Case: M/S. Centrotrade Minerals Vs. Hindustan Copper Ltd

3. M/s. Centrotrade Minerals and Metal Inc. (for short, Centrotrade), Appellant in SLP (C) No. 18611 of 2004 and the Hindustan Copper Limited (for short HCL), Appellant in SLP (C) No. 21340 of 2004 entered into a contract for sale of 15,500 DMT of Copper Concentrate to be delivered at Kandla Port in the State of Gujarat in two separate consignments4. The said goods were ultimately required to be used at the Khetri Plant of HCL situated in the State of Rajasthan. The seller in terms of the contract was required to submit a quality certificate from an internationally reputed assayer, mutually acceptable to the parties. After the consignments were delivered, the payments therefor had been made. However, a dispute arose between the parties as regard the dry weight of concentrate copper5. Clause 14 of the contract contained an arbitration agreement which reads as under:All disputes or differences whatsoever arising between the parties out of, or relating to, the construction, meaning and operation or effect of the contract or the breach thereof shall be settled by arbitration in India through the arbitration panel of the Indian Council of Arbitration in accordance with the Rules of Arbitration of the Indian Council of Arbitration. If either party is in disagreement with the arbitration result in India, either party will have the right to appeal to a second arbitration in London, UK in accordance with the rules of conciliation and arbitration of the International Chamber of Commerce in effect on the date hereof and the results of this second arbitration will be binding on both the parties. Judgment upon the award may be entered in any court in jurisdiction6. Centrotrade invoked the arbitration clause. The Arbitrator appointed by the Indian Council of Arbitration made a NIL award. Centrotrade thereupon invoked the second part of the said arbitration agreement on or about 22nd February, 2000. An award was made pursuant thereto7. HCL, during pendency of the proceedings before the arbitrator, filed a suit in the court at Khetri in the State of Rajasthan questioning initiation of the second arbitration proceeding before International Chamber of Commerce inter alia contending that the provision for second arbitration was void and a nullity. No interim order was passed therein despite having been prayed for, whereupon an appeal was preferred by HCL before the District Judge, which was also dismissed. In a revision filed by HCL, the High Court granted an injunction. In the meanwhile the sole arbitrator had commenced arbitration proceedings. Centrotrade filed a special leave application before this Court questioning the said order of injunction passed by the Rajasthan High Court and by an order dated 8th February, 2001, the said order of interim injunction was vacated9. An award was passed by the said Arbitrator on 29th September, 2001 holding:(i) The arbitration clause contained in clause 14 of the agreement is neither unlawful nor invalid(ii) The Arbitrator had jurisdiction to decide his own jurisdiction in terms of Article 8.3 of the ICC Rules as also Section 16 of the 1996 Act(iii) The claim of Centrotrade based on the report of Inspectorate Griffith was just. The arbitration award dated 15th June, 1999 was obviously wrong. There is no dispute about the actual figure of loss claimed by Centrotrade. There is no dispute as to the demurrage owing which, in accordance with Clause 9.2 of the contract, is to be calculated on the basis of a discharging rate of 1600 MT per WWD of 24 consecutive hours(iv) Centrotrade is entitled to interest as well as costs(1) HCL do pay Centrotrade the sum of $152,112.33, inclusive of interest to the date of the Award in respect of the purchase price for the first shipment(2) HCL do pay Centrotrade the sum of $15,815.59, inclusive of interest to the date of this Award in respect of demurrage due on the first shipment(3) HCL do pay Centrotrade the sum of $284,653.53, inclusive of interest to the date of this Award in respect of the purchase price on the second shipment(4) HCL do pay Centrotrade their legal costs in this arbitration in the sum of $82,733 and in addition the costs of the International Court of Arbitration, the Arbitrators fees and expenses totaling $29,000(5) HCL do pay Centrotrade compound interest on the above sums from the date of this Award at 6% p.a. with quarterly rests until the date of actual payment11. HCL filed an application purported to be under Section 48 of the 1996 Act in the Court of District Judge Alipore, Calcutta. HCL also filed a suit before the Civil Judge, Senior Division, Alipore which was marked as T.S. No. 78 of 2001 praying for a declaration that the ICC award is void and a nullity, as also for permanent injunction and damages12. Centrotrade, in the meanwhile, filed an application for enforcement of the said award dated 29th September, 2001 in the Court of the District Judge, Alipore which was numbered as Execution Case No. 1 of 2002. Upon an application made in terms of Clause 13 of the Letters Patents of the Calcutta High Court by Centrotrade, the said execution case was transferred to the Calcutta High Court13. A learned Single Judge of the said court by a judgment and order dated 10th March, 2004 allowed the said execution petition. Aggrieved by and dissatisfied therewith, HCL preferred an appeal which was allowed by reason of the impugned order dated 20th May, 2004. Both the parties are before us questioning the correctness of the said judgment14. In its judgment, the High Court held:(i) Although successive arbitration is not impermissible in India, but two successive awards are mutually destructive(ii) In his award, Mr. Cooke did not make any statement that he was overruling or setting aside or in any manner altering the Indian award(iii) Although the second award is binding on the parties but is not enforceable having regard to the first award(iv) The second award is not a foreign award within the meaning of Section 44 of the 1996 Act and, thus, Section 34 thereof would apply thereto in the facts and circumstances of the case(v) Neither Part II of the Act nor Section 51 thereof states anywhere either expressly or by necessary implication, that the definition of Foreign Award contained in Section 44 would apply notwithstanding the proper law of the contract being Indian Law.

