THE PREPOSITIVE CASE OF ARBITRATION IN CENTROTRADE V. HINDUSTAN COOPER LIMITED (2020)

This article has been authored by Amisha Sharma, a fourth-year student at Amity Law School, Noida.

Introduction

The Supreme Court of India (“Court”) in the very recent case of M/S. Centrotrade Minerals and Metals Inc. v. Hindustan Cooper Ltd. (“Centrotrade” and “HCL”) interpreted Section 48(1)(b) of the Arbitration and Conciliation Act, 1996 (“Act”) which forms the provision of challenging an arbitral award on the grounds of, first, natural justice and second, lack of opportunity. The Court also referred to the dictating judgement of Vijay Kharia v. Prysmian Cavi E Sistemi SRL which has indefinitely stated the scope of Section 48 along with Section 34 of the Act and has also elucidated the meaning of ‘public policy of India’ as found in both the aforementioned sections of the Act.

Facts of Centrotrade v. HCL (2020)

The dispute between the parties arose because of Clause 14 of the arbitration agreement in which both the parties had entered into a two-tier arbitration agreement- first in India and then before ICC in London. The arbitrators in India ruled in favour of HCL which was subsequently overturned by ICC Arbitrator which also partially allowed the claims of Centrotrade. Application was then moved by Centrotrade to enforce the foreign award under Section 48 of the Act which was allowed by a single judge bench of the Calcutta High Court. An appeal was filed against this by HCL before a Division Bench which held the award given by ICC as non-executable. Before the Supreme Court, the main issues were:

1. Validity of two-tier arbitration in Indian Arbitration Law

2. Appellate award cannot be treated as a ‘foreign award’

3. HCL’s contention of its inability to present the case at London.

Two-Tier Arbitration

The Arbitration Clause consisted of a two-tier arbitration agreement and one of the contentions from the Respondent’s side was that, Under Section 34 of the Act, an award can only be set aside by the Court having competent jurisdiction and hence, two-tier arbitration is excluded (the Respondent had refused to participate in the Arbitration proceeding). The Court affirmed that the system of two-tier arbitration existed in the Act and that the Act contains no objection to such system. The Court had earlier accepted the two-tier arbitration as an integral part of arbitration in India.

Outside His Control Test

The Court referred to the English judgment of Minmetals Germany Gmbh v. Ferco Steel Ltd.(1999) wherein it was held that the test of outside his control has to be judged on the basis of any contradiction to the principles of natural justice. This was applied in Jorf Lasfar Energy Co. v. AMCI Export Corp wherein it was held that a party cannot purposefully ignore the procedural directives of the decision-making body and then successfully claim that the procedure is unjust and violative of natural justice. HCL had put forth in one of its contention that it was not served with an adequate opportunity to present its case.

The Court relied on Consorcio Rive v. Briggs of Cancun and held that if a party has failed to establish that he had taken all efforts to avail himself an opportunity afforded by the arbitral tribunal, such party cannot challenge the proceedings subsequently. The Respondent did not participate in the proceedings even though it was invited to do so and was also granted with a time extension concluding that there was no injustice done to the Respondents in the arbitral proceedings.

The Supreme Court has also affixed meaning to the expression ‘otherwise’ in Section 48(1)(b) of the Act and has affirmed that the term is subject to two meanings in which the narrower meaning has to be adopted. The position is that the expression ‘otherwise’ cannot be read ejusdem generis with words that precede it (Kavalappara Kottarathil Kochuni v. States of Madras and Kerala, 1960). The Court also followed the principle laid down by the Singapore High Court in Dongwoo Mann+Hummel Co. Ltd. v. Mann+Hummel GmbH (2008) SGHC 275 which stated that a deliberate refusal to comply with a discovery order is not per se a contravention of public policy.

In short, there was no basis that could be found in the case which would contravene the principles of natural justice, be it a delayed discovery of order/notice. The case of Centrotrade was definitely a long-due judgement and the main issue that arose was whether the Respondent (HCL) had adequate opportunity to present its case before the Arbitrator, thereby invoking the principle of natural justice.

Understanding Vijay Kharia (2020)

Section 34 is probably the most important sections of the Act whereby the grounds of setting aside an award of arbitration is stated. It empowers the courts to review the whole arbitration process followed in a case and also to examine the constitutionality of the arbitration process. The parties are not permitted to lessen the dignity of it. (Madan Lal v. Sundar Lal, 1967) Section 34(2)(b)(i) and (ii) of the Act provides for the provision of setting aside an arbitral award by a court on the basis of an application presented with the condition of either subject-matter being uncapable to be disputed under the law in force or the award being in opposition to the public policy of India.

When the concept of ‘public policy’ is taken, it is pertinent to state the New York Convention (UNCITRAL) where a competent authority of the State can sua sponte refuse recognition and enforcement. Hence, an award that is patently violating the provisions can be said to be violating the concept of public good which is made in furtherance of the fundamental principles of law and justice. (Patent illegality can be simply understood as ‘error made on the face of it.’)

In the case of Vijay Kharia, the contentions of existence of three pigeon holes in the Act were made, namely, pigeon hole in Section 48(1)(b) which states the dismissal of award on the basis of improper serving of notice and incapability to present a case, and Section 48(2)(b) which states the award being contrary to the public policy of India. One can simply understand the above stated provisions as a breach of these rules would ultimately harm the principles of natural justice and an award given in this regard is violative of the principle on the grounds of bias and in contrary to morality. That is to say, the expression ‘public policy’ got its derivation, first, from the case of Renusagar Power Co. Ltd. v. General Electric Company and Anr. which puts up with three basic pointers in which an enforcement will be contrary to the:

1. Fundamental policy of Indian Law

2. Interests of India

3. Justice/Morality

Thought this statement of law was made in the context of enforcement of a foreign (New York Convention) award, it has been held to be relevant for setting aside arbitral awards under Section 34(2)(b)(ii) of the Act on the ground that the award is in conflict with the public policy of India as well. (Municipal Corporation of Greater Mumbai v. Jyoti Construction Co. , 2003)

The narrower view in Renusagar’s Case was broadened in the ONGC Case which stated that a precise definition cannot be given to the phrase of ‘public policy.’ It is to be understood that in the present era, the courts have emphatically departed from this view and have tried to fit in the concept of public policy in a comparatively narrower purview so as to minimise the interference of courts in the process of arbitration.

Conclusion and The Tussle Between the Narrow and Wide Perspective

Courts in India can be seen adopting a pro-arbitration approach. But earlier, in cases like ONGC and Venture Global Engineering, the courts can be seen as deviating from the precedent laid down in Renusagar’s Case which constructively narrowed down the concept of public policy and negated its unwanted and undesired interpretation. Commentators who perceive ONGC as no-fault hold the view that public policy is to be seen through a dynamic approach which forms the part of progressive society- ever evolving and ever changing. The next supporting argument is that patent illegality is in contrary to the morality and good conscience in the process of availing justice.

But the Centrotrade Case should be viewed as an alignment of the process of challenging arbitral award in India with the international law standards. The court in the enforcing state has limited discretion to set aside an award as against the court of primary jurisdiction, which has more flexibility to review and set aside an award. The Vijay Kharia Case also brings clarity into the matter because if the reference to public policy is not limited, as ONGC tried to delimit it, the very purpose of the process of arbitration gets nullified because the losing might may use it as a tool to bring in unwanted judicial intervention. On these lines, the case has surely limited the application of the public policy clause in Sections 34 and 48 of the Act. Now, what remains is of the litigants to exercise due caution while resisting enforcement of foreign awards before Indian courts, now that the pro-enforcement bias has been well established.