ALTERNATIVE DISPUTE RESOLUTION PROJECT

“TWO- TIER ARBITRATION IN INDIA: SUPREME COURT IN CENTROTRADE V

HINDUSTAN COPPER LTD.”

SUBMITTED TO:
Ms. SHAKUNTALA SANGAM
(ASSISTANT PROFESSOR OF LAW)

PROJECT SUBMITTED BY:

RISHI SEHGAL
Semester VII, Section B
ENROLL. NO. 150101112
ROLL NO. 115

DR. RAM MANOHAR LOHIYA NATIONAL LAW UNIVERSITY.

LUCKNOW, UTTAR PRADESH

 CONTENTS

INTRODUCTION ..................................................................................................................... 3
PROCEEDINGS BEFORE THE SUPREME COURT: Centrotrade (2006)............................ 3
Factual Background................................................................................................................ 3
Judgment of the High Court ................................................................................................... 4
Supreme Court: Dissented Division ....................................................................................... 4
Status of Award as ‘Decree’........................................................................................ 5
Is Section 34 Exhaustive? ............................................................................................ 5
The Test of Public Policy ............................................................................................ 6
PROCEEDINGS BEFORE THE FULL BENCH OF THE SUPREME COURT: Centrotrade
(2016) ......................................................................................................................................... 8
The Contentions Of HCL ....................................................................................................... 9
Appellate arbitration and the A&C Act, 1996............................................................. 9
Public autonomy validates two- tier arbitration ....................................................... 10
Two- tier arbitration is not averse to public policy in India ..................................... 12
COMMENTS AND CONCLUSION ...................................................................................... 12
BIBLIOGRAPHY .................................................................................................................... 14
 INTRODUCTION

In the traditional system of litigation, the right to appeal is regarded as a fundamental element
of fairness.1 The provision of appeal is a matter of substantive right and not merely a part of
procedural law.2 The presence of an appellate jurisdiction acts as an insurance against error,
prejudice and human fallibility at the level of the lower authority.

The adoption of this concept in arbitration has resulted in the novel concept of two-tier or
appellate arbitration. The law of arbitration is premised on the fundamental principle of party
autonomy, that is, the freedom of parties to contractually devise mechanisms for resolution of
their disputes subject to mandatory rules of public policy. When the parties make provision
for an arbitral tribunal to sit in appeal over the award of the first arbitral tribunal, if either of
the parties is dissatisfied with its award, it is known as two-tier or appellate arbitration.

This paper critically examines the issue of permissibility of appellate arbitration clauses in
view of the Supreme Court’s judgment in Centrotrade Minerals & Metals Inc. v Hindustan
Copper Ltd.3Then moving further and examining the change of stance of the Supreme
Court’s full bench with regard to the issues as hand in 2016.

PROCEEDINGS BEFORE THE SUPREME COURT: Centrotrade (2006)

Permissibility of appellate arbitration was discussed by a two-judge bench of the Supreme

Court. Since they reached opposite conclusions on the law, no clear verdict was pronounced
and the issue has been referred to a larger bench for final determination. However, the
questions canvassed before the larger bench will be the same.

Factual Background
The appellant Centrotrade and the respondent HCL had entered into a contract for the supply
of goods. When a dispute arose regarding quality, the appellant invoked the arbitration
clause. After the Indian arbitrator made a nil award, the appellant invoked the second limb of
the clause for appellate arbitration, clause 14.4 HCL filed a suit for injunction to stop the
appellate arbitration on the ground of nullity of that clause. Before the sole arbitrator in

