TMI Blog2016 (12) TMI 1676X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - CIVIL APPEAL NO. 2562 OF 2006 WITH CIVIL APPEAL NO. 2564 OF 2006 - - - Dated:- 15-12-2016 - LOKUR, MADAN B., AGRAWAL,R.K. AND CHANDRACHUD, D.Y. , JJ. For the Appellant : Ms. Ruby Singh Ahuja, Adv., Mr. Vishal Gehrana, Adv., M/s. Karanjawala Co., Mr. S. S. Jauhar,Adv. For the Respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract between the parties is Clause 14 and this reads as follows: 14. Arbitration-All disputes or differences whatsoever arising between the parties out of, or relating to, the construction, meaning and operation or effect of the contract or the breach thereof shall be settled by arbitration in India through the arbitration panel of the Indian Council of Arbitration in accordance with the Rules of Arbitration of the Indian Council of Arbitration. If either party is in disagreement with the arbitration result in India, either party will have the right to appeal to a second arbitration in London, UK in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce in effect on the date hereof and the result of this second arbitration will be binding on both the parties. Judgment upon the award may be entered in any court in jurisdiction. 4. Clause 16 of the contract is also important and this reads as follows: 16. Construction-The contract is to be constructed and to take effect as a contract made in accordance with the laws of India. 5. The issues that have arisen for our consideration, as a result of the difference of opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal against the 'arbitration result' in India. 7. It was the contention of learned Counsel for Centrotrade that the 'arbitration result' in India was not an award as conventionally understood with reference to arbitration, but merely a 'result' of arbitration given by an arbitration panel of the Indian Council of Arbitration and nothing more. We are not at all inclined to accept this interpretation. While Clause 14 of the contract may have used the expression 'arbitration result' and not the expression 'arbitration award' clearly the parties' intention was that the 'arbitration result' would be an award or at least in the nature of an award rendered by the arbitration panel of the Indian Council of Arbitration. The proceedings before the arbitration panel were intended to be structured and held in accordance with the Rules of Arbitration of the Indian Council of Arbitration. The result of such proceedings would inevitably be an arbitration award, regardless of the nomenclature used by the parties. It is difficult to interpret the words 'arbitration result' other than meaning an arbitration award. 8. We say this also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders and directions, which are concerned with the conduct of the arbitration. Procedural orders and directions help to move the arbitration forward; they deal with such matters as the exchange of written evidence, the production of documents, and the arrangements for the conduct of the hearing. They do not have the status of awards and they may perhaps be called into question after the final award has been made (for example as evidence of 'bias', or 'lack of due process'). 11. In International Commercial Arbitration3 the general characteristics of an award are stated. In Paragraph 1353 it is stated as follows: 1353.-An arbitral award can be defined as a final decision by the arbitrators on all or part of the dispute submitted to them, whether it concerns the merits of the dispute, jurisdiction, or a procedural issue leading them to end the proceedings. This is subsequently elucidated through four aspects of an award, namely: (i) An award is made by the arbitrators; (ii) An award resolves a dispute; (iii) An award is a binding decision; and (iv) An award may be partial. 12. The arbitration result in the present case has all the elements and ingredients o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t might be mentioned that it is doubtful if HCL can even contend that an appellate arbitration is contrary to the laws of India. If this contention is accepted, then it could be argued that HCL entered into a contract with Centrotrade fully conscious and aware that one of the provisions of the contract was contrary to the laws of India. This could amount to HCL playing a fraud on Centrotrade and could have serious long-term implications and ramifications for international commercial contracts with an Indian party. 17. But be that as it may, it might be fruitful as a starting point to consider the view expressed in the Report of the Working Group on International Contract Practices on the Work of its Third Session.4 Incidentally, India was one of the State members of that UNCITRAL Working Group. With reference to an appeal [before another arbitral tribunal (of second instance)] against an arbitral award, Question 6-1 was posed and answered as follows: Question 6-1: Should the model law recognize any agreement by the parties that the arbitration award may be appealed before another arbitral tribunal (of second instance)? 