2016 Supreme(SC) 1012

SUPREME COURT OF INDIA
Madan B. Lokur, R.K. Agrawal, D.Y. Chandrachud, JJ.
M/s. Centrotrade Minerals & Metal Inc. – Appellant
Vs.
Hindustan Copper Ltd. – Respondent
Civil Appeal No. 2562 of 2006
With
Hindustan Copper Ltd. – Appellant
Vs.
M/s. Centrotrade Minerals & Metal Inc. – Respondent
Civil Appeal No. 2564 of 2006
Decided On : 15-12-2016

IMPORTANT POINT
A settlement of disputes or differences through a two-tier arbitration procedure as provided for in Clause 14 of the contract between the parties is permissible under the laws of India.

Headnote:(a) Arbitration law – Clause 14 of the contract – Contracting parties intending Clause 14 to provide for two opportunities at resolving their disputes or differences – First, by arbitration in India (the ‘arbitration result’) in accordance with the Rules of Arbitration of the Indian Council of Arbitration – Second, by arbitration in London, the second being in the nature of an appeal against the ‘arbitration result’ in India – ‘Arbitration result’ would be an award or at least in the nature of an award rendered by the arbitration panel of the Indian Council of Arbitration. (Para 7, 12)

       (2006) 11 SCC 245 – Referred

       (b) Contract – Appeal – Right of appeal normally created by statute, in respect of litigation initiated in courts under the statute or for the enforcement of common law rights – Does not prevent parties from entering into an agreement providing for non-statutory appeals so that their disputes and differences could preferably be settled without resort to court processes. (Para 14)

       (c) Administration of justice – Judicial propriety – HCL entering into contract with Centrotrade and agreeing for an appellate arbitration – Now contending it being contrary to laws of India – It would mean that HCL entered into a contract knowing full well that one of the provisions of the contract was contrary to the laws of India – Would amount to playing fraud on Centrotrade – Could have serious long-term implications and ramifications for international commercial contracts with an Indian party. (Para 16)

       (d) Arbitration law – Two tier arbitration – Arbitration and Conciliation Act, 1996 not expressly excluding such arrangement – Accepted by Bombay and Delhi High Court. (Para 22)

       (2002) 5 SCC 510 – Relied upon

       [2002] 104 (4) Bom L.R. 932; 2005 (Suppl.) Arb. LR 337; 2008 (1) Arb. LR 368 (Bombay); 2008 (1) Bom C.R. 768; 2014 SCC Online Bom 1825; 2015 SCC Online Bom 4538; 2014 SCC Online Del 2314; MANU/DE/3452/2015; MANU/DE/3339/2015 – Cited with approval

       1957 SCR 488 – Referred

       (2011) 8 SCC 333 – Distinguished

       (e) Arbitration and Conciliation Act, 1996 – Section 34, 35 and 36 – Section 34(1) entitles a party to an arbitration to approach a court “only by an application” for setting aside an award – There is nothing in these provisions to suggest that an arbitration award can be set aside only by a court – Construing the provision as to suggest that an award can be set aside only by a court would be redrafting the statute – Not permissible – Combined reading of section 34(1) and section 35 – An arbitral award would be final and binding on the parties unless it is set aside by a competent court on an application made by a party to the arbitral award – This does not exclude the autonomy of the parties to an arbitral award to mutually agree to a procedure whereby the arbitral award might be reconsidered by another arbitrator or panel of arbitrators by way of an appeal – Instantly, this is precisely what the parties have in fact agreed upon – The mutual decision of the parties should be honoured and its validity accepted – Autonomy of parties to arbitration. (Para 25, 27)

       (f) Arbitration and Conciliation Act, 1996 – Section 34(1) – Availability of recourse to court for challenging an award – Not ipso facto prohibiting the parties from mutually agreeing to an appellate arbitration. (Para 28)

       (g) Arbitration and Conciliation Act, 1996 – Section 35 – Final and binding nature of an award – 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 the second instance – The award is binding in a limited context – Held, two-tier arbitration va,id and acceptable. (Para 34, 35)

       [1969] 2 SCR 244; (2014) 2 SCC 433; (1995) 1 SCC 371 – Relied upon

       Civil Appeal No 162 of 1962 – Referred

       (h) Arbitration law – Party autonomy – 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 – Nothing wrong, instantly, in the parties agreeing on a two tier arbitration system in Clause 14 and providing for the construction of the contract as a contract made in accordance with the laws of India in Clause 16 of the agreement. (Para 40)

       (2016) 4 SCC126; (2015) 2 SCC 52 – Relied upon

       (i) Arbitration law – Public policy, party autonomy and two-tier arbitration – Clause 14 of instant agreement – Not by-passing any mandatory provision of Arbitration and Conciliation Act, 1996 Parties agreeing to two-tier arbitration exercising their autonomy – Held not opposed to public policy. (Para 45)

       (2015) 3 SCC 49 – Relied upon

       (1830) 4 Bligh. (N.S.) 194; 2 Dow. & Cl. 1 – Referred

       Facts of the case:

       The parties had entered into a contract and some disputes and differences arose between them. The contract contained an arbitration clause and Centrotrade invoked it. Pursuant thereto the Indian Council of Arbitration appointed an arbitrator. The arbitrator gave a NIL award and then Centrotrade invoked the second part of the arbitration clause and the arbitrator in London gave an award on 29th September, 2001 in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce. The award rendered by the arbitrator in London was sought to be enforced by Centrotrade by moving an application under section 48 of the Arbitration and Conciliation Act, 1996.

       The issues that have arisen in this case are as under:-

       (1) Whether a settlement of disputes or differences through a two-tier arbitration procedure as provided for in Clause 14 of the contract between the parties is permissible under the laws of India?

       (2) Assuming a two-tier arbitration procedure is permissible under the laws of India, whether the award rendered in the appellate arbitration being a ‘foreign award’ is liable to be enforced under the provisions of Section 48 of the Arbitration and Conciliation Act, 1996 at the instance of Centrotrade? If so, what is the relief that Centrotrade is entitled to?

       Finding of the Court:

       There is nothing wrong in the parties agreeing on a two tier arbitration system in Clause 14 and providing for the construction of the contract as a contract made in accordance with the laws of India in Clause 16 of the agreement. The agreement is not opposed to public policy.

       Result: The question “whether a settlement of disputes or differences through a two-tier arbitration procedure as provided for in Clause 14 of the contract between the parties is permissible under the laws of India?” answered in the affirmative.