DR.

RAM MANOHAR LOHIYA NATIONAL LAW UNIVERSITY

LUCKNOW

Research paper submitted for the research project in the partial fulfillment of B.A. LLB (Hons.)
(VII Semester) Course in Legal Research & Writing, on the Topic:

“Perfecting the Imperfect: The Centrotrade Case and Validity of Appellate

Arbitrations in India”

UNDER THE GUIDANCE OF

Ms. Shakuntla Sangam

Assistant Professor (Law)

SUBMITTED BY

Abhishek Kumar Singh

Roll no. : - 171

Section A, Semester VII

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 SUMMARY

While Appellate Arbitration is quickly becoming the norm on the international level, India is still
stuck in uncertain waters. Under the old acts of 1940 and 1961, Appellate Arbitration was well
recognized and parties were free to include an appeal mechanism in their arbitration clause. But
under the Arbitration and Conciliation Act 1996, the legislation has taken a step backwards and
the validity of appellate arbitration clause is again in question.

In India, the Apex Court has failed to express a final opinion on the issue of permissibility of
appellate arbitration clauses under the Arbitration and Conciliation Act, 1996, due to a divisive
opinion of the judges in Centrotrade Minerals & Metals Inc. v. Hindustan Copper Limited. The
case has been referred to a larger bench for the final decision. The Author examines the case with
regards to two essential principles in Arbitration law – Party Autonomy and the Finality of an
Arbitral Award. The first part of the paper delves into the facts of the case; the second part with
the permissibility of appellate arbitration under The Arbitration and Conciliation Act, 1996; third
part deals with the nature of the appellate award; the fourth part with the enforcement and finality
of such awards and ends with the author’s concluding remarks.

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 INDEX

I. INTRODUCTION ............................................................................................................................. 4
II. PERMISSIBILITY OF APPELLATE ARBITRATION UNDER THE ARBITRATION AND CONCILIATION
ACT, 1996 ........................................................................................................................................ 6
2.1 Meaning of ‘Arbitral Award’ and its repercussions .............................................................. 6
2.2 The Section 34 Debate .......................................................................................................... 7
2.3 Restriction to Party Autonomy and Waiver of Rights .......................................................... 8
III. NATURE OF THE APPELLATE AWARD PASSED AND THE APPLICABLE LAW .............................. 9
3.1. A single Agreement can produce a single Award ................................................................ 9
3.2. The Appellate Award: Domestic or Foreign? ...................................................................... 9
3.3. Whether Two-Tier Arbitration is in the nature of an appeal? ............................................ 11
IV. THE ENFORCEMENT DILEMMA................................................................................................. 13
4.1. The Binding Nature of Awards in India ............................................................................. 13
4.2. Non-merger of the two awards ........................................................................................... 13
4.3. The Legal fiction and Enforceability ................................................................................. 14
V. INTERNATIONAL SCENARIO ....................................................................................................... 15
VI. CONCLUDING REMARKS .......................................................................................................... 16

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 PERFECTING THE IMPERFECT: THE CENTROTRADE CASE AND VALIDITY OF APPELLATE
ARBITRATIONS IN INDIA

I. INTRODUCTION

Appellate practice in arbitration presents a paradox. It is, at once, an accepted practice and a
forbidden system.1 On one hand, finality in an arbitration award is its biggest asset, but on the
other hand, chances of erroneous decisions by arbitrators and lack of an appeal on merits make it
the route less preferred by parties involved in high stake disputes. Nevertheless, party autonomy
being the heart and soul of an arbitration, if both parties agree on an appellate arbitration clause in
the agreement, then their ‘will’ must be respected. If the involved parties themselves are willing
to sacrifice speed and finality in favor of a two-tier procedure, who are we (read: judiciary) to
prevent them from doing so and say otherwise?

Even though appellate arbitration is common in many countries, its validity in India is still
undecided and ambiguous. The question is pending before a Three-Judge Bench of the Apex Court
in the case of Centrotrade Minerals & Metals Inc. v. Hindustan Copper Limited2. The case of
Centrotrade Minerals is unique because it is the first case which discusses the position as regards
appellate arbitration under the Arbitration and Conciliation Act, 1996. Before examining the issues
raised and the conflicting judgments of the Division Bench of the Supreme Court, it is pertinent to
discuss the facts of the case.

