TaxTMI 
TaxTMI 
2006 (5) TMI 472
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....mited (in short HCL') was directed to make payment to Centrotrade Minerals & Metals Inc. (in short "Centrotrade"). Centrotrade is incorporated in United States of America dealing with sale and purchase of non-precious metals including copper. Whereas HCL is a Government of India undertaking and its business includes purchase of copper concentrate. They entered into an agreement on 16th of January, 1996 where centrotrade was the seller and the HCL was the purchaser of copper concentrate. Clause 14 of the agreement provides for arbitration in case any differences or disputes arise between the parties. Clause 14 of the agreement reads as under : "14. Arbitration - All disputes and difference 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 arbitrator in London, U.K. ....
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....ourt of Arbitration, the arbitrator's fees and expenses totaling $ 29,000. d. 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 payment." After the award was passed by the ICC arbitrator, an application was filed by HCL seeking declaration of the award passed by the ICC as void and not enforceable. At the same time, Centrotrade filed an application for enforcement of the ICC Award. These applications were transferred to the original side of the Calcutta High Court which were heard and disposed of by the Judgment and order of the learned Single Judge of that Court on 10th March 2005. The learned Single Judge held that the ICC Award was enforceable in law and therefore direction was made to HCL to make payment to Centrotrade. While making this direction, it was inter alia held by the learned Single Judge as under : (a) The ICC award was a foreign award under Section 44 of the Arbitration and Conciliation Act, 1996 (in short `the Act') as it satisfied all the conditions mentioned thereunder, namely, (i) There was commercial relationship between the parties; (ii) The award was mad....
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....efore, the award by the arbitrator appointed by the ICC who is a second arbitrator is valid. (b) The ICC award was not a `foreign award' within the meaning of Section 44 of the Act, as according to the Division Bench, mere fulfillment of conditions of section 11 of the Act did not make the award a `foreign award'. This conclusion was arrived at by the Division Bench on the ground that the conditions under Section 44 are qualified by the expression - `unless the context otherwise requires'. According to it, if one context otherwise requires, then an award which fulfills the conditions of section 44 becomes a domestic award. According to the Division Bench, a contract being governed by Indian laws is one such context. Therefore, the Division Bench concluded that since the present case where the law governing the contract was Indian law, the ICC Award though made outside India, was not a "foreign award". (c) On the interpretation of Clause 14 of the arbitration agreement, the Division bench held that the second arbitration in London was not in the nature of an appeal against the award of the Indian Council of Arbitration. Therefore, the ICC award cannot overrule the awar....
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....me dispute was permissible. Applying the principles laid down in Hiralal's case (supra), Bombay High Court in Fazalally Jivaji Raja v. Khimji Poonji & Co., AIR (1934) Bombay 476, answered the issue saying that a two tier arbitration is valid and permissible in India. While answering this question, after considering the provisions of the Indian Arbitration Act, 1899, Bombay High Court observed as follows : "The intention of the parties is to be sole guide for determining the mode of working out the submission and reaching a final decision till the law of arbitration is based upon the principles of withdrawing the disputes from the ordinary Courts and enabling the parties to substitute a domestic tribunal. Once a Tribunal reaches a final decision, as contemplated or agreed upon by the parties, the Arbitration Act as it was enforced come to the help to the parties to enforce the same decision." This view of the Calcutta High Court and the Bombay High Court was also accepted by the Madras High Court in the case of M.A. & Sons v. Madras Oil & Seeds Exchange Ltd., AIR (1965) Madras 392. I Need not deal with the issue of validity of two-tier arbitration in respect of disputes arisin....
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....greement providing for two tier arbitration is invalid under the 1996 Act and that validity of an award can only be questioned before a court under Section 34 and before no other forum chosen by the parties. In my view, however, the award that must be considered by the court, for its enforcement or on the question of validity is the final award that has been passed following the procedure agreed upon by the parties. As already held, the reasoning adopted in the decisions, as noted herein earlier, in the cases of Heeralal Agarwalla & Co. v. Joakim Nahapiet & Co., AIR (1927) Calcutta 647, Fazalally Jivaji Raja v. Khimji Poonji & Co., AIR (1934) Bombay 476 and M.A. Sons v. Madras Oil and Seeds Exchange Ltd., AIR (1965) Madras 392, squarely apply to the present Act as well. Just as there was no express prohibition on the appellate arbitration in 1899 and 1940 Acts, so there is no express prohibition in the 1996 Act. The relevant section of 1996 Act is Section 35 which only provides that "subject to this part of arbitral award shall be final and binding on the parties and persons claiming under them respectively." Similarly, I find that Condition No. 7 of the First Schedule of the 1940....
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....s is different under different parts. In my view, there is nothing under the 1996 Act prohibiting the parties from entering into an agreement whereunder the first arbitration proceeding is conducted under Part I of the 1996 Act and the appeal therefrom is conducted under Part II of the 1996 Act. In fact, earlier, two separate legislations, i.e. the 1940 and 1961 Act, dealt with domestic awards and foreign awards respectively. However, the legislature keeping in mind the necessity to have similarity in administration of domestic awards as well as foreign awards, has consolidated the laws relating to domestic and foreign awards in the 1996 Act, in effect making both the types of awards enforceable under the same Act. Keeping this in mind, and also that parties' autonomy is paramount, I am of the view that it is not impermissible under the 1996 Act to have one part of the award governed by Part I and the other part by Part II. Further, an appeal is an intrinsic part of the original proceeding and it is the final award that comes out after an appeal is preferred from the first award, that is relevant for the purpose of 1996 Act. Thus it follows that nothing in the 1996 Act prohibit....
