Centrotrade Minerals and Metal Inc. Vs. Hindustan Copper Ltd. (Supreme Court); Civil Appeal No. 2562 OF 2006; Date of Order- 02/06/2020
Scope of Challenge Against Enforcement of Award under Section 48(1)(B) – ‘Otherwise Unable to Present Its Case
The Appellant, under a Contract of sale agreed to supply copper concentrate to the Respondent which was to be used at the Khetri Plant of the Respondent. Despite supply of the goods and due payments made as per the Contract, disputes arose between the parties. Consequently, the Appellant invoked Clause 14 of the Agreement which provided for a two-tiered arbitration clause.
The first layer of the arbitration clause provided reference of disputes to arbitration in India. Whereas, the second layer was an appeal of the first arbitration to a second arbitration which was to be held in London under administration of International Chambers of Commerce (“ICC”).
The Appellant invoked the arbitration clause and the arbitral award in India made a NIL Award on 15.06.1999. Thereupon, the Appellant invoked the second tier of the arbitration agreement, as a result of which Jeremy Cook QC (“the Arbitrator”) who was appointed by the ICC, delivered an award in London on 29.09.2001 in favour of the Appellant.
Simultaneously, the Respondent filed a suit in the Khetri Court of the State of Rajasthan during the pendency of arbitration, challenging the arbitration clause. The Rajasthan High Court granted a stay on the arbitration proceedings when a revision petition was filed against the Order of the Khetri Court. The Supreme Court however, on 08.02.2001 vacated the stay to continue the arbitration proceedings.
After the passing of the final award, the Appellant sought for enforcement of the award before the Calcutta High Court, when the following objections were raised by the Respondent:
a. The arbitration clause was invalid,
b. The ICC award is not a foreign award, and
c. The Respondent was not given proper opportunity to present its case before the Arbitrator in the London arbitration proceedings.
The Single Judge of the Calcutta High Court dismissed the petition of the Respondent filed under Section 48 of the Arbitration & Conciliation Act, 1996 (“the Act”) and the award became executable. On the other hand, the Division Bench held the appeal to be maintainable and set aside the judgment of the Single Judge.
The Division Bench held that two arbitral awards in India and London were mutually destructive for each other and cannot be enforced.
With regards to validity of the arbitration clause, the Division Bench of the Supreme Court under Centrotrade Minerals & Metal Inc. v. Hindustan Copper Ltd. (2006) 11 SCC 245 held that a two-tiered arbitration clause in the nature of one given in the particular case is valid however, the arbitrator ought to have considered all materials received by him before the award is made and because the Respondent did not get proper opportunity of hearing, the appeal filed by the Appellant was dismissed.
The matter came for consideration again before a Three-Judge Bench of the Supreme Court under Centrotrade Minerals & Metal Inc. v. Hindustan Copper Ltd. (2017) 2 SCC 228 to decide upon two issues;
(i) Validity of the two-tiered arbitration clause and permissibility under Indian Laws; and
(ii) Enforceability of the foreign award under Section 48 of the Act.
The Court only considered issue (i) in affirmative and the appeal was listed to decide upon the enforceability of the foreign award under Section 48 of the Act.
The Supreme Court of India considered the following issues:
1. Whether the Respondent was given proper opportunity to present its case before the ICC arbitrator?
2. What is meant by “otherwise” under Section 48(1)(b) of the Act – is it restrictive or expansive in its meaning?
The Appellant relied upon the recent Supreme Court judgment in Vijay Karia v. Prsymian Cavi E Sistemi SRL 2020 (3) SCALE 494 and other judgments. The Court referred in detail to the judgment of the Single Judge of the Calcutta High Court contending that:
(i) Enough opportunity of hearing was provided to the Respondent; and
(ii) The arbitrator in London gave more than six opportunities to the Respondent to present its case.
On the other hand, the Respondent submitted that there was a terrorist attack had taken place in New York and it was difficult for the Respondent to send documents within time so the serious prejudice was caused to the interests of the Respondent.
The Supreme Court referred to the findings of the arbitrator, the final award and the judgment passed by the Single Judge and Division Bench of the Calcutta High Court. The Court discussed upon Section 48 (1) (b) of the Act as interpreted in the case Vijay Karia v. Prsymian Cavi E Sistemi SRL 2020 (3) SCALE 494 setting out the parameters of challenging an award under Section 48 of the Act.
The Court in the referred case observed that extremely narrow grounds have to be provided to challenge a foreign award in Section 48 of the Act and being a signatory to the New York Convention is to ensure that the foreign award is recognized and enforced as soon as possible.
Primarily, the Court referred the foreign judgments relied upon by the Court in Vijay Karia v. Prsymian Cavi E Sistemi SRL 2020 (3) SCALE 494 i.e. Minmetals Germany GmbH v. Ferco Steel Ltd. (1999) C.L.C. 647 and Jorf Lasfar Energy Co. v. AMCI Export Corp. 2008 WL 1228930, where the test to decide whether the party was not able to present its case was to see if the persons presenting the case has been prevented on account of matters beyond their control or if the party himself failed to obey procedural orders of the arbitrators.
