Indian Supreme Court upholds English High Court's decision on parties' choice of London seat

The Indian Supreme Court's judgment in Roger Shashoua v Mukesh Sharma sheds further light on the court's approach to interpreting arbitration agreements, particularly regarding the parties' implied choice of seat. The court found that the designation of London as the "venue" of the arbitration in the absence of any express designation of a seat would suggest that the parties agreed that London would be the seat of the arbitration (in the absence of anything to the contrary). It is also notable that the court expressly followed the English courts' approach to the same question. Shashoua is particularly relevant to contracts with Indian parties providing for arbitration that were concluded prior to 6 September 2012, the date of the court's judgment in Bharat Aluminium Co. v Kaiser Aluminium Technical Services Inc. ("BALCO") (discussed here). As we consider in further detail below, this can have significant implications on the degree of Indian courts' powers to interfere in arbitration proceedings, grant interim relief, appoint arbitrators or set aside an award, in connection with pre-BALCO agreements.

Background and facts

The parties in Shashoua provided that “the venue of the arbitration shall be London, United Kingdom”. They also provided for arbitration in accordance with the arbitration rules of the International Chamber of Commerce, and that the substantive law of the contract would be Indian law. There was no express choice of seat. After an arbitral tribunal had rendered its award, the award debtor applied to have the award set aside under Section 34 of India's Arbitration and Conciliation Act, 1996 (the "Arbitration Act"). The award debtor (the respondent) argued that the parties had not expressly designated a seat and the courts should find that India was the proper seat of the arbitration, and consequently, the Indian courts had jurisdiction to set aside the award.

English High Court proceedings

This was not the first attempt by the respondent in Shashoua to argue that India and not London was the seat of arbitration. In an application for interim measures under Section 44 of the (English) Arbitration Act, the respondent argued that India was the correct seat of the arbitration as the parties applied Indian law to the substantive aspects of the agreement and only designated London as the location for the arbitration hearings. In his judgment (Shashoua v Sharma 2009 EWHC 957 (Comm)), Cooke J held that London was the seat of the arbitration since there was an express designation of London as the venue, no alternative designation of a seat and the parties had adopted a supranational body of rules (ie, the ICC Rules). He observed that "London arbitration" was a well-known phenomenon that was often chosen by foreign parties together with a different governing law, and did not place much emphasis on the choice of Indian law as the substantive law.

After the tribunal issued its award following the High Court's judgment, the respondent applied to set aside the award under Indian law, arguing again that India was the seat of the arbitration.

The Supreme Court's decision

Prior to hearing this matter, the Indian Supreme Court had already cited Cooke J's reasoning in Shashoua v Sharma in several other cases, including in BALCO. The respondent argued that the Supreme Court's references to Cooke J's decision did not form part of the ratio of those cases, and that in any event, given that the decision was an interim decision of the English High Court, it should not be given substantial weight.

The Supreme Court dismissed these arguments holding that its previous decisions had not only cited Shashoua v Sharma with approval but had relied on its reasoning. It found that Cooke J's decision was part of the "propositional pyramid" upon which the previous Indian judgments were based.

Implications for pre-BALCO contracts

As we note in our blogpost here, BALCO is an important decision for contracts with Indian parties providing for arbitration. Prior to BALCO, Indian courts held that Part I of the Arbitration Act applied to all arbitrations, seated in India or abroad, unless it was impliedly or expressly excluded by the parties. This meant that it was open to an Indian party to request that the Indian courts exercise their supervisory jurisdiction over offshore arbitrations that had sufficient connections to India.  Crucially, an Indian court could set aside such an award if it found that Part I of the Arbitration Act was not excluded by the parties. BALCO changed this and held that the court's supervisory power under Part I of the Arbitration Act did not apply to offshore arbitrations meaning that the old rule applied (and continues to apply to) contracts entered into prior to 6 September 2012, such as the one in Shashoua.

As Shashoua and other cases show, pre-2012 contracts can still be the subject of considerable litigation where it is not clear whether the parties intended to exclude Part I of the Arbitration Act. Shashoua is a welcome decision as it shows that the Supreme Court is adopting a pragmatic approach even when it comes to pre-2012 contracts. While the facts of Shashoua are likely to be unique (ie, a prior English judgment on the same issue between the same parties) it is another example of the willingness of the Indian courts to take into account international practices and norms when deciding issues relating to international commercial arbitration.

For more information, please contact Nicholas Peacock, Partner, Donny Surtani, Partner, Nihal Joseph, Associate, or your usual Herbert Smith Freehills contact.