The case involved a contract to supply of copper concentrate to HCL by Centrotade. The Dispute resolution of the contract provided–
Arbitration in India as per the rules of the Indian Council of Arbitration; if either party is dissatisfied, then a second arbitration in London as per the rules of the ICC.
Dispute arose. Centrotrade invoked Arbitration clause. Indian Arbitrator made a NIL award. Second tier arbitration invoked by Centrotrade. During pendency of this arbitration, HCL initiated a suit questioning the validity of the second arbitration. Meanwhile an award made by the ICC arbitrator. HCL questioned the validity of the second arbitration even before the London Arbitrator. However, it only received copies of all correspondence between Centrotrade and the arbitrator. HCL sought several extensions and ultimately gave submissions before the arbitrator (without evidence). The submissions were considered by the arbitrator. The arbitrator gave the following award-
- Arbitration clause was valid.
- The claim of Centrotrade was just.
- Centrotrade was entitled to interest and costs.
HCL filed an application under Section 48 of the Arbitration and Conciliation Act praying that the award may not be enforced.
HIGH COURT held:
- There is no prohibition on successive arbitration in India; however awards cannot be mutually destructive.
- Second award is not a foreign award and Section 34 was applicable;
- Second award is binding but not enforceable in light of the first award – the arbitrator did not expressly overrule the first award.
- Can the agreement deemed to be valid?
- Is two-tier arbitration possible as per Indian Arbitration Act, 1996.
- The second arbitration took place in London; therefore, the award was a foreign award within the meaning of Section 44.
- HCL was able to present its case before the arbitrator, and therefore, no case for setting it aside.
- Both awards governed by Indian law.
- Second part of the arbitration clause is void – 1996 Act envisages only one award.
- Arbitrator did not give adequate opportunities for hearing and procedure under ICC Rules was not followed.
- No opportunity to examine witnesses etc.: violation of Section 48(1)(b).
HELD (S.B. SINHA)
Validity of the Agreement – Invalid, since the Indian Act contemplates only one award (as soon as the award is made, within a particular period, it may be enforced as a decree …no private adjudicator could sit over this decree in appeal). A multitier arbitration could have been valid only under the 1940 and 1961 Acts, not under the Arbitration and Conciliation Act 1996. The position may have been different if the same institution had provided for a tiered arbitration, since in such cases the first arbitration may not have been capable of being filed in court. Therefore, as per Indian law an award in the India part could be set aside only by filing an application. Such awards can be of four types – interim, additional, settlement award and final award.
DISSENTING OPINION (TARUN CHATTERJI)
- Two-tier arbitration was permissible in India both in the old Act and new Act of 1996.
- Even though Section 34 laid down that an award may be challenged ‘only’ on the grounds specified therein; it did not preclude the parties from consciously choosing otherwise.
- There is nothing in the Act prohibiting parties from entering into an agreement wherein the first arbitration would be governed by Part I and the second by Part II.
- The second arbitration was an appeal from the first – it is settled position that original and appellate proceedings are not separate but different stages of the same proceedings.
- The second award was a ‘foreign award’ within the meaning of Section 44.
- However, the second arbitrator did not give HCL opportunity to present its case – therefore, the award should not be enforced for that reason.