Two tier arbitration, also known as second instance arbitration, is a relatively new concept in India and recently its legal validity has been upheld by the Hon’ble Supreme Court. A common example of widely prevalent two-tier arbitrations is the arbitration mechanism of the Bombay Stock Exchange (BSE), wherein the parties to a dispute arbitrate before a Sole Arbitrator and thereafter before an appellate tribunal consisting of two arbitrators and a presiding sole arbitrator.
Two Tier Arbitration in India: Concept
A two-tiered arbitration clause envisages both the primary and an appellate tribunal. Simply, it sets up a mechanism of not only the establishment of an arbitral tribunal but also an appellate tribunal at the instance of the parties. The award passed by the level one arbitral tribunal is not binding unless approved by the mentioned appellate authority, hereunder this kind of Arbitration.
Recognition and Enforceability of Two-Tier Arbitrations in India
In India, such arbitration does not have legislative recognition; that is to say that the Arbitration and Conciliation Act, 1996 (“Arbitration Act“), does not contain any provision for the same. Although generally accepted in Courts in India, decided in the case of
Shri Lal Mahal Ltd. v. Progetto Grano Spa [(2014) 2 SCC 433] and Shubhash Agencies v. Bhilwara Synthetics Ltd. [(1995) 1 SCC 371]-Under Arbitration Act, 1940, two-tier arbitration have had a fluid legal legitimacy, depending upon the Courts before which it came to be questioned.
In other words, in the absence of any statutory provision recognising or prohibiting two-tier arbitration in India, the same continued to be legal unless held otherwise by a court of competent jurisdiction.
Such ambiguity was eventually put to rest by the Full Bench of the Apex Court in a recent judgment that categorically upheld the enforceability of the award made under a two-tier arbitration.
In brief, the case arose from a reference made by a Division Bench of the Court in the case of Centrotrade Minerals & Metal Inc. v. Hindustan Copper Ltd. [(2017) SCC 228] arising out of differences of opinion on the issue of enforceability of an award made under a two-tier arbitration. Briefly, the facts are as such; certain disputes arising under a contract for the supply of goods entered into between parties included a two-tier arbitration clause before the Indian Council of Arbitration and the International Chamber of Commerce at London, respectively. The award was eventually passed by the ICC, and was sought to be enforced under S. 48 (Condition for Enforcement of Foreign Awards) of the Arbitration Act by the award holder. At the same time, the enforcement of the award was challenged and resisted by the award debtor.
The Full Bench, while upholding the validity and enforceability of the award, inter alia, held that “The fact that recourse to a court is available to a party for challenging an award does not ipso facto prohibit the parties from agreeing to take a second look at an award.
The Court further held that recognition of such practices in India was vital to avoid subjecting a party to challenges to an award in multiple forums by way of proceedings in a civil court as well as under the Arbitration Act, something that was also sought to be achieved by the 2015 Amendment.
Conclusion–Persisting challenges in arbitration in India:
While the Apex Court judgment is a welcome step in recognition of India as an arbitration hub in the global market, this author is of the opinion that excessive time taken to enforce foreign and domestic awards in India remains a black spot for India.
It is the earnest hope of this author that immediate and stringent steps ought to be taken urgently by the Government to suitably amend the present provisions of the Arbitration Act and the Code of Civil Procedure, 1908, to reduce the time taken for enforcement of arbitral awards in India. One such example in this author’s opinion would be empowering arbitral tribunals to order interim measures for enforcement of their own awards.