GE Power Conversion Pvt. Ltd. v. PASL Wind Solutions Ltd, the judgement passed on 3^rd November, 2020.

Synopsis

A single-judge bench of the Gujarat High Court passed a decision on the 3^rd day of November 2020, pertaining to the case related to the parties GE Power Conversion Pvt. Ltd. v. PASL Wind Solutions Ltd^[1]., (“Power Conversion”) which was presided by Honourable Mr. Justice Biren Vaishnav under Order XXI, Rule 11 of the Code of Civil Procedure^[2] read with the provisions of Section 47 of the Arbitration and Conciliation Act, 1996^[3] and read with the provisions of Section 2(1)(c), 7 and Section 10(1) of the Commercial Courts, Commercial Division and Commercial Appellate Division of the High Court’s Act, 2015. In this case, the court was of the opinion that a company which is incorporated within the territorial limits of India can opt to choose any other foreign country, not within the territorial limits of India as its seat for conducting arbitration proceedings. The Court further elucidated upon how the award passed by a foreign seated arbitration can be enforced in India or within the territorial jurisdiction of India according to the provisions enumerated in Section 48 of the Arbitration and Conciliation Act, 1996.^[4]  This judgement can be deemed to be regarded as one of the top judgements passed in the year 2020 and the decision laid down in this judgement can be deemed to be regarded as a judgement which would have a significant impact on the arbitration regime in India.

Background of the Case

The petitioner in the present case, GE Power Conversion (“GE”), and the respondent, PASL Wind Solutions (“PASL”), are two companies which are deemed to have been incorporated under the provisions of the Companies Act, 1956. The facts of the case are that the petitioner placed an order and issued three purchase orders to the respondent ordering converters which could be used in wind turbines. The parties came down to a settlement wherein an issue had arisen with regards to the quantity of goods which the respondent had supplied to the petitioner. It is imperative to understand that this settlement agreement consisted of a clause pertaining to dispute resolution, if at all the settlement between the parties lapsed. One of essential tenets of this clause consisted that if at all a dispute was to arise between the parties to the agreement, then such matter should be resolved by conducting an “Arbitration Proceeding in Zurich”, by adhering to the institutional rules made by the International Chamber of Commerce (hereinafter referred to as, “ICC”). Furthermore, it is imperative to understand that the agreement which the parties had entered into was made under the provisions of the Indian Contract Act, 1872. The parties to the settlement agreement could not amicably settle their disputes and therefore, PASL went ahead and filed for the initiation of an arbitration proceeding on the grounds that the GE Power Conversion is not adhering to the provisions of the settlement agreement. Thereafter, the seat for arbitration was decided as Mumbai, India. During the pendency of the arbitral proceedings, the petitioner was of the opinion that the ICC Tribunal has no jurisdiction when it comes to determining the proceedings and two Indian corporations or two Indian parties cannot determine a foreign seat for arbitration. However, the Tribunal did not agree with the view contended by the Petitioner and rejected the claim made by the Petitioner. However, in consonance to this award, the petitioner filed for interim measures before the Honourable Gujarat High Court in order to enforce the award passed by the Tribunal under the provisions of Section 48 of the Arbitration and Conciliation Act, 1996 and under the provisions of Section 9 of the Arbitration and Conciliation Act, 1996^[5] which enumerates on the provisions dealing with Interim Measures.

Issues Raised

The issues which were raised before the Gujarat High Court are as follows:

• Whether the impugned Award can be deemed to be regarded as a Foreign Award?
• Whether the impugned Award being an Award, be enforced within the territorial jurisdiction of India and can it be enforced by the Courts in India?
• Whether a petition filed under the provisions of Section 9 of the Arbitration and Conciliation Act, 1996 is maintainable before the Gujarat High Court?

Decision of the Court

The Gujarat High Court was of the view that the provisions of the law pertaining to domestic arbitration and the International Commercial Arbitration are enumerated in Part I of the Act, however, Part II of the Act specifically deals with the provisions pertaining to the “enforcement of foreign awards.” Therefore, the Court was of the opinion that the underlying principle of the Act shows a clear demarcation between Parts I and II, which can therefore be applied when it comes to the different fields. Apart from this, the Gujarat HC reiterated that when it comes to analysing an arbitral award and deeming such an award as a foreign award, due regards need to be given to the provisions enumerated under Section 44 of the Arbitration and Conciliation Act, 1996, which portrays an exhaustive definition of a “foreign award”, and the provisions enumerated in Part I have no basis when it comes to the determination of such an Award. The Gujarat High Court further noted that the origin of the parties to the dispute has no standing when it comes to the application of Part II of the Act. The Court further opined that for an impugned Award to fall under the scope and the ambit of Section 44, the requirements could be determined only when the seat of the award and the applicability of the New York Convention is in line with the provisions of the agreement.

