Supreme Court’s Centrotrade Judgement: An Uncertain Celebration?

[Guest post by Shashank Chaddha, IV Year | B.A.LL.B (Hons.) student at the National Law
Institute University, Bhopal]
Last year, with
the Supreme Court of India upholding the validity of a two-tier arbitration
clause in Centrotrade Minerals &
Metal Inc. v. Hindustan Copper Ltd.
, 2017 (2) SCC 228 (the ‘Centrotrade’), there has been much
celebration about India’s recent ‘pro-arbitration’ stance that began with the BALCO Judgement in 2012. On the contrary,
the Centrotrade does give rise to
some risks and concerns. The goal of this post is to deal with some of the issues
and suggest some possible solutions.
Background
The factual
background involving Centrotrade has
already been dealt with in another
post.
Hence, I proceed directly to the more specific issues that this post seeks to
address.
Certain key
developments have occurred in the recent past, which have been reflective of
India’s aspirations to become a favourable seat of arbitration in the
international domain. Driven by this goal, the Parliament of India amended the
Arbitration and Conciliation Act, 1996 (the ‘Arbitration Act’) to a large
extent, effectively changing the whole regime involving India’s arbitration
process. The amendments were effected by way of the Arbitration and
Conciliation (Amendment) Act, 2015 (the ‘Amendment Act’).
One among several key
amendments has been the insertion of section 29A to the Arbitration Act. The
section reads as:
29A.Time limit for arbitral award.(1) The
award shall be made within a period of twelve months from the date the arbitral
tribunal enters upon the reference. 
Explanation.—For the purpose of this sub-section, an arbitral tribunal
shall be deemed to have entered upon the reference on the date on which the
arbitrator or all the arbitrators, as the case may be, have received notice, in
writing, of their appointment. 
(2) If the
award is made within a period of six months from the date the arbitral tribunal
enters upon the reference, the arbitral tribunal shall be entitled to receive
such amount of additional fees as the parties may agree. 
(3) The
parties may, by consent, extend the period specified in sub-section (1) for making award for a further
period not exceeding six months. 
(4) If the
award is not made within the period specified in sub-section (1) or the extended period specified
under sub-section (3), the
mandate of the arbitrator(s) shall terminate unless the Court has, either prior
to or after the expiry of the period so specified, extended the period: 
Provided that while extending the period under this
sub-section, if the Court finds that the proceedings have been delayed for the
reasons attributable to the arbitral tribunal, then, it may order reduction of
fees of arbitrator(s) by not exceeding five per cent. for each month of such
delay. 
[…]
The Question
Given the mandate
of this provision that uses the word ‘shall’ in sub-section (1), it is apparent
that a ‘two-tier arbitration model’ cannot be practically completed within this
time limit. Before proceeding further, it is incumbent to note that the
judgment in Centrotrade was rendered
in light of the Arbitration Act in its pre-amended form. While the matter was
still pending before the Supreme Court, the Amendment Act came into force. Now
that both Centrotrade and the
Amendment Act form part of arbitration law as applicable to India, a crucial issue
arises: how does one reconcile the two-tier arbitration mechanism with section 29A
of the Arbitration Act?
Proposed Solution
To the question
posed above, the prima facie answer
will be that a two-tier arbitration proceeding need to be completed within the
prescribed time limit, failing which it will be barred by section 29A. However,
this answer compromises the party autonomy principle upon which arbitration as
a dispute resolution mechanism is founded. Therefore, the solution to the
question lies in the interpretation of section 29A. Here, I argue that one
ought to interpret the expression ‘award’ in section 29A(1) so as to mean award
pertaining to the arbitration proceedings at each instance. Considering the
facts of Centrotrade in light of this
interpretation, the ICA Award will be a separate award, and the London award
will constitute a separate award. Accordingly, there will be two awards in the
dispute. However, the counter-argument to this solution is that section 29A
uses the word ‘award’ and not ‘awards’, and it does not contemplate two awards,
but only one ‘final award’. To address this counter-argument, it is important
that we consider a hypothetical situation.
