Arun Sharma[1]
Ruled: The system of two-tier arbitration mutually agreed by the parties is permissible under the laws in India.
Negated: Respondent stand that such mechanism is against the public policy of India & is not allowed under Arbitration & Conciliation Act, 1996.
COURT: Supreme Court of India
CASE: Centrotrade Minerals and Metal Inc. v. Hindustan Copper Ltd. (2017) 2 SCC 228- 3 Judge Bench
CRUX OF THE DECISION:
The present appeal arises out of reference made by a two judge bench because of difference of opinion regarding the permissibility of two-tier arbitration under the laws of India. The Court held that such arbitration is not barred by the 1996 Act since there is nothing in the Act which forbids the parties from agreeing to such mechanism. Since, party autonomy is the very foundation on which the arbitration is based across jurisdictions.
ISSUES INVOLVED:
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?
Interpretation of the Decision of the Bench:
The appellant which is a company incorporated outside India entered in to an agreement with the respondent company which is a company incorporated in India. Clause 14 of the agreement provides for arbitration as a dispute resolution mechanism. The said clause also provides for two-tier arbitration wherein the dispute shall be first settled in India by panel of arbitrator of Indian Council of Arbitration. The said clause further provides that if either party is in disagreement with the arbitration result in India, they will have right to appeal to a second arbitration in London as per ICC Rules. The second tier arbitration was contended as opposed to the fundamental policy of Indian law, hence, opposed to the public policy of India.
The matter was first heard by a division bench. However, due to difference of opinion among both the judges at the bench, the matter was finally referred to the present 3-judge bench. The Court held that there is nothing in the 1996 Act which prohibits parties from going for such two-tier arbitration. At the contrary, the same was allowed under the Arbitration Act, 1940 & above all the parties’ autonomy is virtually the backbone of arbitrations. The parties to an arbitration agreement have the autonomy to decide on the procedural law as well as substantive law governing the contract. Similarly, the choice of jurisdiction is left to the contracting parties. Therefore, there is nothing wrong if two parties agrees for two-tier arbitration by mutual consent.
Further, while interpreting the word ‘only’ under Section 34 & the finality of award under Section 35, the counsel for the respondent contended that an award can only be set aside by a Court, thereby, excluding any chance of a two-tier arbitration. The Court while negating this argument held that such interpretation will amount to redrafting of the statute. As the combined reading of Section 34 & Section 35 doesn’t exclude the autonomy of the parties whereby they agree for reconsideration of the award by another panel of arbitrators & the result of the later arbitration shall be final as well as binding on the parties.
To the question of fundamental policy of Indian law, the Court responded that there is nothing in the 1996 Act which prohibits the parties from making such arrangement voluntarily.[1]