106. There was wide support for the view that partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve known the view of the UNCITRAL Working Group (of which India was a State member) and must be assumed to have known the decisions of various domestic courts and yet chose not to specifically prohibit the two-tier arbitration system. If that be so, we are entitled to proceed on the basis that even after the passage of the A C Act, there can perhaps be no objection to the existence of a two-tier arbitration system. But we do not propose to base our decision on this assumption. We may, however, note that it has been brought to our notice that there are several decisions rendered by the Bombay High Court8 that have accepted the two-tier arbitration system. There are several decisions of the Delhi High Court that have taken the view that since the A C Act does not proscribe a two-tier arbitration procedure, such a system is acceptable. 9 21. Learned Counsel for HCL relied upon the following passage from Fuerst Day Lawson Limited v. Jindal Exports Ltd. (2011) 8 SCC 333 to contend that since the A C Act did not permit two-tier arbitrations such an arbitration system was not permissible: 89. It is, thus, to be seen that Arbitration Act, 1940, from its inception and right through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the following principles clearly emerge: (i) That the legal pursuit of a remedy, suit, appeal and second appeal are really but steps in a series of proceedings all connected by an intrinsic unity and are to be regarded as one legal proceeding. (ii) The right of appeal is not a mere matter of procedure but is a substantive right. (iii) The institution of the suit carries with it the implication that all rights of appeal then in force are preserved to the parties thereto till the rest of the career of the suit. (iv) The right of appeal is a vested right and such a right to enter the superior court accrues to the litigant and exists as on and from the date the lis commences and although it may be actually exercised when the adverse judgment is pronounced such right is to be governed by the law prevailing at the date of the institution of the suit or proceeding and not by the law that prevails at the date of its decision or at the date of the filing of the appeal. (v) This vested right of appeal can be taken away only by a subsequent enactment, if it so provides expressly or by necessary intendment and not otherwise. [Emphasis supplied by us]. We are no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we would perforce have to read the Sub-section quite differently by repositioning the word only and the Sub-section to read: Recourse only to a Court against an arbitral award may be made by an application for setting aside such award in accordance with Sub-section (2) and Sub-section (3). Or Recourse against an arbitral award may be made only to a Court by an application for setting aside such award in accordance with Sub-section (2) and Sub-section (3). We are afraid we cannot read or redraft the statute in the manner suggested by learned Counsel. 26. Learned Counsel would like us to read Sub-section (1) of Section 34 of the A C Act in conjunction with Section 35 thereof and thereby conclude that an arbitral award would be final and binding unless it is challenged and set aside by a court and that the setting aside can be only by a court and none else. The acceptance of this submission would be possible only if we were to first accept the interpretation given by learned Counsel to Sub-section (1) of Section 34 of the A C Act. However, since we do not agree with learned Counsel on the interpretation of Sub-section (1) of Section 34 of the A C Act, acceptance of the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for setting aside constitutes the exclusive recourse to a court against the award in the sense that it is the only means for actively attacking the award, i.e. initiating proceedings for judicial review........ Finally, article 34(l) would not exclude recourse to a second arbitral tribunal, where such appeal within the arbitration system is envisaged (as, e.g., in certain commodity trades). 13 [Emphasis supplied by us]. 29. Similarly, the Explanatory Note by the UNCITRAL Secretariat on the 1985 Model Law on International Commercial Arbitration as amended in 2006 14 also affirms this position in the following words: 44. The disparity found in national laws as regards the types of recourse against an arbitral award available to the parties presents a major difficulty in harmonising international arbitration legislation. Some outdated laws on arbitration, by establishing parallel regimes for recourse against arbitral awards or against court decisions, provide various types of recourse, various (and often long) time-periods for exercising the recourse, and extensive lists of grounds on which recourse may be based. That situation (of considerable concern to those involv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be started on the original claim which had been the subject matter of reference. This Court was not concerned with any agreement between parties to subject the correctness of the award to further scrutiny through an 'appeal' procedure. It was held: The true legal position in regard to the effect of an award is not in dispute. It is well settled that as a g eneral rule, all claims which are the subject-matter of a reference to arbitration merge in the award which is pronounced in the proceedings before the arbitrator and that after an award has been pronounced, the rights and liabilities of the parties in respect of the said claims can be determined only on the basis of the said award. After an award is pronounced, no action can be started on the original claim which had been the subject-matter of the reference. As has been observed by Mookerjee, J. in the case of Bhajahari Saha Banikya v. Behary Lal Basak 33 Cal. 881 the award is, in fact, a final adjudication of a Court of the parties' own choice, and until impeached upon sufficient grounds in an appropriate proceeding, an award, which is on the fact of it regular, is conclusive upon the merits of the controver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reate rights in that property but those rights cannot be enforced until the award is made a decree of the Court. It is one thing to say that a right is not created, it is an entirely different thing to say that the right created cannot be enforced without further steps. [Emphasis supplied by us]. 