published in http://judis.nic.in/supremecourt/imgs1.aspx?filename=40512
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 5085 OF 2013
(Arising out of SLP(C) No. 13721 of 2012)
Shri Lal Mahal Ltd. ……. Appellant
Vs.
Progetto Grano Spa ……Respondent
JUDGMENT
R.M. LODHA, J.
Leave granted.
2. The question for consideration in this appeal by special leave
is
whether appeal award no. 3782 and
appeal award no. 3783
both dated
21.09.1998 passed by the Board of Appeal of the Grain and Feed Trade
Association, London (for short, “Board of Appeal”) in favour of the
respondent are enforceable under Section 48 of the Arbitration and
Conciliation Act, 1996 (for short, “1996 Act”)?
3. By a contract dated 12.05.1994 between Shiv Nath Rai
Harnarain (India) Company, New Delhi (sellers) and Italgrani Spa, Naples,
Italy (buyers) a transaction relating to 20,000 MT (+/- 5%) of Durum wheat,
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Indian Origin (for short, “goods”) for a price at US$ 162 Per MT was
concluded. Some of the salient terms of the contract are as follows:
“Commodity Durum Wheat Indian Origine
new crop
Test Weight 80 KG/HL.MIN
Moisture 12 PCT.MAX
Vitrious 80 PCT. MIN
Broken 3 PCT. MAX
Proteine 12 PCT. MIN
Foreign Matter 2 PCT MAX
Sprouted/Spotted 1 PCT. MAX
Soft Wheat 1.5 PCT. MAX
Quantity 20,000 MT With 5%+/- Sellers
Option in 1 single shipment
Shipment 1-30/June 1994
Quantity final at loading
Quality, Conditions All final at time and place of loading
As per first class Intl Company Cert.
“S.G.S.”, nominated by the buyers
certificate and quality showed at the
certificate will be the result of an
average samples taken jointly at port
of loading by the representatives of the
sellers and the buyers.
Price US Dlrs 162,00 Per M. Ton FOB stowed
Kandla, Buyers to give 10 days
preadvise of vessels arrival
Payment Against 100 PCT L/Credit irrevocable
and confirmed for 100 PCT payable at
sight against Foll. Shipping docs
Other conditions All other terms and conditions not in
contradictions with the above to be as
per G.A.F.T.A Rules, 64/125 and its
successive Amendments (In force at
time and place of shipment date) which
the parties admit that they have
knowledge and notice.”
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4. The buyers opened a letter of credit (L/C) on 17.06.1994 in
favour of the sellers. The sellers claim that all documents required under
the L/C, including the S.G.S India Limited certificate, were submitted by
them which were accepted by the buyers’ bankers and payment was duly
released to the sellers.
5. The buyers nominated M.V. Haci Resit Kalkavan as the vessel
for loading of the goods. There was delay in shipment but that is not
material for the purposes of this appeal. The ship completed loading on
13.08.1994 and sailed for discharge port. The Bill of Lading was dated
08.08.1994.
6. The sellers faxed a copy of SGS India certificate of weight,
quality and packing to the buyers on 16.08.1994. The buyers passed a
copy of that certificate to SGS, Geneva with the request to them to issue
the necessary certificate under the sale contract which the buyers had
entered with ‘Office Alegerien Interprofessional das cereals’ (OAIC). After
the goods had reached the destination, the buyers sent a fax to the sellers
on 23.08.1994 advising that analysis carried out by S.G.S. Geneva
showed the wheat loaded was soft common wheat and not durum wheat as
required under the contract. The buyers considered the sellers to be in
breach of the contract for shipping uncontractual goods and held sellers
responsible for all losses/damages both direct and indirect arising out of
and the consequence of such breach.
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7. The sellers on 31.08.1994 responded to the above
communication and asserted that S.G.S. India was an inspection agency;
the wheat supplied was inspected by S.G.S. India at the time of
procurement and also before loading the vessel and the inspection agency
had confirmed that the wheat supplied met typical characteristics of Indian
durum wheat and complied with the specifications provided in the contract.
8. The buyers claimed arbitration on 04.11.1994 which was
registered as case no. 11715A. The Arbitral Tribunal, GAFTA proceeded
to arbitrate the dispute. The Arbitral Tribunal, GAFTA in its award dated
04.12.1997 accepted the buyers’ case that in appointing S.G.S. Geneva,
their aim was to safeguard the performance of both contracts by having one
company to coordinate all operations regarding inspection, control and the
issue of certificate relating to the cargo and rejected the sellers’ assertion
that having loaded the goods, and presented a certificate provided by an
international superintendence company, they had fulfilled their contractual
obligations. The sellers’ contention that S.G.S. India were nominated by
the buyers and they were agents for buyers was rejected. The Arbitral
Tribunal, GAFTA, concluded that wheat described on the certificate of
quality and condition presented by the sellers as durum wheat of Indian
origin was, in fact, soft wheat. The certificate was held to be uncontractual
and with regard to description, it was held that sellers were in breach of
contract and the buyers were entitled to damages based on the difference
between the contract price and the FOB value of the goods as delivered
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and buyers were also entitled to any further proven loss directly and
naturally resulting in the ordinary course of events from the breach. The
Arbitral Tribunal, GAFTA passed the final award in the following terms:
“We do hereby award that Sellers shall pay Buyers
forthwith the sum of US $ 1,023,750.00 (One million
twenty three thousand seven hundred and fifty United
States dollars) being the difference between the FOB
contract price-US $ 162.00 per tonne less US $ 2.00 per
tonne penalty for extending the shipment period, i.e. US
$ 160.00 per tonne, and the FOB price of the Soft wheat
shipped on m.v. “HACI RESIT KALKAVAN” i.e. US$
111.25 per tonne amounting to US $ 48.75 per tonne on
21,000 tonnes, equating to US $ 1023.750 together with
interest thereon at the rate of 7% (Seven percent) per
annum from 24th August 1994 to the date of this Award.
We do further award that Sellers shall pay Buyers
forthwith the sum of US $ 303,007.60 (Three Hundred
and three thousand and seven United States dollars and
60 cents.) being the loss incurred in replacing the wheat
shipped on m.v. “HACI RESIT KALKAVAN” with Durum
wheat shipped on M.V. “EUROBULKER 1” and M.V.
“SEA DIAMOND H” together with interest thereon at 7%
(Seven percent) per annum on:
US$ 276,512.40 (the loss on M.V. “EUROBULKER 1”)
from 1st October, 1994 to the date of this Award.
AND
US$ 26,495.20 (the loss on M.V. “SEA DIAMOND H”)
from 5th December, 1994 to the date of this Award.
We do further award that sellers shall pay Buyers
forthwith the sum of US $ 138,590.28 (One hundred and
thirty eight thousand five hundred and ninety United
States dollars and 28 cents) being demurrage incurred
on M.V. “HACI RESIT KALKAVAN” amounting to 19 days
10 minutes at US $ 7,000 per day/pro-rata equating to
US $ 138.590.28 together with interest thereon at a rate
of 7% (Seven percent) per annum from 30th September
1994 to the date of this Award.
We do further award that Sellers claim for the return of
US $ 42,000 fails.”
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9. It appears that following the commencement of arbitration
proceedings, the sellers contested the jurisdiction of the Arbitral Tribunal,
GAFTA. The sellers filed a petition in Delhi High Court for a declaration
that there was no arbitration agreement between the parties. They also
prayed for an order restraining the Arbitral Tribunal, GAFTA from
proceeding with the arbitration initiated by the buyers. Although initially
interim order was granted but the petition was finally dismissed by Delhi
High Court. The special leave petition from that order was dismissed by
this Court. In the meanwhile, the Arbitral Tribunal, GAFTA had passed an
interim award on 16.10.1995 holding, inter-alia, that the arbitration claim
was properly made and it had jurisdiction to decide both the preliminary
and substantive issues. On 05.02.1997, buyers made a separate claim for
arbitration for sellers’ alleged breach of the arbitration agreement in
bringing legal proceedings in India concerning the first dispute before it had
been determined under the GAFTA Rules. As regards this claim also, the
Arbitral Tribunal, GAFTA was constituted and an award No. 12159 dated
04.12.1997 came to be passed by the Arbitral Tribunal, GAFTA.
10. From the above two awards, namely, award no. 11715A and
award no. 12159, the two appeals being appeal award no. 3782 and
appeal award no. 3783 were filed by the sellers before the Board of
Appeal. The Board of Appeal disposed of appeal award no. 3782 (arising
out of award No. 11715A) on 21.09.1998 and passed the award in the
following terms:
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“We do hereby award that Sellers shall forthwith pay to
Buyers the sum of US$ 1,023,750.00 (one million, twenty
three thousand seven hundred and fifty United States
Dollars) being the difference in value of US$ 48.75 per
tonne between the goods supplied and goods of the
contractual description calculated on 21,000 tonnes,
together with interest thereon at 7% (Seven per centum)
per annum from 24th August, 1994 to the date of this
Award.
We further award that Sellers shall forthwith pay to
Buyers the sum of US $ 138,590.28 (one hundred and
thirty eight thousand five hundred and ninety United
States Dollars and twenty eight cents), being demurrage
incurred at load, together with interest thereon at 7%
(seven per centum) per annum from 30th September
1994 to the date of this Award.
We further award that Buyers’ claim for consequential
damages fails.
We further award that Sellers shall forthwith pay to
Buyers the sum of £ 4,340.00 (four thousand three
hundred and forty pounds sterling only), being the fees
and expenses of Arbitration 11715A.
