Full Judgment Text
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CASE NO.:
Appeal (civil) 2562 of 2006
PETITIONER:
CENTROTRADE MINERALS & METAL INC.
RESPONDENT:
HINDUSTAN COPPER LTD.
DATE OF JUDGMENT: 09/05/2006
BENCH:
S.B. SINHA & TARUN CHATTERJEE
JUDGMENT:
JUDGMENT
WITH
C.A. 2564 of 2005
TARUN CHATTERJEE, J.
I have had an opportunity to go through the judgment delivered/proposed by
my learned brother S.B. Sinha, J. I am unable to agree with the conclusion
as well as the reasons of my learned brother and in that view of the matter
I would prefer to give my own reasons. In my view, the judgment and order
of the Division Bench and the learned Single Judge of the Calcutt High
Court should be set aside and the matter be sent back to International
Chamber of Commerce arbitrator for fresh disposal of the arbitration
proceedings in London in the manner indicated hereinafter.
Leave granted in both the SLPs.
These are two appeals which arise from the judgment or order of a Division
Bench of the Calcutta High Court reversing a judgment or order of a learned
Single Judge of the same High Court whereby and whereunder the Hindustan
Copper Limited (in short HCL’) was directed to make payment to Centrotrade
Minerals & Metals Inc. (in short "Centrotrade").
Centrotrade is incorporated in United States of America dealing with sale
and purchase of non-precious metals including copper. Whereas HCL is a
Government of India undertaking and its business includes purchase of
copper concentrate. They entered into an agreement on 16th of January, 1996
where centrotrade was the seller and the HCL was the purchaser of copper
concentrate. Clause 14 of the agreement provides for arbitration in case
any differences or disputes arise between the parties. Clause 14 of the
agreement reads as under :
"14. Arbitration -
All disputes and difference 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
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award may be entered in any Court of Jurisdiction."
The only other relevant clause of the agreement which is required to be
taken note of is Clause 16 which runs as under :
"16. CONSTRUCTION:
The contract is to be constructed and to take effect as a contract made in
accordance with the laws of India."
Disputes arose between the parties to the agreement during December 1998
and January 1999 and pursuant to clause 14 of the agreement, disputes were
referred to Indian Council of Arbitration where Centrotrade was the
claimant. The Indian Council of Arbitration appointed an arbitrator before
whom Centrotrade claimed an award for a sum of US$ 383,442.90 (equivalent
to Indian Rupees 1,36,73,573.00 calculated at the exchange rate of Rs.
35.66 as prevailing on May 10, 1997) in respect of the goods shipped on
board the vessels "M.V. MARITIME MASTER" AND "M.V. LOK PRITI", and for
interest pendent lite at such rate as Centrotrade was entitled to under the
law and also for interest on the sum awarded until decree was pronounced in
terms of the award. The arbitrator appointed by the Indian Council of
Arbitration, however, made a ‘NIL’ award dated 15th June, 1999. Disagreeing
with the award passed by the arbitrator appointed by the Indian Council of
Arbitration, and relying on the second part of Clause 14 of the agreement,
Centrotrade approached the International Chamber of Commerce (in short
‘ICC’) on 22nd February, 2000. The arbitrator appointed by the ICC passed
an award on 29th of September, 2001 in favour of the Centrotrade in the
following manner :
"a. HCL do pay Centrotrade the sum of $ 152,112.33, inclusive of interest
to the date of this award in respect of the purchase price for the first
shipment.
a. HCL do pay Centratrade the sum $ 15,815.59, inclusive of interest
to the date of this Award in respect of demurrage due on the first
shipment.
b. HCL do 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.
c. HCL do pay centrotrade their legal costs in this arbitration in the
sum of $ 82,733 and in addition the cost of the international court of
Arbitration, the arbitrator’s fees and expenses totaling $ 29,000.
d. HCL do 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."