1
The denial of right to appeal is considered as one of the factors in assessing whether a particular statutory
provision is arbitrary and falls foul of Article 14 of the Constitution of India. See Air India v Nargis Meerza &
Ors (1981) 4 SCC 335, 380; Babubhai & Co. v State of Gujarat (1985) 2 SCC 732, 736-37; Workmen of
Meenakshi Mills Ltd v Meenakshi Mills Ltd (1992) 3 SCC 336, 379. In criminal cases, the right of appeal is a
fundamental right flowing from Article 21, Madhav Hayawadanrao Hoskot v State of Maharashtra (1978) 3
SCC 544, 552.
2
Garikapati Veeraya v N. Subbiah Choudhry and Ors AIR 1957 SC 540, 553.
3
(2006) 11 SCC 245.
4
“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
results of this second arbitration will be binding on both the parties. Judgment upon the award may be entered in
any court in any jurisdiction.”
London, the respondent objected to the validity of the agreement but the arbitrator held the
agreement valid and made an award in favour of the appellant.

Judgment of the High Court

During the proceedings for execution of the appellate award, a single judge of the High Court
of Calcutta held clause 14 to be valid, invoking the doctrine of waiver of statutory rights, on
the ground that the agreement clearly showed the intention of the parties to waive their right
to challenge or enforce the award made at the first instance and the parties agreed to bind
themselves by the second award.5 He held that ss.34 and 36 do not curtail the contracting
power of the parties, as they come into operation only when they intend the domestic award
to be binding.

On appeal, a two-judge bench held that successive arbitrations were permissible in India,6 as
decided in previous cases under the Arbitration Act 1940.7 The High Court decided whether
the two awards were mutually destructive or the second was really an appellate award in
which the first had merged. Construing Clause 14, they held that the phrase “either party will
have the right to appeal to a second arbitrator in London” meant that the parties were to go
before a second arbitrator once again, even though they had already argued their case before
the first and the arbitrator had made an award.8 Further, the Court held that “the results of this
second arbitration will be binding on the both parties” was redundant, as an award is always
binding, and could not mean that the first award was not binding.9 Thus, it concluded that
both awards were binding.10 To the extent of inconsistency, the awards were mutually
destructive; the second award could not be executed because the first could be pleaded in the
execution proceedings.11 The foreign award could be set aside on the ground that it had not
become binding on the parties, due to a co-existing Indian award under s.48(1)(e).12 The
court refused to enforce the foreign award.

Supreme Court: Dissented Division

On appeal, the Supreme Court was confronted with the issue of whether the Act permitted an
appellate arbitration clause and particularly one in which the first award is a domestic award
and the appellate award is a foreign award.13 The judges came to diametrically opposite
conclusions. S.B. Sinha J. brushed aside all the previous decisions on the subject on the
ground that the Act had drastically changed the law of arbitration. Tarun Chatterjee J. held
that the law regarding appellate arbitration remained the same under the Act; that the
legislature was aware of the state of law as pronounced in the judicial decisions at the time of
the Act and, since it did nothing to specifically change it, it cannot be said that appellate

5
Centrotrade Metals and Minerals Inc. v Hindustan Copper Ltd (2005) 2 CALLT 657 (HC).
6
Hindustan Copper Ltd v Centrotrade Metals and Minerals Inc. AIR 2005 Cal 133, 136.
7
Heeralal Agarwalla & Co.v Joakim Nahapiet & Co. Ltd AIR 1927 Cal 647; M.A. & Sons v Madras Oil and
Seeds Exchange Ltd AIR 1965 Mad 392; Maharashtra State Co-operative Cotton Growers' Marketing
Federation Ltd & Anr v Ralli Bros and Coney Ltd and Ors 1992 (1) BomCR 485.
8
p.136.
9
p.136.
10
p.136.
11
pp.136-37.
12
p.137.
13
p. 268.
arbitration became impermissible under the Act.14 This difference hinged on the following
grounds.

