Supreme Court Enforces Foreign Arbitral Award in Two-Tier Arbitration: Centrotrade vs. Hindustan Copper Ltd. (2 June 2020)

Date of the Judgment: 2 June 2020

Citation: (2020) INSC 449

Judges: R.F. Nariman, J., S. Ravindra Bhat, J., V. Ramasubramanian, J.

Can a party avoid the enforcement of a foreign arbitral award by claiming they were not given a fair chance to present their case, especially when they had multiple opportunities to do so? The Supreme Court of India addressed this critical question in a dispute between Centrotrade Minerals and Metals Inc. and Hindustan Copper Ltd. The core issue revolved around the enforceability of a London-based arbitration award, which was the second tier of a two-tier arbitration agreement. The court had to determine if the losing party, Hindustan Copper Ltd. (HCL), was genuinely unable to present its case or if its non-participation was a deliberate attempt to stall the proceedings.

The judgment was delivered by a three-judge bench consisting of Justice R.F. Nariman, Justice S. Ravindra Bhat, and Justice V. Ramasubramanian. The majority opinion was authored by Justice R.F. Nariman.

Case Background

The case involves a contract between Centrotrade Minerals and Metals Inc. (a U.S. corporation) and Hindustan Copper Ltd. (HCL) for the sale of copper concentrate. The contract included a two-tier arbitration clause. First, disputes were to be settled by arbitration in India. If either party disagreed, they could appeal to a second arbitration held by the International Chamber of Commerce (ICC) in London.

A dispute arose concerning the dry weight of the copper concentrate delivered. Centrotrade initiated the first-tier arbitration in India, which resulted in a “Nil Award” on 15 June 1999. Dissatisfied, Centrotrade invoked the second-tier arbitration in London. Jeremy Cook QC, the arbitrator appointed by the ICC, issued an award on 29 September 2001, in favor of Centrotrade, ordering HCL to pay various sums, including the purchase price, demurrage, legal costs, and interest.

Before the London award was issued, HCL filed a suit in a court at Khetri, Rajasthan, challenging the arbitration clause. The Rajasthan High Court initially restrained Centrotrade from proceeding with the London arbitration. However, the Supreme Court vacated this stay on 8 February 2001, allowing the London arbitration to continue. Despite this, HCL claimed it was not given a proper opportunity to present its case before the London arbitrator.

Timeline

Course of Proceedings

After the London award was issued, Centrotrade sought its enforcement in India. A single judge of the Calcutta High Court dismissed HCL’s objections, making the foreign award executable. However, a Division Bench of the Calcutta High Court reversed this decision, stating that the London award was not a foreign award and that the two awards were mutually destructive, thus unenforceable. The matter then reached the Supreme Court of India.

Initially, a two-judge bench of the Supreme Court delivered differing opinions. Justice S.B. Sinha held the two-tier arbitration clause invalid, while Justice Tarun Chatterjee found it valid but ruled against enforcement because HCL was not given a fair opportunity to present its case. This difference led to a reference to a three-judge bench.

The three-judge bench first addressed the validity of the two-tier arbitration clause, ruling it permissible under Indian law. The matter was then listed for consideration of the second question: the enforceability of the London award.

Legal Framework

The core legal framework for this case revolves around the Arbitration and Conciliation Act, 1996, specifically Section 48, which deals with the enforcement of foreign awards. Section 48(1)(b) of the Arbitration and Conciliation Act, 1996 states that enforcement of a foreign award may be refused if:

“the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present his case.”

This section is derived from Article V(1)(b) of the New York Convention, to which India is a signatory. The New York Convention aims to promote the enforcement of international arbitration awards, and thus, Section 48 is interpreted narrowly to favor enforcement. The Supreme Court emphasized that the expression “was otherwise unable to present his case” should be interpreted in the context of natural justice, meaning a fair hearing must be given to the parties.

Arguments

Arguments by Centrotrade:

• Centrotrade argued that HCL was given ample opportunities to present its case before the London arbitrator.
• They highlighted that HCL was consulted on procedural aspects, received all correspondence, and was given multiple extensions to file submissions and supporting evidence.
• They contended that HCL’s non-participation was a deliberate attempt to stall the proceedings, especially after the Supreme Court vacated the stay order.
• They relied heavily on the Supreme Court’s judgment in Vijay Karia v. Prsymian Cavi E Sistemi SRL, emphasizing the pro-enforcement bias for foreign awards.
• They quoted from Redfern and Hunter on International Arbitration and Merkin and Flannery on the Arbitration Act, 1996, to support their arguments on the approach to Section 48 proceedings.

Arguments by Hindustan Copper Ltd. (HCL):

• HCL argued that the only point of difference between the two judges in the previous Supreme Court hearing was on the validity of the two-tier arbitration clause. They claimed the issue of being unable to present their case was not referred to the larger bench.
• They contended that the arbitrator should have allowed more time for submitting documents, especially given the disruption caused by the 9/11 terrorist attacks.
• HCL argued that the arbitrator should have decided the issue of jurisdiction as a preliminary matter before proceeding with the substantive issues.
• They claimed that the ex-parte stay order by the Indian court prevented them from presenting their case effectively.
• They submitted that the arbitrator received further material from HCL, which he did not consider while making the award on the grounds that they were received after the time-limit granted by him to HCL had lapsed.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

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?

Treatment of the Issue by the Court

“The following table demonstrates as to how the Court decided the issues”

Authorities

The Supreme Court considered the following authorities:

Judgment

“How each submission made by the Parties was treated by the Court?”

“How each authority was viewed by the Court?”

