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Gujarat High Court says that Indian Parties can choose a foreign seat of Arbitration

“Indian entities / parties have the right to choose an arbitration venue outside of India as a foreign or neutral venue. Such a deal does not violate India's public order,” the Gujarat High Court said in a landmark ruling on Tuesday. The decree puts an end to the issue of foreign seat disputes and the implementation of its award by several agreements.

Hearing the arbitration petitions filed by GE Power Conversion India Pvt Ltd against PASL Wind Solutions Pvt Ltd, in a dispute over the purchase of electricity, the High Court stated that these claims were in the context of a foreign award dated on 18.04.2019 passed by the Arbitral Tribunal based in Zurich, Switzerland.

In a dispute settlement clause of the settlement agreement, both parties stated that if an agreement could not be reached through negotiation, all disputes, contradictions or differences would be referred and finally resolved by the Zurich Arbitration in accordance with the Conciliation and Arbitration Rules of the International Chamber of Commerce. The foreign arbitrator awarded the petitioner, GE Power Conversion India Pvt Ltd, $ 40,000 or INR 2.97Crores as legal costs and expenses with accumulated interest from respondent.

In view of the award, the advisor who appeared for the respondents, argued that under the Indian Contract Act,1872, two Indian parties cannot choose a place outside India. “Two Indian parties cannot be allowed to gain advantage simply by designating a seat abroad in an arbitration that otherwise has no other foreign element. If the parties are allowed to do so, the purpose of the Arbitration Act will be completely defeated, “the respondent's lawyer argued.

The plaintiff has filed a preliminary motion challenging the arbitrator's jurisdiction, arguing that since both parties are Indian parties, they cannot have a foreign arbitration. The move was opposed by the defendant, i.e. PASL Wind Solutions.

Justice Biren Vaishnav considered that a decision given at a foreign domicile is a foreign decision and can be enforced under Part II of the Arbitration and Conciliation Act. Justice Vaishnav, who issued an order on the enforceability of a foreign award in India, also stated that the nationality of the parties was not relevant to determine the enforceability of the foreign award under Part II of the Arbitration and Conciliation Act.

The counsel responding for the defendant questioned the legality of such a contract and began to defend public order and morals, arguing that it was against India's public order and morals.
But the court ruled that the foreign award in question was not against India's policy and, therefore, could be enforced in India. The court also ruled that a party holding a foreign award is not entitled to apply for interim relief under Section 9 (as Part I of the Act does not apply).

Following a High Court ruling, Shaneen Parikh, a partner, Cyril Amarchand Mangaldas, welcomed the order as calling it a far-reaching decision. The Gujarat Supreme Court ruled in favour of the arbitration, holding that two Indian parties are entitled to choose a foreign seat of arbitration- a vexatious issue that has plagued a number of contracts and the freedom of party autonomy that is the fundamental basis of arbitration.


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