The appellant, Centrotrade Minerals and Metals Inc. (hereinafter referred to as Centrotrade) is a
company incorporated in the United States of America which had entered into a contract of sale
on 16th January, 1996 with the respondent, Hindustan Copper Limited, (hereinafter referred to as
HCL) which is a Government of India undertaking. Clause 14 of the Contract of Sale contained a
unique arbitration clause providing for two tiers of arbitration proceeding3. When a dispute arose

1
Erin E. Gleason, International Arbitral Appeals: What Are We So Afraid Of? , 7 Pepp. Disp. Resol. L.J. 269 2007.
2
(2006) 11 SCC 245.
3
Clause 14 of the Contract of sale reads:
"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.

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regarding the quality of the goods supplied, the appellant invoked the arbitration clause. The first
designated forum, i.e. the Indian Council of Arbitration (hereinafter referred to as ICA) made a nil
award. The appellant thereafter invoked the second part of the clause and approached the
International Chamber of Commerce (hereinafter referred to as ICC) on 22nd February, 2000. HCL
had filed a civil suit in the District Court of Khetri and subsequently the High Court of Rajasthan
in order to obtain injunction to stop the appellate arbitration proceedings which had already
commenced. The High Court granted the order of injunction as prayed for. However, Centrotrade
filed a Special Leave Petition before the Supreme Court and got the said order of interim injunction
vacated on February 8th, 2001. In the second proceeding before the ICC Arbitrator in London,
objections regarding the validity of the present proceeding were raised. However, the arbitrator
passed an award on 29th September, 2001 in favor of the appellant and in it he held that the
appellate arbitration was valid. The second award passed was challenged by HCL in accordance
with Section 48 of the Act firstly before the District Judge, Alipore and then before the High Court
of Calcutta.

Since its inception, this case is subject to conflicting judicial opinions. The Single Judge of the
High Court of Calcutta in his judgment invoked the doctrine of waiver of statutory rights inasmuch
as the Arbitration clause clearly illustrated the intention of the parties not to consider the award
made by the ICA to be binding on them4. The reasoning provided was that the parties had waived
their rights to enforce the first award. However, a perusal of Clause 14 demonstrates that the parties
had expressly chosen to be bound by the award passed by the ICC in the second tier. Therefore, in
the opinion of the Single Judge the clause was in accordance with the public policy of India as the
parties did not intend the domestic award passed by the ICA to be binding on them.

However, such reasoning was not accepted by the Division Bench of the same High Court on
appeal5. In spite of holding that appellate arbitrations under two tier clauses are allowed in India
under the Arbitration Act, 1940 (1940 Act), the Court categorically stated that such is not the case

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. in accordance with the rules of conciliation and arbitration of the International
Chamber of Commerce in effect on the date hereof and the result of this second arbitration will be binding on both the
parties. Judgment upon the award may be entered in any Court of Jurisdiction."
4
Centrotrade Minerals and Metals Inc. v. Hindustan Copper Ltd., (2005) 2 Cal LT 657 (HC).
5
Hindustan Copper Ltd. v. Centrotrade Minerals and Metals Inc., AIR 2005 Cal 133.

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under the Arbitration and Conciliation Act, 1996 (the Act). It held that the awards passed under
the two tiers were mutually destructive since all awards passed by a Tribunal are final and binding.
Therefore, the statement in Clause 14 considering the second award to be final and binding and
not the first is redundant under the provisions of the Act. Hence, such a two tier arbitration clause
has a tendency to produce conflicting superfluous awards and was thus not considered to be valid.

In such a state of utter confusion, the matter reached the Supreme Court on appeal where it was
decided by a Division Bench consisting of Justice S.B. Sinha and Justice Tarun Chatterjee. The
verdict of the Supreme Court was a split one with Justice Chatterjee ruling in favor of the validity
of the clause and Justice Sinha holding that appellate arbitration was something which was not
contemplated for by the drafters of the Act. This debate hinges on the understanding of a few key
issues which are discussed below.