After the award was passed by the ICC arbitrator, an application was filed
by HCL seeking declaration of the award passed by the ICC as void and not
enforceable. At the same time, Centrotrade filed an application for
enforcement of the ICC Award. These applications were transferred to the
original side of the Calcutta High Court which were heard and disposed of
by the Judgment and order of the learned Single Judge of that Court on 10th
March 2005. The learned Single Judge held that the ICC Award was
enforceable in law and therefore direction was made to HCL to make payment
to Centrotrade. While making this direction, it was inter alia held by the
learned Single Judge as under :
(a) The ICC award was a foreign award under Section 44 of the
Arbitration and Conciliation Act, 1996 (in short ‘the Act’) as it satisfied
all the conditions mentioned thereunder, namely,
(i) There was commercial relationship between the parties;
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(ii) The award was made in U.K. - a Convention country; and
(iii) The award was made in pursuance of a written agreement between the
parties.
(b) the plea of HCL that it was not given proper opportunity to present
their case before the arbitrator appointed by the ICC was liable to be
rejected. In this connection, the learned Judge observed that HCL had full
knowledge of the proceedings and proper opportunity to present their case
was duly given to HCL and therefore the plea of HCL that proper opportunity
was not given, was rejected. It was also held that some papers had in fact
reached the arbitrator after the stipulated time and the arbitrator also
considered the submissions of HCL before making the award.
(c) Under the Indian law it was not impermissible to have an appellate
arbitration forum where the agreement provided for it, following the
judgments in the cases of Heeralal Agarwalla & Co. v. Joakim Nahapiet &
Co., AIR (1927) Calcutta 647; Fazalally Jivaji Raja v. Khimji Poonji & Co.,
AIR (1934) Bombay 476 and M.A. & Sons v. Madras Oil and Seeds Exchange
Ltd., AIR (1965) Madras 392, and a decision of this Court in Garikapatti
Veerava v. N. Subbiah Chaudhury, AIR (1957) SC 540.
(d) The award passed by the ICC arbitrator is the relevant ‘award’
under the Act.
(e) The question of the award of the Indian arbitrator becoming final
and binding on the parties did not arise at all.
(f) In view of Second Part of Clause 14 of the Agreement it was only
the ICC award that was binding on the parties.
(g) The ICC Award was not contrary to public policy. Accordingly the
claim of the HCL that Indian award was a deemed decree of the court under
Section 36 of the Act and therefore a provision for appellate forum and an
award passed by it, are against public policy of India insofar as they
undermine powers of Indian Courts under Sections 34, 35, and 36 of the Act,
was rejected.
However, on appeal, a Division Bench of the High Court, in substance, held
as under :
(a) The Second part of clause 14 of the contract allowing a second
arbitration is valid. Relying on the decisions of Heeralal Agarwalla & Co.
v. Joakim Nahapiet & Co., (supra) Fazalally Jivaji Raja v. Khimji Poonji &
Co., (supra) and M.A. & Sons v. Madras Oil and Seeds Exchange Ltd.,
(supra), the Division Bench held
that an appellate arbitration forum or a second arbitration was not
impermissible under the Indian Law. Therefore, the award by the arbitrator
appointed by the ICC who is a second arbitrator is
valid.
(b) The ICC award was not a ‘foreign award’ within the meaning of
Section 44 of the Act, as according to the Division Bench, mere fulfillment
of conditions of section 11 of the Act did not make the award a ‘foreign
award’. This conclusion was arrived at by the Division Bench on the ground
that the conditions under Section 44 are qualified by the expression -
‘unless the context otherwise requires’. According to it, if one context
otherwise requires, then an award which fulfills the conditions of section
44 becomes a domestic award. According to the Division Bench,
a contract being governed by Indian laws is one such
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context. Therefore, the Division Bench concluded that since the present
case where the law governing the contract was Indian law, the ICC Award
though made outside India, was not a "foreign award".
