The instant case deals with the pertinent issue that whether a clause providing a binding award as a result of second arbitration was valid under the Indian arbitration law as it was never conclusively decided before this case and hence was required to be considered by the Supreme Court. It was ruled by the apex court that multi-tier arbitration was not contrary to public policy and hence, parties could resort to such a mechanism to settle their disputes.
By: Naman Gujral, Delhi Metropolitan Education.
Petitioner: Centrotrade Minerals & Metal Inc.
Respondent: Hindustan Copper Ltd.
Bench: Justice S.B. Sinha & Justice Tarun Chatterjee
The development of the Indian economy has meant that more and more Indian companies are entering into commercial arrangements with multinational companies. With the growth of trade, there is a corresponding growth in commercial disputes and also the need for effective and timely adjudication. Often multinational companies are uncomfortable in litigating under the Indian legal system and the same has been looked at unfavorably by various players, due to the prolonged legal battles and uncertainty involved. Historically, at the time of passing the Arbitration and Conciliation Act, 1996 (ACA, 1996), the law on arbitration in India was substantially contained in three enactments, namely, the Arbitration Act, 1940 (1940 Act), the Arbitration (Protocol and Convention) Act, 1937 (1937 Act) and the Foreign Awards (Recognition and Enforcement) Act, 1961 (1961 Act). The aforesaid enactments were replaced by the ACA, 1996, which was based on the United Nations Commission on International Trade Law (UNCITRAL), International Commercial Arbitration, 1985, and the UNCITRAL Conciliation Rules, 1980.
The need for amending the old arbitration law was often felt. The Supreme Court observed in F.C.I. vs. Joginderpal Mohinderpal that the process of arbitration should be made simple and less technical. The Centrotrade Case, a judgment by a bench of three judges, is a welcome change from the previous judgment of the Supreme Court of India in Centrotrade Minerals & Metals Inc. v. Hindustan Copper Ltd. (Centrotrade 2006) wherein there was disagreement between the learned Judges and the Indian Supreme Court did not follow the earlier authorities under the existing arbitration law, which had upheld the factum, principle, and rationale behind multi-tier arbitration clauses.
Facts of the case
- The factual matrix of the case can be seen in Centrotrade Minerals & Metals Inc. v. Hindustan Copper Ltd. Centrotrade Minerals and Metals Inc. (Centrotrade) and Hindustan Copper Limited (HCL) entered into a contract for sale. After the contract had been acted upon, a dispute arose as regards how the same was done. Centrotrade invoked the arbitration clause.
- The arbitrator appointed by the Indian Council of Arbitration made a NIL award. Centrotrade thereupon invoked the second part of the said arbitration agreement.
HCL, during the pendency of the proceedings before the arbitrator, filed a suit in the court at Khetri, in the State of Rajasthan, questioning the initiation of the second arbitration proceeding before the International Chamber of Commerce (ICC).
- No interim order was passed, whereupon an appeal was preferred by HCL before the District Judge, which was also dismissed. In a revision filed by HCL, the High Court granted an injunction.
- Meanwhile, the sole arbitrator commenced arbitration proceedings. Centrotrade filed a special leave application before the Supreme Court of India, questioning the order of injunction passed by the Rajasthan High Court, and by an order, the interim injunction was vacated.
HCL, in a series of letters to the International Court of Arbitration and the arbitrator, maintained that the arbitration agreement was void, being opposed to the public policy of India.
- Submissions by HCL were received by the arbitrator without any supporting evidence or any justification for not complying with the earlier orders passed by him. The arbitrator, however, considered the submissions made by HCL in making the award. The award held, inter alia, that, the Arbitration clause contained in the agreement was neither unlawful nor invalid and that, the Arbitrator had jurisdiction to decide his jurisdiction in terms of the ACA, 1996.
- HCL filed an application purported to be under S. 48 of the ACA, 1996, in the Court of the District Judge, Alipore, Calcutta. HCL also filed a suit before the Civil Judge, Senior Division, Alipore praying for a declaration that the ICC award was void and a nullity, as also for permanent injunction and damages. Centrotrade, in the meanwhile, applied for enforcement of the original award in the Court of the District Judge, Alipore. Upon an application made in terms of Clause 13 of the Letters Patents of the Calcutta High Court by Centrotrade, the said execution case was transferred to the Calcutta High Court. A learned Single Judge of the said Court by a judgment and order allowed the said execution petition. Aggrieved by and dissatisfied therewith, HCL preferred an appeal which was allowed and both parties challenged the said judgment of the division bench of the Calcutta High Court before the Indian Supreme Court.
Issues of the case
A bare analysis of the arbitration clause makes it evident that Centrotrade and HCL both intended that the settlement of all their disputes and differences would be resolved by way of arbitration. This would be through a panel appointed by the Indian Council of Arbitration following the Rules of Arbitration of the Indian Council of Arbitration and that if either party, i.e. HCL or Centrotrade, was dissatisfied with the result, then both had an option to file an appeal. This would be before a second arbitrator in London, under the rules of conciliation and arbitration of the International Chamber of Commerce.
It is pertinent to note that only the result of the second arbitration was binding on both the parties.
But whether such a clause was valid and enforceable under Indian arbitration law was never conclusively decided before this case and hence was to be considered by the Supreme Court.
The decision of the case
Applying the celebrated and now oft resorted principle of party autonomy,
the Supreme Court of India in the Centrotrade Case held, parties are not prevented from entering into an agreement providing for non-statutory appeals so that their disputes and differences could preferably be settled without resort to court processes.
The Court reasoned that on a combined reading of sections 34 and 35 of the ACA, 1996, an arbitral award would be final and binding on the parties unless it was set aside by a competent court on an application made by a party to the arbitral award. However, this does not preclude the autonomy of the parties to an arbitral award to mutually agree to a procedure, whereby the arbitral award might be reconsidered by another arbitrator or panel of arbitrators, by way of an appeal and the result of that appeal was accepted by the parties to be final and binding subject to a challenge provided for by the ACA, 1996.
The Indian Supreme Court further held that a multi-tier arbitration clause was also not contrary to the public policy of India, as there was nothing in the ACA, 1996 which restricted the autonomy of the parties to agree to an arbitration clause, with the prearrangement for appellate proceedings, before another arbitral tribunal.
1.Heeralal Agarwalla & Co. v. Joakim Nahapiet & Co. Ltd., 1927 AIR 647 (Cal).
2.Fazalally Jivaji Raja v. Khimji Poonji and Co., 1934 AIR 476 (Bom).
3.M.A. and Sons v. Madras Oil & Seeds Exchange Ltd., 1965 AIR 392 (Mad).
4.Hanskumar Kishanchand v. Union of India, (1959) SCR 1177 (India).