 Status of Award as ‘Decree’

Justice Sinha based his opinion of impermissibility on the interpretation of ss.34, 35 and 36.
Section 34 provides limited grounds of judicial challenge to an award. Section 35 specifies
that an award is “final and binding” between the parties. Under the Act, an award is
enforceable as a decree after the lapse of the period of three months for judicial challenge
under s. 34(3).15 Based on this scheme, Sinha J. reasoned that a domestic award becomes
final and binding once pronounced by the tribunal at first instance. After three months it
becomes an enforceable decree. He reasoned that the statutory period under s.34(3) would not
cease to run because of the pending arbitral appeal.16 Secondly, once the award fructifies into
a decree, the appellate tribunal would not have the power to set it aside as only a court can do
so. Thus, the scheme of the new Act militates against the arbitral procedure involving an
appellate arbitration.

On the other hand, Chatterjee J. adopted the interpretation put on the words “final and
binding” under the 1940 Act17 and held that the words should be construed in light of the
right of appeal provided in the contract itself. He reasoned that appellate arbitration was
permissible under that Act and Parliament was aware of the state of the law when enacting
the new Act. Thus, the omission to expressly change the law by prohibiting such agreements
indicated that Parliament intended to allow the parties the same freedom.18 Further, the
relevant question to be asked is: what is the award that is to be considered as final between
the parties, when the procedure governing the parties itself makes provision for an initial
award on arbitration, and an appeal which may be instituted by either party aggrieved?19 He
reasoned that, since an appeal and original proceeding is “connected by an intrinsic unity”
and is “regarded as one legal proceeding”20, the award by the appellate tribunal should be
considered as final between the parties in terms of s.35.21

 Is Section 34 Exhaustive?

HCL contended that the use of the word “only” in s.34 shows the legislative intention that a
domestic award cannot be challenged in any manner, except in the manner provided by s.34.
Accepting this contention, Sinha J. decided that s.34 strives to balance party autonomy with
judicial control of the arbitral process. The Act mandates minimal amount of court
intervention and requires that the courts should decide the finality and legality of the award.

14
p.293.
15
Section 36: where the time for making an application to set aside the award under s.34 has expired, or such
application having been made it has been refused, the award shall be enforced under the Code of Civil
Procedure 1908 in the same manner as if it were a decree of the Court.
16
p.273.
17
M.A. & Sons v Madras Oil and Seeds Exchange Ltd AIR 1965 Mad 392.
18
p.293.
19
pp.294-95.
20
Garikapati Veeraya v N. Subbiah Choudhry & Ors AIR 1957 SC 540, 553; Mathew M. Thomas & Ors v
Commissioner of Income Tax (1999) 2 SCC 543, 547.
21
p.295.
Thus, he held s.34 to be exhaustive in the sense that it does not prescribe any forum other
than a court for challenge to the award. In his own words:22

Throughout the provisions, nowhere is it mentioned that an appeal can be made or an

application can be filed against the award to a separate arbitration board or forum. So, the
finality and legality has to be determined by the Court if it is so challenged.

On the other hand, Chatterjee J. opined that s.34 does not intend to curtail the contracting
powers of the parties.23 The object is to minimize the extent of judicial intervention in the
arbitral process and not to prevent parties from deciding the details of arbitral process. Thus,
he refused to accept the alleged implied limitation on party autonomy stemming from s.34.

 The Test of Public Policy

Sinha J. held that an arbitration agreement has to be formulated strictly in accordance with
requirements of the Act. The parties cannot contract out of the provisions of the Act as it does
not allow them to do so. In his opinion, the adoption of appellate arbitration would render the
provisions of s.34 and s.36 nugatory.24 He emphasised the absence of a provision specifically
empowering the parties to enter into a contract providing for appellate arbitration. He cited
the example of the Arbitration Act 1991 of Canada, which permits the parties to contract out
of its provisions and the English Arbitration Act 1996, which permits parties to contract out
of its appeals procedure.25 The Act does not contain provisions allowing the parties to
determine the procedure of appeal after the award is made. Secondly, he reasoned that even if
the Act allowed parties to provide for appellate arbitration, such an arrangement would be
void under the Indian Contract Act 1872 s.23. In his own words:

“Such a contractual arrangement, having regard to the provisions contained in Section

23 of the Indian Contract Act, shall be void being opposed to public policy. The
parties, it is trite, cannot by contract or otherwise confer jurisdiction on a forum
which is prohibited by law in force in India. The law in force in India does not permit
to limit or avoid the operation of the statutory provisions.”26

In essence, an appellate arbitration clause results in waiver of the statutory jurisdiction of the
courts and falls foul of s.34. Furthermore, it would result in setting aside of an award which
has acquired the status of a decree. This, in his opinion, would result in violation of
“legislative policy in India”.

