PRECEDENTS MENTIONED

1. Bharat Aluminum Company v. Kaiser Aluminum Practical Services Inc[3]. - The court had jurisdiction to hear the case since the respondent's assets, which were the subject of the enforcement action, were located within the Court's jurisdiction.

2. Atlas Exports Industries v. Kotak and Company[4]- It was stated that Indian law did not prohibit Indian parties from choosing a foreign seat for arbitration and that such an Act would not be contrary to Indian public policy.

3. TDM Infrastructure (P) Ltd. v. UE Development (India)(P) Ltd[5]- "The legislature's goal appears to be clear: Indian nationals should not be allowed to deviate from Indian law." This is part of the country's "Policy at the national level." (It was later argued that the judgement would not be binding because it was made by a single judge.)

4. Sasan Power Ltd. v. North American Coal Corp. (India)(P) Ltd.[6]- A number of decisions regarding the applicability of Parts I and II of the Arbitration Act, as well as party autonomy, were examined.

5. Centrotrade Minerals and Metal Inc. v. Hindustan Copper Ltd.[7]- The Court found that the idea of party autonomy is basically the backbone of arbitrations while supporting the parties' entitlement to a two-tier arbitration.

CASE ANALYSIS

The Supreme Court's ruling is significant on multiple levels. First[8], it acknowledges the principle of party autonomy and emphasizes that Indian law does not prohibit two India-domiciled parties from choosing a foreign site of arbitration.

Second[9], it sets to rest various contradictory High Court and Supreme Court judgments on the subject. In Sasan Power Ltd. v. North American Coal Corpn. (India) (P) Ltd.11 ("Sasan Power"), the Madhya Pradesh High Court correctly evaluated this issue for the first time, holding that Indian parties are free to pick a foreign site of arbitration. The Madhya Pradesh High Court considered the case of Atlas Exports Industries v. Kotak & Company12, in which the Supreme Court held that the fact that the arbitration was held in a foreign country was not enough to nullify the arbitration agreement that the parties had entered into on their own volition. The Bombay High Court, on the other hand, took the opposite stance in Aadhaar Mercantile Private Limited v. Shree Jagdamba Agrico Exports Pvt. Ltd.14. It cited TDM Infrastructure Pvt Ltd v. UE Development India Ltd.,15 ("TDM Infrastructure"), which concluded that two Indian parties couldn't agree on a foreign arbitration seat. On the other hand, in the Madhya Pradesh High court, they stated that there was a binding precedent with the atlas case. There was no clarity on the applicability of Atlas or TDM Infrastructure on this legal issue as a result of these contradicting decisions. In this case, the Supreme Court decided that TDM Infrastructure's ruling could not be relied upon since it was issued under Section 11 of the Arbitration Act and did not have binding power. Furthermore, the Supreme Court cited Atlas, stating that it is a binding precedent. While the Supreme Court did not address whether two Indian parties could choose a foreign arbitration seat, it did dismiss the challenge to the arbitral judgment on the grounds that it was valid under Indian law.

Third[10], the verdict has created the way for parties to pick a foreign seat of arbitration, as well as enabling the losing party to have 'two bites at the cherry' following the award, namely, contesting the award in foreign courts as well as resisting the foreign award's execution in India. Furthermore, such arbitrations will continue to be eligible for relief under Section 9 of the Arbitration Act.

Finally, the question of Indian parties' ability to choose a foreign seat was significant for international firms with operations in India (such as GE France and GE USA in this case). For a variety of commercial reasons, such foreign companies have preferred to have disputes between Indian subsidiaries and other Indian parties adjudicated outside of India, including neutrality, efficiency in the supervision of arbitration proceedings by courts at the seat, and speed of resolution in courts at the seat should an arbitration award be challenged.

The current decision gives parties the freedom to negotiate and implement agreements to choose a foreign seat of the arbitration under Indian law. The Court declared, "The decks have now been cleared to give effect to party autonomy in arbitration," the Court declared. "The dominating and directing spirit of arbitration has been recognised as party autonomy."

CONCLUSION

The Supreme Court's decision is a positive step toward making India an arbitration-friendly country, as it maintains the fundamental principles of party autonomy and contract freedom, which are at the heart of arbitration. The Supreme Court has previously upheld party autonomy with respect to various aspects of the arbitration, as evidenced by the judgments discussed in the preceding paragraphs. However, this is the first time the Supreme Court has been asked to decide whether party autonomy under the Arbitration Act is unrestricted enough to allow two Indian parties to choose a foreign seat for arbitration.

