2006 Supreme(SC) 469

2006(6) Supreme 519
SUPREME COURT OF INDIA
(From Calcutta High Court)
S.B. Sinha & Tarun Chatterjee, JJ.
M/s. Centrotrade Minerals & Metal. Inc. — Appellant
versus
Hindustan Copper Ltd. — Respondent
Civil Appeal No. 2562 of 2006
(Arising out of S.L.P. (C) No. 18611 of 2004)
With
Civil Appeal No. 2564 of 2006
(Arising out of S.L.P. (C) No. 21340 of 2004)
Decided on 9-5-2006
Counsel for the Parties :
For the Appellant : S. Sarkar, Sr. Advocate, Krishendu Datta, K.V. Mohan, Kalyan Vadlamani, S.S. Jauhar, Advocates.
For the Respondent : Debabratta Ray Choudhary, Ms. Nandini Mukherjee, Deba Prasad Mukherjee, Advocates.

Headnote:(i) Arbitration and Conciliation Act, 1996 — Sections 34, 36, 44 and 48 — Contract Act, 1872 — Section 23 — Arbitration agreement containing a two tier arbitration — Validity and permissibility in India under the Act — Agreement between two companies, a USA company and an Indian company for sale and purchase of Copper Concentrate to be delivered in India — Dispute between the parties as regard the dry weight of concentrate copper — Clause 14 of the Arbitration Agreement providing for arbitration in accordance with Rules of Arbitration of the Indian Council of Arbitration — Second part of clause 14 stating that 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. — Whether second part of clause 14 of the Agreement providing for a two tier arbitration was valid and permissible in India under the Act — (No, as per S.B. Sinha, J.) — (Yes, as per Tarun Chatterjee, J.)

       As per S.B. Sinha, J. :

       Held : Even if it is held that two tier arbitration is permissible, under the 1996 Act it might lead to an incongruity. A two tier arbitration is invalid in law in the context of the 1996 Act having regard to Section 23 of the Contract Act as statutory jurisdiction cannot be waived by contract. It is, thus, amply clear that the very scheme of the 1996 Act does not contemplate a two tier arbitration agreement of this nature.(Para 114)

       Conditions as regard non-existence or invalidity of an arbitration agreement can, in our opinion, be raised while resisting enforcement of a foreign award. Section 4 of the 1996 Act contemplates existence of an arbitration agreement which would mean a valid arbitration agreement. If the arbitration agreement is void and of no effect, it is non est in the eye of law and, thus, cannot be enforced. An arbitrator derives its jurisdiction from a reference which would mean a dispute and difference to be adjudicated upon in pursuance of or in furtherance of a valid arbitration agreement. It is not in dispute that the parties agreed that the Indian law shall apply. The validity or legality of a contract, thus, must be judged on the touch-stone of Section 23 of the Indian Contract Act. If a contract is opposed to a public policy, the same is void and of no effect.(Para 115)

       As per Tarun Chatterjee, J.

       I do not find any prohibition or ban being introduced by the Act from entering into an agreement providing for a two-tier arbitration and that at the time of introduction of the Act, it was well known to the legislature that it was consistently held and approved by courts of India that two-tier arbitration was permissible in India.(Para 134)

       In this case the parties consciously agreed to have the domestic award followed by the foreign award. In any view of the matter, the provisions of Section 34 of the Act are not intended to curtail the powers of the contracting parties to contract in the manner they desire. For the reasons aforesaid, I am in agreement with the conclusions of the learned Single Judge as well as the Division Bench of the Calcutta High Court that a two tier arbitration agreement, even after coming into force of the present Act, is valid and permissible in India. Before I switch over to the other issues, I may point out that a question arose before us that this two tier agreement under the instant case was opposed to public policy. Coming to the issue of the agreement being against the public policy of India, I wish to differ with the findings of my learned brother S.B. Sinha J. I agree that it is well settled that any contractual arrangement negating the statutory provisions is invalid as being opposed to public policy. My learned brother has held in his judgment, that the contractual arrangement entered into by the parties in this case, in particular, second part of clause 14 of the agreement would in all intent and purport make the provisions of Sections 34 and 36 of the 1996 Act nugatory. I disagree with this finding of my learned brother. After a careful consideration of the 1996 Act, I find nothing in it prohibiting the parties from entering into an agreement providing for a two tier arbitration. According to my learned brother, the part of the agreement providing for two tier arbitration is invalid under the 1996 Act and that validity of an award can only be questioned before a court under Section 34 and before no other forum chosen by the parties. In my view, however, the award that must be considered by the court for its enforcement or on the question of validity is the final award that has been passed following the procedure agreed upon by the parties.(Paras 135 to 137)

       That apart, even two tier arbitrations wherein the original arbitration proceeding is domestic and thus governed by Part I of 1996 Act, and the appellate proceeding is foreign and thus governed by Part II of the Act can be permitted. The judgment of my learned brother S.B. Sinha, J. that such proceedings are opposed to the public policy of India because the Act provides different procedures in respect of domestic and foreign awards appears to be based on his views that the final award in such a case would be “an admixture of domestic and foreign award”, such that “one part of arbitration agreement shall be enforceable as a domestic award but the other part would be enforceable as a foreign award”. But we must keep it in mind that the doctrine of merger equally applies in cases of appellate arbitrations, such that on the issuance of appellate award, the original award merges with it and only the appellate award is valid and capable of enforcement. This was also the intention of the parties while incorporating Part II of Clause 14 of the agreement, which clearly says that only the award that would be passed by the ICC arbitrator would be binding on the parties and the judgment upon that award may be entered in any court of jurisdiction. Therefore, I am unable to agree that such two tier arbitration proceedings culminate into an admixture of two different types of awards, as there is eventually only on award that subsists. For the reasons aforesaid, I, therefore, conclude that the second Part of Clause 14 of the agreement is valid and permissible in India under the Act.(Paras 143 & 144)

