“Two-Tier” Arbitration: Progress in Enforcement of International Arbitral Awards in India

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Mintz - Arbitration, Mediation, ADR Viewpoints

Here is reason for hope for those who face with trepidation the prospect of enforcing an international arbitration award in India. On June 2, 2020, the Supreme Court of India (“ISC”) confirmed the enforceability there of a foreign arbitral award that was rendered in accordance with a “two-tier arbitration” agreement. See Centrotrade Minerals & Metals, Inc. v. Hindustan Copper Limited Ltd., Civil Appeal No. 2562 of 2006 (Sup. Ct. India). Among other things, the court rejected the dreaded catch-all “Indian public policy” defense as raised by the respondent. This is the latest in what seems to be a trend of pro-arbitration enforcement decisions by the ISC, and may help to alleviate some of the many anxieties concerning the enforceability generally of international arbitral awards in India.

(We represented Centrotrade Minerals & Metals in obtaining the ICC arbitration award that was the subject of the ISC’s recent decision, and Mintz Levin serves as instructing counsel in the pursuit of enforcement of that award in India.)

The “Centrotrade Saga,” as it has become known in India, concerns a dispute between Centrotrade and HCL regarding sales of copper concentrates to the latter for delivery to Khandla Port in the State of Gujarat, India during December 1998-January 1999. The parties disagreed about the correct weight of the delivered material, and therefore the purchase price. The parties’ agreement provided (in Clause 14) for dispute resolution by arbitration with the possibility of two steps. The first tier of the “two-tier” arbitration was a “first instance” proceeding in India under Indian Council of Arbitration rules. The agreement furthermore provided that either party disagreeing with the result of that proceeding had the right to commence a superseding arbitration in London under International Chamber of Commerce (“ICC”) arbitration rules. (A similar two-tier arbitration process was often used in the international commodities trading business at the time.)

Centrotrade commenced arbitration in India, which resulted in an award, dated June 15, 1999, of no damages. (In that regard, we note that HCL is an Indian government-owned entity, the arbitrator appointed by the Indian Counsel of Arbitration was an Indian government-employed lawyer, and part of the stated rationale for the arbitrator’s nil award was that an award of damages to Centrotrade would be contrary to the interest of India.)

Unsurprisingly, Centrotrade then commenced a “second tier” arbitration in London. The ICC appointed as arbitrator Jeremy Cooke, QC. On September 29, 2001, arbitrator Cooke issued an award in favor of Centrotrade in the amount of US$564,314.

The ISC referred to that second proceeding as a “second instance arbitration,” which may be considered as an appeal or review de novo. When a second tier proceeding such as this is invoked, the first arbitration result is termed an “arbitration decision,” while the award in the second instance proceeding comprises the arbitration award. An arbitration award may be brought to a court for confirmation or vacatur; but a challenge to an arbitration decision may only be made in a second instance arbitration proceeding.

HCL had sought previously in the Indian courts to enjoin the London arbitration proceeding -- an ex parte stay granted by a Rajasthan High Court was vacated by the ISC on February 8, 2001. But the Centrotrade Saga in the Indian judicial system began in earnest when Centrotrade sought to enforce its ICC arbitral award in India.

Decisions alternately favoring and disfavoring enforcement of the award were issued by the High Court of Calcutta and a Division Bench of the Calcutta High Court. The parties then each filed Special Leave Petitions to the ISC in 2004. In 2006, a Division Bench of the ISC itself (consisting of two justices) issued two judgments that were quite at odds. See Centrotrade Minerals & Metals Inc. v. Hindustan Copper Limited (2006) 11 SCC 245. Recognizing their considerable difference of opinion, the two justices referred the matter to a larger (three-judge) ISC bench “for reconsideration.”

However, it was not until eleven years later that a three-judge ISC bench next heard the matter and decided that the case required the resolution of two issues:

  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 that 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?”

That three-judge ISC bench chose to address only the first question, and indicated that, depending upon the answer to that first question, the appeal “would be set down for hearing on the remaining issue” thereafter.

The hearing of the first issue was sporadic and took several months. In the end, the ISC decided unanimously that a two-tier arbitration, as provided in the agreement in question, was indeed permissible under Indian Law. See Centrotrade Minerals & Metals, Inc. v. Hindustan Copper Limited (2017) 2 SCC 228. Among other things, the ISC thus reaffirmed the principle of party autonomy for such purposes -- the power of contracting parties to shape a private dispute resolution process – and that such a privately forged process is in general not hampered by Indian laws regarding judicial processes (such as concerning the right to appeal). The ISC also held that a two-tier arbitration process is not against Indian public policy. And finally, the ISC decided that the arbitral award rendered in the second instance in London was a “foreign award”.

That first three-judge ISC bench furthermore instructed that the second question be set down for hearing promptly. Thus, “only” three years later, an entirely different three-judge ISC bench heard the second question in early March 2020. As noted above, its judgment followed on June 2, 2020.

HCL’s position concerning the second question too was flavored with arguments concerning Indian public policy as well as “natural law”. Among other things, it contended in effect that it had been denied the opportunity to present its case in the ICC arbitration. But HCL had been fully informed during the entire progression of the ICC proceeding. The ISC found that HCL had at first knowingly and intentionally declined to participate in the ICC arbitration; then changed its tactics as the arbitrator’s schedule for party submissions (repeatedly extended) was running out; then requested additional extensions of time, which were also granted; and finally made its submissions shortly after the final closing of the record by the arbitrator; and that the arbitrator had nevertheless expressly considered those belated submissions in reaching his conclusions and arbitral award. (HCL claimed that its written submissions, which reached the arbitrator in London on September 13, 2001, had been delayed by the events of 9-11, although HCL presented no evidence that telecopy transmission or courier transportation from its counsel in New Delhi to the arbitrator in London had been disrupted by the events of September 11, 2001 in the United States.)

Among other things, the ISC noted that

“Jeremy Cooke QC afforded as many as six opportunities to HCL to present its case and bent over backwards by extending time for filing of submissions and documents several times, and even considered documents that were found by HCL after the last deadline had been extended, and then passed the award.”

The ISC bench ultimately unanimously invoked the principle that a party that ignores procedural rulings and schedules made by a duly appointed arbitrator does so at its peril.

Thus, after more than 20 years and three major ISC excursions, Centrotrade has its definitive judgment from the Indian Supreme Court. Its arbitration award, with interest, is now approaching US$1.7 million in value. The Indian Supreme Court has ruled that “the foreign award, dated 29.09.2001, shall now be enforced.” So it’s back to a Calcutta High Court for that purpose. Hope abounds.

[View source.]

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