M/s. Centrotrade Minerals And  Metals Inc. vs Hindustan Copper Ltd[1]                                                                                               

 

Facts:

The case has a chequered history which began when M/s Centrotrade Minerals & Metals Inc. and Hindustan Copper Limited (HCL) entered into a contract for the sale of copper concentrate, which was to be used in the HCL’s Khetri plant.

Clause 14 of the agreement contained a two-tier arbitration clause by which a dispute arising was to be first, settled by arbitration in India. If either party disagreed with the result, that party would have the right to appeal to a second arbitration to be held by the ICC in London.

Differences arose between the parties regarding the dry weight of the goods and Centrotrade invoked the arbitration clause.

 

Hence ICC delivered an award dated 29.09.2001 as follows:

(1) HCL to pay Centrotrade the sum of $152,112.33, inclusive of interest to the date of the Award in respect of the purchase price for the first shipment.

(2) HCL to pay Centrotrade the sum of $15,815.59, inclusive of interest to the date of this Award in respect of demurrage due on the first shipment.

 (3) HCL, to pay Centrotrade the sum of $284,653.53, inclusive of interest to the date of this Award in respect of the purchase price on the second shipment.

(4) HCL do pay Centrotrade their legal costs in this arbitration in the sum of $82,733 and in addition the costs of the International Court of Arbitration, the Arbitrator’s fees and expenses totaling $29,000. 

(5) HCL to pay Centrotrade compound interest on the above sums from the date of this Award at 6% p.a. with quarterly rests until the date of actual payment.”

Meanwhile, HCL challenged the second part of clause 14 of the agreement in Calcutta High  Court.

 

Furthermore, four issues were raised viz.,

  1. Whether the second part of clause 14 of the agreement providing for a two-tier arbitration was valid and permissible in India under the Arbitration and Conciliation Act?

It was held that an agreement for a multi-tier arbitration process entered into before or after the coming into force of the Act is valid and permissible in India. A two-tier arbitration was permissible and valid in India under both, the 1899 Act and the 1940 Act, the law on this is now well settled. In the case of Hiralal Agarwalla, which was before the coming into force of the present Act, it was held that the agreement by parties to submit to more than one arbitration on the same dispute was permissible[2]. That apart, even two-tier arbitrations wherein the original arbitration proceeding is domestic and thus governed by Part I of the 1996 Act, and the appellate proceeding is foreign and thus governed by Part II of the Act can be permitted. Coming to the issue of the agreement being against the public policy of India as adjudged by Calcutta High Court, The SC has held that, two-tier arbitration clauses are not against Indian public policy. The second part of clause 14 of the contract allowing a second arbitration is valid. Relying on the decisions of  Khimji Poonji[3] and M.A. & Sons3  the Division Bench held that an appellate arbitration forum or a second arbitration was not impermissible under the Indian Law[4]. Therefore, the award by the arbitrator appointed by the ICC who is a second arbitrator is valid. There is nothing under the 1996 Act prohibiting the parties from entering into an agreement where-under the first arbitration proceeding is conducted under Part I of the 1996 Act and the appeal therefrom is conducted under Part II of the 1996 Act.

 

  1. If it is valid, on the interpretation of clause 14 of the agreement, can it be said that the ICC arbitrator sat in appeal against the award of the Indian arbitrator?

“Clause 14: “All disputes and 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 arbitrator in London, U.K. 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 of Jurisdiction.[5]

If the phrase `in disagreement with the arbitration result in India’ and the word `appeal’ are read together, we may come to the inevitable conclusion that the ICC arbitrator would act as an appellate arbitrator based in London, U.K. Moreover, if the second arbitration is not treated as an appeal, then it would be pointless for a party dissatisfied with a `NIL’ Award in India to refer the matter for a second arbitration in London, U.K. as the `NIL’ Award would always prevail over the ICC Award. It is therefore amply clear that the intention of the parties to the agreement was that if the parties are dissatisfied with the first award and if an approach was made to the ICC arbitrator, in view of the second Part of Clause 14 of the agreement, then the first arbitration award would not be binding on the parties nor there would be any existence of the same after the ICC award was made. Hence SC affirmed that the ICC arbitrator sat in an appeal against the award of the Indian arbitrator.