II. PERMISSIBILITY OF APPELLATE ARBITRATION UNDER THE ARBITRATION AND

CONCILIATION ACT, 1996

2.1 Meaning of ‘Arbitral Award’ and its repercussions

Before discussing Sections 34, 35 and 36 of the 1996 Act, it is imperative that we first analyze the
meaning of the expression ‘award’ as envisaged under the Act.

Under the 1996 Act, The expression 'arbitration award' has not been defined in the Act of 1996.
However, in Section 2(b) of the old Arbitration Act, 1940, the expression 'award' has been defined,
which means an arbitration award. It is also not an exhaustive definition6. In NRP Projects Pvt.
Ltd. & Anr. v. Hirak Mukhopadhyay & Anr.7, the Court observed that an award of an arbitral
tribunal decides finally and conclusively the matter in controversy between the parties to an
agreement. It means the final opinion of the arbitrator on the whole case or a severable part of it8
and the final determination of a particular issue or claim in the arbitration.9 Therefore, it is fairly

6
Charan Sharan Khemka v. Achint Chemicals and Anr, RLW 2005 (1) Raj734.
7
(2013) 4 WBLR (Cal) 287.
8
Baldey Jagidishwarayya and Ors. v. Kotagiri Tejalingam and Ors., AIR 1950 AP 63.
9
Harinarayan G. Bajaj v. Sharedeal Financial Consultants Pvt. Ltd. and Anr., AIR 2003 Bom 296.

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evident that the expression "award" basically means a final judgment upon the adjudication of
disputes.10

Now, Justice Chatterjee whole heartily supported the validity of two-tier arbitrations in India. He
held that there is no prohibition or ban introduced by the Act from entering into an agreement
providing for two-tier arbitration. Both the Single Judge bench and the Division Bench of Calcutta
High Court upheld the validity of two-tier arbitrations as well. Even Justice Sinha’s gripe with
such procedures was that it produces two different types of mutually destructive awards (domestic
and foreign) under different procedures. It follows that two-tier arbitrations, under the same set of
rules and procedure resulting in same award(s) wherein the second award is passed before the first
award becomes a decree, are valid and allowed under the present Act.

Therefore, in such cases, the initial award is not an ‘arbitral award’ within the meaning of the Act
since it is neither final nor conclusive. The award is always open to an appeal by either of the
aggrieved parties. Only the second award can be said to be conclusive and final and hence is
‘arbitral award’ within the meaning of the Act.

2.2 The Section 34 Debate

Section 34, which allows the award to be set aside by the Court on specified grounds mentioned
in the Section. Justice Chatterjee while addressing permissibility of the clause discussed the cases
of Heeralal Agarwalla v. Joakim Nahapiet and Co.11 and M.A. And Sons v. Madras Oil And Seeds
Exchange Ltd.12 which held that an agreement by parties to submit to more than one arbitration on
the same dispute is permissible under previous Arbitration Acts of 1899 and 194013. He was also
of the opinion that the law under the present Act, i.e. Section 34 has not changed as such and there
is no bar introduced by the Act on two tier arbitration.

At this juncture it is important to examine the nature of the provisions under both the Acts. Section
30 of the 1940 Act while providing for the grounds for setting aside an award does not make a

10
Jai Glass and Chemicals Pvt. Ltd. v. The West Bengal State Electricity Board and Anr., (2005) ILR 1 Cal316.
11
AIR 1927 Cal 647.
12
AIR 1965 Mad 392.
13
See also Fazallaly Jivaji Raja v. Khimji Poonji and Co. AIR 1934 Bom 476.

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mention of the forum empowered to set aside the award (whether it is the court or the tribunal).
Now, it is true that Section 34 of the 1996 Act is an exhaustive provision and Subsection (1)
provides that recourse to a court against an arbitral award may be made only by an application for
setting aside such award in accordance with sub-section (2) and subsection (3).

