Pasl Wind Solution (P) Ltd. vs. GE Power Conversion (India)(P) Ltd., 2021

The case of PASL Wind Solutions Pvt. Ltd. v. GE Power Conversion India Pvt. Ltd. addressed the permissibility of two Indian companies selecting a foreign seat for arbitration and the enforceability of such an arbitral award in India.

Key Facts:

Parties Involved:

• PASL Wind Solutions Pvt. Ltd. (PASL): An Indian company involved in wind energy solutions.
• GE Power Conversion India Pvt. Ltd. (GE India): An Indian subsidiary of General Electric, operating in the power conversion sector.

Background:

• Disputes arose between PASL and GE India concerning the supply and warranties of certain converters.
• To resolve these disputes, both parties entered into a settlement agreement on December 23, 2014.
• The agreement included an arbitration clause specifying that any disputes would be resolved through arbitration under the Rules of the International Chamber of Commerce (ICC), with the seat of arbitration in Zurich, Switzerland, while Indian law governed the substantive terms of the agreement.

Arbitration Proceedings:

• In 2017, PASL initiated arbitration under the ICC Rules.
• GE India contested the jurisdiction, arguing that two Indian entities could not select a foreign arbitration seat.
• The sole arbitrator upheld the validity of the arbitration agreement, confirming Zurich as the seat but conducting hearings in Mumbai.
• The final award favored GE India, dismissing PASL's claims and awarding damages and costs to GE India.

Enforcement Proceedings:

• GE India sought enforcement of the arbitral award in the Gujarat High Court under Sections 47 and 49 of the Indian Arbitration and Conciliation Act, 1996.
• PASL opposed, asserting that the award was not foreign since both parties were Indian, and selecting a foreign seat contravened Indian public policy.

1. Would it be feasible for corporations, i.e., parties, to select a forum for arbitration outside of India’s jurisdiction, i.e., a foreign seat, to resolve their disputes?
2. Whether the award granted to the parties would be classified as a ‘foreign award’ under Part II of the Arbitration Act?

The parties argue before the court:- 

(i) As the same would be contrary to Section 23 of the Contract Act, 1872 read with Sections 28(1)(a) and 34(2-A) of the Arbitration Act;
(ii) That by designating a foreign seat, parties would be able to opt out of substantive law of India, which would be contrary to the public policy of the country.

That foreign awards as contemplated under Part II of the Arbitration Act can arise only from international commercial arbitrations. Reliance was placed on the definition of “international commercial arbitration”, contained in Section 2(1)(f) of the Arbitration Act (Part I), as per which at least on the parties to the arbitration is a foreign national or a company incorporated in a country other than India, or an association whose central management or control is outside India or Government of a foreign country;

That since there was no foreign element involved and the dispute between the two parties arose out a contract to be performed solely in India, by applying the closest connection test, the seat of the arbitration would necessarily be Mumbai and not Zurich.

JUDGMENT:-

• The Court view that the Section 44 of the Arbitration Act, it is not clear whether the parties or the Tribunal chose the seat. The arbitration seat in Mumbai (India) was rejected. The Court also held that the closest connection test would apply only if, as in the instant case, the parties, by their express consent, designated Zurich as the seat of arbitration and Mumbai as the venue.
• The Court clarified that an ICA and a foreign award are not the same. An award made in a state other than the state where enforcement is sought is a foreign award. The nationality, domicile, and residence of parties are irrelevant to determining whether an award is a foreign award or not. The majority of the contracting states of NYC consider the “seat” chosen by the parties or the tribunal as the place where the award is made. The concept of a foreign award is thus “seat-oriented” rather than “party-oriented.”
• The Court accepted the argument of the respondent GE that the parties in the present scenario will have two bites at the cherry, i.e., by challenging the award under Swiss law in Zurich and, second, by resisting the enforcement under the grounds mentioned in Section 48 of the Arbitration Act. The Supreme Court concluded that Section 48 of the Arbitration Act provides sufficient safeguards against the enforcement of an award that is violative of public policy. If two Indian citizens are found to have broken a law that is important to India’s public policy or if it is found that enforcing a foreign award would go against India’s public policy, Indian courts may refuse to enforce that foreign award.

• The court view that the party autonomy in rendering the decision. The respondent failed to provide for any law that prohibited two Indian parties from picking a foreign seat for arbitration. 
• The court considered the definition of a “foreign arbitral award” under section 44 of the Act as enumerated above and came to the conclusion that all ingredients were satisfied. It further enunciated that section 44 of the Act is the sole repository to determine whether an award is a foreign award and exhaustively covers all ingredients to decide that.
•  Lastly, it clarified that the nationality of the parties had no bearing on deciding whether Part-II of the Act was applicable or not. This decision will solely be based on what the seat of the arbitration agreement is.