(c) On the interpretation of Clause 14 of the arbitration agreement,
the Division bench held that the second arbitration in London was not in
the nature of an appeal against the award of the Indian Council of
Arbitration. Therefore, the ICC award cannot overrule the award passed by
the Indian Arbitrator and thus it was not enforceable due to the operation
of the Indian award.
On the above observation and findings made by the Division bench the
judgment of the learned Single Judge was set aside. Aggrieved thereby,
Centrotrade has filed Special Leave Petition against the aforesaid judgment
of the Division Bench of the Calcutta High Court and at the same time HCL
has also filed another Special Leave Petition against the same judgment. In
both the Special Leave Petitions notices were issued and they were taken up
for final hearing together for decision.
We have heard Mr. Sarkar learned senior counsel appearing for Centrotrade
and Mr. Debabrata Roy Choudhury learned senior counsel for HCL. I have also
examined the entire material on record including the arbitration agreement,
the awards and judgments of the Division Bench as well as the learned
Single Judge. Before us, the following issues were raised by the learned
counsel for the parties for decision in the appeals :
(1) Whether second part of Clause 14 of the agreement
providing for a two tier arbitration was valid and permissible in India
under the Act ?
(2) 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 ?
(3) Whether the ICC award is a foreign award or not ?
(4) Whether HCL was given proper opportunity to present its case before the
ICC arbitrator?
Issue No. 1 - Whether second part of Clause 14 of the agreement providing
for a two tier arbitration was valid permissible in India under the Act?
So far as this issue is concerned, before I go into it, it would be
appropriate to state that both the Division Bench and the learned Single
Judge held that a two tier agreement was valid and permissible in India
under the Act.
In my view, a two tier arbitration 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, is now well settled. In the case of Hiralal Agarwalla v.
Jokin Nahopier & Co., AIR (1927) Calcutta 647, before 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. Applying the
principles laid down in the same dispute was permissible. Applying the
principles laid down in Hiralal’s case (supra), Bombay High Court in
Fazalally Jivaji Raja v. Khimji Poonji & Co., AIR (1934) Bombay 476,
answered the issue saying that a two tier arbitration is valid and
permissible in India. While answering this question, after considering the
provisions of the Indian Arbitration Act, 1899, Bombay High Court observed
as follows :
"The intention of the parties is to be sole guide for determining
the mode of working out the submission and reaching a final
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decision till the law of arbitration is based upon the principles
of withdrawing the disputes from the ordinary Courts and enabling
the parties to substitute a domestic tribunal. Once a Tribunal
reaches a final decision, as contemplated or agreed upon by the
parties, the Arbitration Act as it was enforced come to the help to
the parties to enforce the same decision."
This view of the Calcutta High Court and the Bombay High Court was also
accepted by the Madras High Court in the case of M.A. & Sons v. Madras Oil
& Seeds Exchange Ltd., AIR (1965) Madras 392. I Need not deal with the
issue of validity of two-tier arbitration in respect of disputes arising
before the coming into force of the Act any further.
In my view this position of law has remained the same as 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.
However, it was submitted by Mr. Rai Choudhary learned senior counsel
appearing for HCL that use of the word "only" in Section 34 of the Act
would show the legislative intendment that the domestic award cannot be
challenged in any manner except in the manner provided by Section 34 of the
Act. This is not the position in the present case in view of second Part of
clause 14 of the agreement. 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.