An important argument that escaped the Honorable Court’s mind is that even if Section 34 of the
1996 Act is the only recourse against an arbitral award, it is only applicable to the extent of setting
aside an award. There is a difference between an appeal and an application to set aside an award.
An appeal before an appellate tribunal is a consideration of the dispute on merits whereas an
application to a Court to set aside an award is just that; an application to set aside an existing award
based on limited grounds without going into its merits. As such, the existence of Section 34 cannot
restrict the permissibility of an appeal before an arbitration tribunal with consent of both the
parties. It can be said that when the parties have contracted for appellate arbitration, Section 34 is
not the only recourse available to the parties. Also, the Section uses the term ‘Recourse to a Court’
– as in, recourse to a court can only be made by an application under Section 34. It follows that
parties are free to seek recourse against an award to an appellate tribunal if they so desire.

Furthermore, as we already established, in two-tier arbitration the second award is ‘award’ within
the meaning of the Act. Therefore, in appellate arbitrations, the term ‘award’ in Section 34 refers
to the second award by an appellate tribunal, if any. In such cases, recourse to a court may only be
made against the second award because an application cannot be filed against the first award since
it is not an ‘arbitral award’ within the meaning of the Act. From the above discussion, it is clear
that Section 34 does not, in any way, impede a party’s recourse to an appellate arbitral procedure
if it so desires.

2.3 Restriction to Party Autonomy and Waiver of Rights

The use of the words unless otherwise agreed by the parties or the parties shall be free to decide
in a number of provisions in the Act is testament to the fact the Act recognizes party autonomy in
spirit14. Justice Chatterjee rightly observed that as long as an agreement between the parties to
enter into an appellate arbitration does not derogate from the public interest, it is always permitted.

14
Sections 3,10,13,15,17,19,20,21,22,23,24,25,26,28,29, 31 of Part I of the Act are some of the procedures that allow
the parties autonomy as regards the proceedings.

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Justice Sinha observed that the 1996 Act does not in any manner recognize two-tier arbitration as
it leads to multiplicity of proceedings and in essence a waiver of the statutory jurisdiction of the
Courts to entertain an objection to the award passed under the first instance 15. In my humble
opinion, this view is misplaced since we already established that with regards to an appellate
arbitration, the term ‘arbitral award’ in Section 34 refers to the second award passed by the tribunal.
There is no waiver of right since the right did not exist in the first place. There is no statutory
jurisdiction in the first place to move an application u/s 34 against the first award in two-tier
arbitration.

III. NATURE OF THE APPELLATE AWARD PASSED AND THE APPLICABLE LAW

3.1. A single Agreement can produce a single Award

The Arbitration and Conciliation Act, 1996 makes a marked distinction between domestic awards
and foreign awards. While a domestic award is enforced under Part I, Section 36 of the Act; foreign
awards are to be enforced under Part II, Section 49 of the Act. The two enforcement mechanisms
clearly indicate the intention of the framers to have awards which are governed by separate
applicable laws16. An arbitration clause cannot, in one instance, produce a domestic award and in
another instance, a foreign award. Thus, an award made in terms of a particular arbitration
agreement can either be a domestic award or a foreign award. In this case, the first arbitration
would be governed by the Indian Council of Arbitration Rules and is to take place in India. The
seat of arbitration is India and the substantive law governing the dispute is Indian Law. The second
arbitration is to be governed by ICC Rules as the procedural law and provides for London as the
seat of arbitration.

3.2. The Appellate Award: Domestic or Foreign?

15
Judgment of Justice Sinha Para 9; Also Section 23 of the Indian Contract Act, 1872 states that statutory jurisdiction
cannot be waived by a contract.
16
Sumeet Kachwaha, Enforcement of Arbitration Awards in India, (2008) 4 Asian International Arbitration Journal,
p. 66.

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In such a situation, debates have often arisen as to whether it is the law of the seat of arbitration or
the applicable substantive law, which will govern the arbitration agreement17. Courts and Tribunals
have gone in with both interpretations, sometimes preferring the seat and sometimes the
substance18. This debate is crucial in this case as the governing law will determine whether the
appellate award is a domestic award or a foreign award. In the appellate arbitration, the law of the
seat is English Law, owing to the proceedings being conducted in London and the law governing
the substance of the contract is Indian Law. The question to be considered here is whether an award
made in pursuance of the substantive law (Indian Law) as the governing law in a foreign
jurisdiction, is domestic or foreign.

