Shivani Verma and Yash
The Delhi High Court has put down a vexed question of determining the seat of arbitration, where it held that there is no prohibition on two Indian parties from opting for a foreign seat of arbitration. Such an arrangement would attract Part II of the Arbitration and Conciliation Act 1996 (“Act”), which is based on the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1959. The apex court held back in 1999 that choosing a foreign arbitration would not nullify an arbitration agreement that parties voluntarily signed. Following the precedent, the High Court of Madhya Pradesh ruled that two Indian parties were allowed to arbitrate outside India; the judgement given was challenged but the observations made were not set aside, rather the appeal was dismissed. Once the parties have agreed to a foreign seat of arbitration, the agreement will be governed by the laws of that country; it was no longer open to them to contend that the provisions of Part I of the Act, which deals with arbitration seated in India, would also be applicable.
Moreover, the judgement laid down in the case of Union of India v McDonnell Douglas Corporation gives the scope for the parties to apply Indian laws even in foreign seated arbitration. It is equally important to mention the recent amendments in the Act, which in effect nullifies the law laid down in Bharat Aluminum and Co. vs. Kaiser Aluminium and Co.
that in a foreign seated arbitration neither Section 9 nor any other provision of Part I would be applicable; to some extent and holds that even in an International Commercial Arbitration having a foreign seat, a party can approach Indian courts under Section 9 and get appropriate relief, provided there is no agreement to the contrary, thus reviving the law of Bhatia International v. Bulk Trading S.A. to a limited extent where the court held that Part I would apply even to arbitrations held outside India unless expressly or impliedly excluded by parties. Hence it can be inferred that the intent of the recent amendments is very much clear in promoting international commercial arbitration by opting for foreign seated arbitration.
IS ALLOWING TWO PARTIES TO CHOOSE A FOREIGN SEATED ARBITRATION VIABLE IN LIGHT OF RECENT AMENDMENTS TO THE 1996 ACT?
The Amendment Act of 2019 was focused on making the arbitration process in India robust and at par with the global level. With that objective, a high-level committee was set up with retired Justice B.N.Srikrishna as chairman to pave way for institutionalizing the arbitration process in India. The proposal for the formation of the Arbitration Council of India (ACI) as an independent body for setting norms, accreditation, and laying downgrading standards, is aimed towards making India the next arbitration hub at the international and domestic level.
The existence of already established bodies like the ICA (Indian Council of Arbitration) to make the arbitration process in India speedy, user-friendly and amicable, and Mumbai Centre for International Arbitration known for its expertise in international arbitrations is yet another reason why Indian parties choosing a foreign seat is not viable. It is a different situation when the parties have foreign equity ownership, but in absence of any “foreign element” what should be the right way needs to be accessed. In the light of the above factors, we need to find if it is viable for Indian parties to choose a foreign seat when there is a whole new amendment to make India competitive in the arbitration regime and when it’s striving to be an International jurisdiction that is arbitration-friendly. Is it not against the very intent of the legislation introduced by way of the 2019 Amendment Act?
However, we cannot ignore the fact that the 2019 amendment has a lot of lacunas that need to be addressed. It leaves us with a room of ambiguities and creates mistrust. In the judgement of Bar Council of India vs. A.K. Balaji and Ors, the court imposed a limitation for the foreign legal professional to act as an arbitrator in India until they fulfill requirements as per Indian standards which is a narrow step towards making the arbitration process dynamic. Any restriction placed on parties in deciding their seat of arbitration may not be a pro-arbitration approach and a limitation on the freedom of choice. We also cannot overlook the fact that many times the reason for parties choosing a foreign seat is that they want an expeditious resolution of the dispute which is only possible by a more capable and established institution rather than experimenting with an institution of the country that is still making its place in arbitration. All said we need to delve deeper on the question of whether arbitration like the conventional way should follow the rule of jurisdiction or whether such a requirement is against the very intent of arbitration as a progressive & unconventional method that sets it apart from litigation.
CONCLUSION:-
Finally, it can be understood that the issue with Indian parties choosing a foreign seated arbitration, although is a progressive move for the arbitration regime in India; still needs to clear the air whether the public policy is infringed or not and whether it is against the very notion of the amendments introduced in recent years. Prima facie and with the Delhi High Court’s observation it looks like choosing a foreign seat is a harmless bet but going deeper into the analysis we cannot overlook, there lie errors that might be a hurdle for India in becoming the next sensation in the arbitration world!
(Both authors are law students. Shivani is studying at Hidayatullah National Law University, Chhattisgarh, while Yash is a student at Faculty of Law, Banaras Hindu University, Uttar Pradesh)