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....tor would be binding on the parties and the judgment upon that award maybe entered in any court of jurisdiction. Therefore, I am unable to agree that such two tier arbitration proceedings culminate into an admixture of two different types of awards, as there is eventually only one award that subsists. For the reasons aforesaid, I, therefore, conclude that the second Part of Clause 14 of the agreement is valid and permissible in India under the Act. Issue No. 2 : Whether the ICC Arbitrator sat in appeal against the award of the Indian arbitrator or not? In my view, to decide Issue No. 2, it is appropriate for us to read clause 14 of the agreement in depth and to find out from the same the intention of the parties. In order to come to a proper conclusion on this issue, let us again reproduce Clause 14 of the arbitration agreement. "14. Arbitration - All disputes and 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 th....
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.... 18 of the award of the International Arbitrator and in my view the said paragraph needs to be reproduced : "It is clear therefore that the dry weight, determined in accordance with clause 6 at the discharge port is the final and binding basis for payment to be made by HCL to Centrotrade. The Arbitration Award of 15th June 1999 held otherwise, but, in my view, this was obviously wrong. In that Award, the arbitrator found that clause 4, and particularly clause 4.4 of the agreement was the `dominant clause' when that clause specifically dealt with the quality certificate to be submitted with the shipping documents which would form the basis for acceptance of the shipping documents under the letter of credit. When in the context of the contract as a whole, it is plain that this part of the terms relating to provisional payment, made on the basis of load-port quantity and quality whereas the final amount due was to be determined by certificates issued at the discharging port in relation to quantity and quality. In so far as the first stage arbitrator found that there was no express promise given by HCL to pay Centrotrade in respect of Centrotrade's claim, he appears to have ig....
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....e law in force in India, made on or after the 11th day of October, 1960 - (a) in pursuance of an agreement in writing for arbitration to which the convention set forth in the First Schedule applies, and (b) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the said Convention applies." From a bare perusal of section 44 of the Act, it appears that in order to come to a conclusion that a particular award is a foreign award, the following conditions have to be satisfied. (1) The legal relationship between the parties must be commercial. (2) The award must be made in pursuance of an agreement in writing. (3) The award must be made in a convention country. In the present case, it cannot be disputed that the aforesaid three conditions were satisfied, that is to say, there exists a commercial relationship between the parties, the ICC award was made in pursuance of an agreement in writing between the parties and the award was made in a Convention Country (London, U.K.). In spite of all these conditions having been fully satisfied, the Divisio....
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....on 48 (1)(e) reads as under : "48. Conditions for enforcement of foreign awards.- (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- (2) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made." From a bare reading of this Section, it is evident that Section 48 (1)(e) deals with the grounds for refusal of the enforcement of a Foreign Award. Production of proof that such an award has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made, cannot change a foreign award to a domestic award, but merely makes it a foreign award which may not be enforced. In Sumitomo Heavy Industries Limited v. ONGC Ltd., [1998] 1 SCC 305 it was however held, in substance, by this Court, where the contract is governed by Indian law and the seat of the arbitration is elsewhere, wherein arbitrability of the dispute is established, procedural law of the country of seat of arbitration governs the cond....
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....Division Bench was wrong in its conclusion that the award passed by the ICC arbitrator was a domestic award. As noted herein earlier, we should also keep in mind that Section 9(b) of the Foreign Awards (Recognition and Enforcement) Act, 1961 which provided that it did not apply to an arbitral award made pursuant to an arbitration agreement governed by law of India, has been clearly omitted by Section 51 of the 1996 Act. In this connection, reference may be made to a decision of this Court in Shreejee Traco (I) Pvt. Ltd. v. Paperline International Inc., [2003] SCC 79. In this view of the matter and in view of the discussions made herein above, I am of the firm opinion that the award of the ICC arbitrator was not a domestic award but a foreign award as rightly held by the learned Single Judge of the High Court. Issue No. 4 : Whether HCL was given proper opportunity to present its case before the ICC arbitrator ? Under Section 48 (1) (b) enforcement of a foreign award can be refused if : "(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." In t....
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....early 3 months. Co- operation of HCL was next requested only on 30th July 2001, i.e. after a time gap of nearly 2 months. Then the communication on 9th August 2001 stated that the arbitrator was proceeding with the award. This time there was a response from HCL. Upon there requests, a time limit of nearly one month ending on 12th September 2001, was given to HCL. The arbitrator received first set of submissions filed by HCL on 13th September 2001. Then he made award 16 days later on 29th September 2001. It seems that between 13th and 29th September 2001, he did receive further material from HCL which he did not consider while making the award on the ground that they were received after the time limit granted by him to HCL had lapsed. It is clear from the above lay out of facts that there have been delays in the arbitral proceedings right from the beginning when Centrotrade approached in ICC on 22nd February 2000. Most of the delays were due to HCL's refusal to participate in the proceedings. However, there were some delays which cannot be related to HCL's conduct. For instance, the period from the 8th February 2001 when the order of this Court was made to 3rd May 2001 when....