In the present case, the conditions under Section 44 for recognition of a foreign award have been
satisfied. Justice Chatterjee gave some input in this regard. He opined that under the present Act,
an award in pursuance of an arbitration agreement governed by Indian Law, if the conditions under
Section 44 are satisfied, will not cease to be a foreign award, merely because the arbitration
agreement is governed by the law of India19.

At this juncture it is important to discuss the jurisprudence in India regarding the implied exclusion
of Part I of the Arbitration Agreement by the parties. The cases on implied exclusion of Part I of
the Indian Arbitration Act, 1996 are composed of four variants, firstly, the contract designates a
foreign proper law but no seat of arbitration20, secondly, when the seat of arbitration and the law
governing the contract is foreign21, thirdly the contract designates a foreign proper law and a
foreign seat of arbitration22 and finally when the substantive law is Indian and the law governing

17
Julian DM Lew, Loukas Mistellis and Stefan Kroll, Comparative International Commercial Arbitration, Kluwer
Law International, The Hague, 2003, p. 107; Alan Redfern, Martin Hunter, Nigel Blackaby, Constantine Partasides,
Redfern and Hunter on International Arbitration, Fifth Edition, Oxford University Press, London, 2009, pp. 166-172.
18
Union of India v, McDonnell Douglas Corp. [1993] 2 Lloyds Rep 48 where the law of the substance was considered
to be the applicable law; Noble Assurance Company and Shell Petroleum Inc. v. Gerling Konzern General Insurance
Company UK Branch [2007] EWHC 25322.

19
Judgment of Justice Chatterjee Para 40.

20
Indtel Technical Services v WS Atkins 2008 (10) SCC 308; Citation Infowares v Equinox Corporation 2009 (7) SCC
220.
21
Max India Ltd. v. General Binding Corporation (2009) 3 Arb LR 162 (DEL) (DB).
22
Dozco India P. Ltd. v. Doosan Infracore Co. Ltd. 2010 (9) UJ 4521 (SC).

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the arbitration agreement and the seat of arbitration is foreign23. The Apex Court has found that
except the first situation, all the other situations warrant an exclusion of Part I of the Act through
implication. However, the case at hand is unique in the sense that the second part of the clause
does not provide the curial law to govern the arbitration agreement but only provides for ICC Rules
as the procedural law.

However, the curial law, which is in most cases a set of rules, need not be specified in an arbitration
agreement to impliedly exclude Part I. Unless the curial law is expressly mentioned as Indian Law,
non-specification of such law is not material because Courts have presumed curial law to be the
law of the country in which the seat of arbitration resides. In Dozco v. Doosan24, the Supreme
Court held that “in the absence of express agreement, there is a strong prima facie presumption
that the parties intend the curial law to be the law of the 'seat' of arbitration”. This view was first
adapted by the Supreme Court in NTPC v Singer25, and was later followed by the Bombay and
26
Delhi High Courts in Frontier Drilling A.S. v. Jagson Internatural Limited and DGS Realtors
Private Limited v. Realogy Corporation27.

Hence, as Justice Sinha rightly points out, the parties wanted to exclude the application of Part I
of the Act. Thus the award passed by the Tribunal in this regard would be a foreign award governed
by Part II of the Act.

3.3. Whether Two-Tier Arbitration is in the nature of an appeal?

An appeal, as a general rule, is reopening of the case by a higher forum to check any error of law
or fact that the lower forum may have committed. Such rehearing will be subject to the same set

23
Videocon Industries v. Union of India 2011 (6) SCC 161; Hardy Oil and Gas Limited v. Hindustan Oil Exploration
Company Limited and others (2006) 1 GLR 658.
24
(2011) 6 SCC 179.
25
(1992) 3 SCC 551.
26
(2003) 3 Arb. LR 548.
27
MANU/DE/2115/2009.