34. It is therefore quite clear that the final and binding Clause in Section 35 of the A C Act does not mean final for all intents and purposes. The finality is subject to any recourse that an aggrieved party might have under a statute or an agreement providing for arbitration in the second instance. The award is binding in a limited context. 35. Unless this interpretation is accepted, a second instance arbitration would be per se invalid in India. This would be going against the grain of a long line of decisions rendered by various courts in the country which have accepted the validity of a two-tier arbitration procedure under institutional Rules and have not taken the view that a two-tier arbitration procedure is per se invalid. Reference in this regard may be made to a somewhat recent decision rendered in Shri Lal Mahal Ltd. v. Progetto Grano Spa (2014) 2 SCC 433 wherein an awar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. The legal quality or perfection of the document is comparatively low in the third category, high in second and higher in first. No doubt, in the process of interpretation in the first category, the courts do make an attempt to gather the purpose of the legislation, its context and text. In the second category also, the text as well as the purpose is certainly important, and in the third category of documents like wills, it is simply intention alone of the executor that is relevant. In the case before us, being a contract executed between the two parties, the court cannot adopt an approach for interpreting a statute. The terms of the contract will have to be understood in the way the parties wanted and intended them to be. In that context, particularly in agreements of arbitration, where party autonomy is the ground norm, how the parties worked out the agreement, is one of the indicators to decipher the intention, apart from the plain or grammatical meaning of the expressions and the use of the expressions at the proper places in the agreement. [Emphasis supplied by us]. 37. In Union of India v. Uttar Pradesh State Bridge Corporation Ltd. (2015) 2 SCC 52 this Court accepted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties. Public policy and two-tier arbitrations 41. The question that now arises is the interplay between public policy and party autonomy and therefore whether embracing the two-tier arbitration system is contrary to public policy. 42. Years ago, it was said per Burroughs, J in Amicable Society v. Bolland (Fauntleroy's Case): Public policy is a restive horse and when you get astride of it, there is no knowing where it will carry you. 22 Perhaps to assist in getting over this uncertainty, Mustill and Boyd23 identify four classes of provision regarded by the courts as contrary to public policy. They are: (i) Terms which affect the substantive content of the award; (ii) Terms which purport to exclude or restrict the supervisory jurisdiction of the Court; (iii) Terms which require the arbitrator to conduct the reference in an unacceptable manner; and (iv) Terms which purport to empower the arbitrator to carry put procedures or exercise powers which lie exclusively within the jurisdiction of the courts. Clause 14 of the agreement between the parties does not fall under any of these situations. 43. In our country, the case law on the subject has recently been exhausti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the affirmative. The appeals should be listed again for consideration of the second question which relates to the enforcement of the appellate award. .............................................. 1 Chapter 24 Arbitration Award in Julian D.M. Lew, Loukas A. Mistelis, et al., Comparative International Commercial Arbitration, ((c) Kluwer Law International; Kluwer Law International 2003) pp. 627-662 2 Chapter 9. Award in Nigel Blackaby, Constantine Partasides, et al., Redfern and Hunter on International Arbitration (Sixth Edition), 6th edition ((c) Kluwer Law International; Oxford University Press 2015) pp. 501-568 3 Part 4: Chapter IV-The Arbitral Award in Emmanuel Gaillard and John Savage (eds), Fouchard Gaillard Goldman on International Commercial Arbitration, ((c) Kluwer Law International; Kluwer Law International 1999) pp. 735-780 4 New York, 16-26 February, 1982, A.CN.9/216 (23rd March 1982) 5 Published by Sweet and Maxwell in conjunction with The Chartered Institute of Arbitrators, (para 3-35) at p. 276 and para 3-106 at p. 290. 6 Paragraphs 27, 65 and 119 of the Report 7 Paragraph 136 of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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