The Supreme Court of India in Centrotrade Minerals & Metals Inc. v Hindustan Copper Ltd. (15 December 2016) held that a two-tier arbitration procedure is permissible under Indian law. The facts were: Centrotrade, a USA based company, entered into a contract for the sale of copper concentrate to Hindustan, an Indian based company, and which was to be used at its plant in Rajasthan. However, various disputes arose. The contract provided for arbitration in clause 14 and it reads:
“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.”
Centrotrade took the dispute to ICA arbitration that resulted in an award in favour of Hindustan. Centrotrade appealed and a second arbitral tribunal in London made an award in its favour. Hindustan filed an application seeking a declaration that the award was, for various reasons, void and/or unenforceable. Centrotrade filed an application for the execution of its award.
The case, thereafter, endured a contentious passage to the apex court.
A Calcutta High Court judge’s finding for Centrotrade was reversed by the full court. In the Supreme Court, the appeal came before Sinha J and Chatterjee J who differed. The former decided that a two-tier arbitration procedure was anathema to the Arbitration Act 1996 and, in any event, Indian policy. The latter came to opposite conclusions.
In December the impasse was settled finally (it is hoped) by the unanimous decision of a special three-judge bench. Lokur J for the Court stated that they were persuaded ultimately because “party autonomy is virtually the backbone of arbitrations” and the parties had a primary right to mutually agree to such a procedure which was, in the case, unambiguously worded.
Lokur J said at para 40:
“Be that as it may, the legal position as we understand it is that the parties to an arbitration agreement have the autonomy to decide not only on the procedural law to be followed but also the substantive law. The choice of jurisdiction is left to the contracting parties. In the present case, the parties have agreed on a two tier arbitration system through Clause 14 of the agreement and Clause 16 of the agreement provides for the construction of the contract as a contract made in accordance with the laws of India. We see nothing wrong in either of the two clauses mutually agreed upon by the parties.”
The Court reasoned that:
(1) the procedure had an established international and domestic lineage: Shri Lal Mahal Ltd. v. Progetto Grano Spa (2014) 2 SCC 433; Subhash Aggarwal Agencies v. Bhilwara Synthetics Ltd (1995) 1 SCC 371 decided under the Indian Arbitration Act, 1940.
(2) its own jurisprudence pointed strongly for its acceptance: Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc. (2016) 4 SCC126; Union of India v. Uttar Pradesh State Bridge Corporation Ltd (2015) 2 SCC 52.
(3) the procedure was not fundamentally objectionable to Indian policy: Associate Builders v. Delhi Development Authority (2015) 3 SCC 49.
Commentary
The decision accords with the Court’s recent willingness to harmonise Indian law and international arbitration rules and procedures. It also provides timely reassurance to the business community that India is indeed pro-arbitration and will remove the anomalies in the existing dispute resolution framework for expeditious resolution of commercial disputes.
Sandip Patel Q.C.