This decision will have far-reaching implications because there are several cases before the Supreme Court and the High Court that deal with comparable issues. This is due to the fact that once arbitration proceedings begin, courts lose their ability to review the arbitrator's decision. The courts' competence is strictly limited to procedural matters under Section 34 of the A&C legislation, which forbids a review of the judgment on its merits. As a result, merging Indian curial and substantive law would have a minimal practical impact, but the Arbitration & Conciliation Act does just that (even though that it is not the place of the court to alter the interpretation of section 28 of the Contract Act merely for these reasons).PASL v. GE narrows the scope of this peculiarity's application and upholds the idea that two Indian parties can arbitrate a dispute that is not governed by Indian law.

REFERENCE

1. PASL Wind Solutions (P) Ltd. v. GE Power Conversion (India)(P) Ltd. [2021] SCC Online SC 226.

2. ‘India: Party Autonomy Trumps! SC Allows Two Indian Parties to Choose Foreign Seat of Arbitration’ (Natlawreview.com) < https://www.natlawreview.com/article/india-party-autonomy-trumps-sc-allows-two-indian-parties-to-choose-foreign-seat> accessed 2nd January 2022

3. Abhi Udai Singh Gautam and Mustafa Rajkot Wala, ‘Indian Parties without an Indian Court: The Verdict in PASL Wind Solutions’ (Indiacorplaw.com) <https://indiacorplaw.in/2021/05/indian-parties-without-an-indian-court-the-verdict-in-pasl-wind-solutions.html> accessed 2nd January 2022

4. Bharat Aluminum Company v. Kaiser Aluminum Practical Services Inc [2012] 9 SCC 552

5. Atlas Exports Industries v. Kotak and Company [1999] 7 SCC 61

6. TDM Infrastructure (P) Ltd. v. UE Development (India)(P) Ltd [2008] 14 SCC 271.

7. Sasan Power Ltd. v. North American Coal Corp. (India)(P) Ltd. [2016] 10 SCC 813.

8. Centrotrade Minerals and Metal Inc. v. Hindustan Copper Ltd. [2017] 2 SCC 228.

9. Lakshmi Subramaniam Iyer and Aishwarya Dash, ‘Party Autonomy or Contracting out of Indian Courts -Analysis of PASL Wind Solutions (P) Ltd. v. GE Power Conversion (India)(P) Ltd.’ (SCC Online) <https://www.scconline.com/blog/post/2021/08/07/foreign-arbitral-seat/#_ftn26> accessed 3rd January

10. Wilmer Hale, ‘ PASL Wind Solutions Pvt Ltd v. GE Power Conversion India Pvt Ltd: The Indian Supreme Court Clarifies that Two Indian Parties Can Choose a Foreign Arbitral Seat’ (Jdsupra.com) <https://www.jdsupra.com/legalnews/pasl-wind-solutions-pvt-ltd-v-ge-power-8050136/> accessed 3rd January 2022

[1] ‘India: Party Autonomy Trumps! SC Allows Two Indian Parties to Choose Foreign Seat of Arbitration’ (Natlawreview.com) < https://www.natlawreview.com/article/india-party-autonomy-trumps-sc-allows-two-indian-parties-to-choose-foreign-seat> accessed 2nd January 2022 [2] Abhi Udai Singh Gautam and Mustafa Rajkotwala, ‘Indian Parties without an Indian Court: The Verdict in PASL Wind Solutions’ (Indiacorplaw.com) <https://indiacorplaw.in/2021/05/indian-parties-without-an-indian-court-the-verdict-in-pasl-wind-solutions.html> accessed 2nd January 2022 [3] Bharat Aluminum Company v. Kaiser Aluminum Practical Services Inc [2012] 9 SCC 552 [4] Atlas Exports Industries v. Kotak and Company [1999] 7 SCC 61 [5] TDM Infrastructure (P) Ltd. v. UE Development (India)(P) Ltd [2008] 14 SCC 271. [6] Sasan Power Ltd. v. North American Coal Corp. (India)(P) Ltd. [2016] 10 SCC 813. [7] Centrotrade Minerals and Metal Inc. v. Hindustan Copper Ltd. [2017] 2 SCC 228. [8] Lakshmi Subramaniam Iyer and Aishwarya Dash, ‘Party Autonomy or Contracting out of Indian Courts — Analysis of PASL Wind Solutions (P) Ltd. v. GE Power Conversion (India)(P) Ltd.’ (SCC Online) <https://www.scconline.com/blog/post/2021/08/07/foreign-arbitral-seat/#_ftn26> accessed 3rd January [9] Wilmer Hale, ‘ PASL Wind Solutions Pvt Ltd v. GE Power Conversion India Pvt Ltd: The Indian Supreme Court Clarifies that Two Indian Parties Can Choose a Foreign Arbitral Seat’ (Jdsupra.com) <https://www.jdsupra.com/legalnews/pasl-wind-solutions-pvt-ltd-v-ge-power-8050136/> accessed 3rd January 2022 [10]