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The Supreme Court of India on June 2, 2020 delivered a landmark judgment on the validity of two-tier arbitrations in India, decided by a 3-judge bench led by Hon’ble Justice R. F. Nariman. The judgment is also significant because this is the first instance wherein the Supreme Court of India has interpreted the the public policy exception after the passing of the Arbitration and Conciliation (Amendment) Act, 2015.

An American supplier, Centrotrade Minerals and Metals Inc., entered into an agreement to sell copper to an Indian buyer, Hindustan Copper Ltd. Centrotrade entered into a contract for sale of 15,500 DMT of copper concentrate to be delivered at the Kandla Port in the State of Gujarat, the said goods to be used at the Khetri Plant of the respondent Hindustan Copper Ltd. The agreement had an arbitration clause which provided the option of having a two tiered arbitration, first in India, and a second round in London. A dispute arose between the parties, and the American supplier invoked the arbitration clause. The arbitration tribunal which was seated in India made a NIL award. Centrotrade Minerals and Metals Inc. was dissatisfied with the award and then approached the second tribunal seated in London. Hindustan Copper Ltd., simultaneously approached Indian courts claiming that a two tier arbitration would be contrary to Indian public policy. The arbitral tribunal seated in London made an award in favour of Centrotrade.

Thereafter, in the proceedings before the Indian Courts, two separate judgments were delivered by S.B. Sinha, J. and Tarun Chatterjee, J. reported in Centrotrade Minerals & Metals Inc. v. Hindustan Copper Ltd. (2006) 11 SCC 245. After setting out the facts of the case, S.B. Sinha,J. held that a two tier clause of the kind contained in clause 14 of this agreement is non est in the eye of law and would be invalid under Section 23 of the Indian Contract Act. In this view of the matter, the foreign award could not enforced in India and Centrotrade’s appeal. However, Justice Chatterjee held that the two-tier arbitration process was valid and permissible in Indian law; that the ICC arbitrator sat in appeal against the award of the Indian arbitrator; that the ICC award was a foreign award; but that since HCL was not given a proper opportunity to present its case before the ICC arbitrator, Centrotrade’s appeal would have to be dismissed and HCL’s appeal allowed.

On refernce before a three-judge bench, it was held in Centrotrade Minerals & Metal Inc. v. Hindustan Copper Ltd. (2017) 2 SCC 228 that 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

The appeals were listed then before the Hon’ble Court in the present case, since there was a question that had been left unanswered before, that is, whether the London Award could be enforced.

The following key legal points were held in the case:

• Two-tier arbitration process permissible

A matter before the Bench earlier in the 2017 decision had been “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?”

This question had been answered by the court in the affirmative then, identifying party autonomy as ‘the backbone’ of arbitration. The present award does not disturb this finding.

• Arbitrator is in control of proceedings, and it cannot be considered unjust if the arbitrator refused to adjourn proceedings on the behest of one party, especially when they have had sufficient opportunity, in the interest of speedy resolution of disputes.

It was the claim of Hindustan Copper Ltd. that they had not had property opportunity and fair hearing before the London Arbitrator, and that they had requested more time to present their case and had not been awarded the same. The Court refused to accept this argument, explaining that an arbitrator’s refusal to grant more time to a party for presenting its case when ample opportunity had already been provided could not be considered unjust. It was held:

“Further, the arbitrator cannot be faulted on this ground as, given the authorities referred to by us hereinabove, the arbitrator is in control of the arbitral proceedings and procedural orders which give time limits must be strictly adhered to. In paragraph 168, the learned Judge then said that given the attack in New York on 11.09.2001, the learned arbitrator should have excused further delay and should not have acted on frivolous technicalities. This approach of a Court enforcing a foreign award flies in the face of the judgments referred to by us hereinabove. Even otherwise, Chatterjee, J., refers to the judgment in Hari Om Maheshwari (supra) as well as Minmetals (supra), but then does not proceed to apply the ratio of the said judgments. Had he applied the ratio of even these two judgments, it would have been clear that an arbitrator’s refusal to adjourn the proceedings at the behest of one party cannot be said to be perverse, keeping in mind the object of speedy resolution of disputes of the Arbitration Act. Further, the Minmetals (supra) test was not even adverted to by Chatterjee,J., which is that HCL was never unable to present its case as it was at no time outside its control to furnish documents and legal submissions within the time given by the learned arbitrator. HCL chose not to appear before the arbitrator, and thereafter chose to submit documents and legal submissions outside the timelines granted by the arbitrator.”

Therefore, it was concluded that Hindustan Copper Ltd. has a fair opportunity of presenting their case, and the arbitrator was within his powers to pass such an award.

• It was not established that arbitrator planned to take up an issue of jurisdiction as a preliminary question, and this argument could not anyway have been raised at this stage.

It was argued that the London arbitrator ought to have determined the question of jurisdiction as a preliminary question, as he himself had initially indicated, before going into the substantive issues relating to the contract. The Court stated that this was an argument that has never been raised earlier, and was being raised here for the first time. Even otherwise, and even if the Court was to go by the documents that were submitted to them, the fax sent by the arbitrator to the parties on the issue is incomplete. Even otherwise, it speaks of issues of jurisdiction and Indian law having to be addressed as a primary question before matters of substance relating to the dispute on the contract. None of this clearly and unequivocally shows that the learned arbitrator sought to take up the plea as to jurisdiction as a preliminary objection which should be decided before other matters

HELD - Foreign award enforceable: It was accordingly held on the basis of the above findings and rulings that the award passed by the Learned Arbitrator in London stood enforceable.

The present policy of the government strongly promotes alternative dispute resolution, and arbitration is one of the most popular choices in commercial contracts. There is also a procedure by way of legislation in place to govern arbitration. In this decision, the Supreme Court has taken a party-centric stand which will inspire more confidence in arbitration, also given them an option of private appeal by making two-tiered arbitration permissible. However, the scope of the public policy exception has been increased, which is not ideal for arbitration as courts had already been facing difficulty as the exception was being misused.

By Shiv Mangal Sharma

Advocate Supreme Court