We further award that Sellers shall forthwith pay to
Buyers the sum of £ 1,750 (one thousand seven hundred
and fifty pounds only), being the costs and expenses of
Buyers’ Representative in preparing and presenting this
case.”
11. Appeal award no. 3783 (arising out of award no. 12159) was
disposed of also on the same day by the following award:
“We do hereby award that sellers shall forthwith pay to
Buyers as part of their damages the sum of £ 1,762.90
(one thousand seven hundred and sixty two pounds and
ninety pence), being the reasonable charges and
disbursements of Middleton Potts incurred in considering
and responding to the proceedings taken by Sellers in
India.
We further award that Sellers shall pay to Buyers as the
balance of their damages the sum of £ 15,924.00 (fifteen
thousand nine hundred and twenty four pounds), being
the total of O.P. Khaitan’s four invoices nos. ATP/804 of
1995/6, ATP/206 of 1996/7, ATP/286 of 1996/7 and
ATP/767 of 1996/7, or such lesser sum as shall be
agreed by the parties or assessed by an appropriate
officer or person in India, in either Indian rupees or
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sterling as being the reasonable fees, expenses, etc.
incurred in considering and responding to the
proceedings taken by Sellers in India. But we reserve to
ourselves the right to assess these fees, expenses, etc.
upon application of one or both of the parties, in the
event that the parties are neither able to agree them, nor
able to agree upon an appropriate officer or person in
India to assess them.
We further award that Sellers shall forthwith pay to
Buyers the costs and expenses of the first tier arbitration
no. 12159 in the amount of £2,190.00 (two thousand one
hundred and ninety pounds) together with £ 85.00
(eighty five pounds), being the fee for appointment of an
arbitrator on Sellers’ behalf.
We further award that Sellers shall forthwith pay to
Buyers the sum of £ 500 (five hundred pounds only)
being the costs and expenses of Buyers’ Representative
in preparing and presenting this case.”
12. The sellers challenged the appeal award no. 3782 in the High
Court of Justice at London. The appeal was dismissed on 21.12.1998. The
sellers did not challenge the award passed by the Board of Appeal in
appeal award no. 3783. Both awards, thus, have attained finality.
13. It was then that buyers instituted a suit in the Delhi High Court
for enforcement of the awards both dated 21.09.1998 passed by the
Board of Appeal in appeal award no. 3782 and appeal award no. 3783.
The sellers raised diverse objections to the enforcement of the above
awards.
14. The appellant, Shri Lal Mahal Limited, is successor in interest of
the sellers while the respondent Progetto Grano SPA is the successor in
interest of buyers. When the proceedings were pending before the Delhi High
Court, the substitution in the proceedings took place. This is how the parties
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are now described in the appeal. For the sake of convenience, we shall
continue to refer the appellant as ‘sellers’ and the respondent as ‘buyers’.
15. Inter alia, the submission of the sellers before the High Court was
that the appeal awards passed by the Board of Appeal which are sought to
be enforced are contrary to the public policy of India inasmuch as they are
contrary to the express provisions of the contract entered into between the
parties. The sellers submitted before the Delhi High Court that the Board of
Appeal erred in accepting the test report by S.G.S. Geneva whereas under the
contract, it was the test report of S.G.S.India that was material. The goods in
question were inspected at the port of discharge in the absence of the
sellers. In terms of the contract between the parties, the inspection certificate
was given by S.G.S. India which was nominated by the buyers themselves.
There was no requirement for any inspection at the point of discharge of
the consignment. Responsibility of the sellers ceased after the said
obligation was fulfilled.
16. On the other hand, it was submitted on behalf of the buyers
before Delhi High Court that the plea raised before the Board of Appeal on
the certificate issued by the S.G.S. Geneva was a matter of appreciation of
evidence and determination of question of fact which is beyond the scope
of the proceedings under Section 48 of the 1996 Act. The buyers
submitted that the sellers cannot be permitted to reopen questions of fact
as already decided by the Board of Appeal which were affirmed by the
High Court of Justice at London. Seeking enforcement of the awards of the
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Board of Appeal, it was submitted that there was nothing in the awards
which could be said to be against the public policy of India.
17. Dealing with the submissions made on behalf of the parties,
the High Court considered the objections of the sellers and recorded its
conclusion as follows:
“23. The above conclusion of the GAFTA Arbitral
Tribunal is based on an appreciation of the evidence
produced by the parties. The stark finding, confirmed by
the reports of three independent analysts, two in Greece
(one a private lab and another State lab) and the FMBRA
in England, was that the consignment sent by the
Defendant contained only 9% durum wheat. 90% was
soft wheat. In the circumstances, the only conclusion
possible was the one arrived at by the Arbitral Tribunal
viz., “the wheat, described on the Certificate of Quality
and Condition presented by Sellers as Durum wheat of
Indian origin, was soft wheat.” This conclusion has been
affirmed by the impugned Appeal Award No. 3782 by the
Board of Appeal, GAFTA. It has been further affirmed by
the rejection by the High Court of Justice at London of
the Defendant’s petition challenging the Appeal Award
No. 3782. The above conclusion cannot be held to be
contrary to the terms of the contract or to the public
policy of India. Further, this Court is not expected in
enforcement proceedings, re-determine questions of fact.
The grounds enumerated in Section 48 of the Act are
meant to be construed narrowly and does not permit a
review of the foreign award on merits.”
18. Then in paragraph 25 of the impugned judgment, the High
Court observed that there was no serious defence in opposition to the
enforcement of two foreign awards. The High Court overruled the
objections raised by the sellers to the enforcement of foreign awards and
held that they were enforceable under Part II of the 1996 Act.
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19. We have heard Mr. Rohinton F. Nariman, learned senior
counsel for the appellant (sellers) and Mr. Jayant K. Mehta, learned
counsel for the respondent (buyers) at quite some length.
20. Having regard to clause (b) of sub-section (2) of Section 48 of
the 1996 Act, we shall immediately examine what is the scope of enquiry
before the court in which foreign award, as defined in Section 44, is sought
to be enforced. This has become necessary as on behalf of the appellant it
was vehemently contended that in light of the two decisions of this Court in
Saw Pipes1
and Phulchand Exports2
, the Court can refuse to enforce a
foreign award if it is contrary to the contract between the parties and/or is
patently illegal. It was argued by Mr. Rohinton F. Nariman, learned senior
counsel for the appellant, that the expression “public policy of India” in
Section 48(2)(b) is an expression of wider import than the expression
“public policy” in Section 7(1)(b)(ii) of the Foreign Awards (Recognition and
Enforcement) Act, 1961. The expansive construction given by this Court to
the term “public policy of India” in Saw Pipes1 must also apply to the use of
the same term “public policy of India” in Section 48(2)(b).
21. Mr. Jayant K. Mehta, learned counsel for the respondent, on
the other hand, placed heavy reliance upon the decision of this Court in
Renusagar3 and submitted that what has been stated by this Court while
interpreting Section 7(1)(b)(ii) of the Foreign Awards Act in that case is
equally applicable to Section 48(2)(b) of the 1996 Act and the expression
1 Oil and Natural Gas Corporation Limited v. Saw Pipes Limited; (2003) 5 SCC 705
2 Phulchand Exports Limited v. O.OO. Patriot; (2011) 10 SCC 300
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“public policy of India” in Section 48(2)(b) must receive narrow meaning
than Section 34. Saw Pipes1 never meant to give wider meaning to the
expression, “public policy of India” insofar as Section 48 was concerned.
According to Mr. Jayant K. Mehta, Phulchand Exports2 does not hold that
all that is found in paragraph 74 in Saw Pipes1 is applicable to Section
48(2)(b). He argued that in any case both Saw Pipes1 and Phulchand
Exports2 are decisions by a two-Judge Bench of this Court whereas
Renusagar3
is a decision of three-Judge Bench and if there is any
inconsistency in the decisions of this Court in Saw Pipes1 and Phulchand
Exports2 on the one hand and Renusagar3 on the other, Renusagar3 must
prevail as this is a decision by the larger Bench.
22. The three decisions of this Court in Renusagar3
, Saw Pipes1
and Phulchand Exports2
need a careful and close examination by us. We
shall first deal with Renusagar3
. It is not necessary to narrate in detail the
facts in Renusagar3
. Suffice it to say that Arbitral Tribunal, GAFTA in
Paris passed an award in favour of General Electric Company (GEC)
against Renusagar. GEC sought to enforce the award passed in its favour
by filing an arbitration petition under Section 5 of the Foreign Awards Act in
the Bombay High Court. Renusagar contested the proceedings for
enforcement of the award filed by GEC in the Bombay High Court on
diverse grounds. Inter alia, one of the objections raised by Renusagar was
that the enforcement of the award was contrary to the public policy of India.