As already held, the reasoning adopted in the decisions, as noted herein
earlier, in the cases of Heeralal Agarwalla & Co. v. Joakim Nahapiet & Co.,
AIR (1927) Calcutta 647, Fazalally Jivaji Raja v. Khimji Poonji & Co., AIR
(1934) Bombay 476 and M.A. Sons v. Madras Oil and Seeds Exchange Ltd., AIR
(1965) Madras 392, squarely apply to the present Act as well. Just as there
was no express prohibition on the appellate arbitration in 1899 and 1940
Acts, so there is no express prohibition in the 1996 Act. The relevant
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section of 1996 Act is Section 35 which only provides that "subject to this
part of arbitral award shall be final and binding on the parties and
persons claiming under them respectively." Similarly, I find that Condition
No. 7 of the First Schedule of the 1940 Act provided that "the award shall
be final and binding on the parties and persons claiming under them
respectively". In M.A. & Son’s case (supra) the Madras High Court while
dealing with this aspect of the matter made the following observations :
"Naturally, these words have to be construed as subject to any right of
appeal, which might be provided for either by the contract itself, or by
any by-law governing the parties... No doubt, except upon grounds specified
in S. 30 of the Act, an award is not liable to be set aside, and is final
between the parties. But, what is the award that is final between the
parties, when the procedure governing the parties itself makes provision
for an initial award on arbitration, and an appeal which may be instituted
by either party aggrieved?... As observed by the Supreme Court... the legal
pursuit of successive remedies will make them all proceedings ‘connected by
an intrinsic unity’ and ‘to be regarded as one legal proceeding". In that
sense, it is the award by the appellate Tribunal, if an appeal is preferred
which becomes the final award that governs the parties...."
The reasoning given by the Madras High Court in the aforesaid decision in
my view equally applies to the 1996 Act, since it is based on the meaning
to be given to the term "award" in the case of successive arbitration. In
view of the discussion made herein earlier, and considering the above
decisions, I am, therefore, of the view that Section 35 is not a bar to
appellate arbitration. In my view this section only comes into operation
once the arbitration proceedings as a whole which must include appellate
arbitrations, if any, have ended.
In my view allowing the appellate arbitrations is fully in consonance with
the objects of the 1966 Act.
Before parting with this aspect of the matter, we may take into
consideration the question whether an arbitration clause that leads to both
domestic and foreign awards on the same dispute, i.e. an arbitration clause
providing for two different modes of arbitration, is valid or not under the
Act. In His Lordship’s view even if a two tier agreement is valid under the
1996 Act, it cannot be such that one award is governed by Part I of the Act
and the award in the second tier governed by Part-II of the 1996 Act, as
the procedure applicable to the arbitration proceedings as well as for
enforcement of the awards is different under different parts. In my view,
there is nothing under the 1996 Act prohibiting the parties from entering
into an agreement whereunder 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. In fact, earlier, two separate legislations, i.e.
the 1940 and 1961 Act, dealt with domestic awards and foreign awards
respectively. However, the legislature keeping in mind the necessity to
have similarity in administration of domestic awards as well as foreign
awards, has consolidated the laws relating to domestic and foreign awards
in the 1996 Act, in effect making both the types of awards enforceable
under the same Act. Keeping this in mind, and also that parties’ autonomy
is paramount, I am of the view that it is not impermissible under the 1996
Act to have one part of the award governed by Part I and the other part by
Part II. Further, an appeal is an intrinsic part of the original proceeding
and it is the final award that comes out after an appeal is preferred from
the first award, that is relevant for the purpose of 1996 Act. Thus it
follows that nothing in the 1996 Act prohibits the parties from providing a
two tier arbitration wherein one tier is dealt with under Part I and the
other under Part II of the 1996 Act. Such an agreement does not violate the
provisions of Sections 34 and 36 of the 1996 Act and it cannot be said to
be invalid as being opposed to public policy of India. Therefore, in my
view, the second part of clause 14 of the agreement and the ICC arbitration
in its furtherance, are not invalid as being opposed to public policy of
India.
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It is well recognized as my learned brother S.B. Sinha, J. had pointed out
that party autonomy is a paramount consideration of the 1996 Act subject
only to such safeguards as are necessary in the public interest. Therefore,
so long as an agreement between the parties to enter into an appellate
arbitration does not derogate from the public interest, it is always
permitted. The object of Section 35 of the Act as observed in the 176th
Report of the Law Commission, is to limit the ambit of court intervention
in arbitral awards and this object is not affected by allowing appellate
arbitrations. In this connection, it may be noted that even in foreign
jurisdiction such as U.K., the appellate arbitrations are permitted. (See
Russel on Arbitration 22nd Edition page 393).