       (ii) Arbitration and Conciliation Act, 1996 — Sections 34, 36, 38, 44 and 48 — Contract Act, 1872 — Section 23 — Interpretation of an arbitration agreement — M/s Centrotrade, a company incorporated in United States of America entered into a contract for sale of copper concentrate to be delivered in India — Dispute arose between parties as regard the dry weight of concentrate copper — Centrotrade invoked the arbitration clause — Arbitrator appointed by the Indian Council of Arbitration made a NIL award — Centrotrade thereupon invoked second part of arbitration agreement — Arbitrator appointed by the International Chamber of Commerce passed an award in favour of Centrotrade — Application filed by HCL seeking declaration of the award passed by the ICC as void and not enforceable — Single Judge held that ICC Award was enforceable in law, it being a foreign award — Plea of HCL that it was not given proper opportunity to present their case was rejected — On appeal, Division Bench of the High Court held that ICC award was not a foreign award and as it could not overrule the award passed by the Indian Arbitrator, it was not enforceable due to operation of the Indian award — Whether ICC Arbitrator sat in appeal against the award of Indian arbitrator or not — Whether the ICC award was a Foreign Award or not — Whether judgment of the High Court was sustainable — (No).

       Held : To bring clarity in the matter, we may notice the dichotomy arising herein. If the first award was to be enforced (although no occasion arose therefor), it could have been done only in terms of Part I of the Act. Despite invocation of second part of the arbitration agreement, it would not cease to be a decree in terms of Section 36 of the Act unless the operation thereof was directed to be stayed. In other words, the first award of the arbitral tribunal, on the expiry of the period specified for challenging the award, became a decree despite invocation of the second part thereof. It is difficult to comprehend that despite a part of the award becoming a decree of the court, the same would not be binding upon the arbitral tribunal. Section 34 of the 1996 Act provides for setting aside a domestic Indian award. It unlike the English Arbitration Act does not permit the parties to limit or avoid the operation of the statutory provisions. Furthermore, the grounds for questioning a domestic award and a foreign award are different. In the context of the 1996 Act, an arbitration agreement which would otherwise be contrary to the provisions of the laws governing the contract between the parties would be void being opposed to public policy. The High Court’s judgment, therefore, in my considered view, cannot be sustained. It is, thus, not necessary for us to advert to other questions raised at the Bar. Although we do not agree with the reasons assigned by the High Court, but we uphold the conclusion thereof on different grounds.(Paras 117 to 120)

       As per Tarun Chatterjee, J. (Dissenting opinion)

       Section 44 of the Act, as quoted herein above, therefore, makes an award foreign, if the above mentioned criteria are fulfilled, ‘unless the context otherwise requires’. The Division Bench, however, laid heavy stress on this phrase to say that, even though the ICC ward fulfils conditions under section 44 of the Act, it cannot be considered to be a “foreign award”. According to the Division Bench one of the situations to which the phrase “unless the context otherwise requires” is applicable, is when the law governing an arbitration agreement is Indian law. Thereby, saying, that if the law governing the “otherwise foreign award” is Indian, the award becomes a domestic award.(Para 155)

       Section 48 (1)(e) deals with the grounds for refusal of the enforcement of a Foreign Award. Production of proof that such an award has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made, cannot change a foreign award to a domestic award, but merely makes it a foreign award which may not be enforced.(Para 156)

       There have been delays in the arbitral proceedings right from the beginning when Centrotrade approach the ICC on 22nd February 2000. Most of the delays were due to HCL’s refusal to participate in the proceedings. However, there were some delays which cannot be related to HCL’s conduct. For instance, the period from the 8th February 2001 when the order of this Court was made to 3rd May 2001 when the first direction of the arbitrator was made. The whole arbitral proceeding was conducted in a manner indicative of lack of urgency. Further, I find merit in the submission of HCL that due to the total dislocation of air traffic caused by the terrorist attack of 11th September 2001, the materials sent by HCL to the ICC arbitrator reached late. Under these circumstances, a delay of few days in serving their submissions with supporting evidence, after having accepted to participate in the arbitral proceedings, seems excusable and should have been excused. Considering the overall picture of the circumstances and the delays, refusal of the arbitrator to consider material received by him after 13th September 2001 and before 29th September 2001, seems to be based on a frivolous technicality. The arbitrator ought to have considered all the material received by him before he made the award on 29th September 2001. Considering the decisions in Hariom Maheswari v. Vinit Kumar Parikh [(2005) 1 SCC 379] and Minmetal Germany GmbH v. Ferco Steel Ltd. [(1999) 1 All ER (Comm.) 315], it is true that where a party is refused an adjournment and where it is not prevented from presenting its case, it cannot, normally, claim violation of natural justice and denial of a fair hearing. However, in the light of the delays, some of which were not attributable to HCL’s conduct, it was only fair to excuse HCL’s lapse in filing the relevant material on time. Therefore, it can be said that HCL did not get a fair hearing and could not effectively present its case.(Para 165)

       For the reasons aforesaid, I am of the view 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. Accordingly, the judgment of the Division Bench and also the judgment of the learned Single Judge of the Calcutta High Court must be set aside and the matter be remitted back to the ICC arbitrator for fresh disposal of the arbitral proceedings in accordance with law after giving fair and reasonable opportunity to both the parties to present their cases before him. In view of the fact that I have set aside the award of the ICC arbitrator on the ground that HCL was unable to effectively present its case before the ICC arbitrator, in compliance with Section 48(1)(b) of the Act, I direct the ICC arbitrator to pass a fresh award within three months from the date of commencement of the fresh arbitral proceedings.(Para 166)