3 Renusagar Power Co. Limited v. General Electric Company; 1994 Supp (1) SCC 644
12Page 13
The Single Judge of the Bombay High Court overruled the objections of
Renusagar. It was held that the award was enforceable and on that basis a
decree in terms of the award was drawn. Renusagar filed an intra-court
appeal but that was dismissed as not maintainable. It was from these
orders that the matter reached this Court. On behalf of the parties, multifold
arguments were made. A three-Judge Bench of this Court noticed diverse
provisions, including Section 7(1)(b)(ii) of the Foreign Awards Act which
provided that a foreign award may not be enforced if the court dealing with
the case was satisfied that the enforcement of the award would be contrary
to public policy. Of the many questions framed for determination, the two
questions under consideration were; one, “Does Section 7(1)(b)(ii) of the
Foreign Awards Act preclude enforcement of the award of the Arbitral
Tribunal, GAFTA for the reason that the said award is contrary to the public
policy of the State of New York?” and the other “what is meant by public
policy in Section 7(1)(b)(ii) of the Foreign Awards Act?”. This Court held
that the words “public policy” used in Section 7(1)(b)(ii) of the Foreign
Awards Act meant public policy of India. The argument that the recognition
and enforcement of the award of the Arbitral Tribunal, GAFTA can be
questioned on the ground that it is contrary to the public policy of the State
of New York was negated. A clear and fine distinction was drawn by this
Court while applying the rule of public policy between a matter governed
by domestic laws and a matter involving conflict of laws. It has been held
in unambiguous terms that the application of the doctrine of “public policy”
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in the field of conflict of laws is more limited than that in the domestic law
and the courts are slower to invoke public policy in cases involving a
foreign element than when purely municipal legal issues are involved.
Explaining the concept of “public policy” vis-à-vis the enforcement of
foreign awards in Renusagar3
, this Court in paras 65 and 66 (pgs. 681-
682) of the Report stated:
65. This would imply that the defence of public policy
which is permissible under Section 7(1)(b)(ii) should be
construed narrowly. In this context, it would also be of
relevance to mention that under Article I(e) of the
Geneva Convention Act of 1927, it is permissible to raise
objection to the enforcement of arbitral award on the
ground that the recognition or enforcement of the award
is contrary to the public policy or to the principles of the
law of the country in which it is sought to be relied upon.
To the same effect is the provision in Section 7(1) of the
Protocol & Convention Act of 1937 which requires that
the enforcement of the foreign award must not be
contrary to the public policy or the law of India. Since the
expression “public policy” covers the field not covered by
the words “and the law of India” which follow the said
expression, contravention of law alone will not attract the
bar of public policy and something more than
contravention of law is required.
66. . . . . . . . . This would mean that “public policy” in
Section 7(1)(b)(ii) has been used in a narrower sense
and in order to attract the bar of public policy the
enforcement of the award must invoke something more
than the violation of the law of India. Since the Foreign
Awards Act is concerned with recognition and
enforcement of foreign awards which are governed by
the principles of private international law, the expression
“public policy” in Section 7(1)(b)(ii) of the Foreign Awards
Act must necessarily be construed in the sense the
doctrine of public policy is applied in the field of private
international law. Applying the said criteria it must be
held that the enforcement of a foreign award would be
refused on the ground that it is contrary to public policy if
such enforcement would be contrary to (i) fundamental
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policy of Indian law; or (ii) the interests of India; or (iii)
justice or morality.
(Emphasis supplied by us)
23. In Saw Pipes1
, the ambit and scope of the court’s jurisdiction
under Section 34 of the 1996 Act was under consideration. The issue was
whether the court would have jurisdiction under Section 34 to set aside an
award passed by the Arbitral Tribunal, GAFTA which was patently illegal or
in contravention of the provisions of the 1996 Act or any other substantive
law governing the parties or was against the terms of the contract. This
Court considered the meaning that could be assigned to the phrase “public
policy of India” occurring in Section 34(2)(b)(ii). Alive to the subtle
distinction in the concept of ‘enforcement of the award’ and ‘jurisdiction of
the court in setting aside the award’ and the decision of this Court in
Renusagar3
, this Court held in Saw Pipes1 that the term “public policy of
India” in Section 34 was required to be interpreted in the context of the
jurisdiction of the court where the validity of the award is challenged before
it becomes final and executable in contradistinction to the enforcement of
an award after it becomes final. Having that distinction in view, with regard
to Section 34 this Court said that the expression “public policy of India” was
required to be given a wider meaning. Accordingly, for the purposes of
Section 34, this Court added a new category – patent illegality – for setting
aside the award. While adding this category for setting aside the award on
the ground of patent illegality, the Court clarified that illegality must go to
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the root of the matter and if the illegality is of trivial nature it cannot be held
that award is against public policy. Award could also be set aside if it was
so unfair and unreasonable that it shocks the conscience of the court.
24. From the discussion made by this Court in Saw Pipes1 in
paragraph 18∗
(pgs. 721-722), paragraph 22∗
(pgs. 723-724) and paragraph
*18. Further, in Renusagar Power Co. Ltd. v. General Electric Co. this Court considered Section 7(1) of
the Arbitration (Protocol and Convention) Act, 1937 which inter alia provided that a foreign award may
not be enforced under the said Act, if the court dealing with the case is satisfied that the enforcement of
the award will be contrary to the public policy. After elaborate discussion, the Court arrived at the
conclusion that public policy comprehended in Section 7(1)(b)(ii) of the Foreign Awards (Recognition and
Enforcement) Act, 1961 is the “public policy of India” and does not cover the public policy of any other
country. For giving meaning to the term “public policy”, the Court observed thus: (SCC p. 682, para 66)
……….
**22. The aforesaid submission of the learned Senior Counsel requires to be accepted. From the
judgments discussed above, it can be held that the term “public policy of India” is required to be
interpreted in the context of the jurisdiction of the court where the validity of award is challenged before it
becomes final and executable. The concept of enforcement of the award after it becomes final is different
and the jurisdiction of the court at that stage could be limited. Similar is the position with regard to the
execution of a decree. It is settled law as well as it is provided under the Code of Civil Procedure that once
the decree has attained finality, in an execution proceeding, it may be challenged only on limited grounds
such as the decree being without jurisdiction or a nullity. But in a case where the judgment and
decree is challenged before the
appellate court or the court exercising revisional jurisdiction, the jurisdiction of such court would
be wider. Therefore, in a case where the validity of award is challenged, there is no necessity of giving a
narrower meaning to the term “public policy of India”. On the contrary, wider meaning is required to be
given so that the “patently illegal award” passed by the Arbitral Tribunal could be set aside. If narrow
meaning as contended by the learned Senior Counsel Mr. Dave is given, some of the provisions of the
Arbitration Act would become nugatory.Take for illustration a case wherein there is a specific provision in
the contract that for delayed payment of the amount due and payable, no interest would be payable, still
however, if the arbitrator has passed an award granting interest, it would be against the terms of the
contract and thereby against the provision of Section 28(3) of the Act which specifically provides that
“Arbitral Tribunal shall decide in accordance with the terms of the contract”. Further, where there is a
specific usage of the trade that if the payment is made beyond a period of one month, then the party would
be required to pay the said amount with interest at the rate of 15 per cent. Despite the evidence being
produced on record for such usage, if the arbitrator refuses to grant such interest on the ground of equity,
such award would also be in violation of sub-sections (2) and (3) of Section 28. Section 28(2) specifically
provides that the arbitrator shall decide ex aequo et bono (according to what is just and good) only if the
parties have expressly authorised him to do so. Similarly, if the award is patently against the statutory
provisions of substantive law which is in force in India or is passed without giving an opportunity of
hearing to the parties as provided under Section 24 or without giving any reason in a case where parties
have not agreed that no reasons are to be recorded, it would be against the statutory provisions. In all such
cases, the award is required to be set aside on the ground of “patent illegality”.
16Page 17
31∗
(pgs. 727-728) of the Report, it can be safely observed that while
accepting the narrow meaning given to the expression “public policy” in
Renusagar3 in the matters of enforcement of foreign award, there was
departure from the said meaning for the purposes of the jurisdiction of the
Court in setting aside the award under Section 34.
25. In our view, what has been stated by this Court in Renusagar3
with reference to Section 7(1)(b)(ii) of the Foreign Awards Act must equally
apply to the ambit and scope of Section 48(2)(b) of the 1996 Act. In
Renusagar3
it has been expressly exposited that the expression “public
policy” in Section 7(1)(b)(ii) of the Foreign Awards Act refers to the public
policy of India. The expression “public policy” used in Section 7(1)(b)(ii)
was held to mean “public policy of India”. A distinction in the rule of public
policy between a matter governed by the domestic law and a matter
involving conflict of laws has been noticed in Renusagar3
. For all this there
is no reason why Renusagar3
should not apply as regards the scope of
***31. Therefore, in our view, the phrase “public policy of India” used in Section 34 in context is required
to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which
concerns public good and the public interest. What is for public good or in public interest or what would
be injurious or harmful to the public good or public interest has varied from time to time. However, the
award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public
interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in
our view in addition to narrower meaning given to the term “public policy” in Renusagar case it is
required to be held that the award could be set aside if it is patently illegal. The result would be — award
could be set aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interests of India; or
(c) justice or morality, or
(d) in addition, if it is patently illegal
Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held
that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable
that it shocks the conscience of the court. Such award is opposed to public policy and is required to be
adjudged void.
17Page 18
inquiry under Section 48(2)(b). Following Renusagar3
, we think that for the
purposes of Section 48(2)(b), the expression “public policy of India” must
be given narrow meaning and the enforcement of foreign award would be
refused on the ground that it is contrary to public policy of India if it is
covered by one of the three categories enumerated in Renusagar3
.
Although the same expression ‘public policy of India’ is used both in
Section 34(2(b)(ii) and Section 48(2)(b) and the concept of ‘public policy in
India’ is same in nature in both the Sections but, in our view, its application
differs in degree insofar as these two Sections are concerned. The
application of ‘public policy of India’ doctrine for the purposes of Section
48(2)(b) is more limited than the application of the same expression in
respect of the domestic arbitral award.
