The Post-Centrotrade Saga – Section 34 Challenge vis-à-vis Appeal in a Two-Tier Arbitration
The Centrotrade vs. Hindustan Copper Limited saga is concerned with the set of 3 judgments in 2006, 2016, and 2020, by which the Supreme Court held two-tier arbitration clauses to be valid in India, and in consonance with the provisions of the Arbitration and Conciliation Act, 1996 (“the Act” or “the Arbitration Act”) and the Indian Contract Act, 1872. Two-tier arbitration essentially refers to an arbitration structure, wherein a party that is dissatisfied with the original award, can appeal to an appellate arbitration forum, as agreed upon by the parties in the arbitration agreement, under the normal grounds of appeal.
After briefly summarizing the decision, this article will seek to answer, in the context of a domestic two-tier arbitration structure, a question that was opened up by such a dictum: the effect of, and the interplay between two concurrent remedies against the original award - section 34 and arbitration appeal. The author argues that the court must desist from entertaining an application u/s 34, depending on the nature of the ground of such a challenge, in a two-tier arbitration system, when the remedy of appeal is available with the aggrieved party.
The Centrotrade Decision
The arbitration clause in the facts of the Centrotrade case provided for the reference of disputes to arbitration under the Indian Council of Arbitration, and an appellate mechanism against such an ‘arbitration result’ to a second arbitration in London under the International Chamber of Commerce.
The 2006 judgment ended with a split verdict with Justice S.B. Sinha and Justice Tarun Chatterjee holding opposite opinions in two major themes. First, concerning the applicability of the doctrine of merger (the doctrine has been explained below), as opposed to the final award being an admixture of the two awards. This culminated in the larger contention of violation of public policy. Second, the legislative intention. The 2016 judgment finally confirmed the validity of two-tier arbitration clauses in India, holding that its impermissibility cannot be assumed simply in the absence of any enabling provisions. It held that sections 34, 35 and 36 do not bar recourse to a second-tier for appeal and that the two-tier structure is not against the fundamental policy of Indian Law. This was held in the context of the importance of party autonomy. Once the two-tier structure was held permissible, the 2020 judgment delved into the issue of enforceability, which is not the focus of this article and therefore not relevant to this discussion, since it was focused on the question of whether the Second Award would be recognised as a ‘foreign award’ enforceable under Section 48 of the Indian Arbitration Act.
The Legal Issues – Section 34 and Arbitration Appeal
A section 34 challenge to set aside an award is based on various grounds which go to the very root of the matter, necessarily requiring court intervention; they cannot merely be based on the merits of the dispute, requiring a review of the award. They are related to lack of jurisdiction due to improper constitution of the tribunal or inadequacy of the ambit of the arbitration agreement, non-arbitrarbility of the subject matter, procedural issues arising vis-à-vis the arbitration, and patent illegality. The grounds of such a challenge to an award can be classified into four categories, as will be set out below.
Section 34 And Appeal Vis-À-Vis The First Award – Should The Court Interfere Or Refer The Party To Appellate Arbitration?
The interaction between an appellate remedy and the section 34 challenge to the first award, under four categories, is as set out below:
1. Unreasoned award – In Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd., the Supreme Court classified lack of reasoning (unintelligible award) and a gap in reasoning (inadequately reasoned award) as ‘curable’ under section 34(4). Thus, the award need not be set aside when such a recourse of reverting the award to the tribunal for recording reasons is available.
In this situation, the author additionally states that the award would only be amenable to appeal once the defect is cured under section 34(4) and the arbitral tribunal provides the requisite reasoning. This reasoning would enable the appellant to ascertain and set out the grounds of appeal.
2. The dispute not being amenable to arbitration: The dispute between the parties may not be amenable to arbitration if the situation falls u/s 34(2): (a)(i),(ii),(iv) & (b)(i). In these situations, a successful challenge under section 34 would render the entire arbitration proceedings invalid/void and there would, thus, be no scope for invoking appellate arbitration.
3. Ex-Parte Awards: Section 34(2)(a)(iii) deals with situations wherein one party, due to some reason, was unable to present its case. The award passed can thus, be said to be in the nature of an ex-parte award. Section 34(2)(a)(iii), in this situation, is analogous to Order 9, Rule 13 of the Code of Civil Procedure that provides for the setting aside of an ex-parte decree.
In Bhanu Kumar Jain vs Archana Kumar, the Supreme Court held that the aggrieved party can take recourse to both the proceedings simultaneously – Order 9 Rule 13 and civil appeal. However, applying the principle of ‘cause of action estoppel’, and having regard to the Explanation appended to the provision, once such appeal is disposed of, the ex-parte decree merges with the order of the appellate court, and the petition under Order 9, Rule 13 would not be maintainable. The same principle may be argued to be applicable to an award passed ex-parte, allowing the aggrieved party to proceed with either or both of the remedies – section 34 and arbitration appeal.