With regards to understanding the seat of arbitration, the Gujarat HC enumerated that it was clearly stated in the settlement agreement that if at all the parties cannot adhere to the provisions of the settlement agreement, then they can refer such matter for Arbitration and an Arbitration Clause was very well inserted which clearly stated that the parties wanted the Arbitration to be a foreign seated arbitration, which would be held in Zurich. This Gujarat High Court relied upon the decision passed by the Supreme Court in the case of BGS Soma v. NHPC ^[6], wherein the Honourable Supreme Court came up with a test in order to understand when a chosen venue for Arbitration can be deemed to be regarded as a seat of Arbitration. In this case, it was held that, “The use of the phrase, “arbitration proceedings “ or”venue “ when it comes to understanding a place signified that the entire arbitration proceeding can be conducted or carried on the place which has been decided. However, in this case, the venue is the seat of the arbitration. However, if the arbitration agreement states that, “tribunals are to meet or have witness, experts, or parties” at a particular place, then it indicates that the hearings shall only be conducted at the venue which has been specified and in such a case, such a venue cannot be deemed to be regarded as the seat. If the arbitration agreement elucidates upon arbitration proceedings per se, then the proceedings “shall be held” at a particular venue and the indication is that the arbitration proceedings are anchored at the said place and the choice of the venue is also the seat of arbitration. However, the above tests are subject to there being no other “significant contrary indicia” which shows that the said place can simply be deemed to be regarded as a venue and not as a seat for arbitration.” ^[7]   The Gujarat HC was of the view that the Order for the Jurisdiction of the Arbitrator, which could be deemed to be regarded as a seat of Arbitration was Zurich, however, this was never a moot point and was never challenged by either parties to the dispute. Apart from this, the transcripts and the correspondence which took place during the pendency of the Arbitration Proceedings were submitted in the Court and the Court came to the conclusion that the Arbitrator and the parties to the dispute were clear with regards to the fact that the seat of arbitration was Zurich, and that Mumbai was simply chosen as a “venue” which was convenient for both the parties to the dispute.

The Gujarat High Court was of the opinion that the juridical seat with regards to the arbitration proceeding was in fact, Zurich. The Court also threw light upon the fact that the Central Government had pronounced Switzerland as a territory to which the New York Convention applied and the ingredients provided for were enumerated in Section 44 of the Act. Therefore, the High Court came to the conclusion that in the present case, the impugned Award was in fact, a foreign Award as per the provisions of Part II of the Act.

After the Court proved that the said Award was a foreign award, the Gujarat High Court delved into the aspect of enforceability of such an Award. In order to understand the aspects pertaining to enforceability, the Court delved into the various provisions of Section 47 of the Act and checked whether the Award fell within the ambit of Section 47.^[8] The Gujarat HC opined that since the assets which were owned by the Respondents, fell within the jurisdiction, the said Award had the jurisdiction to be enforced and the Court also had the power and the jurisdiction to hear such an Enforcement Petition. The Gujarat High Court relied upon the judgement passed by the Supreme Court in the case of Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc.^[9] (“BALCO” Case).

The Gujarat High Court then focused upon whether the Respondent company had raised any grounds with regards to the provisions of Section 48 of the Act for the Court to deny the enforcement of the said Award. The Court analysed that the provisions of Section 48 of the Arbitration and Conciliation Act, 1996, have quite a narrow scope. The argument which was put forth by the Respondent Company’s counsels was that the provisions of Section 48 of the Act, were restricted only to two Indian parties to an arbitration proceeding providing the seat of arbitration to be outside the territorial jurisdiction of India, which would be deemed to be regarded in contravention of the provisions enumerated under Section 28^[10], read along with the provisions of Section 23^[11] of the Indian Contract Act, 1872. The Counsels for the Respondent relied upon the case of TDM Infrastructure^[12] and contended that such an agreement could be deemed to be regarded as ultra vires to the public policy of India. It is imperative to throw light upon the provision of Section 28 of the Indian Contract Act, 1872. Section 28 of the Contract Act deals with Agreements in restraint of legal proceedings and how these agreements could be deemed to be regarded as void. Basically, Section 28 delves into agreements wherein parties are restricted to enforce his/her legal rights as they may be deemed to be regarded as void to that extent. However, the Gujarat High Court noted that the Explanation 1 to the provisions of Section 28 does not take into its ambit, the application of the various provisions pertaining to arbitration agreements. The Gujarat HC further enumerated upon the fact that it is extremely clear to the parties to the contract that they may resolve their disputes amicably in a foreign court which could be deemed to be regarded as a “neutral court”. The Court opined that Section 28 of the Contract Act deems that Indian parties are prohibited from designating a foreign court and vesting it with exclusive jurisdiction to supervise their arbitration proceedings.^[13]  The Court then came to the conclusion that the said Award in question can be deemed to be regarded as an award which is enforceable in India.

