The recent judgment of Centrotrade Minerals v. Hindustan Copper[1] had seen two previous rounds of litigation before the Supreme Court finally enforced a foreign award, passed in 2001 after 19 years, in favour of Centrotrade.
The Appellant, Centrotrade, a US company and the Respondent, Hindustan Copper Ltd. (HCL), an Indian company, entered into a contract under which Centrotrade was required to supply 15,500 DMT of copper concentrate to HCL at Kandla Port in India. Centrotrade supplied the concentrate, but disputes arose over the dry weight of the concentrate supplied.
The arbitration agreement in the contract provided for a two-tiered, arbitration: a first arbitration in India, which could be appealed by the unsatisfied party through a second arbitration to be conducted by ICC in London.
Centrotrade invoked arbitration and in 1999 the Indian arbitration rendered a ‘nil award.’ This award was carried in appeal by Centrotrade to an ICC arbitration in London.
During the pendency of the London arbitration, HCL filed a suit before a court in Khetri, Rajasthan, challenging the arbitration clause and seeking an anti-arbitration injunction against Centrotrade. The court in Khetri did not interfere with the arbitration but in a revision petition before the Rajasthan High Court against this order in April, 2000, the High Court granted an ex-parte stay order in HCL’s favour against the London arbitration. This ad-interim, ex-parte stay was vacated by the Supreme Court in February, 2001.
Proceedings before the Calcutta High Court
Centrotrade received a monetary award in its favour through the ICC arbitration in London on September 29, 2001 and filed for its enforcement as a foreign award in the Calcutta High Court. HCL did not file any challenge proceedings against the ICC award under English arbitration law (which would have been available since the ICC award was made in London). A single judge of the Calcutta High Court allowed enforcement, but in appeal, this order was vacated by a division bench on the basis that the ICC award could not be treated as a foreign award and that the earlier Indian award as well as the ICC award were passed by tribunals having ’concurrent jurisdiction.’ Accordingly, the awards were deemed ‘mutually destructive’ and neither could be enforced.
Centrotrade 1
The matter then went before a division bench of the Supreme Court, which was divided in opinion as to the enforceability of a two-tiered arbitration process. Justice Sinha ruled that such a two-tiered arbitration was violative of public policy and hence void (under Section 23 of the Indian Contract Act, 1872) on the basis that the Arbitration and Conciliation Act, 1996, (“Act”) did not envisage an appeal procedure. and thus, the foreign award could not be enforced. On the contrary, Justice Chatterjee came to a finding that a two-tiered arbitration clause was valid and enforceable, that the ICC tribunal was permitted to sit in appeal over the Indian award and that the ICC award was a foreign award. Justice Chatterjee, however, also came to a finding that HCL had not been given adequate opportunity to present its case and on that basis, the ICC award was not enforceable under the Act. This judgment is referred to as Centrotrade 1.[2]
Centrotrade 2
Since the judges were divided in their opinions, the matter was referred to a three-judge bench of the Supreme Court, which ruled that parties are free to enter into an agreement providing for non-statutory appeals so that their disputes and differences are settled without resorting to court processes. It also observed that the Act does not prohibit a two-tier system, nor does it exclude the autonomy of the parties to mutually agree to a procedure whereby an award might be reconsidered by another arbitrator(s) by way of an appeal acceptable to the parties, subject to a challenge under the Act. This being precisely what the parties had agreed upon, the Apex Court ruled that there was no difficulty in honouring their mutual decision and accepting the validity of their agreement. The Court, however, refused to consider the actual enforceability of the ICC Award as a foreign award, dealing instead only with the question of validity of a two-tier arbitration clause. The Court noted that the matter would be set down for hearing on the remaining issue at a later date on account of its roster of business allowing it to hear appeals only sporadically. The ruling of the three-judge bench of the Supreme Court is referred to as Centrotrade 2.[3]
The Present Centrotrade Case – Centrotrade 3
In this rather convoluted manner, the enforceability of the ICC award (it having been ruled that a two-tiered clause was enforceable), came up before another three-Judge bench of the Supreme Court in mid-2020, in Centrotrade 3.
Supreme Court Examines the Standard of ‘What Is Inability to Present Your Case Within the Meaning of Section 48(1)(b)’
While Centrotrade sought enforcement of the ICC Award, HCL argued that it fell foul of Section 48 (1)(b)[4] of the Act inasmuch as was “unable to present its case”. HCL referred to an order of stay of the ICC arbitration that it had obtained from the Rajasthan High Court on April 27, 2000 (subsequently set aside by the Supreme Court on February 8, 2001) notwithstanding which, the arbitrator had proceeded with the arbitration thus denying HCL the ability to participate effectively. HCL argued that it was not given a sufficient extension of time to file documents in support of its case in the ICC arbitration, contending that intervening events of the 9/11 tragedy resulted in disruption and delay, preventing HCL from filing them within the requisite time. As a result, HCL’s documents were not considered and that amounted to a denial of justice. HCL also argued that it ought to have been given further time to submit its documents and that such documents ought to have been considered by the arbitrator while making his award. HCL accordingly argued that the ICC award ought not be enforced.
Centrotrade on the other hand argued that ample opportunity had been given to HCL to present its case and that there was no denial of natural justice.
While considering the rival arguments, the Supreme Court noted that even though the arbitrator had proceeded with the arbitration whilst the Rajasthan High Court’s stay was operating (before it was finally vacated in February, 2001), the arbitrator had kept HCL’s jurisdictional objections alive and invited them to participate in the arbitration which HCL had refused to do. The Court also noted that the arbitrator had given HCL multiple time extensions to file its pleadings and documents and was “extremely fair” with the Respondent but it had not complied with the deadlines given repeatedly[5].
