When two Indian parties select arbitration seat in India, it will be governed by Indian law else it will be considered as against public policy. Arbitration clause needs to be well reviewed on the Seat and law to be applied. Interesting article

Bombay High Court on whether two Indian parties can choose a foreign seated arbitration? 

Khaitan & Co

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India August 10 2015

The Bombay High Court in the recent case of M/s Addhar Mercantile Private Limited (Applicant) v Shree Jagdamba Agrico Exports Pvt Ltd¹ (Respondent) has considered the important issue as to whether two Indian parties choosing a foreign seat of arbitration and a foreign law governing the arbitration agreement may be construed to be contracting out of Indian law and therefore opposed to public policy.
Background

• Applicant and the Respondent had entered into an agreement whereby all disputes were to be referred to arbitration and the arbitration clause included the following language:

“Arbitration in India or Singapore and English law to be (sic) apply.”

• Pursuant to a dispute under the agreement, the Applicant filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (the Arbitration Act) for appointment of an arbitrator as well as a petition under Section 9 of the Arbitration Act seeking interim reliefs.
• Respondent opposed the application under Section 11(6) of the Arbitration Act on the ground that the parties are governed by English Law and the venue of arbitration should be Singapore 
• The important issue of contention between the parties was whether two Indian parties could enter into an agreement to have the seat of arbitration at Singapore with the governing law as English law?

Applicant’s contention: Intention of parties was clear to have arbitration in India and since both parties are Indian, they cannot be allowed to derogate from Indian law in light of TDM Infrastructure Private Limited v UE Development India Private Limited (TDM Infrastructure).²
Respondent’s contention: Bombay High Court has no jurisdiction to resolve the issue. Though both parties are Indian, parties by agreement can agree to the seat of arbitration at Singapore and apply English law as the governing law. If the Bombay High Court exercised its jurisdiction to appoint an arbitrator under Section 11 of the Arbitration Act, it would be contrary to Section 28 (1) (a) of the Arbitration Act.

Judgment
Relevant paragraphs of the Bombay High Court judgement are set out below:
“8. It is not in dispute that both parties are from India. A perusal of clause 23 clearly indicates that intention of both parties is clear that the arbitration shall be either in India or in Singapore. If the seat of the arbitration would have be at Singapore, certainly English law have to be applied. Supreme Court in case of TDM Infrastructure Private Limited (supra) has held that the intention of the legislature would be clear that Indian nationals should not be permitted to derogate from Indian law. This is part of the public policy of the country.
9. Insofar as submission of the learned counsel for the respondent that if such provision is interpreted in the manner in which it is canvassed by the learned counsel for the applicant, it would be in violation of section 28(1) (a) is concerned, since I am of the view that the arbitration has to be conducted in India, under section 28(1) (a), the arbitral tribunal will have to decide the disputes in accordance with the substantive law for the time being in force in India. In my view the said agreement which provides for arbitration in India thus does not violate section 28(1) (a) as canvassed by the learned counsel for the respondent.
12. Insofar as next submission of the learned counsel for the respondent in the alternative to the earlier submission that the said clause is workable on the ground that the clause referred to the seat of arbitration at Singapore and applicability of the English law to such proceedings are concerned, in my view since both the parties are Indian and cannot derogate the Indian law, this submission of the learned counsel has no substance and is rejected.” (Emphasis added)

Khaitan Comment
Although this decision from the Bombay High Court follows the obiter dicta from TDM Infrastructure and BALCO³ there are also judgments such as Reliance Industries Limited & Anr v Union of India⁴ and Delhi Airport Metro Express Pvt Ltd v CAF India & Anr⁵ that may be relied upon to argue that a foreign seated arbitration between Indian parties is valid. Given the prevailing uncertainty, a conclusive finding on the subject from the Supreme Court would be welcome.

“The content of this document do not necessarily reflect the views / position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at  legalalerts@khaitanco.com”

Reference:http://www.lexology.com/library/detail.aspx?g=dd85aac3-65f7-47e9-b5c7-d3e2b2b22f37&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email+-+Other+top+stories&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexology+Daily+Newsfeed+2015-08-19&utm_term=