 

3. Whether the ICC award is a foreign award or not?

“In this Chapter, unless the context otherwise requires, “foreign award” means an arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, made on or after the 11th day of October 1960 –

(a) in pursuance of an agreement in writing for arbitration to which the convention set forth in the First Schedule applies, and

(b) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the said Convention applies[6].”

 From a bare perusal of section of the Act, it appears that in order to come to a conclusion that a particular award is a foreign award, the following conditions have to be satisfied.

(1) The legal relationship between the parties must be commercial.

(2) The award must be made in pursuance of an agreement in writing.

(3) The award must be made in a country that is a signatory to the New York Convention

In the present case, it cannot be disputed that the aforesaid three conditions were satisfied, that is to say, there exists a commercial relationship between the parties, the ICC award was made in pursuance of an agreement in writing between the parties and the award was made in a Convention Country (London, U.K.) Also, upon bare reading S. 48 (1)(e)[7] does not by itself contemplate attracting the first part of section 44 of the Act.  It is true that the contract and the agreement clause are governed by  substantial law of India. It is an admitted position that the seat of the second arbitration was in the U.K. Therefore, relying on Sumitomo Heavy Industries the relevant country was the U.K. under the procedural law of which the award was made[9].

Hence ICC Award is a foreign Award held by the Supreme Court of India.

 

4. Whether HCL was given proper opportunity to present its case before the ICC arbitrator?”

Under Section 48 (1) (b) enforcement of a foreign award can be refused if :

“(b) the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present his case.”

In the case at hand, HCL had the knowledge of the appointment of the arbitrator. In fact, it had approached the Indian courts to stall the ICC Arbitral proceedings. On a Special Leave Petition filed by Centrotrade against the order of the Rajasthan High Court staying the ICC  proceedings, an order was passed by the Court on 8th February 2001 vacating the stay order of the Rajasthan High Court with directions for the ICC proceedings to continue in accordance with the law. In his award, Mr. Jeremy Lionel Cooke, the ICC arbitrator has noted that he was appointed by the ICC on 7th June 2000 and that HCL refused to participate in the proceedings on the ground that the second arbitration clause in the contract was null and void. He directed Centrotrade and HCL to file submissions and supporting evidence through orders dated 20th December 2000, 19th January 2001 and 3rd May 2001. However, HCL did not comply with these orders. On 30th July 2001, he sent a fax to HCL to find out whether they intended to file their defence. He sent further fax on 9th August 2001 informing them that he was proceeding with the Award. Then on 11th August 2001, the ICC arbitrator received a reply seeking an extension of time. He granted time till 31st August 2001. He received another request from HCL’s representatives on 27th August 2001 for further extension of time. He granted an extension till 12th September 2001. He received the first set of submissions filed by HCL, without supporting evidence, on 13th September 2001

Henceforth, it was held that HCL could not effectively present its case before the ICC arbitrator and therefore enforcement of the ICC award should be refused in view of section 48 (1)(b) of the Act.

 

Decision

HCL’s appeal, being Civil Appeal No. 2564 of 2006, stood dismissed. Resultantly, the foreign award, dated 29.09.2001, shall now be enforced. 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. Party autonomy was upheld to the extent that the parties 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. where the Indian Council of Arbitration had passed an “arbitration result” as per the contract would amount to arbitral award irrespective of the nomenclature accorded to it

[1]2016 SCC Online SC 1482

[2}Hiralal Agarwalla v. Jokin Nahopier & Co., AIR (1927) Calcutta 647

[3] Fazalally Jivaji Raja v. Khimji Poonji & Co

[4]  M.A. & Sons v. Madras Oil and Seeds Exchange Ltd.

[5] Clause 14 of the Contract.

[6] S. 44 of Arbitration and Conciliation Act, 1996

[7] Conditions for enforcement of foreign awards (Arbitration and Conciliation Act, 1996.)

[8] Sumitomo Heavy Industries Limited v. ONGC Ltd., [1998] 1 SCC 305