The Supreme Court of India, after a long drawn dispute, has firmly established that two-tier arbitration clauses are valid and are not against public policy in India. The landmark judgment in this regard is the M/s. Centrotrade Minerals and Metal Inc. v. Hindustan Copper Ltd.
The case has an extensive history and it had begun when the parties had entered into a contract for sale of copper concentrate. Dispute between the two parties arose regarding the dry weight of the goods and M/s. Centrotrade had invoked the arbitration clause. The arbitration clause read as such:
"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 results of this second arbitration will be binding on both the parties. Judgment upon the award may be entered in any court in jurisdiction."
Vide award dated 15th June, 1999 of Arbitral Tribunal under the Indian Council of Arbitration (ICA) rules had given a NIL award. Subsequently, M/s. Centrotrade had invoked the second arbitration before the International Chamber of Commerce on February 22, 2000. The arbitral tribunal comprising of sole arbitrator had passed its award on 29th September, 2001, upholding the validity of the arbitration clause and Centrotrade's claims.
Resultantly, M/s. Centrotrade had moved an application for enforcement of foreign award under Section 48 of Arbitration and Conciliation Act, 1996. The same was allowed by a single bench of the Calcutta High Court vide its order dated 10th March, 2004. Hindustan Copper Limited filed an appeal against this decision before the division bench and on 28th July, 2004 the division bench declared that the award of International Chamber of Commerce was non-executable as long as award of Indian Council of Arbitration stood. This judgment was again challenged before a two bench in Supreme Court, however, due to difference in opinion, it was referred to a three-judges bench.
- Whether a settlement of disputes or differences through 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?
The Hon'ble Supreme Court had heard the first question and directed to list the appeal again for consideration of the second question which is related to enforcement of the appellate award.
The Hon'ble Supreme Court had held that the Arbitration and Conciliation Act, 1996 does not prevent, either explicitly or implicitly, the parties' autonomy to agree to a procedure for arbitration of the dispute between them. The party autonomy is upheld to the extent that they may agree to a procedure whereby the arbitral award might be reconsidered by another arbitrator or panel of arbitrators by way of an appeal.
Further, the Hon'ble Supreme Court has made it clear that the arbitration at the first instance i.e. Indian Council of Arbitration had passed an "arbitration result" as per the contract, however, irrespective to the nomenclature it would amount to arbitral award.
The Hon'ble Supreme Court has accepted two-tier arbitration as an integral part of arbitration in India; however, there still remain open loops in this regime. Some of them being:
- Time frame between which appeal should be filed against the first arbitral award.
- Procedure for appointment of appellate tribunal.
- Whether appellate tribunal can remand back the matter to the arbitral tribunal.
- Way forward in case the appellate tribunal award is set aside by the seat of arbitration.
* 2016 SCC Online SC 1482
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