26. We are not persuaded to accept the submission of
Mr. Rohinton F. Nariman that the expression “public policy of India” in
Section 48(2)(b) is an expression of wider import than the “public policy” in
Section 7(1)(b)(ii) of the Foreign Awards Act. We have no hesitation in
holding that Renusagar3 must apply for the purposes of Section 48(2)(b) of
the 1996 Act. Insofar as the proceeding for setting aside an award under
Section 34 is concerned, the principles laid down in Saw Pipes1 would
govern the scope of such proceedings.
27. We accordingly hold that enforcement of foreign award would
be refused under Section 48(2)(b) only if such enforcement would be
contrary to (i) fundamental policy of Indian law; or (2) the interests of India;
18Page 19
or (3) justice or morality. The wider meaning given to the expression “public
policy of India” occurring in Section 34(2)(b)(ii) in Saw Pipes1 is not
applicable where objection is raised to the enforcement of the foreign
award under Section 48(2)(b).
28. It is true that in Phulchand Exports2 , a two-Judge Bench of
this Court speaking through one of us (R.M. Lodha, J.) accepted the
submission made on behalf of the appellant therein that the meaning given
to the expression “public policy of India” in Section 34 in Saw Pipes1 must
be applied to the same expression occurring in Section 48(2)(b) of the
1996 Act. However, in what we have discussed above it must be held that
the statement in paragraph 16 of the Report that the expression “public
policy of India used in Section 48(2)(b) has to be given a wider meaning
and the award could be set aside, if it is patently illegal” does not lay
down correct law and is overruled.
29. Having regard to the above legal position relating to the scope
of “public policy of India” under clause (b) of sub-section (2) of Section 48,
we shall now proceed to consider the submissions of the parties.
30. Mr. Rohinton F. Nariman, learned senior counsel for the
appellant, argued that the appeal awards by the Board of Appeal cannot be
enforced on the touchstone that they are contrary to public policy of India.
It is so as both the Arbitral Tribunal, GAFTA and the Board of Appeal have
gone beyond the terms of the contract between the sellers and the buyers.
Despite the contract being FOB contract between the parties which
19Page 20
specifically sets out that the certificate of quality obtained at the load port
from the buyers’ nominated certifying agency, i.e., S.G.S. would be final
and the certifying agency in fact issued such a certificate, the Arbitral
Tribunal, GAFTA as well as the Board of Appeal relied upon evidence
procured unilaterally by the buyers from other certifying agencies beyond
the terms of the contract which was based on quality specifications of a
forward contract which the buyers had signed with OAIC Algiers. In this
regard, learned senior counsel referred to the certificate issued by S.G.S.
India which confirmed that weight, quality and packing of the goods met the
contractual specifications both in terms of description and quality. The
Merchandise was found to be sound, loyal, merchantable, free from living
insects, defects, diseases and contamination of any nature. However, the
buyers appointed Crepin Analysis and Controls, Rouen for testing the
sample of the goods for their forward contract with OAIC Algiers. The said
agency tested the goods on a completely different set of parameters as
stipulated under the contract. Crepin did not even test the goods for their
contents of vitreous and moisture.
31. Learned senior counsel for the appellant submitted that being
an FOB contract the title of the goods and risk is passed on to the buyers
the moment the goods were loaded on the ship. The goods were admittedly
loaded on 08.08.1994 after which the risk fell on the buyers. In this regard
reliance was placed on a decision of this Court in D.K. Lall4
.
4 Contship Container Lines Limited v. D.K. Lall and Others; (2010) 4 SCC 256
20Page 21
32. Mr. Rohinton F. Nariman vehemently contended that once
parties had agreed that certification by an inspecting agency would be
final, it was not open to the Arbitral Tribunal, GAFTA as well as Board of
Appeal, to go behind that certificate and disregard it even if the certificate
was inaccurate (which was not the case). In this regard, reliance was
placed on two judgments of the English courts, namely, Agroexport5 and
Alfred C. Toepfer.6
. He submitted that House of Lords in Gill & Duffus7
has affirmed the decision in Alfred C. Toepfer6
. It was, thus, submitted that
the Arbitral Tribunal, GAFTA and the Board of Appeal having disregarded
the finality of the certificate issued by S.G.S. India, the awards were plainly
contrary to contract and, therefore, not enforceable in India. It was
submitted on behalf of the appellant that it was not an issue in dispute and
not the buyers’ case before the Arbitral Tribunal, GAFTA and/or the Board
of Appeal that the procedure adopted by SGS India was not in conformity
with the contract. It was, therefore, not open to the Board of Appeal to
render a finding which went beyond the scope of the buyers’ very case.
Accordingly, it was argued that the Board of Appeal dealt with the
questions not referred to it and which were never in dispute and, therefore,
award cannot be enforced because it is contrary to Section 48(1)(c) of the
1996 Act as well.
5 Agroexport Enterprise D’etat Pour Le Commerce Exterieur v. N.V. Goorden Import CY. U.S.A; (1956) 1 Q.B.
319
6 Alfred C. Toepfer v. Continental Grain Co (1974) 1 Lloyds Law Reports 11
7 Gill & Duffus S.A. v. Berger & Co.Inc. (1984) 1 Lloyd’s Law Reports 227
21Page 22
33. Learned senior counsel for the appellant highlighted that the
real problem in the present case was not that S.G.S. India did not properly
certify the goods and/or that they did not meet the contractual
specifications provided for under the contract between the buyers and
sellers but because the buyers were unable to use it for their forward
contract with OAIC Algeria. This is further fortified from the fact that the
buyers entered into a further contract with the sellers on 09.09.1994 for a
much larger quantity of the goods with the very same specifications. He,
thus, submitted that the judgment of the High Court should be set aside and
the appeal awards must be held to be not enforceable in India.
34. Mr. Jayant K. Mehta, learned counsel for the respondent, on
the other hand, supported the impugned judgment and submitted that the
High Court was justified in dismissing the objections of the appellant as no
ground was established or proved by the appellant on which enforcement
of the foreign awards could be refused under Section 48 of the 1996 Act.
35. Learned counsel submitted that the FOB contract has no
relevance to the liability of a seller to sell the contractual goods or to the
quality of the goods sold. It is only relevant for determination of risk and
liability during transportation of the goods which is not the issue in the
present case. With reference to D.K. Lall4
relied upon by the learned senior
counsel for the appellant, it was submitted that D.K. Lall4 was only on issue
of insurance liability and in that context the nature of FOB contract had
22Page 23
been discussed. D.K. Lall4
does not concern with the issue of sellers’
breach in selling uncontractual goods.
36. Mr. Jayant K. Mehta submitted that the findings of the Arbitral
Tribunal, GAFTA, as upheld by the Board of Appeal, are that (a) the
contract specified that the certification of quality is final at the time and
place of loading; (b) as per the contract certification by S.G.S. India was to
be conclusive based on sampling at the time and place of loading; (c) two
distinct aspects were required to be considered whether S.G.S. India was
the contractual party and, if yes, whether S.G.S. India certificate was in the
contractual form. While it was found that S.G.S. India was the contractual
agency, the sellers failed to establish that the S.G.S. India certificate was in
contractual form. Buyers, on the other hand, did establish that the S.G.S.
India certificate was not in contractual form, (d) S.G.S. India’s certification
was uncontractual as there were two fatal errors in the certification, firstly, it
did not follow the contractual specified mode of sampling in that the
contract required the result to be of an average sample taken at the port of
loading, not the weighted average of pre-shipment and shipment, secondly,
the analysis done by S.G.S. India was doubtful; (e) as the buyers held the
sellers to be in breach on the grounds of defective sampling and
certification by S.G.S. India, the buyers requested the sellers to attend at
discharge for joint sampling which was not accepted by the sellers and (f)
the method used for determining soft wheat used by S.G.S. India obviously
produced very different results to the methods used by Crepin and other
23Page 24
laboratories. On the balance of probabilities, the Arbitral Tribunal, GAFTA
found and the Board of Appeal agreed that the wheat described in the
certificate of quality and condition was soft wheat and, therefore, buyers
were entitled to damages.
37. Learned counsel submitted that the findings recorded by the
Arbitral Tribunal, GAFTA and the Board of Appeal were in the realm of
interpretation of the contract and appreciation of the evidence which cannot
be reopened by arguing that the foreign award is contrary to the contract
and, therefore, its enforcement would offend public policy of India. About
the decisions of the English courts in Agroexport5 and Alfred C. Toepfer6
,
learned counsel submitted that decisions of English courts cannot form part
of public policy of India. This Court does not exercise appellate jurisdiction
over the foreign awards and cannot be called upon to enquire as to whether
foreign awards are contrary to the principles of English law. Learned
counsel submitted that in any case the judgments of the English courts in
Agroexport5 and Alfred C. Toepfer6 do not apply to the fact situation of the
present case. Learned counsel also submitted that the decision of House of
Lords in Gill & Duffus7 has no application to the present case.
38. Learned counsel for the respondent argued that once the
sampling by S.G.S. India has been found to be uncontractual, that
certificate cannot bind the buyers and, therefore, no error or illegality was
committed by the Arbitral Tribunal, GAFTA, or the Board of Appeal to look
into the certificate issued by Crepin. Learned counsel for the respondent
24Page 25
thus, submitted that the Delhi High Court was justified in rejecting the
objections of the appellant.
39. It is not necessary to advert to the findings recorded by the
Arbitral Tribunal, GAFTA as what is sought to be enforced by the buyers is
the two awards of the Board of Appeal.