Further, the Supreme Court in the case of Vijay Karia & Others v. Prysmian Cavi E Sistemi SRL & Others 2020 (3) SCALE 494 also held that;
(i) The expression “otherwise unable to present its case” under Section 48 (1) (b) of the Act must be interpreted narrowly following the words preceding it.
(ii) Based on this, the Court observed the test for determining whether a party was unable to present his case like for example giving no opportunity for rebuttal would render the foreign award unenforceable.
(iii) The Section 48 (1) (b) of the Act shall apply during the hearing stage and not after the final award is passed by the Tribunal.
The Supreme Court in the case of Sohan Lal Gupta v. Asha Devi Gupta (2003) 7 SCC 492, held that;
“Even otherwise, a party has no absolute right to insist on his convenience being consulted in every respect. The matter is within the discretion of the arbitrator and the Court will intervene only in the event of positive abuse. (See Montrose Canned Foods Ltd. [(1965) 1 Lloyd’s Rep 597]) If a party, after being given proper notice, chooses not to appear, then the proceedings may properly continue in his absence. (See British Oil and Cake Mills Ltd. v. Horace Battin & Co. Ltd. [(1922) 13 LI L Rep 443])”
In the instant case, the Court found that the Respondent had the knowledge of appointment of the arbitrator and continued with its stance of non-participation in the arbitral proceedings.
After being granted an extension of on six separate occasions, the Respondent filed reply without any supporting documents. Even though the Tribunal was not obligated to consider the response summited by the Respondent, it still did so and found no merits in the submissions made by the Respondent. Ultimately, granted the award in favour of the Appellant.
It was observed that the term “otherwise” appearing in Section 48(1)( b) of the Act cannot be read ejusdem generis with words that precede it. The immediate effect of doing so would be that it would be read expansively to include hearing beyond the arbitrator and to the award itself.
The Court observed that:
“Given the context of the New York Convention, and the fact that the expression “otherwise” is susceptible to two meanings, it is clear that the narrower meaning has been preferred, which is in consonance with the pro-enforcement bias spoken about by a large number of judgments referred to in Vijay Karia (supra).”
The Court reflected that Section 48 of the Act contains well-defined but narrow exceptions to enforcement of award. The expression “was otherwise unable to present its case” cannot be given expansive means and would have to read in the context and colour of words preceding the said phrase.
This would mean that this expression is a facet of the principles of natural justice, which would be allowed only if fair hearing was not given to the parties. When the Court was posed with the question to interpret the word “otherwise” in context of the phrase, the Court adopted a narrow approach keeping in mind the objective of pro-enforcement of the awards.
The Court observed that prima facie, after refusing to participate in the proceedings even after several reminders by the Arbitrator, the Respondent cannot claim breach of the principles of natural justice and claim that enough opportunity was not given to present its case.
Therefore, the Court held that Respondent was given enough opportunity to present its case and the ground to challenge enforcement under Section 48(1)(b) of the Act stands negated.
On the basis of the test of “matter outside the control of party”, the Supreme Court decided that the Respondent was at no point of time outside its control to furnish documents and legal submissions within the time given by the Learned Arbitrator.
“…only after the arbitrator indicated that he was going to pass an award that the respondent’s attorneys woke up and started asking for time to present their response. This too was granted by the learned arbitrator, by not only granting extension of time, but by extending this time even further. Finally, when the legal submissions of 75 pages were sent even beyond the time that was granted, the learned Arbitrator took this into account and then passed his award. This being the case, on facts we can find no fault whatsoever with the conduct of the arbitral proceedings.”
The Court stated that mere non allowing of an adjournment cannot be said to be perverse to the Respondent as the arbitrator had kept in mind the object of speedy resolution of disputes as under the Act.
Therefore the Court concluded that,
“the Minmetals (supra) test was not even adverted to by Chatterjee, J., which is that HCL was never unable to present its case as it was at no time outside its control to furnish documents and legal submissions within the time given by the learned arbitrator. HCL chose not to appear before the arbitrator and thereafter chose to submit documents and legal submissions outside the timelines granted by the arbitrator. For all these reasons, it is clear that Chatterjee, J.’s judgment cannot be sustained. The judgment of Chatterjee, J is set aside.”
Hence, for reasons and observations mentioned above, the foreign award dated 29.09.2001 was allowed enforcement by the Court.
The Court herein has settled that when the party has been given enough opportunity accorded to them and has failed to take advantage of the same during the arbitral proceedings, it cannot later go on to say that fair hearing was not given to the party.
The Court noted the following points with regards to the scope of “otherwise unable to present its case”:
(i) “Otherwise” under Section 48(1)(b) of the Act has to be interpreted narrowly in light of the pro-enforcement objective of the act and is just another facet of natural justice.
(ii) To determine if the party was unable to present its case, it has been established that he was otherwise not able to present it’s the case on account of matters which were beyond the control and resulted in denial of fair hearing.
(iii) Failure to take advantage of an opportunity duly accorded to the party will not result in denial of fair hearing.
So, as has been established, for a party to fully succeed challenge to enforcement of the arbitral award on the ground of the party being unable to present its case, it has to fulfil the test that inability to present its case was due to matters outside its control.
With the instant judgment, the objective of the Act, i.e. pro-enforcement and the interpretation of the ground to challenge enforcement has been harmonised to ensure that unscrupulous challenges are not entertained and timely enforcement is done.
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