On the other hand, Chatterjee J. opined that appellate arbitration is not against public policy
as it does not render s.34 nugatory. Section 34 would apply to the award rendered by the

22
p.274.
23
pp.293-94.
24
p.278.
25
pp.278-79.
26
p.279.
appellate tribunal according to the procedure agreed by the parties, because that award is the
final award between the parties.27

Problem of Enforceability under Different Parts On the particular facts, a major concern
raised by Sinha J. relates to the compartmentalisation of domestic and foreign awards under
different parts of the Act. This concern arises where the first award is a domestic award while
the appellate award is a foreign award under the Act, Based on this, he opined that the Act
does not contemplate an award which is an admixture of a domestic and a foreign award. It is
important to quote his words:

“It is inconceivable that one part of the arbitration agreement shall be enforceable as a
domestic award but the other part would be enforceable as a foreign award. An award
made in terms of one arbitration agreement can either be a domestic award or a
foreign award; where for different procedures have been laid down, even when the
consequences from such award are different and when the grounds thereof are also
different and distinct. The fundamental legislative policy brought out by the 1996
Act, thus, being not in consonance with having two tier arbitration which had two
different statutes governed by two different provisions and would be subject to
different procedures, in our opinion, is not valid.”28

However, he conceded that “had the appeal been provided within the set-up of the Indian
Council of Arbitration, subject to the compliance of time frame, probably the agreement
would have been valid.”29 Further, he held that the doctrine of merger would not apply, as it
is a precondition for its application that the appellate authority should be capable of passing
the same type of order which could have been passed by the original authority.30 Once the
original award becomes a decree by legal fiction, the appellate authority cannot set it aside.
Relying on the principle that a legal fiction should be given its full effect31, he decided that a
decree can only be set aside by that court itself or an appellate court created by statute and a
private adjudicator cannot be empowered by the parties to set aside a decree created by
statutory legal fiction.32

In contrast, Chatterjee J. held that the Act does not prohibit the parties from entering into an
agreement under which the first arbitration is conducted under Part I and the appeal under
Part II.33 Parliament had consolidated the two procedures in the same Act bearing in mind the
necessity to have the same administration of domestic and foreign awards and not to affect
the paramount principle of party autonomy. Further, an appeal is an intrinsic part of the
original proceeding and thus it is the nature of the final award which results from the appeal
which is relevant for the purpose of enforcement. He refuted the view of Sinha J. that the
final award is an admixture of domestic and foreign awards, on the basis that the doctrine of

27
p. 294.
28
p.278.
29
p.278.
30
p.275.
31
State of Bombay v Pandurang Vinayak AIR 1953 SC 244, 246; P.E.K. Kalliani Amma v K. Devi (1996) 4
SCC 76, 102-103.
32
p.275.
33
p.295.
merger applies to appellate arbitrations34 and only the appellate award survives and the first is
subsumed in it.

