In support of webinar Analysing Recent Developments in India-Related Arbitrations from an Indian and Singaporean Point of View scheduled on 12 August 2021 (see our previous post here), we caught up with speakers before the live session for a preview of some of their thoughts on the latest developments in the arbitration scene in India and on dispute resolution in general in the region.
ABLI: The Indian Supreme Court has recently clarified in PASL Wind Solutions v GE Power Conversions India that two Indian parties may choose a foreign arbitral seat. Readers outside of India may find it puzzling that this issue could arise in the first place since it is not uncommon for parties to choose a neutral third-party forum for arbitration. What has caused the issue in the first place? And how significant is the Supreme Court decision?
Shreyas Jayasimha, Founding Partner, Advocate, Mediator, Arbitrator, Simha Law: Let me first answer the first part of the question. The decision of the Supreme Court of India in PASL Wind Solutions (“PASL”) v GE Power Conversions India (“GE Power”) (Civil Appeal No. 1647 of 2021 arising out of SLP (Civil) No. 3936 of 2021) is welcome news in the context of Indian arbitration mainly due to the uncertainty that prevailed in respect of whether two Indian companies could arbitrate their dispute at a foreign seat. That uncertainty arose as a result of a series of conflicting decisions by the Indian courts on this question.
The Supreme Court in TDM Infrastructure Pvt. Ltd. v. UE Development India Ltd. (2008) 14 SCC 271 (“TDM Infrastructure”) held that two Indian parties agreeing on a foreign seat of arbitration would be acting against public policy of India when certain provisions of the Indian Contracts Act 1872 (Sections 23 and 28) were taken into consideration. A similar view was later taken by the Bombay High Court in Addhar Mercantile Private Ltd. v. Shree Jagdamba Agrico Exports Pvt. Ltd. 2015 SCC OnLine Bom.
Subsequently, my team and I represented Shree Jagdamba Agrico Exports Pvt. Ltd. in a Special Leave Petition filed before the Supreme Court challenging the Bombay High Court’s decision. The petition was unsuccessful as the Single Judge bench of the Supreme Court was of the view at that time that two Indian parties cannot derogate from Indian law by electing a foreign seat of arbitration (Having said that, in light of the PASL v. GE Power decision, if the challenge were to go before the Supreme Court again, the outcome would most likely be different).
However, the Madhya Pradesh High Court in Sasan Power Ltd. v. North American Coal Corporation (India) (P) (Ltd.) 2015 SCC Online MP 7417 and the Delhi High Court in GMR Energy Limited v. Doosan Power Systems India Private Ltd. 2017 SCC OnLine Del 11625 both had a contrary view and held that India-domiciled parties were free to choose a foreign seat of arbitration. Both courts relied on the decision of a Division Bench of the Supreme Court in Atlas Exports Industries v. Kotak & Company (1997) 7 SCC 61 (“Atlas”) which held that the mere fact that the arbitration was situated in a foreign jurisdiction would not be enough to invalidate the arbitration agreement entered into by two Indian parties on their own volition. It may be worth noting that in Atlas, the question was dealt under the erstwhile arbitration legislation, the Arbitration and Conciliation Act 1940. It may also be worth noting that a Division Bench of the Supreme Court in Reliance Industries Limited v. Union of India (2014) 7 SCC 603 dismissed a challenge to an arbitral award that arose from a foreign-seated arbitration between two Indian parties on the pretext that such an arbitral award was valid under Indian law.
Later, in 2020, the Gujarat High Court in GE Power Conversion Indian Private Ltd v. PASL Wind Solutions Private Ltd. 2020 SCC OnLine Guj 2432 allowed the enforcement of an arbitral award while holding that two Indian parties can choose a foreign seat of arbitration but also held that parties to such arbitrations were not entitled to seek interim measures from Indian courts under Section 9 of the Arbitration and Conciliation Act 1996. PASL filed an appeal before the Supreme Court challenging the decision to uphold enforcement of the arbitral award, while GE Power filed cross-objections challenging the finding on the maintainability of a Section 9 petition.
While deciding on the appeal (which is the decision in question), the Supreme Court clarified that two Indian parties could choose a foreign seat of arbitration. It also categorically held that parties to such arbitration can seek interim relief from the Indian courts under Section 9 of the Arbitration and Conciliation Act 1996.
