The series of judgments by the Supreme Court of India, that have famously come to be known as the 'Centrotrade saga' finally culminated in a decision of a three-judge bench of the Supreme Court of India in Centrotrade Minerals and Metals Inc v. Hindustan Copper Ltd. (Centrotrade - III).1 In this landmark judgment, read with the judgment of the Supreme Court in Centrotrade Minerals & Metal Inc. v. Hindustan Copper Ltd. (2017) (Centrotrade - II),2 the foundation has been laid for enforcement of a foreign arbitral award rendered under a two-tier arbitration structure.

Facts

The contract of sale between Centrotrade and HCL (Parties) contained a two-tier arbitration agreement, by which the first tier was to be settled by arbitration in India. In the event that either party disagreed with the result, that party was to then have the right to appeal to a second arbitration, to be held by the International Chamber of Commerce in London (ICC). Centrotrade invoked the arbitration clause and initiated arbitration against HCL. In June 1999, the arbitrator appointed by the Indian Council of Arbitration passed a NIL award in the matter. Dissatisfied with this outcome, Centrotrade invoked the second part of the arbitration agreement, as a result of which the arbitrator appointed by the ICC (ICC Arbitrator), delivered an award in favour of Centrotrade in London, in September 2001 (Award).

When the Award was sought to be enforced by Centrotrade in India, it was faced with a challenge by way of a petition filed by HCL under Section 48 (Section 48 Petition) of the Arbitration and Conciliation Act, 1996 (Arbitration Act) before a single judge of the High Court of Calcutta. When this Section 48 Petition was dismissed, and it seemed that the Award became executable in India, HCL approached a division bench of the High Court of Calcutta, which set aside the decision of the single judge and opined that the Award could not be said to be a foreign award. It held that the award passed in India and the Award passed in London, were awards by arbitrators who had concurrent jurisdiction, and their mutually destructive nature meant that neither of them could be enforced.

Centrotrade - I

The matter then came up before the division bench of S.B. Sinha, J. and Tarun Chatterjee, J. in the Supreme Court. Two separate opinions were rendered by S.B. Sinha, J. and Tarun Chatterjee, J. in Centrotrade Minerals & Metals Inc. v. Hindustan Copper Ltd. (2006) (Centrotrade - I),3 whereby they arrived at a split decision on the permissibility of multi-tier arbitration procedure. S.B. Sinha, J. opined that the multi-tier arbitration agreement between the parties was invalid under Section 23 of the Indian Contract Act, 1872 and in any case, an arbitration agreement envisioning different procedures at different stages of the arbitration cannot be permitted under the Arbitration Act. In contrast to this, Tarun Chatterjee, J. was of the opinion that the multi-tier arbitration agreement was valid, and that there was nothing under the Arbitration Act which prohibited a two-tiered arbitration where the first arbitration proceeding is conducted under Part - I of the Arbitration Act, and an appeal therefrom is conducted under Part - II of the Arbitration Act.

Centrotrade - II

On account of this difference of opinion, the matter was taken up on reference before a three-judge bench of the Supreme Court comprising of Madan B. Lokur, J., R.K. Agarwal, J. and D.Y. Chandrachud, J. in Centrotrade - II, where the following issues were set out for consideration:

(1) Whether a settlement of disputes or differences through a two-tier arbitration procedure is permissible under the laws of India?

(2) Assuming that a two-tier arbitration procedure is permissible under the laws of India, whether the award rendered in the appellate arbitration being a "foreign award" is liable to be enforced under the provisions of Section 48 of the Arbitration and Conciliation Act, 1996 at the instance of Centrotrade? If so, what is the relief that Centrotrade is entitled to?

After deliberating upon the first issue, the three-judge bench held that a two-tier arbitration agreement such as the arbitration agreement between the parties is valid and legally permissible under the Arbitration Act.