PROCEEDINGS BEFORE THE FULL BENCH OF THE SUPREME COURT:

Centrotrade (2016)35

Passing a reference to the proceedings which has taken place so far, the Supreme Court
revisited the issues at hand. The Supreme Court was to sit in adjudication upon balancing the
principle of party autonomy vis-á-vis principle that the arbitration was not averse to the
mandatory principles and public policy. The SC, revisited the same issues, nevertheless, the
same are reproduced below:

“5. The issues that have arisen for our consideration, as a result of the difference of
opinion between the learned judges, are as under:

(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 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?”36

The Court began by considering the arbitration agreement that being, clause 1437, pointing
out the fact that the parties had quite unequivocally laid out the procedure they wished to
follow, namely a two- tier arbitration wherein the first tier was to be conducted in India as per
the rules of the Indian Council of Arbitration, with an option of appealing the same38, at the
instance of either of the parties before an arbitral tribunal set up as per the ICC rules in
London. As a preliminary issue, the Court rejected to read the term “arbitral result” as
anything less than an award, as was suggested by Centrotrade39. This conclusion was further
corroborated by establishing that the award given by the ICA had all the tenements of an
arbitral award40 as recognised globally and in India41. The Court also stated that HCL by

34
p.296.
35
Civil Appeal Nos. 2562 / 2006 and 2564/ 2006 (Judgement delivered on December 15, 2016) [Supreme Court
of India] (Centrotrade)
36
Ibid at p. 3
37
As per the court, “8.- ... We say this also because if the submission of learned counsel for Centrotrade were to
be accepted, it would mean that if both the contracting parties were satisfied with the ‘arbitration result’ (or
negatively put, if neither party was dissatisfied with the ‘arbitration result’) there would be no method of
enforcing that ‘arbitration result’ should such enforcement become necessary. This would create a vacuum post
the ‘arbitration result’.”, Centrotrade (n 35) at p. 6.
38
Ibid at p. 9.
39
Ibid at p. 8.
40
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.” Centrotrade (n 35) at p. 8.
claiming that clause 14 (second part) was contrary to India laws, was “playing a fraud on
Centrotrade and could have serious long-term implications and ramifications for international
commercial contracts with an Indian party.”42

The Contentions Of HCL

 Appellate arbitration and the A&C Act, 1996

The Court started by acknowledging that both Sinha J. And Chatterjee J. were of the opinion
that two- tier arbitration was allowed under the Arbitration & conciliation Act, 1941. Further,
relying upon the Report of the Working Group on International Contract Practices on
the Work of its Third Session [New York, 16-26 February, 1982, A.CN.9/216 (23rd March
1982)]43, corroborated the fact that the Parliament in formulating the law of 1996 did in fact
not explicitly prohibit two- tier arbitration, even though aware of the same. Thereafter, the
Court further cited a plethora of judgements rendered by various High Courts to this effect44.

The Court then moved on to consider the ss. 34- 35- 36 nexus as suggested by HCL. As per
HCL, a collective reading of the said provisions lead to the conclusion that, an arbitral award
was ‘final and binding’ in terms of s. 35 and the ‘only’45 recourse available to the parties
against the same was through s. 34 (setting aside). Moreover, such ‘final and binding’ nature
of the award barred the scope for an appeal against such appeal in the manner provided in the
arbitration agreement. The Court however rejected the same clarifying that, “on a combined
reading of sub-section (1) of Section 34 of the A&C Act and Section 35 thereof, an arbitral
award would be final and binding on the parties unless it is set aside by a competent court on
an application made by a party to the arbitral award.” And this is no way excluded parties’
autonomy to provide for second appraisal of the facts before the same be raised in a Court of

