The primary purpose of Arbitration is to ease out the process of dispute resolution by ensuring party autonomy and providing procedural flexibility. The parties to the dispute not only have the power to refer their dispute to Arbitration but also to decide the process, timeline and other details pertaining to the dispute resolution process. In a Two-Tier Arbitration, the parties majorly have an option to appeal against the original Arbitral Award by conducting another Arbitration.
In India, the process of Two-tier Arbitration does not have an express recognition under the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). However, the Supreme Court in Centrotrade Minerals and Metals Inc v Hindustan Copper Ltd, (Civil Appeal No.2562 of 2020) (“the Case” or “the Judgement”) recognised Two-Tier Arbitration and has reiterated that the party autonomy is virtually the backbone of Arbitration. This is a landmark decision as it takes the first step towards the recognition of Two-Tier Arbitration in India.
INDIAN PERSPECTIVE: TWO TIER ARBITRATION
Before dwelling into the factual matrix of the case and the concept of Tier-Two Arbitration, it is apposite to look at Section 35 of the Arbitration Act which pertains to the finality of the Arbitral Awards. Section 35 affirms the finality of the Arbitral Award and the binding nature of the Arbitral Award on the parties and the persons claiming under them.
The concept of Two-Tier Arbitration refers to the recourse available with the parties to Arbitration which essentially alters the scope of the finality of the Award. The finality of Award and the appealable nature of the Award before another Arbitral Tribunal was discussed in Centrotrade Case (Supra) where the Supreme Court took the view that the phrase final and binding in the clause does not necessarily mean final for all purposes.The Judgement comes as a landmark decision but has deviated from the previous stance taken by the Indian Courts, Steel Authority of India v Engineers Project India Ltd. (High Court New Delhi, W.P (C) 3570/2012) where the Delhi High Court took the view that the Appellate Arbitration was not recognised under the Indian legislative framework.
The parties to the Case included an American supplier and an Indian purchaser. The American supplier entered into an agreement with the Indian Party to sell copper. The Agreement between parties had a clause that provided for a Two-Tier Arbitration process in Case of a dispute.
Subsequently, a dispute arose and the Arbitration clause was invoked wherein the Seat for the first Arbitration was India and that for the second Arbitration was London. Following the chain of events, the Indian Party approached the Court claiming that the second Arbitration was void as it was against the public policy of India and therefore could not be enforced.
The Indian Party contended that the Two-Tier system was in contravention to the fundamental principles of Indian law and should not be allowed. The Supreme Court took the view that such interpretation was a misconstruction of the term “Public Policy” and said that only when an act that is “patently illegal” or “against the interest of India” would it be in contravention to public policy.
The Court acknowledged that there is no explicit mention of Two-Tier Arbitration in the Statute. However, took the view Section 35 does not put any bar on appealable nature of an Arbitral Award before an Arbitration Tribunal and therefore, the intention of the parties must be given preference. Even though Two-Tier Arbitration clauses are not given statutory recognition, the core principle that governs Indian Arbitration is party autonomy which must be respected in all cases. This Judgement paves the way in recognizing the Two-Tier Arbitration in India, however the legislative framework in this regard is still at a nascent stage.
INTERNAL REVIEW IN INSTITUTIONAL ARBITRATIONS
The concept of Two-Tiered Arbitration is not uncommon in the context of International Commercial Arbitration. The United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration does not expressly prohibit for an appeal mechanism if the parties so agree. The American Arbitration Association, the International Institute for Conflict Preservation and Resolution are some examples which provide for Tier-Two Arbitration. The Paris Arbitration Chambers provides for a similar system where the parties can request for a second panel to hear the matter before a final Award is declared by the first panel. In such cases the Award of the second panel would be final and binding on the parties.
The reason for the popularity of an appellate mechanism for Arbitral Awards is that such a mechanism reduces the chances of risks substantially and is convenient for the parties as the parties are given the option to choose as to whether they wish to incorporate a clause enabling Two-Tier Arbitration in their Agreement. Additionally, an appeal provides the parties with a scope for review which results in increased transparency in the Arbitration process.
The Judgment has in a way facilitated the parties to opt for Tier-Two Arbitration in India. However, the recognition is still at a budding stage. There is a need for implementing separate rules or amendments to the legislation pertaining to the Tier-Two Arbitration. This will help to gain clarity on the time line for appeal, number of arbitrators, procedures and the binding nature of the second Arbitral Award in case of conflict between the two Awards.
In saying this it is pertinent to note that the Judgement is in line with the pro-Arbitration stance adopted by the Indian Courts in order to make India an Arbitration friendly Jurisdiction. The recognition of Two-Tier Arbitration has without a doubt brought India one step closer to become an Arbitration Hub, however, much needs to be done with regards to establishing a legislative framework pertaining to Two-Tier Arbitration in India.
– Team AMLEGALS assisted by Ms.Varada Jahagirdar (Intern)
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