Recently,
during a discussion with few friends, a point came up whether two Indian parties can have arbitration seated outside India. This post is to put things in
perspective as to how law stands as of today.
In
TDM Infrastructure Private Limited vs. UE Development India Private Limited,
the court had in clear terms held that “The intention of the legislature
appears to be clear that Indian nationals should not be permitted to derogate
from Indian law. This is part of the public policy of the country.” Thus, two Indian parties cannot use law of a
different country so as to bypass the Indian law.
The
ratio of the court was that "When both the companies are incorporated in
India, and have been domiciled in India, the arbitration agreement entered into
by and between them would not be an international commercial arbitration
agreement." Doing so would mean going against the public policy of the
nation.
NTPCv Singer also stated that the choice of law could be invalidated if it was
against the public policy. The judgment stated that: “The concept of party
autonomy in international contracts is respected by all systems of law so far
as it is not incompatible with (...) any overriding public policy.”
Even
the revolutionary BALCO judgment has not changed this position of law where it
was in fact discussed in a detailed manner by the counsel and it was also taken
into account by the bench that:
“In
other words, two Indian parties involved in a purely domestic dispute cannot
contractually agree to denude the Courts of this country of their jurisdictions
with respect to a legal dispute arising between them in India.”
“…when
both the parties are Indian, the substantive law governing the dispute must
necessarily be Indian irrespective of the situs of the arbitration and irrespective
of any provision in the contract between the parties to the contrary….the same principle
applies with equal force to the arbitration law too, that is to say, that if it
is not open to two Indian parties with regard to an entirely domestic dispute
to derogate from the Indian laws of contract, evidence etc., it is equally not
open to them derogate from the Indian arbitrational law either.” Reliance
has been placed on TDM Infrastructure.
This
question also came in as recently as in 2013 in the matter of: Antrix
Corporation Ltd.Vs.Devas Multimedia P. Ltd. but was resolved before court could decide on it.
Only
in the following two ways can this stance be changed now:
1)
A new case on this point is decided by the SC, or 2) an explanation is
introduced in the Act through an amendment.
