The Madhya Pradesh High Court recently allowed choosing of foreign law as the governing law in an arbitration between two Indian entities.
The Court said where parties by mutual agreement agreed to resolve their dispute by arbitration and chose a foreign seat of arbitration then, foreign governing law will be applicable.
“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 fulfills 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.”
Part I of the act deals with domestic arbitrations, their process, award and enforceability. Par II deals with enforcement of Foreign Awards pursuant to the New York Convention. In other words where parties have chosen a foreign country as place of arbitration, Part I will not apply and only the mandate under section 45 needs to be adhered to before referring the parties to an arbitration.