The Bombay High Court in the recent case of Addhar Mercantile Private Limited v. Shree Jagdamba Agrico Exports Pvt. Ltd., has considered the 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.

The parties had entered into an agreement whereby disputes between them were to be referred to arbitration and the arbitration clause included the following language: “Arbitration in India or Singapore and English law to be apply.”

When dispute arose between the parties, Addhar 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. Shree Jagadamba opposed both the applications. Application under Section 11(6) of the Arbitration Act was opposed on the ground that the parties are governed by English Law and the seat of arbitration shall be at Singapore.

The Bombay High Court held that the intention of both parties was clear that the arbitration shall be either in India or in Singapore. It relied on the decision of the apex court in TDM Infrastructure Pvt. Ltd. v. UE Development India Pvt. Ltd., where it was held that the intention of the legislature is clear that Indian parties should not be permitted to wriggle out of Indian law and this is a matter of Indian public policy. Hence, the Bombay High Court held that the arbitration has to be conducted in India and the arbitral tribunal will have to decide the disputes in accordance with the substantive law for the time being in force in India and since both the parties are Indian, they cannot derogate the Indian law.

VA View

In our view, it is advisable that in an arbitration between two Indian parties, the seat of arbitration should be in India and the substantive law should be Indian law. Should Indian parties decide to choose a foreign seat of arbitration, issues may arise during the arbitration proceedings, which may pose practical challenges to the parties involved in the arbitration. We would welcome the final word on this issue from the apex court.