Reasoning:
115. It is not in dispute that the contention of HCL from the beginning was that the provision contained in the second part of the arbitration is void ab initio and of no effect. As noticed hereinbefore, it even filed a suit prior to entering into the reference by the Arbitrator. Even after the award was passed, proceedings before appropriate courts had been initiated. In its written statement filed before the arbitral tribunal, the question as regards the jurisdiction of the arbitrator was questioned by it. The learned arbitrator had, relying on or on the basis of the decisions, referred to hereinbefore, and also an opinion rendered by a former judge of this Court held that such an arbitration agreement is valid in law. In terms of Section 16 of the 1996 Act, the arbitrator, keeping in view the fact that the question as regard his jurisdiction had been raised was bound to decide the same before entering into the merit of the matter. Only in the event, it came to the conclusion that the arbitral tribunal had the requisite jurisdiction, it could have proceeded to determine the merit of the matter. We say so in view of the fact that in the event an arbitrator was of the opinion that he had no jurisdiction in the matter, the arbitration clause being invalid in law, Centrotrade could have preferred an appeal in terms of sub-section (2) of Section 37 of the 1996 Act. The question as regard lack of inherent jurisdiction on the part of the arbitrator in view of the second part of the arbitration clause being opposed to the public policy could have been raised by HCL in terms of Section 34 of the 1996 Act116. Even if it is held that two tier arbitration is permissible, under the 1996 Act it might lead to an incongruity. A two tier arbitration is invalid in law in the context of the 1996 Act having regard to Section 23 of the Contract Act as statutory jurisdiction cannot be waived by contract. It is, thus, amply clear that the very scheme of the 1996 Act does not contemplate a two tier arbitration agreement of this nature118. It is doubtful whether the decisions of the Calcutta, Bombay and Madras High Court could have been held to be valid if a situation of the present nature had arisen therein, namely, both the 1940 and 1961 Acts are applicable in relation to two different awards made at two different point of time. The said decisions, therefore, might have been held to be good only in terms of the provisions of the 1940 Act or the 1961 Act but the ratio thereof cannot be extended to the cases falling under both the parts of the 1996 Act119. To bring clarity in the matter, we may notice the dichotomy arising herein. If the first award was to be enforced (although no occasion arose therefor), it could have been done only in terms of Part I of the Act. Despite invocation of second part of the arbitration agreement, it would not cease to be a decree in terms of Section 36 of the Act unless the operation thereof was directed to be stayed. In other words, the first award of the arbitral tribunal, on the expiry of the period specified for challenging the award, became a decree despite invocation of the second part thereof. It is difficult to comprehend that despite a part of the award becoming a decree of the court, the same would not be binding upon the arbitral tribunal. Section 34 of the 1996 Act provides for setting aside a domestic Indian award. It unlike the English Arbitration Act does not permit the parties to limit or avoid the operation of the statutory provisions120. Furthermore, the grounds for questioning a domestic award and a foreign award are different. In the context of the 1996 Act, an arbitration agreement which would otherwise be contrary to the provisions of the laws governing the contract between the parties would be void being opposed to public policy121. The High Courts judgment, therefore, in my considered view, cannot be sustained122. It is, thus, not necessary for us to advert to other questions raised at the Bar. Although we do not agree with the reasons assigned by the High Court, but we uphold the conclusion thereof on different grounds