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of laws as it is a continuation of the proceedings28. It was observed by Justice Sinha that two-tier
arbitration in the present case does not run on the lines of an appeal by virtue of different laws
governing the arbitration proceedings at the two tiers. Additionally, the forum (here London)
selected to conduct the proceedings in the second tier can in no way be considered higher than the
forum which arbitrated the matter in the first tier. He was of the view that an appellate arbitration
thus, is not really in the nature of an appeal; It is almost like a new arbitral proceeding.

However, it can be argued that both the proceedings were subject to the same set of laws i.e. the
substantive law governing the dispute, the laws governing the contract and the arbitration clause
were same in both proceedings. Only the procedural laws were different as they were governed by
different arbitration institutions. Furthermore, the appellate tribunal can be considered higher than
the initial forum since it has the jurisdiction and the power to overturn the initial award.

Apart from the express wording of the Clause there is no other way to ascertain whether such
proceedings were really in the ‘nature’ of an appeal or not. However, it must be kept in mind that
the second award was in succession of the initial award and as such, part of the same proceedings.
Moreover, in Snehadeep Structures Private Limited v. Maharashtra Small Scale Industries
Development Corporation Limited29, the Apex Court itself observed that an appeal need not
necessarily lie from an inferior Court to a superior court. The Division Bench cited the following
as an example of an appeal -

“Though practically unknown in India, there are two tier arbitration mechanisms known to other
jurisdictions. These contemplate appeal from an arbitral award to yet another appellate arbitral
tribunal. The arbitrator and the appellate arbitral tribunal do not constitute inferior and superior
Courts, but a challenge instituted against the award passed by the former before the latter is
treated as an 'appeal' nonetheless.”30

Since the Apex Court itself, four years after the Centrotrade judgment, included appellate
arbitration in the list of examples of appeals, it is safe to say that two-tier arbitration is in the nature

28
Judgment of Justice Chatterjee Para 35; The Special Officer, Salsette Building Sites v. Dossabhai Bezonji. (1913)
ILR 37 Bom 506; Manavikraman Tirumalpad v. The Collector of the Nilgris (1918) ILR 41 Mad 943.
29
AIR 2010 SC 1497.
30
AIR 2010 SC 1497, para 46.

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of an appeal against the initial award. This will be an important point to keep in mind when we
discuss the merger of awards in subsequent sections.

IV. THE ENFORCEMENT DILEMMA

4.1. The Binding Nature of Awards in India

Chapter VII of the Act deals with finality and enforcement of domestic awards in India. A domestic
award is considered final and binding under Section 35 of the Act and is enforced in India in the
form of a decree under Section 36 of the Act. It must be noted that Section 35 again uses the term
‘arbitral award’. In previous sections of the paper, we have already established that in two-tier
arbitrations, under the 1996 Act, the term ‘arbitral award’ means the second award, if any, awarded
by an appellate arbitral tribunal. Therefore, the initial award cannot be said to be final and binding
on the parties; hence, an Appeal can be filed against the inconclusive and non-binding initial
award.

4.2. Non-merger of the two awards

The argument put forward by Justice Sinha holds good in the sense that since the first arbitration
gives rise to a domestic award and the second arbitration gives rise to a foreign award, the doctrine
of merger cannot apply31. Even though it can be argued that the law applicable is the same but
since the nature of the awards passed under both tiers of arbitration is different, both the original
and the appellate body cannot pass the exact same order.

In this case, the two tiers of arbitration produced two different awards i.e. domestic and foreign.
However, had there been one single forum, both for the first tier and the appellate arbitration, with
a specified time frame before 3 months, the appellate arbitration could have been valid. This is
because the doctrine of merger would have applied since it would have been the continuation of

31
Judgment of Justice Sinha Para 8. The doctrine of merger is a common law doctrine founded on the principle of
propriety and the hierarchy of the system of granting justice. It was recognized in cases of State of Madras v. Madurai
Mills Co. Ltd. AIR 1967 SC 681 and Kunhayammed v. State of Kerala (2000) 6 SCC 359.

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the same proceedings and the appellate award would have overruled or incorporated the award
passed in the first tier32.

