This article is written by Anubhav Saxena, pursuing a Certificate Course in Arbitration: Strategy, Procedure and Drafting from Lawsikho.com. 

Introduction

The article deals with the concept of arbitration in two stages. In this format of the arbitration clause, the parties willfully agree to solve their disputes through an arbitration mechanism however the arbitration mechanism has two stages. In this article, we shall try to look into various aspects of multi-tier/two-tier arbitrations, Indian vs foreign awards, and more importantly in the current business scenarios whether two-tier arbitrations are good for the business environment or it is regressive under the Indian conditions. 

Concept of two-tier arbitration in India

The concept of two-tier arbitration is simple and as its name suggests, it means arbitration in two stages. In the first stage of dispute resolution mechanism, a sole arbitrator or arbitration tribunal is finalized by the parties to give a decision or recommend the award of the decision and in the second stage, an appellate tribunal is proposed which will approve the award given by the first stage.

The validity of two-tier arbitration clauses in India 

This is a very important question to understand the validity of two-tier arbitration clause in India. With the advent of globalization and the opening of the Ithe Indian economy lot of Multinational companies are coming to to India. Having a sound dispute resolution system is one of the pillars to safeguard the interest of business parties.

The ability of the country to present itself to the world as a global economic powerhouse will be greatly dependent upon its ability to generate trust among the business partners that India presents as a neutral ground for safeguarding the business.

While checking the validity of two-tier arbitration clause following questions are required to be deliberated:

1. Is this system of dispute resolution willingly decided by the parties under the arbitration process. i.e. power of autonomy?

2. Is this system against Indian laws?

It has been recognized the Hon’ble Supreme Court of India in their case of Centrotrade minerals Inc V Hindustan copper limited that since the recourse is always available for the parties to challenge the award in the court hence nothing stops the Parties from taking a second look at the award so that the case is looked thoroughly from all angles. 

Hence in my opinion The parties are within their rights to decide their own system until it’s not against India laws therefore the validity of the two-tier arbitration in India is correct.  

Centrotrade Minerals and Metals Inc. v. Hindustan Copper Limited

This particular case is a hallmark case where the Hon’ble Supreme court of India settled the question of the validity of two-tier arbitrations and the case of a foreign award. In this particular case the mechanism, agreed by the parties was a two-tier mechanism for dispute resolution. When the dispute arose due to the weight of the copper ingots being supplied to HCL (A govt entity) then an arbitration case was filed by Centrotrade Minerals and metals.  On 15.06.1999 award was given by the arbitrator appointed by the Indian council of arbitration and NILL award was given to Centrotrade Minerals.

Centrotrade Minerals then applied for the second tier of arbitration available within the contract and approached ICC. HCL got a stay from Rajasthan HC on proceedings in ICC however the same was vacated by Hon’ble SC on 08.02.2001 and thus the proceedings continued in ICC who awarded USD 564314 to Centrotrade Minerals on 20.09.2001.

Interestingly both parties went to Rajasthan and Kolkata HC and got divergent decisions, then a Special leave petition was filed in Hon’ble SC in 2004,   The case went on from a smaller bench to a larger bench which in the year 2017 gave a decision on the point that two-tier arbitrations are valid in India.

The bigger question then arose whether the damages awarded were correct or were they against Indian policy. In June 2020, again Hon’ble SC ruled in landmark judgment that  the award given by ICC is valid and HCL should pay the same.  

Execution of the foreign arbitral award in case two-tier arbitration agreement:

However, the bigger question after a decision definite in the case which came after 20 years since 29.09.2001 is how the judgment can be enforced and as on date the case is still pending with Kolkata high court. Delay in the execution of such awards raises the questions about fair business policies and foreign companies will feel challenged to come as their decision regarding getting closures for contract disputes will be negatively impacted due to such long delay. Section 48 of the Indian arbitration act (Dealing with the enforcement of foreign award) needs to be strengthened by the law makers so that parties are open to set up a mechanism and do business based on the same. 

Two-tier v. Multi-tier arbitration clauses 

The primary facet of any business success is mainly dependent on the resolution of disputes which are multifold in the case of complex commercial contracts. Practically when an arbitration case is filed the atmosphere in the project is vitiated and business dealing is put on hold, it should be the last resort as when parties see each other as opposition parties the purpose of the business venture is not achieved therefore arbitration should be the last recourse for settling of disputes.

That is the reason there are clauses in the contract which try to resolve the disputes on some other mechanism like conciliation or mediation/ negotiation should be resorted before invoking section 11 (subsection 6).

A two-tier arbitration is good in the case of foreign business clients since a more neutral dispute resolution mechanism is more trust is there between the parties.

However, in my opinion, a two-tier dispute resolution system should be there along with a multi tier arbitration clause which if willingly agreed will provide foolproof mechanisms of relief and also will assure the courts that all ways were explored before the arbitration clause was invoked.

Advantages and drawbacks

The main advantage of two-tier arbitration is that the involvement of international bodies like ICC in the dispute resolution mechanism will provide more transparency in the dispute resolution system. Since we live in a globalized world, agreeing for a two-tier mechanism will make the Indian business environment look more safe and trustworthy. 

The drawback is a time constraint, the Indian legal system has to find a way of enforcement of the award and quick resolution of the disputes which drag for decades. 

However, if interim immediate reliefs till say 50% of the award can be given by the appellate tribunal in a two-tier mechanism that shall safeguard and prevent deliberate dragging of the case which is the norm. 

Conclusion

In conclusion, it can be said that Hon’ble Supreme Court by their judgments in favor of the validity of two-tier arbitration clause in India has moved a step ahead in making the business a strong business hub which is well prepared in line with global arbitration systems however absence of sound enforcement of the arbitral award is an issue. The court should take up the case not on the base of the point that the award given is against the Indian policy but on specific merit of the case which has not been seen by the international tribunal like ICC, further a system of immediate enforcement of partial relief should be there so that unnecessary dragging of the case should not harm the interest of aggrieved parties. 

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.