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Lighthouse - January, 2017.

Two Tier Arbitration Clause is valid – Supreme Court of India

joyIn the recent Appeal filed by M/s Hindustan Copper Limited against M/s Centrotrade Minerals and Metals Inc., the Honourable Three Judge Bench of the Supreme Court of India held that “the Arbitration Clause in the Agreement between the parties does not violate the fundamental or public policy of India by the parties agreeing to the Second Instance Arbitration”.

The brief fact of the case is that M/s Centrotrade Minerals and Metal Inc and M/s Hindustan Copper Limited entered into a sale Agreement wherein 15,500 DMT of Copper Concentrate was to be delivered at Kandla Port, Gujarat as two consignments. Though the consignments were delivered and payments were made, a dispute arose between the parties later and M/s Centotrade invoked the Arbitration Clause in the Agreement.

The Clause 14 under the heading “Arbitration” in the Contract between the parties is as follows:

“All disputes or 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 arbitration in London, UK in accordance with the Rules of the 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 may be entered in any court in Jurisdiction”.

By an Award dated 15 June, 1999, the claim of M/s Centrotrade was dismissed by the Indian Arbitrator and a Nil Award was passed. Hence, M/s Centrotrade invoked the second part of the Arbitration Clause and thereupon an Award was made by the London Arbitrator upholding the claim of Centrotrade.

Further, M/s Centrotrade filed an application for the enforcement of the London Arbitration Award and the said application was allowed by the Calcutta High Court by an order dated 10 March 2004.

Aggrieved by this Order, M/s Hindustan Copper Limited, filed an Appeal before the Calcutta High Court, (AIR 2005 Cal 133) the Honourable Court allowed the said appeal and the impugned order was set aside. It was stated that the London arbitration Award was declared inexecutable so long as the Indian Nil Award stands.

While considering the Appeal, Hon. Supreme Court opined in Para 27, that “a combined reading of Subsection (1) of Section 34 of the Arbitration and Conciliation Act and Section 35 thereof, 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 arbitrator by way of an appeal and the result of that appeal is accepted by the parties to be final and binding subject to a challenge provided for by the Arbitration and Conciliation Act. This is precisely what the parties have in fact agreed upon and that the Court see no difficulty in honouring their mutual decision and accepting the validity of their Agreement”.

This Judgment can be marked as a landmark Judgment wherein the Hon. Supreme Court has accepted the Two Tier Arbitration as agreed by the Parties to the Contract and hopefully, this can be a turning point to the international community.

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