Upholding Foreign Arbitral Awards based on Constructive Res Judicata

Petitioner: Centrotrade Minerals & Metals Inc.

Respondent: Hindustan Copper Limited

Date: 9th April, 2024

Coram: Hon’ble Justice Sugato Majumdar

Citation: IA NO. GA/5/2021 in EOS/11/2003

Facts:

• Hindustan Copper Limited (HCL) and Centrotrade Minerals and Metals Incorporation entered into an agreement in 1996 for the purchase of 15,500+- 5% copper concentrate.
• Disputes arose regarding delivery and payment under the agreement which led to the parties resorting to the two-tier arbitration mechanism.
• An Arbitration Tribunal was then appointed by the International Chamber of Commerce which then ruled in favour of Centrotrade in an award dated September 29, 2001.
• The Single Bench of the High Court deemed the award enforceable, but this decision was challenged on appeal to the Division Bench. While the Division Bench upheld the validity of the two-tier arbitration agreement, it invalidated the enforceability of the award.
• Both parties then filed Special Leave Petitions before the Supreme Court of India, leading to the case being referred to a larger Bench to address key issues regarding the enforceability of the arbitration process and the foreign award.

Issues:

Whether under Section 31(7) and Section 28 of the Arbitration and Conciliation Act, the arbitrator’s departure from the agreed interest rate specified in Clause 11.4.2 of the agreement, resulting in the imposition of compound interest at a different rate, violates statutory provisions and the fundamental policy of Indian law, thereby rendering the award non-enforceable, despite the prior decision of the Supreme Court affirming its enforceability?

Judgement:

• The court affirmed the enforceability of the foreign arbitral award, citing a precedent from 15/12/2006. The judgement, delivered by a three-judge bench of the Supreme Court, upheld the validity of a two-tier arbitration procedure, emphasising that such a mechanism does not violate the Arbitration and Conciliation Act, 1996.
• Additionally, the court referenced a 2/06/2020 order upheld enforceability of a foreign award in India, reflecting on the Renusagar Power Company Limited v. General Electric Co.^[1], to establish a narrow interpretation of “public policy”. This principle clarified that an award is only unenforceable in India if it explicitly violates India’s public policy.
• The court also observed that that the Sections 28 and 31 of the Arbitration and Conciliation Act, invoked by the Petitioner, do not extend to foreign awards, thus upholding arbitrator’s discretion to award compound interest, even if divergent from the contractually agreed rate, did not contravene statutory provisions or the fundamental policy of Indian law.
• The court also emphasised the principle of constructive res-judicata, holding that the Petitioner’s challenge to a portion of the award was precluded, given the prior conclusive decision of the Supreme Court affirming the award’s enforceability.

Conclusion:

The Calcutta High Court in the present case dismissed the petition and affirmed the enforceability of the foreign tribunal award. Accordingly, the Court ruled that since the matter of interest could have been raised during the initial consideration of the award’s enforceability before the Supreme Court, the petition is now barred by constructive res-judicata. Furthermore, the Court emphasised that once the entire award is deemed enforceable, there can be no rehearing regarding a portion of its enforceability.

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^[1] AIR 1994 SC 860.