40. The challenge to the enforceability of the foreign awards
passed by the Board of Appeal is mainly laid by the sellers on the ground
that the Board of Appeal has gone beyond the terms of the contract by
ignoring the certificate of quality obtained at the load port from the buyers’
nominated certifying agency, i.e., SGS India which was final under the
contract. The Board of Appeal, while dealing with the question whether the
SGS India certificate was issued by the contractual party and in contractual
form, noticed the clause in the contract in respect of quality and condition
and it held that SGS India was an acceptable certifying party under the
contract. As regards the other part of that clause that provided, “certificate
and quality showed in the certificate will be the result of an average
samples taken jointly at port of loading by the representatives of the sellers
and the buyers”, the Board of Appeal recorded its finding as follows:
“The SGS India certificate shows that an inspection took
place at the suppliers godowns inland, and
representative samples taken. Sealed samples were
inspected lotwise and the cargo meeting the contractual
specifications was allowed to be bagged for dispatch to
Kandla.
Continuous supervision of loading into the vessel was
also carried out at the port. The samples drawn
periodically were reduced and composite samples were
25Page 26
sealed; one sealed sample of each lot was handed over
to the supplier, one sealed sample of each lot was
analysed by SGS and the remaining samples were
retained by SGS for a period of three months unless and
until instructions to the contrary were given.
The analysis section of the certificate states that “The
above samples have been analysed and the weighted
average Pre-shipment and Shipment results are as
under:
We find that this procedure was not in conformity with
the requirements of the Contract, which required the
result to be of an average sample taken at port of
loading, not the weighted average of pre-shipment and
shipment samples. Accordingly the certificate is
uncontractual and its results are not final.
In consequence the Board is obliged to evaluate all the
evidence presented, including the evidence of the
uncontractual SGS India certificate to decide whether or
not the goods were of the contractual description, i.e.
Durum wheat Indian origin.”
(Emphasis supplied by us)
41. Thus, having held that SGS India was the contractual agency,
the Board of Appeal further held that the sellers failed to establish that the
SGS India certificate was in contractual form. Two fundamental flaws in the
certification by SGS India were noted by the Board of Appeal, one, SGS
India’s certification did not follow the contractual specified mode of
sampling and the other, the analysis done by SGS India was doubtful. The
Board of Appeal then sifted the documentary evidence let in by the parties
and finally concluded that wheat loaded on the vessel Haci Resit Kalkavan
was soft wheat and the sellers were in breach of the description condition
of the contract.
42. It is pertinent to state that the sellers had challenged the award
(no. 3782) passed by the Board of Appeal in the High Court of Justice at
26Page 27
London. The three decisions; (i) Agroexport5 by Queen’s Bench Division,
(ii) Toepfer6 by Court of Appeal, and (iii) Gill & Duffus7 by House of Lords,
were holding the field at the time of consideration of sellers’ appeal by the
High Court of Justice at London. In Agroexport5 , it has been held that an
award founded on evidence of analysis made other than in accordance with
contract terms cannot stand and deserves to be set aside as evidence
relied upon was inadmissible. The Court of Appeal in Toepfer6 has laid
down that where seller and buyer have agreed that a certificate at loading
as to the quality of goods shall be final and binding on them, the buyer will
be precluded from recovering damages from the seller, even if, the person
giving the certificate has been negligent in making it. Toepfer6 has been
approved by the House of Lords in Gill & Duffus7
. The High Court of Justice
at London can be assumed to have full knowledge of the legal position
exposited in Agroexport5
, Toepfer6 and Gill & Duffus7 yet it found no
ground or justification for setting aside the award (no. 3782) passed by the
Board of Appeal. If a ground supported by the decisions of that country was
not good enough for setting aside the award by the court competent to do
so, a fortiori, such ground can hardly be a good ground for refusing
enforcement of the award. Accordingly, we are not persuaded to accept
the submission of Mr. Rohinton F. Nariman that Delhi High Court ought to
have refused to enforce the foreign awards as the Board of Appeal has
wrongly rejected the certificate of quality obtained from the buyers’
nominated certifying agency and taken into consideration inadmissible
27Page 28
evidence in the nature of certificates obtained by the buyers’ for the
purposes of forwarding contract.
43. Moreover, Section 48 of the 1996 Act does not give an
opportunity to have a ‘second look’ at the foreign award in the award -
enforcement stage. The scope of inquiry under Section 48 does not permit
review of the foreign award on merits. Procedural defects (like taking into
consideration inadmissible evidence or ignoring/rejecting the evidence
which may be of binding nature) in the course of foreign arbitration do not
lead necessarily to excuse an award from enforcement on the ground of
public policy.
44. In what we have discussed above, even if it be assumed that
the Board of Appeal erred in relying upon the report obtained by buyers
from Crepin which was inconsistent with the terms on which the parties
had contracted in the contract dated 12.05.1994 and wrongly rejected the
report of the contractual agency, in our view, such errors would not bar the
enforceability of the appeal awards passed by the Board of Appeal.
45. While considering the enforceability of foreign awards, the
court does not exercise appellate jurisdiction over the foreign award nor does it enquire as to whether, while rendering foreign award, some error has been committed.
Under Section 48(2)(b) the enforcement of a foreign award can be refused only if such enforcement is found to be contrary to
(1) fundamental policy of Indian law; or
(2) the interests of India; or
(3) justice or morality.
The objections raised by the appellant do not fall in any
28Page 29
of these categories and, therefore, the foreign awards cannot be held to be contrary to public policy of India as contemplated under Section 48(2)(b).
46. The contention of the learned senior counsel for the appellant
that
the Board of Appeal dealt with the questions not referred to it and which were never in dispute and, therefore, these awards cannot be enforced being contrary to Section 48(1)(c) is devoid of any substance and is noted to be rejected.
47. In the circumstances, we hold that appeal has no merit. It is
dismissed with no order as to costs.
.……………………….J.
(R.M. Lodha)
……..………………...J.
(Madan B. Lokur)
.……………………...J.
(Kurian Joseph)
NEW DELHI
JULY 03, 2013.
29
Page 1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 5085 OF 2013
(Arising out of SLP(C) No. 13721 of 2012)
Shri Lal Mahal Ltd. ……. Appellant
Vs.
Progetto Grano Spa ……Respondent
JUDGMENT
R.M. LODHA, J.
Leave granted.
2. The question for consideration in this appeal by special leave
is
whether appeal award no. 3782 and
appeal award no. 3783
both dated
21.09.1998 passed by the Board of Appeal of the Grain and Feed Trade
Association, London (for short, “Board of Appeal”) in favour of the
respondent are enforceable under Section 48 of the Arbitration and
Conciliation Act, 1996 (for short, “1996 Act”)?
3. By a contract dated 12.05.1994 between Shiv Nath Rai
Harnarain (India) Company, New Delhi (sellers) and Italgrani Spa, Naples,
Italy (buyers) a transaction relating to 20,000 MT (+/- 5%) of Durum wheat,
1Page 2
Indian Origin (for short, “goods”) for a price at US$ 162 Per MT was
concluded. Some of the salient terms of the contract are as follows:
“Commodity Durum Wheat Indian Origine
new crop
Test Weight 80 KG/HL.MIN
Moisture 12 PCT.MAX
Vitrious 80 PCT. MIN
Broken 3 PCT. MAX
Proteine 12 PCT. MIN
Foreign Matter 2 PCT MAX
Sprouted/Spotted 1 PCT. MAX
Soft Wheat 1.5 PCT. MAX
Quantity 20,000 MT With 5%+/- Sellers
Option in 1 single shipment
Shipment 1-30/June 1994
Quantity final at loading
Quality, Conditions All final at time and place of loading
As per first class Intl Company Cert.
“S.G.S.”, nominated by the buyers
certificate and quality showed at the
certificate will be the result of an
average samples taken jointly at port
of loading by the representatives of the
sellers and the buyers.
Price US Dlrs 162,00 Per M. Ton FOB stowed
Kandla, Buyers to give 10 days
preadvise of vessels arrival
Payment Against 100 PCT L/Credit irrevocable
and confirmed for 100 PCT payable at
sight against Foll. Shipping docs
Other conditions All other terms and conditions not in
contradictions with the above to be as
per G.A.F.T.A Rules, 64/125 and its
successive Amendments (In force at
time and place of shipment date) which
the parties admit that they have
knowledge and notice.”
2Page 3
4. The buyers opened a letter of credit (L/C) on 17.06.1994 in
favour of the sellers. The sellers claim that all documents required under
the L/C, including the S.G.S India Limited certificate, were submitted by
them which were accepted by the buyers’ bankers and payment was duly
released to the sellers.
5. The buyers nominated M.V. Haci Resit Kalkavan as the vessel
for loading of the goods. There was delay in shipment but that is not
material for the purposes of this appeal. The ship completed loading on
13.08.1994 and sailed for discharge port. The Bill of Lading was dated
08.08.1994.
6. The sellers faxed a copy of SGS India certificate of weight,
quality and packing to the buyers on 16.08.1994. The buyers passed a
copy of that certificate to SGS, Geneva with the request to them to issue
the necessary certificate under the sale contract which the buyers had
entered with ‘Office Alegerien Interprofessional das cereals’ (OAIC). After
the goods had reached the destination, the buyers sent a fax to the sellers
on 23.08.1994 advising that analysis carried out by S.G.S. Geneva
showed the wheat loaded was soft common wheat and not durum wheat as
required under the contract. The buyers considered the sellers to be in
breach of the contract for shipping uncontractual goods and held sellers
responsible for all losses/damages both direct and indirect arising out of
and the consequence of such breach.
3Page 4
7. The sellers on 31.08.1994 responded to the above
communication and asserted that S.G.S. India was an inspection agency;
the wheat supplied was inspected by S.G.S. India at the time of
procurement and also before loading the vessel and the inspection agency
had confirmed that the wheat supplied met typical characteristics of Indian
durum wheat and complied with the specifications provided in the contract.