After considering the above contrary points of view, the Court discussed the case at hand in light of its earlier decision in Vijay Karia[6]. First, the Court noted that HCL had not filed any challenge proceedings against the ICC award, much like in the Vijay Karia case.[7] The grounds of challenge and a court’s power of interference in an award annulment proceeding in the seat court are much wider than a challenge against enforcement. Therefore, presently at the enforcement stage, very narrow grounds of challenge under Section 48 would now be available to HCL in the enforcement proceedings.
The Court then went on to consider the meaning of what denial of natural justice would entail by also taking note of two English court decisions that it had relied upon in Vijay Karia. These cases discuss that denial of an opportunity to be heard entails that a party was unable to present its case because of matters outside its own control and not a situation where matters were in its control but the party did not make use of an available opportunity.[8] The Court, therefore, held that a party is “otherwise unable to present his case” under Section 48(1)(b) only if it is not given an opportunity to present its case through circumstances outside the party’s control.[9]
The common factor among all decisionsthe Court quoted, was the observation that the party contesting enforcement of the award had not raised the given objection either before the arbitrator, or in the form of an annulment challenge or at any point prior to the enforcement stage. Often parties did not comply with timelines set by their respective tribunals and then complained of denial of opportunity at the enforcement stage. The Court, therefore, came to a finding that if a party had itself not participated in the arbitration according to given timelines and had failed to take necessary steps, the arbitrator could not be faulted for having denied a party opportunity of being heard.
The Court found that HCL had been given several opportunities to present its case but had failed to exercise those opportunities even though matters were in its control.[10] The Court found that if HCL had chosen not to adhere to the timelines and had acted as a recalcitrant party by filing proceedings in India before courts in Rajasthan, it would have to face the consequences of an adverse award against it.[11] The Court thus held that a “refusal to adjourn the proceedings at the behest of one party cannot be said to be perverse, keeping in mind the object of speedy resolution of disputes of the Arbitration Act.”[12]
On the basis of the above, the Court found that there was no denial of opportunity preventing HCL from presenting its case and, thus, no breach of natural justice took place. The Court accordingly enforced the ICC foreign award.
The Centrotrade 3 judgment makes it clear that raising a plea of denial of opportunity to present one’s case will not be entertained simply because a tribunal refuses to adjourn its decided timelines. This is particularly true if the party claiming denial had control over circumstances and could have made its submissions within the pre-decided time. In arbitration, denial of opportunity to present one’s case is a bogey that is raised much too often. This has terrorised tribunals to indulge non-participative parties and give them repeated opportunities, thus slowing the entire proceeding. The Court’s decision, of course, should not be viewed to mean that every denial of opportunity plea will be regarded as lacking in merit. If a party makes out a genuine case of not being able to present its case due to supervening circumstances, a Court will entertain such a plea on the facts of the case. But the Court has shown a firm hand in this case in drawing a balance.
India’s judicial system has unfortunately seen prolonged delays in enforcement proceedings. Though the pro-enforcement trend over the last few years is a welcome shift, 19 years for enforcement is not reasonable. The Centrotrade case itself, which went through three rounds of litigation after passing of the 2001 ICC Award before finally enforcing it in 2020, is a debilitating example of how long an award creditor may have to wait before fruits of an award can be received. Note that the decision on enforcement is followed by actual execution, where the successful party should not hold its breath. Indeed, most awards are settled before actual execution by attachment and sale of assets of the award debtor. For all these reasons having a well-defined standard for the denial of natural justice principle is a welcome development for arbitration jurisprudence in India.
The trend of the present jurisprudence including imposition of heavy costs (such as in the Vijay Karia case) will help in serving as a warning to recalcitrant award debtors from filing merit-less challenges. There is more though. There is a need for systemic change in the approach to enforcement from the district court level upwards. Perhaps this change will take time, but the present Centrotrade – 3 decision is certainly a step in the right direction. Even if it took long, the Court’s pro-enforcement decision will serve as a welcome precedent for arbitration in India.
[1] 2020 SCC OnLine SC 479. (“Centrotrade 3”)
[2] Centrotrade Minerals & Metals Inc. v. Hindustan Copper Ltd. (2006) 11 SCC 245
[3] Centrotrade Minerals & Metal Inc. v. Hindustan Copper Ltd. (2017) 2 SCC 228.
[4] (1) Enforcement of a foreign award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the court proof that—
…
(b) 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;
[5] Centrotrade, paragraph 34.
[6] Vijay Karia v. Prysmian Cavi E Sistemi SRL and Ors., 2020 SCC OnLine SC 177
[7] Centrotrade, paragraph 15.
[8] The Court inter alia referred to the English cases of Minmetals Germany GmbH v. Ferco Steel Ltd. (1999) C.L.C. 647 and Jorf Lasfar Energy Co. v. AMCI Export Corp. 2008 WL 1228930. It also referred to the cases of Cuckurova Holding A.S. v. Sonera Holding B.V. (2014) UKPC 15, Eastern European Engineering v. Vijay Consulting (2019) 1 LLR 1 (QBD) The Court also relied on the cases of Sohan Lal Gupta v. Asha Devi Gupta (2003) 7 SCC 492, Ganges Waterproof Works (P) Ltd. v. Union of India (1999) 4 SCC 33, Renusagar Power Co. Ltd. v. General Electric Co. 1994 Supp (1) SCC 644 and Hari Om Maheshwari v. Vinitkumar Parikh (2005) 1 SCC 379 for the proposition that a party not making use of the opportunity presented to it and in its control cannot be said to have been denied a right to present its case.
[9] Centrotrade, paragraph 15.
[10] Centrotrade, paragraph 35
[11] Centrotrade, paragraph 34.
[12] Centrotrade, paragraph 35.
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