2016 (12) TMI 1676 - SC - Indian Laws

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? - Held that - the parties have agreed on a two tier arbitration system through Clause 14 of the agreement and Clause 16 of the agreement provides for the construction of the contract as a contract made in accordance with the laws of India. We see nothing wrong in either of the two clauses mutually agreed upon by the parties. There is nothing in the A&C Act that prohibits the contracting parties from agreeing upon a second instance or appellate arbitration-either explicitly or implicitly. No such prohibition or mandate can be read into the A&C Act except by an unreasonable and awkward misconstruction and by straining its language to a vanishing point. We are not concerned with the reason why the parties (including HCL) agreed to a second instance arbitration-the fact is that they did and are bound by the agreement entered into by them. HCL cannot wriggle out of a solemn commitment made by it voluntarily deliberately and with eyes wide open - the arbitration Clause in the agreement between the parties does not violate the fundamental or public policy of India by the parties agreeing to a second instance arbitration. 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? - Held that - The appeals should be listed again for consideration of the second question which relates to the enforcement of the appellate award. Appeal disposed off.

Issues Involved:
1. Permissibility of a two-tier arbitration procedure under Indian law.
2. Enforceability of a foreign award under Section 48 of the Arbitration and Conciliation Act, 1996.

Detailed Analysis:

Issue 1: Permissibility of a Two-Tier Arbitration Procedure under Indian Law
Appreciating Clause 14 of the Contract:
The arbitration clause (Clause 14) in the contract between the parties provides for a two-tier arbitration procedure. Initially, disputes are to be settled by arbitration in India through the Indian Council of Arbitration. If either party disagrees with the result, they can appeal to a second arbitration in London under the Rules of Conciliation and Arbitration of the International Chamber of Commerce. The result of this second arbitration is binding on both parties.

Interpretation of "Arbitration Result":
The term "arbitration result" in Clause 14 is interpreted to mean an arbitration award. This interpretation is necessary to avoid a legal vacuum where the arbitration result cannot be enforced. The term "arbitration result" must be understood as an award that can be enforced under the Arbitration and Conciliation Act, 1996 (A&C Act).

Validity of the Two-Tier Arbitration System:
The two-tier arbitration system, as provided in Clause 14, is not prohibited by the A&C Act. The Act does not explicitly or implicitly prohibit such a system. Historically, two-tier arbitration was permissible in India before the enactment of the A&C Act. The Act does not specifically prohibit this system, and several High Court decisions have upheld its validity.

Party Autonomy:
Party autonomy is a fundamental principle in arbitration, allowing parties to decide the procedural and substantive laws governing their arbitration. The parties in this case voluntarily agreed to a two-tier arbitration system, which is a valid exercise of their autonomy.

Public Policy Considerations:
The two-tier arbitration system does not violate the fundamental policy of Indian law or public policy. The parties have not bypassed any mandatory provisions of the A&C Act. They agreed to a second instance arbitration, which is not prohibited by the Act.

Conclusion on Issue 1:
The two-tier arbitration procedure provided in Clause 14 of the contract is permissible under Indian law. The arbitration clause does not violate the fundamental or public policy of India.

Issue 2: Enforceability of a Foreign Award under Section 48 of the A&C Act
Pending Consideration:
The second issue, regarding the enforceability of the foreign award under Section 48 of the A&C Act, will be addressed in subsequent proceedings. The current judgment focuses solely on the permissibility of the two-tier arbitration procedure.

Conclusion:
The arbitration clause in the contract, providing for a two-tier arbitration system, is permissible under Indian law. The appeals will be listed again for consideration of the enforceability of the foreign award under Section 48 of the A&C Act.

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