In respect of the second part of the question, the decision holds great significance because it firstly upholds party autonomy and finally puts to rest the several conflicting views mentioned above. Secondly, Indian parties may now be tempted to arbitrate their disputes in arbitration-friendly jurisdictions such as Singapore. In fact, it is very likely that several arbitrations between Indian parties have commenced in jurisdictions like Singapore. Thirdly, the decision paves the way for a losing party to such an arbitration to potentially have “two bites at the cherry”, i.e., challenging the award at the seat and at the same time resisting enforcement of the award in India. Fourthly, when looked at from a commercial perspective, foreign multinational companies with subsidiaries in India would now have the freedom to negotiate with their Indian counterparts to select a seat of arbitration that is best suited for such companies without the fear of such agreements being held unenforceable. Lastly, Indian parties involved in commodity trading would also hugely benefit from the decision. Often, in a commercial contract that involves commodity trading, the buyer and the seller are Indian parties, but the performance of the contract may take place in a foreign jurisdiction. In such a scenario, it would be beneficial for the Indian parties to elect a foreign seat of arbitration.
ABLI: Would it be a fair statement to say that compared to litigation, arbitration is the preferred choice for Indian parties who face international commercial disputes? Is arbitration the go-to dispute resolution method that in-house counsel in India usually turn to in international deal-making?
Chiann Bao, Arbitrator, Arbitration Chambers: Owing to the comprehensive enforcement regime that the New York Convention provides to the arbitration infrastructure, arbitration remains the preferred method of resolving cross-border disputes. Cross-border disputes involving Indian companies is no exception as local litigation will unlikely be an attractive option for a foreign company doing business with an Indian party and vice versa.
While I am not aware of any specific trend that in-house counsel are more often proactively choosing arbitration or that arbitration is chosen based on recommendation from external counsel, my sense is that, to the extent external counsel focus on the “back of the contract”, arbitration will likely be the recommended mode of dispute resolution for cross-border disputes. In-house counsel who regularly deal with disputes in their work will also likely be knowledgeable about the advantages and disadvantages of arbitration versus litigation and make decisions accordingly.
Oswald Dsouza, Group Legal Head, L&T Hydrocarbon Engineering Limited: Without a doubt, arbitration is indeed the preferred choice for Indian parties. For one, it affords flexibility in terms of procedure, place and costs. Secondly, it enhances efficiency and reduces the uncertainty surrounding the time needed for resolution of disputes. For all these reasons and more, arbitration has now become the go-to dispute resolution method that in-house counsel prefer and consequently provide for in almost all of the contracts.
ABLI: In light of the strong appeal of arbitration mentioned above, how attractive are international commercial courts in the Indian context? Is the enforceability of judgments from such courts still a key consideration?
Kelvin Poon, Deputy Head, International Arbitration; Head, South Asia Desk, Rajah & Tann Singapore LLP: The Singapore International Commercial Court (SICC) was established in early 2015 to provide court-based adjudication of international commercial disputes, even when such disputes have no connection with Singapore and are not governed by Singapore law.
While arbitration under the auspices of the Singapore International Arbitration Centre (SIAC) remains the popular choice for Indian parties (according to SIAC Annual Report 2020. India was the top foreign user at SIAC in 2020.), the SICC provides an alternative to international arbitration in a court setting which may appeal to Indian parties due to its distinctive features and the enforceability of its judgements. Specifically, cases before the SICC are adjudicated by experienced specialist commercial judges and parties may be represented by foreign lawyers.
As a division of the Singapore High Court, there is a right of appeal to the Singapore Court of Appeal unless parties contract otherwise. This may appeal to clients who are uncomfortable with international arbitration generally where parties have only one chance for the determination of their substantive rights. A SICC judgment can be enforced by registration of that judgment in India as well as by commencing an action on that judgment in the party’s national court.
As the Indian Commercial Court was set up in 2015, Indian parties are familiar and comfortable with using the courts to settle commercial disputes. As of 15 July 2021, nearly 10% of the foreign lawyers granted full registration to appear before the SICC were from India – an indicator, perhaps, of the SICC’s attractiveness to Indian parties.