41
The Court relied on: Julian D. M. Lew, Loukas A. Mistelis, et al., Comparative International Commercial
Arbitration, (Kluwer Law International; Kluwer Law International 2003); Nigel Blackaby, Constantine
Partasides, et al., Redfern and Hunter on International Arbitration (Sixth Edition), 6th edition (Kluwer Law
International; Oxford University Press 2015); Emmanuel Gaillard and John Savage (eds), Fouchard Gaillard
Goldman on International Commercial Arbitration, (Kluwer Law International; Kluwer Law International
1999).
42
Ibid at pp. 9- 10.
43
Relevant Text: “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 parties were free to agree that the award may be appealed
before another arbitral tribunal (of second instance), and that the model law should not exclude such practice
although it was not used in all countries. However, the Working Group was agreed that there was no need to
include in the model law a provision recognizing such practice. It was noted, however, that this conclusion
might have to be reconsidered in the light of the ultimate contents of the model law, and in particular its chapter
on means of recourse against an award.” [Emphasis supplied by us].”, Centrotrade (n 35) at p. 10.
44
Ibid, fn 9, 10 at p. 12.
45
As per the Court, “If the contention of learned counsel were to be accepted, 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.”, Centrotrade (n 35) at p. 16.
law, for early settlement of the dispute.46 The Court relied upon documents such as
Analytical Commentary On Draft Text of A Model Law on International Commercial
Arbitration - Report of the Secretary-General [Eighteenth Session, Vienna, 3-21 June
1985, A/CN.9/264 (25th March 1985)]47 and the Explanatory Note by the UNCITRAL
Secretariat on the 1985 Model Law on International Commercial Arbitration 48, to the
effect that s. 34(1) did not preclude the parties from appealing to a second arbitral tribunal if
the parties have agreed on the same. The Court clarified that the finality and the binding
nature of an award was 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.”49 With this the Court paved the way for reinstating the earlier position
that being, that two- tier arbitration was possible in India.

 Public autonomy validates two- tier arbitration

The entire fulcrum of HCL’s argument, as per the Court seemed to be that no right to appeal
lies wherein none has been expressly provided by a statute. This as per the court was
irrelevant in the given fact scenario, since what was in question was not a statutory appeal
rather a non- statutory appeal created as a substantial right, mutually agreed upon by the
parties.

The Court relied upon various judicial pronouncements50, including the Bharat Aluminium
Company v. Kaiser Aluminium Technical Services Inc. [(2016) 4 SCC 126]51 judgement to
reiterate the indispensability of party autonomy in international commercial arbitration. Court
further resorted to juristic opinion52 on the issue. It will be pertinent to add another source to
gloss over the opinion of the Court. In Fouchard, Gaillard and Glodman on International

46
As per the Court, “The intention of Section 34 of the A&C Act and of the international arbitration community
is to avoid subjecting a party to an arbitration agreement to challenges to an award in multiple forums, say by
way of proceedings in a civil court as well under the arbitration statute.”, Centrotrade (n 35) at p. 17.
47
Relevant Text: “2. The application 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).”,
Centrotrade (n 35) at p. 18.
48
Part I of the Indian Arbitration & Conciliation Act of 1996 is an adaptation of the UNCITRAL Model Law on
International Commercial Arbitration of 1985.
49
Centrotrade (n 35) at p. 22.
50
Union of India v. Uttar Pradesh State Bridge Corporation Ltd. (2015) 2 SCC 52. Relevant Text:
“...Interestingly, the second principle which is recognised in the Act is the party autonomy in the choice of
procedure. This means that if a particular procedure is prescribed in the arbitration agreement which the parties
have agreed to, that has to be generally resorted to.”
51
Relevant Text: “Party autonomy being the brooding and guiding spirit in arbitration, the parties are free
to agree on application of three different laws governing their entire contract — (1) proper law of contract, (2)
proper law of arbitration agreement, and (3) proper law of the conduct of arbitration, which is popularly and in
legal parlance known as “curial law”. Centrotrade (n 35) at p. 23.
52
The Court relied on: Nigel Blackaby, Constantine Partasides,et al., Redfern and Hunter on International
Arbitration (Sixth Edition), (Kluwer Law International; Oxford University Press 2015); Julian D. M. Lew,
Loukas A. Mistelis, et al., Comparative International Commercial Arbitration, (Kluwer Law International;
Kluwer Law International 2003).
Commercial Arbitration53, the authors have opined with regard to the issue of party
autonomy as follows:

“51. - In international arbitration, party autonomy extends beyond the choice of a

national law to govern the procedure or merits of a case...

