By: Utkarsh Srivastava and Dhairya Kumar
Introduction:
Party autonomy is a concept which forms the centre to the arbitral process. The leeway to the parties in deciding the manner of adjudication of their dispute should be ensured given that the leeway is exercised within the scope of the national law on the subject applicable in the country. Two-tier arbitration is an extension to this leeway. This basically means a structure, where parties have an option to appeal against the original arbitral award passed. This structure is effective for the fact, that it allows both the parties to review an award, in case any of the parties involved is not satisfied with it.
Validity in Indian Context:
The concept of two-tier arbitration is not much in use in context of arbitration agreements enforced in our country. The Arbitration and Conciliation Act, 1996 does not contain any provision that allows for such two-tier structures to exist, but at the same time it must also be noted that the Act does not explicitly put a bar on such structure. Thus, it can be said that the position adopted by the governing statute in this regard is not clear. In such a scenario, the role of interpretation presented by the judiciary becomes crucial in determining its validity. The Supreme Court determined the validity of two-tier arbitrations in India in the case of Centrotrade Minerals and Metals Inc. v Hindustan Copper Ltd.
The case involved an application of a provision of the arbitration agreement wherein a structure which called for an appellate arbitration. This manner of adjudication was challenged before the Supreme Court as being ultra vires of the Arbitration & Conciliation Act, 1996 and thus invalid to be adopted as a procedure for an arbitration seated in India.
The basis of the challenge was a rationale that Section 34 of the Act which prescribed grounds on the basis of which an award can be challenged before the court was exhaustive in nature and it did not prescribe any other forum apart from the court of law to challenge an award given by a domestic arbitration. The Arbitration Act did not contain any provision that allows the parties to enter into a two-tier structure. Thus, such a structure should be held as void to the public policy.
After a series of litigations, the court finally held that the arbitration result had all the elements of an award and the creation of a non-statutory appellate mechanism for the resolution of disputes between the parties without involving court processes is valid even without there being any explicit provision in the Indian laws allowing the same. In its interpretation of Section 34(1) and Section 35, the bench held that an arbitral award is final and binding unless it is set aside by a competent court and this does not exclude the parties to enter into a two-tier appellate mechanism where an arbitral award is being reconsidered by another panel of arbitrators.
Hence, it is now settled that the concept of two-tier arbitration is well within the confines of the law on the manner of procedure in the arbitration law of India. This amalgamation comes with a set of jurisprudential gaps; loopholes which have to be filled by the judiciary. We in our analysis present some of these gaps which we were able to identify in our discussion on the topic.
Firstly, whether the first award will be within the purview of Section 35 of the Act after it is made by an arbitral tribunal and time limit to file an appeal has not passed. Secondly, in this case, whether parallel enforcement or set aside proceedings are possible alongside the appeal proceedings. If yes, then, thirdly, in the enforcement proceedings, what would be the nature of the award which will be presumed.
The answers to these questions clearly require a study of the interplay between the scheme of the Act, the legislative intent behind the applicable provisions and the nature of the mechanism of two-tier arbitration.
RMLNLU Arbitration Law Blog 