Situation:
Where none of the parties invokes the appellate arbitration clause and both
parties are satisfied with the award rendered by the first arbitrator or tribunal,
the first award will be the ‘award’ under section 29A. To this end, it is worth
referring to what Justice Lokur in Para 8 of the judgement in Centrotrade stated:
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’. It is to avoid such a vacuum that ‘arbitration result’ must be
understood to mean an award of the arbitration panel of the Indian Council of
Arbitration and an award that could be enforced in accordance with the laws of
India, that is, the Arbitration and Conciliation Act, 1996 (for short ‘the
A&C Act’).
However, what the
counter-argument pre-supposes is that only the final award, i.e. the award of
the second arbitration will be the ‘award’ as per section 29A. This stance
defeats the situation where none of the parties proceed for second (or appellate)
arbitration. In this case, the first award will become the final award.
Considering the
above situation, the logical corollary is that both the awards, that is, the awards
at each instance need to have a separate standing of their own and that the second
award should not be considered as the ‘award’ for the purpose of section 29A(1);
otherwise, it defeats the purpose of a two-tier arbitration model and narrows
the autonomy of the parties. In other words, the second award or the appellate
award will not be the ‘award’ or the final award for the purpose of the time
limit of section 29A. When I say this, it essentially implies that each award
has a separate time limit of 12+6 months, thereby enabling the parties to
practically conclude two-tier arbitration proceedings. Therefore, if an
arbitration (first instance) begins on 1 July, 2017, it has to be completed by
31 December, 2018, considering an extension. Thereafter, the aggrieved party
invokes the appellate arbitration clause and the appellate arbitration starts
on 1st February, 2019. This appellate arbitration will now have to
be completed by 1 August, 2020 (considering an extension).
A Step Ahead – Suggestion and
Conclusion
While comprehending
the interpretation proposed, it is required that we move a step further than a
mere suggestion as to interpretation. It is submitted that, while interpreting
‘award’ as meaning each instance’s award, we must also provide that the second
award which is the appellate award must overrule and merge with the first award,
failing there will be two mutually opposing awards present in a dispute. Therefore,
ultimately, we need to have one final award which will determine the rights and
liabilities of the parties.
It is worth
mentioning here that the first award, that is, the lower arbitral tribunal’s
award will does not lose its identity in the final award. For example, where the
arbitral tribunal 1 has rendered award 1, and the party aggrieved has
approached the appellate arbitral tribunal which has rendered award 2. The
final award for settling the disputes between the parties will be the final
award (award 1 + award 2); however, award 2 will supersede the determinations
of award 1 to the extent of its inconsistency with award 1. There may be
situations where the first award has determined 4 issues –all of which make ‘X’
liable to ‘Y’, and the second award (appellate award) makes ‘Y’ liable to pay ‘X’
only in issue 1, and in the rest three issues ‘X’ is liable to pay ‘Y’. In such
circumstances, the two awards will merge and with respect to issue 1, ‘Y’ will
pay ‘X’ and with respect to other three issues, ‘X’ will pay ‘Y’ (as determined
by the first award). Thereafter, applying the doctrine of merger and overruling,
the outcome will be one composite award, which will be the award relating to
the dispute which shall be binding on the parties.
Only after the
compliance of this condition of merger and overruling in light of the
interpretation of ‘award’ as suggested, a two-tier arbitration model could be
enforced in line with section 29A.
To conclude, the
answer to the question – how do we put a two-tier arbitration mechanism in line
with section 29A?’ is:
1.         Interpreting ‘award’ in section 29A as
each instance’s award.
2.         Each instance’s award will constitute
two separate awards;
3.       The second of the two awards, that is,
the appellate award will overrule and merge with the first award.
– Shashank Chaddha

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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