Two Indian parties can choose foreign seat of arbitration, says Madhya Pradesh High Court

Laying down a significant precedent, the Madhya Pradesh High Court recently ruled that two Indian parties can choose a foreign arbitral seat. Clearing the air when it comes to the rights of Indian parties vis a vis arbitral proceedings, the judgment in Sasan Power Ltd v North America Coal Corporation India Pvt Ltd is significant in more ways than one..The court was hearing disputes arising out of mine development agreement entered into between Reliance-owned Sasan Power Ltd, and the North America Coal Corporation. Two years after the agreement was entered into, the North America Coal Corporation India (NACC) was formed, whereby all rights and liabilities were transferred from the parent company to the NACC..Subsequently disputes arose between the two parties, and arbitral proceedings were initiated, with the seat of arbitration situated in London. Which is where the High Court comes into the picture..According to Sasan, two Indian parties are prohibited from choosing a foreign seat of arbitration; reliance being placed on an earlier Supreme Court’s decision in TDM Infrastructure. Senior counsel VK Tankha, who appeared on behalf of Sasan, argued, inter alia, that Indian companies cannot choose a foreign seat of arbitration..Rejecting the plea, the court held that the correct position in law was stated by the Supreme Court in Atlas Exports, and that TDM Infrastructure would not be applicable here. The court went on to hold that,.“Once it is found by us that parties by mutual agreement have decided to resolve their dispute by arbitration and when they, on their own, chose to have the seat of arbitration in a foreign country, then in view of the provisions of Section 2(2) of the Act of 1996, Part I of the Act, will not apply in a case where the place of arbitration is not India and if Part I does not apply and if the agreement in question fulfils the requirement of Section 44 then Part II will apply and when Part II applies and it is found that agreement is not null or void or inoperative, the bar created under Section 45 would come into play and if bar created under Section 45 comes into play then it is a case where the Court below had no option but to refer the parties for arbitration as the bar under Section 45 would also apply and the suit itself was not maintainable.”.Anirudh Krishnan, engaged by Jones Day to argue on behalf of North America Coal Corporation India (NACC) before the High Court, says that an important clarification issued by the court was with respect to the intention of the parties..“The key ingredient to determining whether a matter has to be referred to arbitration is to decide on whether the parties exhibited an intention to arbitrate.”.The judgment is also likely to have an impact of foreign investor sentiment. Says Krishnan,.“Indian subsidiaries of foreign companies can now, to a large extent, avoid the Indian court and arbitration system by opting for foreign seated arbitrations even when the dispute is with another Indian Company. Considering that India ranks 186th out of 189 countries when it comes to enforcement of contracts, investors will be glad that this option of theirs is recognized to be valid”.Senior advocate VK Tankha was the arguing counsel for Sasan, briefed by local counsel Alok Hoonka, with Agarwal Law Associates as the legal advisors for Sasan Power. The senior counsel appeared with Varun K Chopra, Paras Anand, and R Gupta, and Alok Hoonka..Anirudh Krishnan was the arguing counsel for NACC, with local counsel Ankit Agrawal. Jones Day was the foreign law advisors for NAAC, while AK Law Chambers provided advice on Indian law.