High Court of Delhi holds that foreign law can govern an arbitration between two Indian parties

Brief Facts

Dholi Spintex entered into a sale contract with Louis Dreyfus for supply of 600 metric tonnes of American imported raw cotton in bales to Dholi Spintex. Since the shipment and delivery of the raw cotton bales was delayed, Dholi Spintex refused to take delivery of the goods, pursuant to which, Louis Dreyfus initiated arbitration proceedings before the International Cotton Association (“ICA”) under Clause 6 of the contract. Arbitration under the ICA byelaws is conducted under the English Arbitration Act, 1996. Dholi Spintex sought an anti-arbitration injunction before the High Court of Delhi and objected to the arbitration on the following grounds: (i) the contract was between two Indian companies and was to be performed in India. Therefore, the law governing the contract must be Indian law; (ii) Clauses 6 and 7 of the contract made it clear that by conferring exclusive jurisdiction upon the courts of New Delhi, the parties intended for Indian law to govern the arbitration proceedings; and (iii) byelaw
200 of the ICA byelaws is opposed to and directly contravenes Indian public policy, which envisages that Indian parties cannot contract out of Indian law.

Issues

Issue (i): Whether two Indian parties can choose a foreign law as the substantive law of the
contract?

Issue (ii): Whether the express designation of a court under Clause 7 of the contract providing
for exclusive jurisdiction at New Delhi is determinative of the seat of arbitration?

Issue (iii): Whether the petition is maintainable under Section 45 of the Arbitration and
Conciliation Act, 1996 (“Arbitration Act”)?

Download PDF