Two-Tier Arbitration - The Controversial Clause!
The Judges of a division bench of the Supreme Court of India, in pronouncing their ruling on May 9, 2006 in the matter of Centrotrade Minerals and Metals Inc. v. Hindustan Copper Limited, differed in their views in respect of the validity of the two-tier arbitration mechanism.
The issue was with regard to a contract for sale of 15,500 DMT of Copper Concentrate, wherein the parties agreed to settle the disputes by arbitration in India before the Indian Council of Arbitration (“ICA”) in accordance with the Rules of Arbitration of ICA and in the event of disagreement with this arbitration, either party had a right to appeal to a second arbitration in London, UK in accordance with the rules of the International Chamber of Commerce (“ICC”).
Centrotrade Minerals and Metals Inc. (“Centrotrade”) invoked the arbitration clause before the arbitrator appointed by the Indian Council of Arbitration who, passed a ‘Nil’ award. Disagreeing, Centrotrade subsequently approached the ICC and the arbitrator so appointed by the ICC passed an award in favour of Centrotrade. Consequently, Hindustan Copper Limited (“HCL”) filed an application in the Court of the District Judge Alipore, Calcutta seeking declaration of the award passed by the ICC as void and unenforceable. Simultaneously, Centrotrade filed an application before the Civil Judge, Senior Division, Alipore for execution of the ICC award. Both these cases were transferred to the Calcutta High Court. A Single Judge of the Calcutta High Court passed an order in favour of Centrotrade while the Division Bench of the same court reversed the decision of the Single Judge. Nevertheless, it may be noted that both, the Single Judge as well as the Division Bench of the Calcutta High Court were of the view that two-tier arbitration provision constituted a valid agreement.
To complicate issues further, on both parties appealing to the Supreme Court, the division bench, differed in their judgments in dealing with issues, inter-alia, as follows:
In light of this difference of opinion, these issues are now being referred to a larger Bench of the Supreme Court as they are of tremendous importance and complexity. With India becoming the center of global commercial and economic activity, we are going to be faced with numerous dispute resolution issues, which may conflict with laws, be ambiguous or raise issues of enforceability. We will have to wait and see how the Supreme Court deals with these rather interesting issues.