8. The buyers claimed arbitration on 04.11.1994 which was
registered as case no. 11715A. The Arbitral Tribunal, GAFTA proceeded
to arbitrate the dispute. The Arbitral Tribunal, GAFTA in its award dated
04.12.1997 accepted the buyers’ case that in appointing S.G.S. Geneva,
their aim was to safeguard the performance of both contracts by having one
company to coordinate all operations regarding inspection, control and the
issue of certificate relating to the cargo and rejected the sellers’ assertion
that having loaded the goods, and presented a certificate provided by an
international superintendence company, they had fulfilled their contractual
obligations. The sellers’ contention that S.G.S. India were nominated by
the buyers and they were agents for buyers was rejected. The Arbitral
Tribunal, GAFTA, concluded that wheat described on the certificate of
quality and condition presented by the sellers as durum wheat of Indian
origin was, in fact, soft wheat. The certificate was held to be uncontractual
and with regard to description, it was held that sellers were in breach of
contract and the buyers were entitled to damages based on the difference
between the contract price and the FOB value of the goods as delivered
4Page 5
and buyers were also entitled to any further proven loss directly and
naturally resulting in the ordinary course of events from the breach. The
Arbitral Tribunal, GAFTA passed the final award in the following terms:
“We do hereby award that Sellers shall pay Buyers
forthwith the sum of US $ 1,023,750.00 (One million
twenty three thousand seven hundred and fifty United
States dollars) being the difference between the FOB
contract price-US $ 162.00 per tonne less US $ 2.00 per
tonne penalty for extending the shipment period, i.e. US
$ 160.00 per tonne, and the FOB price of the Soft wheat
shipped on m.v. “HACI RESIT KALKAVAN” i.e. US$
111.25 per tonne amounting to US $ 48.75 per tonne on
21,000 tonnes, equating to US $ 1023.750 together with
interest thereon at the rate of 7% (Seven percent) per
annum from 24th August 1994 to the date of this Award.
We do further award that Sellers shall pay Buyers
forthwith the sum of US $ 303,007.60 (Three Hundred
and three thousand and seven United States dollars and
60 cents.) being the loss incurred in replacing the wheat
shipped on m.v. “HACI RESIT KALKAVAN” with Durum
wheat shipped on M.V. “EUROBULKER 1” and M.V.
“SEA DIAMOND H” together with interest thereon at 7%
(Seven percent) per annum on:
US$ 276,512.40 (the loss on M.V. “EUROBULKER 1”)
from 1st October, 1994 to the date of this Award.
AND
US$ 26,495.20 (the loss on M.V. “SEA DIAMOND H”)
from 5th December, 1994 to the date of this Award.
We do further award that sellers shall pay Buyers
forthwith the sum of US $ 138,590.28 (One hundred and
thirty eight thousand five hundred and ninety United
States dollars and 28 cents) being demurrage incurred
on M.V. “HACI RESIT KALKAVAN” amounting to 19 days
10 minutes at US $ 7,000 per day/pro-rata equating to
US $ 138.590.28 together with interest thereon at a rate
of 7% (Seven percent) per annum from 30th September
1994 to the date of this Award.
We do further award that Sellers claim for the return of
US $ 42,000 fails.”
5Page 6
9. It appears that following the commencement of arbitration
proceedings, the sellers contested the jurisdiction of the Arbitral Tribunal,
GAFTA. The sellers filed a petition in Delhi High Court for a declaration
that there was no arbitration agreement between the parties. They also
prayed for an order restraining the Arbitral Tribunal, GAFTA from
proceeding with the arbitration initiated by the buyers. Although initially
interim order was granted but the petition was finally dismissed by Delhi
High Court. The special leave petition from that order was dismissed by
this Court. In the meanwhile, the Arbitral Tribunal, GAFTA had passed an
interim award on 16.10.1995 holding, inter-alia, that the arbitration claim
was properly made and it had jurisdiction to decide both the preliminary
and substantive issues. On 05.02.1997, buyers made a separate claim for
arbitration for sellers’ alleged breach of the arbitration agreement in
bringing legal proceedings in India concerning the first dispute before it had
been determined under the GAFTA Rules. As regards this claim also, the
Arbitral Tribunal, GAFTA was constituted and an award No. 12159 dated
04.12.1997 came to be passed by the Arbitral Tribunal, GAFTA.
10. From the above two awards, namely, award no. 11715A and
award no. 12159, the two appeals being appeal award no. 3782 and
appeal award no. 3783 were filed by the sellers before the Board of
Appeal. The Board of Appeal disposed of appeal award no. 3782 (arising
out of award No. 11715A) on 21.09.1998 and passed the award in the
following terms:
6Page 7
“We do hereby award that Sellers shall forthwith pay to
Buyers the sum of US$ 1,023,750.00 (one million, twenty
three thousand seven hundred and fifty United States
Dollars) being the difference in value of US$ 48.75 per
tonne between the goods supplied and goods of the
contractual description calculated on 21,000 tonnes,
together with interest thereon at 7% (Seven per centum)
per annum from 24th August, 1994 to the date of this
Award.
We further award that Sellers shall forthwith pay to
Buyers the sum of US $ 138,590.28 (one hundred and
thirty eight thousand five hundred and ninety United
States Dollars and twenty eight cents), being demurrage
incurred at load, together with interest thereon at 7%
(seven per centum) per annum from 30th September
1994 to the date of this Award.
We further award that Buyers’ claim for consequential
damages fails.
We further award that Sellers shall forthwith pay to
Buyers the sum of £ 4,340.00 (four thousand three
hundred and forty pounds sterling only), being the fees
and expenses of Arbitration 11715A.
We further award that Sellers shall forthwith pay to
Buyers the sum of £ 1,750 (one thousand seven hundred
and fifty pounds only), being the costs and expenses of
Buyers’ Representative in preparing and presenting this
case.”
11. Appeal award no. 3783 (arising out of award no. 12159) was
disposed of also on the same day by the following award:
“We do hereby award that sellers shall forthwith pay to
Buyers as part of their damages the sum of £ 1,762.90
(one thousand seven hundred and sixty two pounds and
ninety pence), being the reasonable charges and
disbursements of Middleton Potts incurred in considering
and responding to the proceedings taken by Sellers in
India.
We further award that Sellers shall pay to Buyers as the
balance of their damages the sum of £ 15,924.00 (fifteen
thousand nine hundred and twenty four pounds), being
the total of O.P. Khaitan’s four invoices nos. ATP/804 of
1995/6, ATP/206 of 1996/7, ATP/286 of 1996/7 and
ATP/767 of 1996/7, or such lesser sum as shall be
agreed by the parties or assessed by an appropriate
officer or person in India, in either Indian rupees or
7Page 8
sterling as being the reasonable fees, expenses, etc.
incurred in considering and responding to the
proceedings taken by Sellers in India. But we reserve to
ourselves the right to assess these fees, expenses, etc.
upon application of one or both of the parties, in the
event that the parties are neither able to agree them, nor
able to agree upon an appropriate officer or person in
India to assess them.
We further award that Sellers shall forthwith pay to
Buyers the costs and expenses of the first tier arbitration
no. 12159 in the amount of £2,190.00 (two thousand one
hundred and ninety pounds) together with £ 85.00
(eighty five pounds), being the fee for appointment of an
arbitrator on Sellers’ behalf.
We further award that Sellers shall forthwith pay to
Buyers the sum of £ 500 (five hundred pounds only)
being the costs and expenses of Buyers’ Representative
in preparing and presenting this case.”
12. The sellers challenged the appeal award no. 3782 in the High
Court of Justice at London. The appeal was dismissed on 21.12.1998. The
sellers did not challenge the award passed by the Board of Appeal in
appeal award no. 3783. Both awards, thus, have attained finality.
13. It was then that buyers instituted a suit in the Delhi High Court
for enforcement of the awards both dated 21.09.1998 passed by the
Board of Appeal in appeal award no. 3782 and appeal award no. 3783.
The sellers raised diverse objections to the enforcement of the above
awards.
14. The appellant, Shri Lal Mahal Limited, is successor in interest of
the sellers while the respondent Progetto Grano SPA is the successor in
interest of buyers. When the proceedings were pending before the Delhi High
Court, the substitution in the proceedings took place. This is how the parties
8Page 9
are now described in the appeal. For the sake of convenience, we shall
continue to refer the appellant as ‘sellers’ and the respondent as ‘buyers’.
15. Inter alia, the submission of the sellers before the High Court was
that the appeal awards passed by the Board of Appeal which are sought to
be enforced are contrary to the public policy of India inasmuch as they are
contrary to the express provisions of the contract entered into between the
parties. The sellers submitted before the Delhi High Court that the Board of
Appeal erred in accepting the test report by S.G.S. Geneva whereas under the
contract, it was the test report of S.G.S.India that was material. The goods in
question were inspected at the port of discharge in the absence of the
sellers. In terms of the contract between the parties, the inspection certificate
was given by S.G.S. India which was nominated by the buyers themselves.
There was no requirement for any inspection at the point of discharge of
the consignment. Responsibility of the sellers ceased after the said
obligation was fulfilled.
