India: Appellate Arbitration Not Contrary To Indian Law Says Supreme Court

Last Updated: 28 February 2017
Article by Arunima Singh

Most Read Contributor in India, December 2018

In a recent case of M/s Centrotrade Minerals & Metal Inc. versus Hindustan Copper Ltd. arising out of Civil Appeal No. 2562 of 2006, a special bench of the Supreme Court (constituting of Hon'ble Justice Madan B. Lokur, Hon'ble Justice R. K. Agarwal and Hon'ble Justice D. Y. Chandrachud) has held that two tier arbitration will not be contrary to the Indian Laws even though such a process is not backed by any provision in the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Act").

The following issues arose for the consideration of a three-judge bench of the apex court:

  1. Whether a settlement of disputes or differences through a two-tier arbitration procedure as provided for in Clause 14 of the contract between the parties is permissible under the laws of India? And
  2. Assuming 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?

Clause 14 in issue no.1 is the arbitration agreement entered into between M/s Centrotrade Minerals Inc. (hereinafter referred to as "Centrotrade") and Hindustan Copper Ltd. (hereinafter referred to as "HCL"). The Arbitration clause 14 read as follows:

"14. Arbitration - All disputes or differences whatsoever arising between the parties out of, or relating to, the construction, meaning and operation or effect of the contract or the breach thereof shall be settled by arbitration in India through the arbitration panel of the Indian Council of Arbitration in accordance with the Rules of Arbitration of the Indian Council of Arbitration. If either party is in disagreement with the arbitration result in India, either party will have the right to appeal to a second arbitration in London, UK in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce in effect on the date hereof and the result of this second arbitration will be binding on both the parties. Judgment upon the award may be entered in any court in jurisdiction."

The matter was initially put up before a two judge bench of the Apex Court in 2006 wherein a difference of opinion arose between the two judges and therefore the matter went on to being referred to a special bench.

BRIEF FACTS OF THE CASE:

After disputes arose between the parties, Centrotrade invoked arbitration for resolution of those disputes. Thereafter, Indian Council of Abritration appointed an arbitrator who rendered a Nil award. Aggreived by this, Centrotrade invoked the second part of the arbitration clause and the arbitrator in London gave an award dated 29.09.2001 in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce. Centrotrade sought to invoke the said award under section 48 of the Act after which the controversy arose.

VIEW TAKEN BY THE HON'BLE SUPREME COURT:

The Apex Court, at the outset, noticed that it was necessary to appreciate the intention of the parties to opt for a two-step arbitration. Wherein the first step would be settlement of disputes by arbitration in India and the second attempt would be by arbitration in London; where this second arbitration was in the nature of an appeal against the first/previously passed arbitral award.

While considering the legal position, the Court also made an interesting observation with respect to the contentions of HCL. It said that HCL could not advance any such argument wherein it may contend that the contract is illegal because that would imply that HCL was aware that one of the provisions of the contract were contrary to Indian Law and with that knowledge, it entered into contract with Centrotrade thereby playing fraud on Centrotrade. The Apex Court noted that this would have serious ramifications for international commercial contracts with an Indian party.

An argument raised on behalf of HCL was rendered unacceptable by the Apex Court wherein it was contended that acts which are mentioned in the statute are permissible and those not mentioned in the statute are not permissible. The special bench held that appellate arbitration not being provided in the Act was not of concern in the present case. The issue in this matter was not of a statutory appeal but a nonstatutory process agreed upon by the parties that has nothing to do with court procedures.

ARBITRAL AWARDS BINDING IN LIMITED CONTEXTS

It was held that the "final and binding" clause in Section 35 of the Act does not mean final for all intents and purposes. Finality of an award shall always be subject to the intention of the parties to allow an aggrieved party, recourse to an arbitration of second instance.

PARTY AUTONOMY

The Apex Court has once again made it clear that party autonomy is the back bone of an arbitration proceeding. The case of Bharat Aluminium Company v Kaiser Aluminium Technical Services Inc. reported as (2016) 4 SCC 305 was relied upon by the Apex Court to hold that the intention of the parties which will have to be taken into account when understanding the terms of the contract. The special bench has clearly held that in an arbitration the choice of a) jurisdiction, b) procedural law and c) substantive law are all left to the contracting parties. In view of all these, parties are also autonomous enough to decide as to the route of an appeal which may be preferred before a court of law or be made in form of another arbitration before a separate arbitral tribunal.

PUBLIC POLICY AND TWO-TIER ARBITRATIONS

As per Associate Builders versus Delhi Development Authority reported as (2015) 3 SCC 49, it has been held that an award would be set aside if it is contrary to:

  1. Fundamental policy of India Law; or
  2. The interest of India; or
  3. Justice or morality; or
  4. If it is patently illegal.

The concern in the present case was only with the fundamental or public policy of India. The Court held that the parties to the contract have not by-passed any mandatory provision of the Act. Further, the parties entered into the contract with the agreement that the first arbitral award shall not have a binding effect and instead shall be subject to another arbitration. If binding effect of an arbitral award can be agreed upon by the parties then an appellate arbitration can also be agreed upon by the contracting parties.

The entire judgment was made concise by the Special Bench in the following paragraph:

"..The parties to the contract have not by-passed any mandatory provision of the A&C Act and were aware, or at least ought to have been aware that they could have agreed upon the finality of an award given by the arbitration panel of 35 (2015) 3 SCC 49 C.A. Nos.2562 of 2006 etc. Page 27 of 29 the Indian Council of Arbitration in accordance with the Rules of Arbitration of the Indian Council of Arbitration. Yet they voluntarily and deliberately chose to agree upon a second or appellate arbitration in London, UK in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce. There is nothing in the A&C Act that prohibits the contracting parties from agreeing upon a second instance or appellate arbitration – either explicitly or implicitly. No such prohibition or mandate can be read into the A&C Act except by an unreasonable and awkward misconstruction and by straining its language to a vanishing point. We are not concerned with the reason why the parties (including HCL) agreed to a second instance arbitration – the fact is that they did and are bound by the agreement entered into by them. HCL cannot wriggle out of a solemn commitment made by it voluntarily, deliberately and with eyes wide open."

With the coming of this judgment, doors open for appellate arbitration or arbitration of second instance in India. However, amendment in the existing act would be required to facilitate appellate arbitration as a number of questions remain hanging. For instance, the situation in which the parties can apply for intervention of court in the event the parties fail to appoint arbitrators or whether there would be provision of an appeal from an award rendered in Appellate Arbitration. If the latter question is in affirmative then another question would arise as to the apt forum of such appeal; choices being High Court or Supreme Court.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions