The legal implications of Indian parties resorting to foreign arbitration: decoding the decision in Addhar

Abstract

The controversy regarding the power of Indian parties to agree on a foreign seat has been framed as follows: The Bombay High Court, in Addhar Mercantile Private Ltd v Shree Jagdamba Agrico (Decision of 12 June 2015), is said to have held that two Indian parties cannot agree to a foreign seat of arbitration and accordingly cannot apply foreign law to the substance of their dispute. The Madhya Pradesh High Court, however, in Sasan Power Ltd v North American Coal Corporation (Decision of 11 September 2015) has held to the contrary—that Indian parties are free to resort to foreign-seated arbitration. This article argues that the decision in Addhar has been misinterpreted, since it does not lay down a bar against Indian parties conducting an arbitration at a foreign seat or applying foreign substantive law. It further argues that the ordinary scheme of the Arbitration and Conciliation Act, as well as its interpretation in the landmark 'BALCO' judgment, have not been disturbed by the rulings in Addhar or Sasan. It finally examines the policy implications of Indian parties effectively ‘contracting out of’ the Indian legal system by opting for a foreign seat.