Another imperative aspect which was brought forth by way of this judgement was with regards to the provisions of Section 9 of the Arbitration and Conciliation Act, 1996, which deals with Interim Measures. The issue which was raised before the Court was regarding whether a petition can be maintained before the Court under the provisions of Section 9 of the Arbitration Act. The Court was of the view that since the seat of arbitration was pre-decided by the parties as Zurich, therefore, it cannot be further deliberated that the said Award was a result of a domestic arbitration which fell under the ambit of Part I of the Act. Section 2(2) of the Act, enumerates that the provisions of Section 9 are applicable to an ICA, however, there are certain prerequisites which need to be followed, i.e. whether there exists any contract or agreement between the parties. However, the Court was of the opinion that such an agreement did not matter since in the present case, neither parties to the dispute were incorporated outside the territorial jurisdiction of India. The Petitioner contended that “international commercial arbitration” as elucidated in Section 2(2) of the Act is a misnomer and the petitioner therefore opined that in the case of Trammo DMCC v. Nagarjuna Fertilisers and Chemicals Limited^[14]The Bombay High Court had given an interpretation of the provisions enumerated in Section 2(1)(e)(ii) of the Act, and had reiterated upon the words, “international commercial arbitration.”. However, the Gujarat High Court reiterated that, on a bare reading of the provisions of Section 2(2), it can clearly be understood that the provisions of Section 9 of the Arbitration and Conciliation Act, 1996, are perfectly application to an international commercial arbitration proceeding. The Gujarat High Court did not accept the view put forth by the Petitioner with regards to the use of the term, “international commercial arbitration” being a misnomer. The Court held that such an interpretation of the said term would not be in consonance to the principles of statutory interpretation, wherein the purpose of the law is found from the words that are used in order to draft it. The Gujarat High Court enumerated that a petition under Section 9 of the Act could not be maintained.

Conclusion

Two Indian parties choosing an international seat of arbitration has always been thoroughly deliberated upon, however, in the present case, the Gujarat High Court has clarified the said issue by strictly adhering to a textual interpretation of the provisions of the piece of legislation governing the Arbitration regime in India. Vide this judgement, it has been made clear that two Indian parties can choose another country as a seat for conducting their arbitration proceeding, however, the parties need to be aware of the fact that they would not be able to take any action when it comes to the enforcement of such a foreign award and this is in consonance to the view taken by the Gujarat High Court in the present case.

^[1] R/Petn. Under Arbitration Act No. 131 of 2019 with R/Petn. Under Arbitration Act No. 134 of 2019.

^[2] Rule XXI, Rule 11- Oral Application-Where a decree for the payment of money the court may, on oral application of the decree holder at the time of the passing of the decree, order immediate execution thereof by the arrest of the judgement debtor, prior to the preparation of a warrant if he is within the precincts of the Court.

^[3] Section 47-Evidence, The Arbitration and Conciliation Act, 1996.

^[4] Section 48- Conditions for enforcement of foreign awards, The Arbitration and Conciliation Act, 1996.

^[5] Section 9-Interim Measures, etc. by Court, The Arbitration and Conciliation Act, 1996.

^[6] Civil Appeal No. 9307 of 2019 arising out of SLP (Civil) No. 25618 of 2018.

^[7] BGS Soma v. NHPC, Civil Appeal No. 9307 of 2019 arising out of SLP (Civil) No. 25618 of 2018.

^[8] Section 47-Evidence, The Arbitration and Conciliation Act, 1996.

^[9] (2012) 9 SCC 552.

^[10] Section 28- Agreements in Restraint of Legal Proceedings, void., The Indian Contract Act, 1872.

^[11] Section 23- What considerations and objects are lawful, and whatnot, The Indian Contract Act, 1872.

^[12] TDM Infrastructure (P) Ltd. v. UE Development India (P) Ltd., (2008) 14 SCC 271.

^[13] ELP Arbitration: Update, https://elplaw.in/wp-content/uploads/2020/11/ELP-Arbitration-weekly-update-GE-Power-Conversion-India-v.-PASL-Wind-Solutions-.pdf.

^[14] 2017 SCC Online Bom 8676.