4.3. The Legal fiction and Enforceability

The situation in India is such that on expiry of the time period for challenge to an award or on
which a challenge under Section 34 is not accepted, automatically becomes a decree. This is the
legal fiction that is created by Section 3633. However, it cannot be said that the drafters wanted to
force the acceptance of an award on the parties. In Dowell Leasing And Finance Ltd. v.
Radheshyam B. Khandelwal34, the Bombay High Court accepted the appellate award is the one
that can be challenged under Section 34. In addition there is another way by which this legal fiction
under Section 36 can be avoided. In a situation where in spite of the appellate arbitration clause an
award is challenged under Section 34, the Court has two alternatives. It can either set aside the
award so made or dismiss the application as premature and refer the parties to appellate arbitration
under Section 8 due to the presence of a clause to the effect. The Court is technically not refusing
the application for setting aside the award under Section 34(2). It is only dismissing the petition to
that effect. Thus if we give effect to the provisions of Section 8 and Section 34 together there is a
possibility of avoiding the automatic triggering off of Section 36. The award would then not be a
decree even though the three month time period has expired. Another way to circumvent the
legislative restrictions is to utilize Sections 34 and 37 collectively. The scheme of Sections 34, 35,
36 and 37 of the Act is not to enforce an award only after all the remedies for setting aside the
award are exhausted.35 Where the parties have contracted for appellate arbitration, once the initial
award has been passed, the aggrieved party may apply for setting it aside under Section 34. Since
the execution of the arbitration award is not maintainable during pendency of application for
setting aside award,36 in the meantime they may approach the desired appellate tribunal.

32
Maharashtra State Cooperative Cotton Growers Marketing Federation Ltd. v. Ralli Bros. and Coney Lrd. (1992) 1
Bom CR 485.
33
Global Co. v. National Fertilizers Ltd. 1999 (3) RAJ 573 (Del).
34
2008 (1) Arb LR 512 Bom.
35
Vipul Agarwal v. Atul Kanodia and Co., AIR 2004 All 205 (207).
36
Damodar Valley Corporation v. CESC Ltd., AIR 2005 Cal 67; National Aluminum Co. Ltd v. Pressteel and
Fabrications (P) Ltd., (2004) 1 SCC 540; IOCEE Exports Ltd. v. Kalyanee Marine, AIR 2007 (DOC) 133 (Mad).

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Furthermore, Section 37 (1) (b) provides for appeal against an order setting aside or refusing to set
aside an arbitral award under Section 34. When the order of the Court u/s 34 is passed, they may
further appeal u/s 37 (1) (b) so as to prolong the time period after which the initial award becomes
an executable decree and buy more time for the appellate tribunal to pass the subsequent award. If
this extra time period is still not enough for the appellate proceedings to conclude, the parties can
further challenge the order passed by the Civil Court in appeal u/s 37 for revision before the High
Court under Section 115 of the Code of Civil Procedure.37

Thus, by opening successive avenues for litigation, the parties can prolong the period after which
the initial award becomes executable u/s 36 of the Act.

V. INTERNATIONAL SCENARIO

Appellate arbitration is an internationally recognized phenomenon which is not without its fair
share of criticisms. In the United Kingdom, the English Arbitration Act expressly recognizes the
concept of two-tier Arbitration. Section 70 of the English Act says that an application or appeal
under Sections 67, 68 or 69 may not be brought before the Court if the applicant has not exhausted
any available arbitral process of appeal or review. Similarly in France, Articles 1481 and 1482 of
the French Civil Code provide for an appeal to an arbitral tribunal to review the award passed in
the first instance. The Netherlands and Austria also provide for similar provisions in their domestic
arbitration Acts for appeal from the first award38. Scholars have also supported the existence of a
two-tier arbitration clause as a safeguard for preventing errors in arbitral awards39.

