Centrotrade Minerals and Metal Inc. v. Hindustan Copper Ltd. - (Supreme Court) (15 Dec 2016)

Parties to an arbitration agreement have autonomy to decide on both procedural and substantive law

MANU/SC/1609/2016

Arbitration

In instant case, Parties entered into a contract and disputes arose between them. Contract contained an arbitration Clause and Centrotrade invoked it. Pursuant thereto Indian Council of Arbitration appointed an arbitrator. Arbitrator gave a NIL award and then Centrotrade invoked second part of arbitration Clause and arbitrator in London gave an award on 29th September, 2001 in accordance with Rules of Conciliation and Arbitration of the International Chamber of Commerce. Award rendered by arbitrator in London was sought to be enforced by Centrotrade by moving an application under Section 48 of Arbitration and Conciliation Act, 1996. Issue for consideration is regarding permissibility under Indian laws of disputes settlement or differences through a two-tier arbitration procedure as provided for in Clause 14 of contract.

Reading of arbitration Clause 14 of contract suggests that, contracting parties intended: (a) Firstly, a settlement of their disputes or differences by arbitration in India through an arbitration panel of Indian Council of Arbitration and in accordance with Rules of Arbitration of Indian Council of Arbitration, and (b) Secondly, if either of contracting parties was in disagreement with 'arbitration result' in India, then aggrieved party would have a right to appeal to a second arbitration in London in accordance with Rules of Conciliation and Arbitration of International Chamber of Commerce. Result of appellate arbitration would be binding on both parties, subject to a legal challenge in accordance with law. Text of arbitration Clause is clear and explicit and does not admit of any doubt on its interpretation. Contracting parties intended Clause 14 of contract to provide for two opportunities at resolving their disputes or differences. First occasion would be a settlement by arbitration in India ('arbitration result') and second occasion would be by arbitration in London, with second occasion being in nature of an appeal against 'arbitration result' in India.

As per Sub-section (1) of Section 34 of Act and Section 35 thereof, an arbitral award would be final and binding on parties unless it is set aside by a competent Court on an application made by a party to arbitral award. This does not exclude autonomy of parties to an arbitral award to mutually agree to a procedure whereby arbitral award might be reconsidered by another arbitrator or panel of arbitrators by way of an appeal and result of that appeal is accepted by parties to be final and binding subject to a challenge provided for by the A&C Act.

Fact that recourse to a Court is available to a party for challenging an award does not ipso facto prohibit parties from mutually agreeing to a second look at an award with intention of an early settlement of disputes and differences. Intention of Section 34 of Act and of international arbitration community is to avoid subjecting a party to an arbitration agreement to challenges to an award in multiple forums, say by way of proceedings in a civil Court as well under arbitration statute.

The "final and binding" Clause in Section 35 of Act does not mean final for all intents and purposes. Finality is subject to any recourse that an aggrieved party might have under a statute or an agreement providing for arbitration in second instance. Award is binding in a limited context. Unless this interpretation is accepted, a second instance arbitration would be per se invalid in India. This would be going against the grain of a long line of decisions rendered by various Courts in country which have accepted validity of a two-tier arbitration procedure under institutional Rules and have not taken the view that a two-tier arbitration procedure is per se invalid.

Party autonomy is virtually backbone of arbitrations. In Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.18 this Court dealt with party autonomy from point of view of contracting parties and its importance in commercial contracts. Legal position is that parties to an arbitration agreement have autonomy to decide not only on procedural law to be followed but also substantive law. Choice of jurisdiction is left to contracting parties. In present case, parties have agreed on a two tier arbitration system through Clause 14 of agreement and Clause 16 of agreement provides for construction of contract as a contract made in accordance with laws of India.

Parties to contract have not by-passed any mandatory provision of Act and were aware, or at least ought to have been aware that they could have agreed upon finality of an award given by arbitration panel of Indian Council of Arbitration in accordance with Rules of Arbitration of Indian Council of Arbitration. Yet they voluntarily and deliberately chose to agree upon a second or appellate arbitration in London, UK in accordance with Rules of Conciliation and Arbitration of International Chamber of Commerce. There is nothing in A&C Act that, prohibits contracting parties from agreeing upon a second instance or appellate arbitration-either explicitly or implicitly. No such prohibition or mandate can be read into A&C Act except by an unreasonable and awkward misconstruction and by straining its language to a vanishing point. HCL cannot wriggle out of a solemn commitment made by it voluntarily, deliberately and with eyes wide open. Arbitration Clause in agreement between parties does not violate fundamental or public policy of India by parties agreeing to a second instance arbitration. Award which is required to be challenged by HCL is award rendered on 29th September, 2001 by arbitrator in London.

Relevant : Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., Sections 34, 35, 48 of the Arbitration and Conciliation Act, 1996

Tags : ARBITRATION PROCEDURE JURISDICTION