52. - This emphasis on party autonomy, which thus frees the parties from all strictly
national constraints, is certainly the most important of recent developments in
international commercial arbitration...”54

They further state that:

“624. - An arbitration agreement is a contract in which the parties agree to submit

their existing or future disputes to arbitrators, and not to the courts. Put positively, an
arbitration agreement obliges the parties to honor this commitment and provides
the basis for the jurisdiction of the arbitral tribunal; put negatively, the arbitration
agreement prevents the parties from seeking the resolution by the courts of
disputes covered by the arbitration agreement.”55

The authors further suggest that such positive obligation to submit disputes to arbitration
germinate from the renowned principle of International law of pacta sund servanda, which
mandates for contractual obligation to be discharged.56 Thus, putting it simply, the parties in
the instant case obligated themselves to provides each other with an opportunity of appellate
arbitration with the negative obligation to not resort to courts when an avenue in the form of
arbitration was available. The Court thus concluded to the effect that:

“40.- ...the parties to an arbitration agreement have the autonomy to decide not only
on the procedural law to be followed but also the substantive law. The choice of
jurisdiction is left to the contracting parties. In the present case, 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.”57

It must however be mentioned here, that the abovementioned principle is not without limits,
as has been acknowledged by various jurists that the party autonomy is limited by mandatory
law (a law that cannot be excluded by a contract term) and by the public policy of a
country.58 Thus the Court next tested the arbitration agreement against the touchstone of
‘public policy’ in India.

53
Gaillard and John Savage (eds), Fouchard Gaillard Goldman on International Commercial Arbitration,
(Kluwer Law International, Netherlands, 1999). (Gaillard and Savage)
54
Gaillard and Savage (n 53) at p. 32.
55
Ibid at 381.
56
Ibid at 382.
57
Centrotrade (n 35) at p. 26.
58
Margaret L. Moses, The Principles and Practice of International Commercial Arbitration (2 nd edn., Cambridge
University Press, 2012) at p. 75; Nigel Blackaby, Constantine Partasides QC, et al., Redfern and Hunter on
International Arbitration, (6th edn., Oxford University Press, United Kingdom, 2015); Gaillard and Savage (n
53) at p. 859.
  Two- tier arbitration is not averse to public policy in India

The claims with regard to the issue of public policy have been discussed elsewhere in the
paper. In considering the same the Court first identified the general contours of provisions
regarded as contrary to public policy as stated in The Law and Practice of Commercial
Arbitration in England (Mustill and Boyd)59, thereby concluding that clause 14 did not fall
in any of the said categories. The Court then relied upon the judgement in Associate Builders
v Delhi Development Authority60 to establish the grounds upon which an award may be set
aside (if it is contrary to)61 and concluded that the parties in the instant case did not act in
contradiction to the public policy in India. As per the Court,

“44.- 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.”62

COMMENTS AND CONCLUSION

The instant judgement is a welcome step towards making India a pro- arbitration destination
for international players. More often than not, international investors are sceptical of the
credibility of the institutions of the Country to which the other party to the contract may
belong ( as in this case, Indian Council of Arbitration and the HCL were both Indian entities)
and in such a scenario it is pretty likely that such investor would want for a second
(appellate) avenue, which according to it would adjudicate upon the issue neutrally and in an
apparently fair manner. In the instant case, Centrotrade seems to have done just this, i.e. in
order to counter its apprehensions of biasness in relation to the arbitration of first instance
under the ICA, incorporated a provision for an appellate arbitration at London.

