M/s Citation Infowares (Indian company) (CI)entered into an agreement in India with the Equinox Corporation (US company). The final dispute resolution clause in the agreement provided as follows:
“10.1. Governing law – This agreement shall be governed by and interpreted in accordance with the laws of California, USA and matters of dispute, if any, relating to this agreement or its subject matter shall be referred for arbitration to a mutually agreed arbitrator.”
Hence, the governing law in this agreement was stipulated as the law of California, United States. In pursuance of the agreement, CI created some infrastructure in Gurgaon, for Equinox’s business. Disputes arose between the parties which resulted in Equinox terminating the agreement. CI incurred huge loss. CI consequently claimed for damages, along with its outstanding payment. Further, CI issued a notice to arbitrate to invoke the dispute resolution clause and sought appointment of a sole arbitrator under the final agreement. However, the parties could not mutually agree upon a sole arbitrator to adjudicate the dispute. This resulted in the filing of an application under Section 11(5) of the Arbitration and Conciliation Act before the chief justice of India in order to appoint the sole arbitrator.
- Whether Chief Justice of India had jurisdiction to entertain an application for appointment in an agreement wherein the parties had agreed that Californian law would be the governing law of the contract.
- Whether Part I of the Arbitration and Conciliation Act, which applies to arbitrations, the seat of which is in India and contains Section 11, was applicable where there is no agreement on the place of arbitration.
Part I of the Arbitration and Conciliation Act does apply in the present case. The Court further held that, even in respect of agreements governed by the laws of another country where the seat is not specified in the agreement itself, the provisions of Part I, including Section 11, will be available to the parties.
Relying on precedents, it was held that the scope of presumption arising from the selection of a foreign proper law of contract is limited. Such a selection does not automatically result in exclusion of Part I of the 1996 Act. The presumption of implicit exclusion of Part I would arise only where the arbitration is agreed to be held outside India. In such a case the law of the seat would apply as the law of the arbitration agreement.
In the light of the relevant facts that one of the contracting parties was incorporated in India; the obligations were to also to be completed in India and the nature of the contract, it can be said that there was no implied exclusion of Part I of the 1996 Act. Therefore, it was held that notwithstanding the language of Section 2(2) of the 1996 Act indicating that Part I would apply where the place of arbitration is in India, the parties would be entitled to invoke the provisions of Part I, even in respect of international commercial agreements which are to be governed by the laws of another country. Consequently, the application made under Section 11 in Part I was found to be maintainable and the default in appointment was rectified by appointing a sole arbitrator.
Unless specifically excluded by the agreement between the parties or by implication, the provisions of Part I of the Arbitration and Conciliation Act 1996 will apply to international commercial arbitrations, even where the governing law is a foreign law.