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 enforeceable 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 maybe 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 one 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.
Issue No. 2 : Whether the ICC Arbitrator sat in appeal against the award of
the Indian arbitrator or not?
In my view, to decide Issue No. 2, it is appropriate for us to read clause
14 of the agreement in depth and to find out from the same the intention of
the parties. In order to come to a proper conclusion on this issue, let us
again reproduce Clause 14 of the arbitration agreement.
"14. Arbitration -
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 maybe entered in any Court of
Jurisdiction."
It appears that the first part of the arbitration agreement deals with
arbitration in accordance with the Rules of Arbitration of the Indian
Council of Arbitration. This part of clause 14 of the arbitration agreement
does not say that the results of the arbitration will be binding on both
the parties. Nor it says that the judgment upon the award of the first
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arbitration may be entered in any court of jurisdiction. On the other hand,
the second Part of Clause 14 of the agreement, as quoted above, clearly
states that if a party is in disagreement with the arbitration result in
India then the aggrieved party would have a right to appeal to a second
arbitration in London, U.K. The word ‘appeal’, in my view, in this part of
Clause 14 of the agreement has significance. If the phrase ‘in disagreement
with the arbitration result in India’ and the word ‘appeal’ are read
together, we may come to 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. Accordingly, this would defeat the object of
the provision in the second part of clause 14 which clearly states that
‘the results of this second arbitration will be binding on both the
parties’.
That apart it is now well established that original and appellate
proceedings are not distinct legal proceedings, but only constitute stages
of the same legal proceedings, which are connected by an intrinsic unity.
Further, while passing the ICC Award, the ICC arbitrator in his award dated
29th of September, 2001, had observed that the award passed by the Indian
Arbitrator was wrong. For clarity of factual situation, I refer to
paragraph 18 of the award of the International Arbitrator and in my view
the said paragraph needs to be reproduced :
"It is clear therefore that the dry weight, determined in
accordance with clause 6 at the discharge port is the final and
binding basis for payment to be made by HCL to Centrotrade. The
Arbitration Award of 15th June 1999 held otherwise, but, in my
view, this was obviously wrong. In that Award, the arbitrator found
that clause 4, and particularly clause 4.4 of the agreement was the
‘dominant clause’ when that clause specifically dealt with the
quality certificate to be submitted with the shipping documents
which would form the basis for acceptance of the shipping documents
under the letter of credit. When in the context of the contract as
a whole, it is plain that this part of the terms relating to
provisional payment, made on the basis of load-port quantity and
quality whereas the final amount due was to be determined by
certificates issued at the discharging port in relation to quantity
and quality. In so far as the first stage arbitrator found that
there was no express promise given by HCL to pay Centrotrade in
respect of Centrotrade’s claim, he appears to have ignored the
clear terms of the contract. Nor can there be any question of
applying any public policy of India "because copper is a valuable
material for the growth of Industrial development in the developing
economy of India", in order to influence the decision on this
point, whether the claim is framed in contract or for unjust
enrichment."
As seen from the above quoted passage, the ICC arbitrator dealt with the
correctness of the first award and was not acting as a mere second
arbitrator but rather as an appellate forum.
I have already held, because of the use of the word ‘appeal’ in the second
part of the arbitration clause it can be said that the intention of the
parties was that the second arbitration was in the nature of an appeal and
that the second award would take precedence over the first 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
approach was made to the ICC arbitrator, in view of 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.
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Thus, it cannot be said that the proceeding before the ICC arbitrator was
an independent proceeding nor it could be said that it was merely a second
arbitration in London, U.K. Therefore, I am unable to agree with the views
expressed by the Division Bench of the Calcutta High Court saying that the
ICC arbitration was not in the nature of appeal. Accordingly, the findings
of the Division Bench of the High Court on this issue are set aside.