Centrotrade - III

The matter was listed again before the three-judge bench of Rohinton Nariman, J. S Ravindra Bhat, J. and V Ramasubramanian J. in Centrotrade - III, for consideration of the second question. The Supreme Court observed that the law on Section 48(1)(b) of the Arbitration Act has been laid down in its recent judgment in Vijay Karia v. Prsymian Cavi E Sistemi SRL (Vijay Karia).4 As was the case in Vijay Karia, no challenge was made to the Award under the English law in the present matter, although the option of such a challenge was very much available to the Parties.

The Supreme Court then reiterated the test laid down in Minmetals Germany GmbH v. Ferco Steel Ltd. (Minmetals),5 that the appellant must show that it was otherwise unable to present its case, which would mean that the matters were outside its control and not because of its own failure to take advantage of an opportunity duly accorded to it. Upon appreciating the arguments advanced by counsel for both parties, the Supreme Court observed that the ICC Arbitrator had given numerous opportunities to file documents and legal submissions. A clear timeline was set up by the ICC Arbitrator, upon which several extensions were also granted to HCL to make its submissions in defence. Even so, HCL did not participate in the arbitral proceedings. It was not until the ICC Arbitrator informed the parties that he was proceeding with the award, that HCL finally woke up and requested extension of time to make its submissions in defence. Even this extension of time was granted by the ICC Arbitrator, on two separate instances, upto 12 September 2001. Despite the fact that the legal submissions running into 75 pages were submitted beyond time (on 13 September 2001), the ICC Arbitrator took the same into consideration in view of the attack in New York on 11 September 2001.

Given these facts and circumstances, the Supreme Court felt that the ICC Arbitrator was extremely fair to HCL and granted every reasonable opportunity to it, to present its case. The Supreme Court also observed that the conduct of HCL leaves much to be called for. Despite being informed time and again to appear before the arbitral tribunal and submit its response and evidence in support thereof, it waited until the ICC Arbitrator had all but passed the award, to start asking for time to present its response. Even so, such time was granted by the ICC Arbitrator, by way of multiple extensions. The Supreme Court was therefore unable to find fault with the conduct of arbitral proceedings to return a finding in favour of HCL, or agree with the decision of Tarun Chatterjee, J. in Centrotrade - I. In any case, the Supreme Court clarified that an arbitrator's refusal to adjourn the proceedings at the behest of one party cannot be said to be perverse, bearing in mind the object of speedy resolution of disputes, under the Arbitration Act. Further, it was seen that the Minmetals test was not even adverted to in the Centrotrade - I decision, which would have resulted in deprecation of the conduct of HCL in the first instance itself.

Even otherwise, the Supreme Court stated that remanding the matter to the ICC Arbitrator to pass a fresh award is clearly outside the jurisdiction of an enforcing court under Section 48 of the Arbitration Act. Accordingly, the Award was enforced by the Supreme Court of India.

Comments

The debate regarding validity of multi-tiered arbitrations, particularly those that involve proceedings conducted under both Part - I and Part - II of the Arbitration Act at different stages, has finally been put to rest. Not only has this mechanism of multi-tiered arbitration been validated, but it has also been clarified that an award rendered under Part - II of the Arbitration Act in such multi-tiered arbitration mechanism will most definitely be treated as a foreign award. Heavy reliance placed by the Supreme Court on its decision in Vijay Karia further emphasises the pro-enforcement bias that is noticeable in several recent pronouncements of the Apex Court. We believe that this decision will go a long way in reinforcing India's position as an arbitration friendly jurisdiction.

Footnotes

1. Decision dated 02 June 2020, Civil Appeal No.s 2562 & 2564 of 2006.

2. (2017) 2 SCC 228.

3. (2006) 11 SCC 245.

4. 2020 (3) SCALE 494; For a detailed discussion of this judgment, please see article titled "Enforcement of Foreign Arbitral Awards: Supreme Court Promotes A "Minimal Interference" Approach", authored by Vasanth Rajasekaran & Reshma Ravipati, available at https://www.mondaq.com/india/trials-appeals-compensation/897470/enforcement-of-foreign-arbitral-awards-supreme-court-promotes-a-minimal-interference-approach.

5. (1999) C.L.C. 647.

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