16. On the other hand, it was submitted on behalf of the buyers
before Delhi High Court that the plea raised before the Board of Appeal on
the certificate issued by the S.G.S. Geneva was a matter of appreciation of
evidence and determination of question of fact which is beyond the scope
of the proceedings under Section 48 of the 1996 Act. The buyers
submitted that the sellers cannot be permitted to reopen questions of fact
as already decided by the Board of Appeal which were affirmed by the
High Court of Justice at London. Seeking enforcement of the awards of the
9Page 10
Board of Appeal, it was submitted that there was nothing in the awards
which could be said to be against the public policy of India.
17. Dealing with the submissions made on behalf of the parties,
the High Court considered the objections of the sellers and recorded its
conclusion as follows:
“23. The above conclusion of the GAFTA Arbitral
Tribunal is based on an appreciation of the evidence
produced by the parties. The stark finding, confirmed by
the reports of three independent analysts, two in Greece
(one a private lab and another State lab) and the FMBRA
in England, was that the consignment sent by the
Defendant contained only 9% durum wheat. 90% was
soft wheat. In the circumstances, the only conclusion
possible was the one arrived at by the Arbitral Tribunal
viz., “the wheat, described on the Certificate of Quality
and Condition presented by Sellers as Durum wheat of
Indian origin, was soft wheat.” This conclusion has been
affirmed by the impugned Appeal Award No. 3782 by the
Board of Appeal, GAFTA. It has been further affirmed by
the rejection by the High Court of Justice at London of
the Defendant’s petition challenging the Appeal Award
No. 3782. The above conclusion cannot be held to be
contrary to the terms of the contract or to the public
policy of India. Further, this Court is not expected in
enforcement proceedings, re-determine questions of fact.
The grounds enumerated in Section 48 of the Act are
meant to be construed narrowly and does not permit a
review of the foreign award on merits.”
18. Then in paragraph 25 of the impugned judgment, the High
Court observed that there was no serious defence in opposition to the
enforcement of two foreign awards. The High Court overruled the
objections raised by the sellers to the enforcement of foreign awards and
held that they were enforceable under Part II of the 1996 Act.
10Page 11
19. We have heard Mr. Rohinton F. Nariman, learned senior
counsel for the appellant (sellers) and Mr. Jayant K. Mehta, learned
counsel for the respondent (buyers) at quite some length.
20. Having regard to clause (b) of sub-section (2) of Section 48 of
the 1996 Act, we shall immediately examine what is the scope of enquiry
before the court in which foreign award, as defined in Section 44, is sought
to be enforced. This has become necessary as on behalf of the appellant it
was vehemently contended that in light of the two decisions of this Court in
Saw Pipes1
and Phulchand Exports2
, the Court can refuse to enforce a
foreign award if it is contrary to the contract between the parties and/or is
patently illegal. It was argued by Mr. Rohinton F. Nariman, learned senior
counsel for the appellant, that the expression “public policy of India” in
Section 48(2)(b) is an expression of wider import than the expression
“public policy” in Section 7(1)(b)(ii) of the Foreign Awards (Recognition and
Enforcement) Act, 1961. The expansive construction given by this Court to
the term “public policy of India” in Saw Pipes1 must also apply to the use of
the same term “public policy of India” in Section 48(2)(b).
21. Mr. Jayant K. Mehta, learned counsel for the respondent, on
the other hand, placed heavy reliance upon the decision of this Court in
Renusagar3 and submitted that what has been stated by this Court while
interpreting Section 7(1)(b)(ii) of the Foreign Awards Act in that case is
equally applicable to Section 48(2)(b) of the 1996 Act and the expression
1 Oil and Natural Gas Corporation Limited v. Saw Pipes Limited; (2003) 5 SCC 705
2 Phulchand Exports Limited v. O.OO. Patriot; (2011) 10 SCC 300
11Page 12
“public policy of India” in Section 48(2)(b) must receive narrow meaning
than Section 34. Saw Pipes1 never meant to give wider meaning to the
expression, “public policy of India” insofar as Section 48 was concerned.
According to Mr. Jayant K. Mehta, Phulchand Exports2 does not hold that
all that is found in paragraph 74 in Saw Pipes1 is applicable to Section
48(2)(b). He argued that in any case both Saw Pipes1 and Phulchand
Exports2 are decisions by a two-Judge Bench of this Court whereas
Renusagar3
is a decision of three-Judge Bench and if there is any
inconsistency in the decisions of this Court in Saw Pipes1 and Phulchand
Exports2 on the one hand and Renusagar3 on the other, Renusagar3 must
prevail as this is a decision by the larger Bench.
22. The three decisions of this Court in Renusagar3
, Saw Pipes1
and Phulchand Exports2
need a careful and close examination by us. We
shall first deal with Renusagar3
. It is not necessary to narrate in detail the
facts in Renusagar3
. Suffice it to say that Arbitral Tribunal, GAFTA in
Paris passed an award in favour of General Electric Company (GEC)
against Renusagar. GEC sought to enforce the award passed in its favour
by filing an arbitration petition under Section 5 of the Foreign Awards Act in
the Bombay High Court. Renusagar contested the proceedings for
enforcement of the award filed by GEC in the Bombay High Court on
diverse grounds. Inter alia, one of the objections raised by Renusagar was
that the enforcement of the award was contrary to the public policy of India.
3 Renusagar Power Co. Limited v. General Electric Company; 1994 Supp (1) SCC 644
12Page 13
The Single Judge of the Bombay High Court overruled the objections of
Renusagar. It was held that the award was enforceable and on that basis a
decree in terms of the award was drawn. Renusagar filed an intra-court
appeal but that was dismissed as not maintainable. It was from these
orders that the matter reached this Court. On behalf of the parties, multifold
arguments were made. A three-Judge Bench of this Court noticed diverse
provisions, including Section 7(1)(b)(ii) of the Foreign Awards Act which
provided that a foreign award may not be enforced if the court dealing with
the case was satisfied that the enforcement of the award would be contrary
to public policy. Of the many questions framed for determination, the two
questions under consideration were; one, “Does Section 7(1)(b)(ii) of the
Foreign Awards Act preclude enforcement of the award of the Arbitral
Tribunal, GAFTA for the reason that the said award is contrary to the public
policy of the State of New York?” and the other “what is meant by public
policy in Section 7(1)(b)(ii) of the Foreign Awards Act?”. This Court held
that the words “public policy” used in Section 7(1)(b)(ii) of the Foreign
Awards Act meant public policy of India. The argument that the recognition
and enforcement of the award of the Arbitral Tribunal, GAFTA can be
questioned on the ground that it is contrary to the public policy of the State
of New York was negated. A clear and fine distinction was drawn by this
Court while applying the rule of public policy between a matter governed
by domestic laws and a matter involving conflict of laws. It has been held
in unambiguous terms that the application of the doctrine of “public policy”
13Page 14
in the field of conflict of laws is more limited than that in the domestic law
and the courts are slower to invoke public policy in cases involving a
foreign element than when purely municipal legal issues are involved.
Explaining the concept of “public policy” vis-à-vis the enforcement of
foreign awards in Renusagar3
, this Court in paras 65 and 66 (pgs. 681-
682) of the Report stated:
65. This would imply that the defence of public policy
which is permissible under Section 7(1)(b)(ii) should be
construed narrowly. In this context, it would also be of
relevance to mention that under Article I(e) of the
Geneva Convention Act of 1927, it is permissible to raise
objection to the enforcement of arbitral award on the
ground that the recognition or enforcement of the award
is contrary to the public policy or to the principles of the
law of the country in which it is sought to be relied upon.
To the same effect is the provision in Section 7(1) of the
Protocol & Convention Act of 1937 which requires that
the enforcement of the foreign award must not be
contrary to the public policy or the law of India. Since the
expression “public policy” covers the field not covered by
the words “and the law of India” which follow the said
expression, contravention of law alone will not attract the
bar of public policy and something more than
contravention of law is required.
66. . . . . . . . . This would mean that “public policy” in
Section 7(1)(b)(ii) has been used in a narrower sense
and in order to attract the bar of public policy the
enforcement of the award must invoke something more
than the violation of the law of India. Since the Foreign
Awards Act is concerned with recognition and
enforcement of foreign awards which are governed by
the principles of private international law, the expression
“public policy” in Section 7(1)(b)(ii) of the Foreign Awards
Act must necessarily be construed in the sense the
doctrine of public policy is applied in the field of private
international law. Applying the said criteria it must be
held that the enforcement of a foreign award would be
refused on the ground that it is contrary to public policy if
such enforcement would be contrary to (i) fundamental
14Page 15
policy of Indian law; or (ii) the interests of India; or (iii)
justice or morality.
(Emphasis supplied by us)
23. In Saw Pipes1
, the ambit and scope of the court’s jurisdiction
under Section 34 of the 1996 Act was under consideration. The issue was
whether the court would have jurisdiction under Section 34 to set aside an
award passed by the Arbitral Tribunal, GAFTA which was patently illegal or
in contravention of the provisions of the 1996 Act or any other substantive
law governing the parties or was against the terms of the contract. This
Court considered the meaning that could be assigned to the phrase “public
policy of India” occurring in Section 34(2)(b)(ii). Alive to the subtle
distinction in the concept of ‘enforcement of the award’ and ‘jurisdiction of
the court in setting aside the award’ and the decision of this Court in
Renusagar3
, this Court held in Saw Pipes1 that the term “public policy of
India” in Section 34 was required to be interpreted in the context of the
jurisdiction of the court where the validity of the award is challenged before
it becomes final and executable in contradistinction to the enforcement of
an award after it becomes final. Having that distinction in view, with regard
to Section 34 this Court said that the expression “public policy of India” was
required to be given a wider meaning. Accordingly, for the purposes of
Section 34, this Court added a new category – patent illegality – for setting
aside the award. While adding this category for setting aside the award on
the ground of patent illegality, the Court clarified that illegality must go to
15Page 16
the root of the matter and if the illegality is of trivial nature it cannot be held
that award is against public policy. Award could also be set aside if it was
so unfair and unreasonable that it shocks the conscience of the court.
