Supreme Court: Party autonomy is the backbone of arbitration
In a recent historic decision named PASL Wind Solutions Private Limited v GE Power Conversion India Private Limited, the Supreme Court decided that nothing prevents parties from choosing a seat of arbitration outside of India, even if both parties are Indian citizens. This essentially broadens the scope of arbitration under the Arbitration and Conciliation Act, 1996's International Commercial Arbitration (ICA) system, which allows two Indian firms to choose a foreign seat for arbitration of their disputes.
The current case stems from a settlement agreement signed by the appellant, PASL Wind Solutions Private Limited, and the respondent, GE Power Conversion India, both of which are properly established under Indian rules.
The extent of some warranties that GE Power agreed to give became a point of contention. The International Chamber of Commerce has selected a single arbitrator for the proceedings in Zurich.
While the Supreme Court's reasoning can be centered on the legal assertion that two Indian parties are free to assign a foreign seat for arbitrating disputes, the court also looked at two aspects of the arbitration law regime: party autonomy and interim relief under section 9 of the arbitration act in international arbitration cases.
Noticing that parts I and II of the arbitration act are collectively distinctive, the Supreme Court took the position that, even though the findings of a particular case do not fall within the crystallized principles of public policy, the freedom of contract must be balanced with clear and undeniable public harm, citing Atlas Export Industries v Kotak & Co (1999) as the binding precedent.
The Supreme Court also determined the scope and maintainability of an application for interim relief filed under section 9 of the arbitration statute, based on its logic on party autonomy. Setting aside the Gujarat High Court's decision to this extent, the Supreme Court used its judicial wisdom to interpret sections 2(2) and 2(1)(f) of the arbitration act, concluding that the scope and definition of "international commercial arbitration" under section 2(1)(f) of the arbitration act are party-centric, whereas it is place-centric under section 44 of the act.
As a result, if arbitration is held between any two parties in a region other than India, the New York Convention will apply, making the arbitration an "international commercial arbitration." Indian firms participating in overseas arbitration procedures are not barred from obtaining interim relief in Indian courts, according to the ruling.
By maintaining party autonomy under the Indian arbitration framework, the Supreme Court has cleared the air. It allows Indian parties to form agreements to pick a seat of arbitration, whether domestic or international and to enforce such agreements under Indian law.
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