Apart from domestic statutes, the rules of various Arbitration institutions around the world provide
for appellate arbitration. The rules of the International Institute for Conflict Prevention and
Resolution (CPR)40, Judicial Arbitration and Mediation Services (JAMS)41 and National

37
I.T.I Ltd. v. Siemens Public Communications Networks Ltd., (2002) 5 SCC 570.
38
Netherlands CCP Article 1050, Austrian CCP 4th Chapter, Article 594 (1983 Modification).
39
William H. Knull III and Noah D. Rubins, Betting the Farm on International Arbitration: Is it Time to Offer an
Appeal Option?, 11 Am Rev International Arb 531 (2000); Judge Rudolph Kass: A Private Path to Appellate
Arbitration, 50 FEB B J 35 (2006).
40
CPR Rule 8.2.
41
JAMS Rule D.

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Arbitration Forum (NAF)42 provide for appellate arbitration. Also international institutional bodies
like the World Trade Organization (WTO)43 and International Center for Settlement of Investment
Disputes (ICSID)44 provide for an appellate dispute settlement mechanism.

Thus, it is evident that appellate arbitration is gaining ground because of its flexibility in providing
parties with an alternative to protracted litigation in courts of law. It is a boost to party autonomy
and recognition of the same would be the exact thing that India needs in order to be identified as
an arbitration friendly jurisdiction.

VI: CONCLUDING REMARKS

The case did not produce a clear verdict in the Apex Court, with both Justice Sinha and Justice
Chatterjee giving widely contrasting judgments. The matter now is before a three-judge bench of
the Apex Court which will finally provide an answer to whether such a clause is valid in India or
not. It must be noted that the Division Bench judgment was given in 2006 and the case has been
pending before the Court for 8 years.

While it is understandable that it is not possible to decide an important case with complex issues
like this expeditiously; nevertheless, eight years is still a long wait for getting a final say on a
matter of such huge ramifications. For one, if the decision is against the validity of appellate
arbitration, various Indian institutions with arbitral procedures for appeal will be poorly affected.
For eg. Securities Exchange Board of India (hereinafter SEBI) provides an appellate arbitration
mechanism for settlement of disputes between a client and a member.45

While it is true that the finality of the initial award is compromised, but appellate review often
enhances the quality of the decision-making process, rectifies errors in facts and law by allowing

42
NAF Rule 1(D).
43
Article 17 of the Dispute Settlement Understanding (DSU) in Annex 2 of the WTO Agreement, 1994
44
The concept of appellate arbitration has been brought into the ambit of the ICSID through a relaxed interpretation
of Article 52 of the ICSID Convention. Although it has faced its own share of criticism.
45
MANU/SSMD/0061/2010, para 6.1.

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the parties to secure expertise and quality decision-making by appointing experienced arbitrators.
Such is often required in multimillion dollar disputes.

A rational judgment which could be passed by the three judge bench in this case would be allowing
appellate arbitration looking at its objective advantages and at the same time specifying certain
guidelines to harmonize it with the prevailing Arbitration Act.

Firstly, if an internal appeal mechanism is allowed in the clause, it should be ensured that both the
first tribunal and the second tribunal are capable of passing same awards so that the decision of
the appellate forum can be merged with the initial forum.

Secondly, there should be provisions to overcome the legal fiction that arises when the first award
on expiry of three months becomes a decree. Since this legal fiction is unique to India, so appellate
arbitration tribunals should mandatorily stay the operation of the first award or dismiss a petition
for its enforcement when a second tier is provided in the clause. The award should not be allowed
to remain in suspended animation.

Thirdly, there should be an express bar to approach the Court before both the tiers of arbitration
are exhausted on the lines of the English Arbitration Act.

Finally, appellate arbitration is a much more viable option if it is before the same institution which
carried out the first arbitration. The difference could be a larger bench in the appellate arbitration
which the parties would consider as binding on themselves. In order to do that, parties should
approach an institution which administers arbitration with an appeal mechanism. Institutional rules
providing for internal appeals should provide specific information on the status of the award under
appeal. Appellate arbitration would thus go a long way in strengthening the faith of parties in the
arbitral process. Allowing appellate arbitration would serve as a positive step in complying with
accepted international practices. The Supreme Court cannot hope to sit on the fence this time. It
has to take a stand between party autonomy and judicial intervention. Irrespective of what the three
judge bench of the Supreme Court decides; the decision is going to have a major impact on the
law of Arbitration in India.

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