It is also a forward step in recognising the principle of party autonomy as the cornerstone of
International Commercial Arbitration, as has been pointed out by some practitioners:

“One cannot ignore that parties may be concerned about the possibility of error in
high-stakes disputes and appellate arbitration may safeguard the integrity of the
arbitration process and protect parties from such errors. Similarly, the knowledge of
the availability of an appeal, may also serve as an encouragement to parties to
complete the first proceeding expeditiously. Arbitration can no longer take a standard,
one-size-fits-all approach and it must evolve to address the interests of parties in
59
“They are: (i) Terms which affect the substantive content of the award; (ii) Terms which purport to exclude
or restrict supervisory jurisdiction the 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.” Centrotrade (n 35) at
26- 27.
60
(2015) 3 SCC 49.
61
These grounds as per the Court were: “43.- ...(a) fundamental policy of Indian law; or (b) the interest of India;
or (c) justice or morality, or (d) if it is patently illegal.”
62
Centrotrade (n 35) at p. 27- 28.
 different disputes of varying quantum. These manifold pros of an appeals procedure
has also been noted in investor state arbitration and an optional appeals procedure has
been made available to give the process greater legitimacy.”63

However, apprehensions that such liberty may erode the basic principle behind arbitration
that being the swift redressal of commercial issues has also been raised.64 Another set of
ambiguities which have been highlighted elsewhere65, are to the effect that whether the
Indian Courts would in the face of an existing appellate mechanism, entertain annulment or
enforcement proceedings with regard to the award of the first instance of arbitration,
obviously ideally they shouldn’t. Moreover, another important aspect which will have to be
considered would be as to how this rule would play out in the cases wherein the parties resort
to ad hoc arbitration as against the institutionalized arbitration in the instant case. 66 The latter
seems to be an unlikely situation, but is a situation nevertheless and must be clarified to this
extent.

63
Niyati Gandhi & Vyapak Desai, ‘Appellate Arbitration Permissible In India – But Should You Provide For
It?’ (Nishith Desai Associates, December 27, 2016) http://www.nishithdesai.com/information/news-
storage/news-details/article/appellate-arbitration-permissible-in-india-but-should-you-provide-for-it.html,
accessed on 05/10/2018.
64
Ibid.
65
Shivansh Jolly, ‘Supreme Court of India Upholds validity of Appellate Arbitration Clauses’, (Kluwer
Arbitration Blog, February 16, 2017), http://kluwerarbitrationblog.com/2017/02/16/supreme-court-india-
upholds-validity-appellate-arbitration-clauses/?print=pdf, accessed on 05/10/2018
66
Relevant Text: “Since the arbitration agreement in the Centrotrade case did not provide for any appointment
procedure, the default procedures under the ICA and ICC Rules applied respectively. Two eventualities may
arise out of such a situation. Either the Indian courts may require the parties to resort to the same procedure of
appointment as agreed upon for the constitution of the first arbitral tribunal or they may require the party
invoking the appellate procedure to proceed under Section 11 of the 1996 Act to seek a court assisted
appointment of the appellate arbitral tribunal.”
 BIBLIOGRAPHY
Books:

 Margaret L. Moses, The Principles and Practice of International Commercial

Arbitration (2nd edn., Cambridge University Press, 2012)
 Nigel Blackaby, Constantine Partasides QC, et al., Redfern and Hunter on
International Arbitration, (6th edn., Oxford University Press, United Kingdom, 2015)
 Gaillard and John Savage (eds), Fouchard Gaillard Goldman on International
Commercial Arbitration, (Kluwer Law International, Netherlands, 1999)
 Julian D. M. Lew, Loukas A. Mistelis, et al., Comparative International Commercial
Arbitration, (Kluwer Law International; Kluwer Law International 2003).

Articles:

 Niyati Gandhi & Vyapak Desai, ‘Appellate Arbitration Permissible In India – But
Should You Provide For It?’ (Nishith Desai Associates, December 27, 2016)
http://www.nishithdesai.com/information/news-storage/news-details/article/appellate-
arbitration-permissible-in-india-but-should-you-provide-for-it.html
 Shivansh Jolly, ‘Supreme Court of India Upholds validity of Appellate Arbitration
Clauses’, (Kluwer Arbitration Blog, February 16, 2017),
http://kluwerarbitrationblog.com/2017/02/16/supreme-court-india-upholds-validity-
appellate-arbitration-clauses/?print=pdf