Issue No. 3 : Whether the ICC award is a Foreign Award or not?
The next question is whether the ICC award is a foreign award or not. The
learned Single Judge held that it is a foreign award, whereas, the Division
Bench of the Calcutta High Court held it not to be so and that it was fact
a domestic award. Section 44 of the Act, deals with "foreign award". To
appreciate whether a particular award is a foreign award or not, it would
be appropriate for us to refer to section 44 which reads as under :
"44. Definition. - 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."
From a bare perusal of section 44 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 convention country.
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.). In spite of all these conditions having
been fully satisfied, the Division Bench of the Calcutta High Court
different with the views of the learned Single Judge by holding that it was
a domestic award.
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 award 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. While coming to this decision, the Division Bench
relied on the decisions of this Court in Sumitomo Heavy Industries Limited
v. ONGC Ltd., [1998] 1 SCC 305 and National Thermal Power Corporation v.
Singer Company, [1992] 3 SCC 551. However, the aforesaid two decisions of
this Court were based on section 9(b) of the repealed Foreign Awards
(Recognition and Enforcement) Act, 1961. Under the repealed Foreign Awards
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(Recognition and Enforcement) Act 1961, section 9(b) expressly provided
that its provisions would not be applicable to any award made on an
arbitration agreement governed by the law of India. However, on repeal of
this 1961 Act, by section 85 of the Act, no corresponding provision to
Section 9(b) of the 1961 Act has been made. In other words, the position of
law under section 9(b) of the Foreign Awards (Recognition and Enforcement)
Act, 1961 was deliberately not incorporated in the present Act. Therefore,
under the present Act, an award in pursuance of an arbitration agreement
governed by Indian Law, if the conditions under Section 44 are satisfied,
will not cease to be a foreign award, merely because the arbitration
agreement is governed by the law of India. Accordingly, in my view, the
aforesaid two decisions of this Court on which strong reliance was placed
by the Division Bench of the Calcutta High Court can easily be
distinguished. The Division Bench of the Calcutta High Court also held that
section 48(1)(e) of the Act is one such provision which attracts the first
part of section 44 i.e. the phrase "unless the context otherwise requires".
Section 48 (1)(e) reads as under :
"48. Conditions for enforcement of foreign awards.-
(1) Enforcement of a foreign award may be refused, at the request of
the party against whom it is invoked, only if that party furnishes to the
court proof that-
(2) The award has not yet become binding on the parties, or 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."
From a bare reading of this Section, it is evident that 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. In Sumitomo
Heavy Industries Limited v. ONGC Ltd., [1998] 1 SCC 305 it was however
held, in substance, by this Court, where the contract is governed by Indian
law and the seat of the arbitration is elsewhere, wherein arbitrability of
the dispute is established, procedural law of the country of seat of
arbitration governs the conduct of the arbitration proceedings till the
award is delivered. Therefore, the phrase "or under the law of which that
award was made" used in section 48(1)(e) refers to the law of the country
in which the arbitration had its seat rather than the country whose law
governs the substantive contract. It is true that the contract and the
agreement clause is governed by the substantial law of India. It is an
admitted position that the seat of the second arbitration was in U.K.
Therefore, relying on Sumitomo Heavy Industries v. ONGC Ltd. (Supra) the
relevant country was U.K. under the procedural law of which the award was
made. Thus, section 48 (1)(e) does not by itself contemplate attracting
first part of section 44 of the Act.
In this connection, the next question is whether the expression "unless the
context otherwise requires" as used in section 44 of the Act ever comes
into play. This question can be looked into by the following illustration
where the expression takes relevance.
Let us consider a contract, including the arbitration agreement, governed
by Indian Law and under it the seat of arbitration is mentioned as U.K.
