End of the Centrotrade Saga: Supreme Court’s Interpretation of Section 48(1)(b) of the Arbitration and Conciliation Act, 1996

[Pinak Parikh is an Advocate at the High Court of Gujarat, and a B.A L.L.B (Corp Hons) graduate (2019) from the Institute of Law, Nirma University] 

Earlier this month, the Supreme Court in Centrotrade Minerals & Metals Inc v. Hindustan Copper Limited, while allowing enforcement of a foreign award, observed that the expression “was otherwise unable to present his case” appearing in section 48(1)(b) of the Arbitration and Conciliation Act, 1996 has to be interpreted in a narrow sense, and would have to be read in the context of words preceding it. The Court, by allowing enforcement of foreign award, dated 29  September 2001 against Hindustan Copper Limited (HCL), has finally put an end to the Centrotrade saga, which began with two decisions of the Supreme Court centered on validity of ‘two-tier arbitration’ clauses in India. Prior to decision of the Supreme Court in the present case, there have been two rounds of litigation, which culminated in the decision of a larger bench of the Court upholding the legality of two-tier arbitration clauses in India (previously discussed here). The Court, in the present case, revisited the challenge to the foreign award on the grounds of violation of principles of natural justice after the Supreme Court had settled the same in Vijay Karia & Others v. Prysmian Cavi E Sistemi SRL & Others.

The factual background of the present case has already been dealt with in previous post. Therefore, I proceed directly with the decision of the court.

Decision of the Supreme Court

The Supreme Court rejected the contention of HCL that the word “otherwise” appearing in section 48(1)(b) of the Act has to be interpreted broadly and cannot be read ejusdem generis with the words preceding it. The Court held that in view of pro-enforcement bias embedded in section 48 of the Act, the word “otherwise” should be interpreted in a narrow sense, i.e., it has to be read in the context of words preceding it.

HCL, in an attempt to thwart enforcement of award against it, contended, inter alia, that the London award was manifestly in breach of section 48(1)(b) of the Act, as the arbitrator did not take into account the materials sent by HCL, while passing the London award. Consequently, it was not able to present its case before the arbitrator. Such an argument by HCL was predicated on the terrorist attack that took place on 11 September 2001 in New York City, on account of which  there was a global disruption of transport and communication system. Therefore, it became difficult for it to send documents on or before 12 September 2001, which was the last date for sending HCL’s written submissions along with the requisite evidence. The Court rejected the contention of HCL, and held that arbitrator had provided ample opportunities to HCL to file legal documents and written submissions prior to last extension on 12 September 2001, and that the arbitrator’s refusal to grant further extension at the request of HCL cannot be termed as arbitrary and capricious.

The Court, while concluding that there was no fault with the procedure adopted by the arbitrator to conduct the proceedings, relied heavily on Vijay Karia. The Supreme Court in Vijay Karia, held:

(i) the expression “was otherwise unable to present his case” appearing in section 48(1)(b) of the Act has to be interpreted narrowly, and would have to read in the context of words appearing before it;

(ii) the term natural justice is a wider expression, and the expression “was otherwise unable to present his case” would be only one of the components of natural justice, which would entail providing a fair hearing to the parties; and

(iii) on reading the expression “was otherwise unable to present his case” in tandem with the first part of section 48(1)(b) of the Act, it becomes apparent that the said sub section would apply only at the hearing stage and not after the award has been delivered.

The Supreme Court in Vijay Karia has formulated a test to determine whether a party has been unable to present his case, by relying on a judgment of English Court in Minmetals Germany GmbH v. Ferco Steel Ltd. The English Court in Minmetals had applied the test of persons being prevented from presenting their case on account of matters beyond their control. Relying on Minmetals, the Supreme Court in Vijay Karia held that a test for determining whether a party has been unable to present his case is to see whether a fair hearing is denied on account of circumstances beyond the control of a party.

Further, the Minmetals test was also applied in Jorf Lasfar Energy Co. v. AMCI Export Corp.,where a U.S District Court observed that the arbitrator is free to lay down a procedure to conduct arbitration proceedings. It noted that if the evidence is excluded because it was not in accordance with the procedural order, a party cannot have a cake and eat it too, i.e., a party cannot deliberately violate the procedural order and post passing of award claim that the procedure was unfair and violative of due process.

In the present case, the foreign arbitration began in the year 2000 and the arbitrator was appointed on 7 June 2000. On account of having an Indian award dated 15 September 1999 with it, HCL choose not to participate in the arbitration proceedings until August 2001, when the arbitrator informed HCL that he is proceeding with the award. Thereafter, HCL requested for extension of time on two occasions, i.e., on 11 August 2001 and on 27 August 2001. As a result, final extension was granted by the arbitrator until 12 September 2001. Despite granting extension on multiple occasions, HCL failed to submit the relevant documents before 12 September 2001. However, the arbitrator took into account the written submissions sent by HCL on 13 September 2001, which was beyond the prescribed period, and further intimated HCL that he will not take into account any further material provided thereafter, while passing the award. Against this backdrop, the Court, applying the Minmetals test, held that since the arbitrator had provided many opportunities to HCL to present its case, inability of HCL to send documents before 12 September 2001, was not on account of matters beyond their control but of its own failure to take advantage of an opportunity granted to it. Therefore, HCL was never unable to present its case as it, on its own volition, chose not to appear before the arbitrator and opted to submit documents beyond the timelines granted by the arbitrator. 

Comment

The Supreme Court in the present case has cemented the already established legal position regarding the refusal of enforcement of foreign award on the grounds of violation of principles of natural justice. It is true that international arbitration practice has undergone a sea change, and it has shifted in favor of enforcing foreign awards in contrast to earlier practice of enthusiastic intervention of the courts at the enforcement stage. The New York Convention, 1958 was introduced with the aim to remove obstacles to enforcement of foreign awards as they existed under the Geneva Convention, 1927. The New York Convention adopted pro-enforcement bias, under which the burden of proof lies on a party against whom the award is sought to be enforced, in contrast to Geneva Convention, 1927, under which burden of proof was on a party seeking enforcement of foreign award. The court in the enforcing state has limited discretion to set aside an award as against the court of primary jurisdiction, which has more flexibility to review and set aside an award. In the present case, had HCL exercised its right to challenge the award under English law, an English court would have more flexibility to interfere with the award compared to courts in India that will not indulge in microscopic investigation of the award.  

In view of pro-enforcement attitude adopted by the New York Convention, which has been incorporated in section 48 of the Act, an expansive interpretation of the natural justice defence would be against the objectives sought to be achieved by the Convention. The grounds for refusal of enforcement of foreign award, contained in section 48 of the Act are watertight, and have to be interpreted narrowly. The ground contained in section 48(1)(b) of the Act is limited to requirements of natural justice indicated in the rule of audi alteram partem. The natural justice defence did not envisage including circumstances in which party had deliberately failed to take opportunity granted to it. Thus, a party cannot drag the proceedings indefinitely and, thereafter, invoke the natural justice defence when the arbitrator seeks to put an end to the proceedings. Section 48(1)(b) of the Act envisages a fair hearing before enforcement of arbitral award. As held in Slaney v. The International Amateur Athletic Federation, the expression ‘fair hearing’ would require to meet the basic requirements of fairness i.e. (i) adequate notice; (ii) A hearing on the evidence; and (iii) an impartial decision by the arbitrator, all of which have been satisfied in the present case. In view of the foregoing, the Court has rightly interpreted the natural justice defense narrowly.

Pinak Parikh

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