This case is a part of our Annual Arbitration Review 2020.
Citation: AIR 2020 SC 3136
Court: Supreme Court of India
Coram: Rohinton Fali Nariman, S. Ravindra Bhat and V. Ramasubramanian, JJ.
Date: 2nd June 2020
Keywords: tier arbitration clause, HCL, ICC, Section 48, Arbitration and Conciliation Act.
Centrotrade and Hindustan Copper Ltd. had entered a contract for the sale of 15,500 DMT of copper concentrate. This contract contained a two-tier arbitration clause under which the dispute was to be settled by arbitration in India. If a party was dissatisfied with the results of such a proceeding, they had a right to appeal the award by invoking the second tier of the arbitration clause through which an arbitration was to be conducted by the ICC. While the arbitration conducted in India had ruled in favour of HCL, Centrotrade appealed this award. In the appellate proceedings conducted by the ICC, an award was made in favour of Centrotrade. When Centrotrade attempted to enforce this award, HCL resisted the enforcement, contending that multi-tiered arbitral clauses were not enforceable in India and that they had not been able to fully present their case, rendering the award not enforceable. After a prolonged legal battle, the matter was referred to a three-judge bench of the Supreme Court which ruled that multi-tiered arbitral clause was valid and not against the public policy of India. The latter argument made by HCL of not being able to fully present its case was considered in the present judgment.
Whether HCL was allowed an opportunity to fully present its case and could resist enforcement under Section 48(1)(b) of the Arbitration and Conciliation Act, 1996?
The primary submission of HCL was under Supreme 48(1)(b) where they contended that the award was not enforceable as they were unable to present their case. HCL argued that the arbitrator continued with the proceedings despite a stay being granted by the Rajasthan HC, thereby not allowing HCL to fully present their case. They also argued that the terrorist attack of 9/11 had destroyed transportation and communication channels, which meant that HCL could not send documents on time and fully present their case.
The SC was called upon to interpret the term “otherwise unable to present his case” that appears in Section 48(1)(b). Relying on an earlier case of Vijay Karia v. Prysmian Cavi E Sistemi Srl, the Supreme Court held that the test under Section 48(1)(b) considers whether a party was unable to present its case due to factors beyond its own control, normally in cases where the procedure adopted was not in accordance with principles of natural justice. However, where a party has failed to take advantage of opportunities given to fully present their case due to reasons within its own control, they would not be able to resist enforcement. The Supreme Court in Vijay Karia had afforded a narrow interpretation of the term “otherwise” considering the pro-enforcement objective of incorporating narrow references in Section 48.
The Supreme Court noted that the arbitrator had granted multiple extensions to HCL to file their submissions. Even though the arbitrator was not obligated to, he accepted and considered the submissions that HCL filed beyond the extended deadline.
Therefore, considering the narrow exception provided by Section 48(1)(b), the Supreme Court held in favour of Centrotrade and dismissed HCL’s plea for refusing enforcement of the award.