2021 (4) TMI 1056 - SC - Indian Laws

Enforceability of Foreign Arbitration Awards between Indian Companies Upheld by Supreme Court

The Supreme Court affirmed the enforceability of a foreign award between two Indian companies, allowing them to choose a foreign arbitration forum. The ... Territorial Jurisdiction - Forum for Arbitration outside India - Foreign award - two companies incorporated in India can choose a forum for arbitration outside India or not - award made at forum outside India, is “foreign award” under Part II of the Arbitration and Conciliation Act, 1996 or not - enforceabillity of such award. Seat of the arbitral proceedings in the present case - HELD THAT:- Clause 6 of the settlement agreement extracted above would show that arbitration is to be resolved “in Zurich” in accordance with the Rules of Conciliation and Arbitration of the ICC. In similar circumstances, in MANKASTU IMPEX PRIVATE LIMITED VERSUS AIRVISUAL LIMITED [2020 (3) TMI 302 - SUPREME COURT], where disputes were to be resolved by arbitration “administered in Hong Kong”, the Court concluded that On a plain reading of the arbitration agreement, it is clear that the reference to Hong Kong as “place of arbitration” is not a simple reference as the “venue” for the arbitral proceedings; but a reference to Hong Kong is for final resolution by arbitration administered in Hong Kong. The agreement between the parties that the dispute “shall be referred to and finally resolved by arbitration administered in Hong Kong” clearly suggests that the parties have agreed that the arbitration be seated at Hong Kong and that laws of Hong Kong shall govern the arbitration proceedings as well as have power of judicial review over the arbitration award. The closest connection test strongly relied upon by Mr. Himani would only apply if it is unclear that a seat has been designated either by the parties or by the tribunal. In this case, the seat has clearly been designated both by the parties and by the tribunal, and has been accepted by both the parties - it is not possible to accept Mr. Himani’s contention that the seat of arbitration ought to be held to be Mumbai in the facts of the present case. Part I and Part II of the Arbitration Act are mutually exclusive - HELD THAT:- This Court categorically held that a foreign award cannot be refused to be enforced merely because it was made between two Indian parties, under pari materia provisions of the Foreign Awards Act. The Court also held that since this plea had never been taken in any of the courts below, it was not available to the appellant to raise the said plea before this Court for the first time - It must be remembered that when a foreign award is sought to be enforced under Part II of the Arbitration Act, the explanation to section 47 makes it clear that it is the High Court alone which is the court on whose doors the applicant must knock. This is sought to be answered by Shri Himani by stating that since the explanation to section 47 is in direct collision with section 10(3) of the Commercial Courts Act, vide section 21 of the Commercial Courts Act, section 10(3) would prevail over the explanation to section 47. It will be noted that section 10(1) applies to international commercial arbitrations, and applications or appeals arising therefrom, under both Parts I and II of the Arbitration Act. When applications or appeals arise out of such arbitrations under Part I, where the place of arbitration is in India, undoubtedly, the definition of “international commercial arbitration” in section 2(1)(f) will govern. However, when applied to Part II, “international commercial arbitration” has reference to a place of arbitration which is international in the sense of the arbitration taking place outside India. Thus construed, there is no clash at all between section 10 of the Commercial Courts Act and the explanation to section 47 of the Arbitration Act, as an arbitration resulting in a foreign award, as defined under section 44 of the Arbitration Act, will be enforceable only in a High Court under section 10(1) of the Commercial Courts Act, and not in a district court under section 10(2) or section 10(3). Appeal disposed off. Issues Involved:1. Whether two companies incorporated in India can choose a forum for arbitration outside India.2. Whether an award made at such a forum outside India can be considered a 'foreign award' under Part II of the Arbitration and Conciliation Act, 1996, and be enforceable as such.Detailed Analysis:1. Choice of Foreign Arbitration Forum by Indian Companies:The Supreme Court addressed whether two Indian companies can designate a foreign seat for arbitration. The tribunal found that Indian law does not prohibit two Indian parties from choosing a foreign seat for arbitration. The tribunal referenced several cases, including Reliance Industries Ltd. v. Union of India and Atlas Export Industries v. Kotak & Co., which support the notion that Indian parties can agree to arbitrate outside India. The tribunal dismissed the respondent's preliminary application challenging the jurisdiction of the arbitrator, stating that the arbitration clause in the settlement agreement was valid and that the seat of arbitration would remain Zurich, Switzerland.2. Foreign Award Status and Enforceability:The court examined whether an award made in a foreign arbitration between two Indian companies qualifies as a 'foreign award' under Part II of the Arbitration Act. The court referenced Section 44 of the Arbitration Act, which defines a foreign award as an arbitral award on differences between persons arising out of legal relationships considered as commercial under Indian law, made in a territory covered by the New York Convention. The court concluded that the award in question met all the criteria outlined in Section 44, including being made in Zurich, a New York Convention signatory.The court also discussed the mutual exclusivity of Part I and Part II of the Arbitration Act, emphasizing that Part I applies to arbitrations seated in India, while Part II deals with the enforcement of foreign awards. The court cited BALCO and Atlas Export to illustrate that the Arbitration Act's territorial principle precludes Part I from applying to foreign-seated arbitrations.3. Public Policy and Section 23 and 28 of the Contract Act:The appellant argued that allowing two Indian parties to choose a foreign seat violates Section 23 (public policy) and Section 28 (agreements in restraint of legal proceedings) of the Indian Contract Act. The court rejected this argument, noting that Section 28's exception for arbitration agreements and the principle of party autonomy allow Indian parties to choose a foreign seat. The court emphasized that the public policy doctrine should be applied cautiously and only in clear cases of harm to the public.4. Party Autonomy:The court underscored the principle of party autonomy in arbitration, allowing parties to choose the seat, procedural law, and substantive law governing their arbitration. The court referenced Centrotrade Minerals & Metal Inc. v. Hindustan Copper Ltd. and Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. to support the view that party autonomy is central to arbitration agreements.5. Jurisdiction Under Commercial Courts Act:The appellant contended that under Section 10(3) of the Commercial Courts Act, the enforcement proceedings should be heard by a Commercial Court, not the High Court. The court clarified that the definition of 'international commercial arbitration' in Section 10(1) of the Commercial Courts Act includes arbitrations seated outside India. Thus, the High Court has jurisdiction to enforce foreign awards, as outlined in the explanation to Section 47 of the Arbitration Act.6. Section 9 Application:The court addressed the cross-objection regarding the maintainability of the respondent's Section 9 application for interim relief. The court held that the application was maintainable, as the proviso to Section 2(2) of the Arbitration Act allows for interim measures in support of foreign-seated arbitrations.Conclusion:The Supreme Court upheld the enforceability of the foreign award under Part II of the Arbitration Act, affirming the principle of party autonomy and clarifying the jurisdictional issues under the Commercial Courts Act. The appeal was disposed of accordingly, with the finding that the Section 9 application was maintainable.