However, unless some good cause can be made out in line with the objectives of the Act, where both the remedies are available to the aggrieved party (or negatively put, neither of the two remedies has been expressly curtailed from the party’s exercise), the courts must generally desist from interfering u/s 34, before the exhaustion of the appellate remedy. This is contended for the following reasons. Since the setting aside of the award would relegate the parties to their original position (i.e., before the commencement of the arbitral proceedings), the important statutory objective of speedy resolution as well as the parties’ very object while consciously incorporating the two-tier model (to allow the recourse of an appeal and to exclude/limit the court’s jurisdiction) would stand defeated. The same would also be contrary to the judicial trend and the statutory scheme to limit court interference u/s 34 and to adopt a pro-arbitration approach, as a result of which the courts are barred from trying an issue that is otherwise amenable to arbitration u/s 5.
4. Remaining Grounds: The remaining grounds either relate to the procedural defects – u/s 34(2)(a)(v), or the award either being in conflict with the public policy of India – u/s 34(2)(b)(ii), or being vitiated by patent illegality – u/s 34(2A).
The question that now turns up is regarding the maintainability of a section 34 application challenging the first award on the aforementioned ‘remaining grounds’ when the award is still amenable to appeal in the two-tier system, and whether a court under section 34 must necessarily take up the challenge for consideration. The author argues that in such a situation the court must desist from entertaining an application under section 34 when the award is amenable to appeal. The argument for this is two-fold.
The first part is based on the nature and exercise of jurisdiction of the court u/s 34 being akin to that of the High Court’s Certiorari Writ Jurisdiction u/A 226 of the Constitution on two important grounds. Therefore, the judicial approach of exhausting all alternative efficacious remedies before approaching the writ court must also be followed before approaching a section 34 court. In the second part, the author argues that this approach of exhausting all alternative efficacious remedies would be in line with the objectives of the Arbitration Act along with its amendments.
For the first argument, it is first stated that the aforementioned provisions of the ‘remaining grounds’ are akin to those required to invoke the supervisory powers of the High Court under its Certiorari (Writ) jurisdiction.
Section 34(2)(a)(v) relates to errors of jurisdiction since a wrongful composition of the tribunal entails the wrongful assumption of jurisdiction by the arbitrator(s). Section 34(2)(b)(ii) relates to the public policy of India, inter alia, the fundamental policy of Indian Law and includes disregarding orders passed by the superior court, breach of a legal principle or legislation that is so basic to Indian law that the same can't be compromised with, and time-honoured hallowed principles which are consistently followed by the courts in India. The same would, however, not include mere breach of provisions of law. Section 34(2A) relates to patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter, but which does not amount to the mere erroneous application of the law; this would include contravention of a statute.
The Supreme Court, while analyzing the true scope of the certiorari writ jurisdiction, in Hari Vishnu Kamath vs Syed Ahmad Ishaque, held that the court can exercise this jurisdiction over tribunals and inferior courts: (i) for correcting errors of jurisdiction [corresponding to section 34(2)(a)(v)]; (ii) when they act illegally while exercising vested jurisdiction or violate principles of natural justice; and (iii) for correcting errors of decision or determination, if the errors are manifest on the face of the proceeding, i.e., patent errors [(ii) and (iii) - patent illegality and fundamental policy - corresponding to section 34(2)(b)(ii) and section 34(2A)]; while excluding from its scope mere wrong decisions, since the court under certiorari is acting as a supervisory court and not an appellate court.
Secondly, it is added that both the High Courts under their Certiorari Writ Jurisdiction (Article 226) and the section 34 court, exercise supervisory jurisdiction. Just as the High Court under its certiorari jurisdiction cannot substitute a decision of its own in place of the impugned decision, the section 34 court, as per the statutory scheme, may either dismiss the objections and uphold the award, or set aside the impugned award, but it cannot put its own decision in place of it. The High Court, subject to certain exceptions, must not intervene under Article 226 unless all the alternative efficacious remedies have been exhausted. Further, the nature and exercise of jurisdictions are similar under Article 226 (Certiorari) and Section 34 of the Act. Therefore, it is contended that the section 34 court must also, applying the same doctrine of exhaustion of alternative remedies, not consider the challenge to the award when it is amenable to appeal in the two-tier system.
Of course, it may be argued that the High Court under Article 226 exercises a Constitutional and an Extra-Ordinary remedy which is distinguishable from the statutory powers under section 34 and that the doctrine of exhausting alternative remedies is generally only applied towards the High Court’s writ jurisdiction.