• The Supreme Court heavily relied on Vijay Karia v. Prsymian Cavi E Sistemi SRL [CITATION], emphasizing the pro-enforcement bias for foreign awards.
• The Court followed the test laid down in Minmetals Germany GmbH v. Ferco Steel Ltd. [CITATION], that the “inability to present a case” must be due to matters outside a party’s control.
• The principles laid down in Jorf Lasfar Energy Co. v. AMCI Export Corp. [CITATION], that a party must suffer the consequences of failing to obey procedural orders were also followed.
• The Court also followed the principle laid down in Dongwoo Mann+Hummel Co. Ltd. v. Mann+Hummel GmbH [CITATION], that a deliberate refusal to comply with discovery orders is not a contravention of public policy.
• The Court distinguished Kavalappara Kottarathil Kochuni v. States of Madras and Kerala [CITATION], stating that the interpretation of “otherwise” in that case was specific to its context.
• The Court referred to Ganges Waterproof Works (P) Ltd. v. Union of India [CITATION], Sohan Lal Gupta v. Asha Devi Gupta [CITATION], and Hari Om Maheshwari v. Vinitkumar Parikh [CITATION], to highlight the limited scope of interference with arbitral awards.
• The principles laid down in Cuckurova Holding A.S. v. Sonera Holding B.V. [CITATION], and Eastern European Engineering v. Vijay Consulting [CITATION], were followed to determine the meaning of “inability to present case”.
• The Court referred to Consorcio Rive v. Briggs of Cancun [CITATION], Four Seasons Hotels v. Consorcio Barr S.A. [CITATION], Nanjing Cereals v. Luckmate Commodities [CITATION], and De Maio Giuseppe v. Interskins [CITATION], to emphasize that a party cannot avoid enforcement of an award by deliberately not participating in the proceedings.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the principle of minimal interference with foreign arbitral awards, as mandated by the New York Convention. The Court emphasized that Section 48 of the Arbitration and Conciliation Act, 1996, must be interpreted narrowly to favor enforcement. The Court found that HCL was given multiple opportunities to present its case, and its failure to do so was not due to factors outside its control. The Court also noted that HCL’s conduct suggested an attempt to stall the proceedings, which further weighed against its claim of denial of natural justice.

The Court’s reasoning was also influenced by the need for speedy resolution of disputes through arbitration, as highlighted in Hari Om Maheshwari v. Vinitkumar Parikh. The Court found that the arbitrator’s conduct was fair and that HCL’s arguments were based on technicalities rather than genuine inability to present its case.

Logical Reasoning:

The Court considered alternative interpretations, such as the argument that the 9/11 attacks justified further delays. However, the Court rejected this, citing the numerous opportunities already given to HCL and the need for finality in arbitral proceedings. The Court also rejected the argument that the arbitrator should have decided the issue of jurisdiction as a preliminary matter, finding no evidence to support this claim. Ultimately, the Court concluded that HCL’s claims of denial of natural justice were unfounded and that the London award was enforceable.

The Court’s decision was unanimous, with all three judges concurring in the final judgment. The majority opinion was authored by Justice R.F. Nariman.

“Given the fact that the object of Section 48 is to enforce foreign awards subject to certain well -defined narrow exceptions, the expression “was otherwise unable to present his case” occurring in Section 48(1)(b) cannot be given an expansive meaning and would have to be read in the context and colour of the words preceding the said phrase.”

“A good working test for determining whether a party has been unable to present his case is to see whether factors outside the party’s control have combined to deny the party a fair hearing.”

“The burden of substantiating the averment urged as an objection tantamounting to misconduct on the part of the arbitrator or complaining of violation of the principles of natural justice was on the petitioner.”

Key Takeaways

• Foreign arbitral awards are generally enforceable in India, subject to narrow exceptions under Section 48 of the Arbitration and Conciliation Act, 1996.
• The “inability to present a case” under Section 48(1)(b) must be due to factors outside a party’s control and not due to their own deliberate actions or omissions.
• Courts should not interfere with arbitral proceedings or awards on technicalities, especially when the arbitrator has provided a fair opportunity to the parties.
• Parties cannot avoid enforcement of an award by claiming denial of natural justice when they have had multiple opportunities to present their case.
• The pro-enforcement bias of the New York Convention must be respected by national courts.

Directions

The Supreme Court directed that the foreign award, dated 29 September 2001, shall now be enforced.

Development of Law

The Supreme Court reaffirmed the pro-enforcement stance towards foreign arbitral awards, clarifying the scope of “inability to present a case” under Section 48(1)(b) of the Arbitration and Conciliation Act, 1996. The Court’s decision reinforces the principle that parties cannot avoid enforcement of awards by claiming denial of natural justice when they have had ample opportunity to participate in the proceedings. The ratio decidendi of the case is that the expression “was otherwise unable to present his case” occurring in Section 48(1)(b) cannot be given an expansive meaning and would have to be read in the context and colour of the words preceding the said phrase and that a good working test for determining whether a party has been unable to present his case is to see whether factors outside the party’s control have combined to deny the party a fair hearing.

Conclusion

The Supreme Court allowed Centrotrade’s appeal and dismissed HCL’s appeal, thereby enforcing the foreign arbitral award. The Court held that HCL was given sufficient opportunity to present its case and was not “unable” to do so within the meaning of Section 48(1)(b) of the Arbitration and Conciliation Act, 1996. This decision underscores India’s commitment to upholding international arbitration agreements and enforcing foreign awards, while ensuring that parties are not able to avoid their obligations through technicalities or by deliberately not participating in the proceedings.