However, before the commencement of the arbitration proceeding, the parties
agree that though the physical seat of arbitration is in U.K., for all
purposes the seat of arbitration shall be deemed to be India and the
arbitral proceedings shall be conducted under the curial law of India. In
this situation, though all the conditions under section 44 were satisfied
the award by the arbitrator cannot be said to be a foreign award. In such a
situation, the expression "unless the context otherwise requires" in
section 44 takes meaning and becomes applicable and relevant.
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There is yet another aspect in this matter on the question whether the
award that was passed by the ICC arbitrator was a foreign award of not.
According to the Division Bench, as noted herein earlier, the award passed
by the ICC arbitrator was not a foreign award. Sub-section (2) of Section 2
of the Act clearly says that Part I of the Act shall apply where the place
of arbitration is in India. Sub-Section (7) of Section 2 of the Act says
that an arbitral award made under Part I shall be considered as a domestic
award. In view of sub-sections (2) and (7) of Section 2 of the Act read
with Section 44, in respect of which I have already dealt with, there
cannot be any doubt that the Division Bench was wrong in its conclusion
that the award passed by the ICC arbitrator was a domestic award. As noted
herein earlier, we should also keep in mind that Section 9(b) of the
Foreign Awards (Recognition and Enforcement) Act, 1961 which provided that
it did not apply to an arbitral award made pursuant to an arbitration
agreement governed by law of India, has been clearly omitted by Section 51
of the 1996 Act. In this connection, reference may be made to a decision of
this Court in Shreejee Traco (I) Pvt. Ltd. v. Paperline International Inc.,
[2003] SCC 79.
In this view of the matter and in view of the discussions made herein
above, I am of the firm opinion that the award of the ICC arbitrator was
not a domestic award but a foreign award as rightly held by the learned
Single Judge of the High Court.
Issue No. 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 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 arbitral
proceedings, an order was passed by this Court by which the stay order of
the Rajasthan High Court was vacated on 8th February 2001 and direction was
given for the ICC proceedings to continue in accordance with law.
It is true, in his award, Mr. Jeremy Lionel Cooke, the ICC arbitrator has
noted that he was appointed by ICC on 7th June 2000 and that HCL refused to
participate in the arbitral 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
a 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 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 extension till 12th September 2001.
He received the first set of submissions filed by HCL, without supporting
evidence, on 13th September 2001. He considered those submissions and took
them into account while making the award. He has further recorded in his
award that :
"I made plain in my orders that no further material provided thereafter
would be taken into account, and I have not done so".
This last statement indicates that he received further material from HCL,
which he did not consider while making the award. On the face of it, it
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seems that HCL was given sufficient opportunity to present its case by the
arbitrator. However, this question must be looked into from the then
existing situation.
It must be noted that this Court vacated the stay on the proceedings on 8th
February 2001. The first direction of the ICC arbitrator to the parties,
after the order of this Court on 8th February 2001, to serve submissions to
him was made on 3rd May 2001, i.e. after a time gap of nearly 3 months. Co-
operation of HCL was next requested only on 30th July 2001, i.e. after a
time gap of nearly 2 months. Then the communication on 9th August 2001
stated that the arbitrator was proceeding with the award. This time there
was a response from HCL. Upon there requests, a time limit of nearly one
month ending on 12th September 2001, was given to HCL. The arbitrator
received first set of submissions filed by HCL on 13th September 2001. Then
he made award 16 days later on 29th September 2001. It seems that between
13th and 29th September 2001, he did receive further material from HCL
which he did not consider while making the award on the ground that they
were received after the time limit granted by him to HCL had lapsed.
It is clear from the above lay out of facts that there have been delays in
the arbitral proceedings right from the beginning when Centrotrade
approached in 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 Maheshwari 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.
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.
Accordingly, both the appeals are disposed of.
There will be no order as to costs.
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ORDER
In view of difference of opinion, the matter is referred to a larger Bench
for consideration. The Registry of this Court shall place the matter before
the Hon’ble the Chief Justice for constitution of a larger Bench.