However, it is stated that the application of the doctrine, which has been developed as a matter of policy, to make the dispensation of justice, convenient and efficient, can and must be applied, as far as justiciable, for the same purpose, to the intervention by courts under section 34. This is especially because of the analogousness of the two provisions, apparent, not only on the nature and grounds of their jurisdictional exercise; but also because of the total curtailment, despite the overarching sweep of constitutional remedies, on the exercise of the writ jurisdiction against an award (owing to section 5 of the Act), subject to only one exception – patent lack of inherent jurisdiction. This Article 226 writ jurisdiction, which incorporates this doctrine as a self-imposed restriction, itself emanates from common law. And just as the common law, acting as a safety net, is used to fill the legislative gaps, the doctrine is required to fill in the gaps in the scheme of the Act, which has not seen any relevant legislative amendment since the judicial recognition of the two-tier arbitration system in India, thus creating, the ‘gap’.
The availability of alternate remedies also provides for the nature of jurisdiction to be discretionary. While that is well-settled for the High Court u/A 226, the author contends that for section 34, the use of the introductory words “An arbitral award may be set aside by the Court only if—“ u/s 34(2), and the words “…may also be set aside by the Court, if…” u/s 34(2A) allows for the court to exercise discretion even if the grounds for challenge otherwise exist. In addition, in the context of the two-tier arbitration structure, a court u/s 34 would still exercise a ‘superior’ jurisdiction vis-à-vis the appellate arbitration remedy, and not an additional/concurrent remedy, given the primacy given to arbitration. Thus, the application of this doctrine to section 34 would not be out of place.
Moreover, this judicial principle has been adopted in the English Arbitration Act of 1996. The court interference to challenge an award as provided for under sections 67, 68, and 69, which are analogous to the grounds under section 34 of the Indian Act, require the party, as a pre-requisite u/s 70(2), to exhaust “any available arbitral process of appeal or review”. This has been described under section 82(1) to include the appellate or review proceedings against an award, as vested by the parties in another forum. Thus, the English Act recognizes not only the two-tier arbitration system, but also the principle of exhausting all alternative remedies of appeal and review before approaching the court for interference with the award. The same must now, after the 2016 Centrotrade judgement, be adopted under section 34 by the Indian Courts, which have consistently followed the English arbitration law.
The second argument relates to the legislative object behind the Arbitration Act, and the very purpose of having a second-tier, both of which would stand defeated if court intervention is accepted without the exhaustion of alternative remedies. This has been explained above under ‘Ex-parte awards’.
In this regard, the author concludes that in line with the objectives of arbitration to provide a speedy, efficient and pro-arbitration remedy, respecting party autonomy and the very intention of creating the appellate forum, the availability of the appellate remedy against the first award, must thus, cause the court to restrain its exercise under section 34, and thereby desist from entertaining applications to set aside the original award.
† Abhinav Jain is a 4th-Year B.A. LL.B (Hons.) student at University School of Law and Legal Studies, GGSIPU (Main Campus), Delhi
 “Explanation.—Where there has been an appeal against a decree passed ex parte under this rule, and the appeal has been disposed of on any ground other than the ground that the appellant has withdrawn the appeal, no application shall lie under this rule for setting aside that ex parte decree.”  Moreover, the Law Commission in its 246th Report observed, in this regard, on page 8: “After the award, a challenge under section 34 makes the award inexecutable and such petitions remain pending for several years. The object of quick alternative disputes resolution frequently stands frustrated”,  The petition for special leave to appeal against this decision has been dismissed by the Supreme Court vide Order dated 19.01.18 in SLP(C) No.32244/2017. Background: Post the 2015 Amendment, the Supreme Court in Ssyangyong Engineering, narrowed down the ‘patent illegality’ test to the standard set in ONGC v. Saw Pipes. Further, it relegated ‘fundamental policy of Indian law’ to the interpretation in Renusagar Power vs General Electric, (1994) Supp (1) SCC 644, and held it to not include ‘patent illegality’, which would be covered u/s 34(2A) for domestic arbitrations only. It would also not include the three juristic principles added in ONGC v. Western Geco, (2014) 9 SCC 263 as that would entail a review into the merits of the dispute. . The Supreme Court then, in Vijay Karia, affirming the Delhi High Court decision in Cruz City held that ‘fundamental policy’ connotes the legislative principle and provisions that form the bedrock to the laws of the country and further also included the hallowed legal principles followed by courts, in its scope.  (1)Fundamental Rights, (2)Principles of Natural Justice, (3)Wholly Lacking Jurisdiction, (4)Vires of Legislation Challenged.