24. From the discussion made by this Court in Saw Pipes1 in
paragraph 18∗
(pgs. 721-722), paragraph 22∗
(pgs. 723-724) and paragraph
*18. Further, in Renusagar Power Co. Ltd. v. General Electric Co. this Court considered Section 7(1) of
the Arbitration (Protocol and Convention) Act, 1937 which inter alia provided that a foreign award may
not be enforced under the said Act, if the court dealing with the case is satisfied that the enforcement of
the award will be contrary to the public policy. After elaborate discussion, the Court arrived at the
conclusion that public policy comprehended in Section 7(1)(b)(ii) of the Foreign Awards (Recognition and
Enforcement) Act, 1961 is the “public policy of India” and does not cover the public policy of any other
country. For giving meaning to the term “public policy”, the Court observed thus: (SCC p. 682, para 66)
……….
**22. The aforesaid submission of the learned Senior Counsel requires to be accepted. From the
judgments discussed above, it can be held that the term “public policy of India” is required to be
interpreted in the context of the jurisdiction of the court where the validity of award is challenged before it
becomes final and executable. The concept of enforcement of the award after it becomes final is different
and the jurisdiction of the court at that stage could be limited. Similar is the position with regard to the
execution of a decree. It is settled law as well as it is provided under the Code of Civil Procedure that once
the decree has attained finality, in an execution proceeding, it may be challenged only on limited grounds
such as the decree being without jurisdiction or a nullity. But in a case where the judgment and
decree is challenged before the
appellate court or the court exercising revisional jurisdiction, the jurisdiction of such court would
be wider. Therefore, in a case where the validity of award is challenged, there is no necessity of giving a
narrower meaning to the term “public policy of India”. On the contrary, wider meaning is required to be
given so that the “patently illegal award” passed by the Arbitral Tribunal could be set aside. If narrow
meaning as contended by the learned Senior Counsel Mr. Dave is given, some of the provisions of the
Arbitration Act would become nugatory.Take for illustration a case wherein there is a specific provision in
the contract that for delayed payment of the amount due and payable, no interest would be payable, still
however, if the arbitrator has passed an award granting interest, it would be against the terms of the
contract and thereby against the provision of Section 28(3) of the Act which specifically provides that
“Arbitral Tribunal shall decide in accordance with the terms of the contract”. Further, where there is a
specific usage of the trade that if the payment is made beyond a period of one month, then the party would
be required to pay the said amount with interest at the rate of 15 per cent. Despite the evidence being
produced on record for such usage, if the arbitrator refuses to grant such interest on the ground of equity,
such award would also be in violation of sub-sections (2) and (3) of Section 28. Section 28(2) specifically
provides that the arbitrator shall decide ex aequo et bono (according to what is just and good) only if the
parties have expressly authorised him to do so. Similarly, if the award is patently against the statutory
provisions of substantive law which is in force in India or is passed without giving an opportunity of
hearing to the parties as provided under Section 24 or without giving any reason in a case where parties
have not agreed that no reasons are to be recorded, it would be against the statutory provisions. In all such
cases, the award is required to be set aside on the ground of “patent illegality”.
16Page 17
31∗
(pgs. 727-728) of the Report, it can be safely observed that while
accepting the narrow meaning given to the expression “public policy” in
Renusagar3 in the matters of enforcement of foreign award, there was
departure from the said meaning for the purposes of the jurisdiction of the
Court in setting aside the award under Section 34.
25. In our view, what has been stated by this Court in Renusagar3
with reference to Section 7(1)(b)(ii) of the Foreign Awards Act must equally
apply to the ambit and scope of Section 48(2)(b) of the 1996 Act. In
Renusagar3
it has been expressly exposited that the expression “public
policy” in Section 7(1)(b)(ii) of the Foreign Awards Act refers to the public
policy of India. The expression “public policy” used in Section 7(1)(b)(ii)
was held to mean “public policy of India”. A distinction in the rule of public
policy between a matter governed by the domestic law and a matter
involving conflict of laws has been noticed in Renusagar3
. For all this there
is no reason why Renusagar3
should not apply as regards the scope of
***31. Therefore, in our view, the phrase “public policy of India” used in Section 34 in context is required
to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which
concerns public good and the public interest. What is for public good or in public interest or what would
be injurious or harmful to the public good or public interest has varied from time to time. However, the
award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public
interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in
our view in addition to narrower meaning given to the term “public policy” in Renusagar case it is
required to be held that the award could be set aside if it is patently illegal. The result would be — award
could be set aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interests of India; or
(c) justice or morality, or
(d) in addition, if it is patently illegal
Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held
that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable
that it shocks the conscience of the court. Such award is opposed to public policy and is required to be
adjudged void.
17Page 18
inquiry under Section 48(2)(b). Following Renusagar3
, we think that for the
purposes of Section 48(2)(b), the expression “public policy of India” must
be given narrow meaning and the enforcement of foreign award would be
refused on the ground that it is contrary to public policy of India if it is
covered by one of the three categories enumerated in Renusagar3
.
Although the same expression ‘public policy of India’ is used both in
Section 34(2(b)(ii) and Section 48(2)(b) and the concept of ‘public policy in
India’ is same in nature in both the Sections but, in our view, its application
differs in degree insofar as these two Sections are concerned. The
application of ‘public policy of India’ doctrine for the purposes of Section
48(2)(b) is more limited than the application of the same expression in
respect of the domestic arbitral award.
26. We are not persuaded to accept the submission of
Mr. Rohinton F. Nariman that the expression “public policy of India” in
Section 48(2)(b) is an expression of wider import than the “public policy” in
Section 7(1)(b)(ii) of the Foreign Awards Act. We have no hesitation in
holding that Renusagar3 must apply for the purposes of Section 48(2)(b) of
the 1996 Act. Insofar as the proceeding for setting aside an award under
Section 34 is concerned, the principles laid down in Saw Pipes1 would
govern the scope of such proceedings.
27. We accordingly hold that enforcement of foreign award would
be refused under Section 48(2)(b) only if such enforcement would be
contrary to (i) fundamental policy of Indian law; or (2) the interests of India;
18Page 19
or (3) justice or morality. The wider meaning given to the expression “public
policy of India” occurring in Section 34(2)(b)(ii) in Saw Pipes1 is not
applicable where objection is raised to the enforcement of the foreign
award under Section 48(2)(b).
28. It is true that in Phulchand Exports2 , a two-Judge Bench of
this Court speaking through one of us (R.M. Lodha, J.) accepted the
submission made on behalf of the appellant therein that the meaning given
to the expression “public policy of India” in Section 34 in Saw Pipes1 must
be applied to the same expression occurring in Section 48(2)(b) of the
1996 Act. However, in what we have discussed above it must be held that
the statement in paragraph 16 of the Report that the expression “public
policy of India used in Section 48(2)(b) has to be given a wider meaning
and the award could be set aside, if it is patently illegal” does not lay
down correct law and is overruled.
29. Having regard to the above legal position relating to the scope
of “public policy of India” under clause (b) of sub-section (2) of Section 48,
we shall now proceed to consider the submissions of the parties.
30. Mr. Rohinton F. Nariman, learned senior counsel for the
appellant, argued that the appeal awards by the Board of Appeal cannot be
enforced on the touchstone that they are contrary to public policy of India.
It is so as both the Arbitral Tribunal, GAFTA and the Board of Appeal have
gone beyond the terms of the contract between the sellers and the buyers.
Despite the contract being FOB contract between the parties which
19Page 20
specifically sets out that the certificate of quality obtained at the load port
from the buyers’ nominated certifying agency, i.e., S.G.S. would be final
and the certifying agency in fact issued such a certificate, the Arbitral
Tribunal, GAFTA as well as the Board of Appeal relied upon evidence
procured unilaterally by the buyers from other certifying agencies beyond
the terms of the contract which was based on quality specifications of a
forward contract which the buyers had signed with OAIC Algiers. In this
regard, learned senior counsel referred to the certificate issued by S.G.S.
India which confirmed that weight, quality and packing of the goods met the
contractual specifications both in terms of description and quality. The
Merchandise was found to be sound, loyal, merchantable, free from living
insects, defects, diseases and contamination of any nature. However, the
buyers appointed Crepin Analysis and Controls, Rouen for testing the
sample of the goods for their forward contract with OAIC Algiers. The said
agency tested the goods on a completely different set of parameters as
stipulated under the contract. Crepin did not even test the goods for their
contents of vitreous and moisture.
31. Learned senior counsel for the appellant submitted that being
an FOB contract the title of the goods and risk is passed on to the buyers
the moment the goods were loaded on the ship. The goods were admittedly
loaded on 08.08.1994 after which the risk fell on the buyers. In this regard
reliance was placed on a decision of this Court in D.K. Lall4
.
4 Contship Container Lines Limited v. D.K. Lall and Others; (2010) 4 SCC 256
20Page 21
32. Mr. Rohinton F. Nariman vehemently contended that once
parties had agreed that certification by an inspecting agency would be
final, it was not open to the Arbitral Tribunal, GAFTA as well as Board of
Appeal, to go behind that certificate and disregard it even if the certificate
was inaccurate (which was not the case). In this regard, reliance was
placed on two judgments of the English courts, namely, Agroexport5 and
Alfred C. Toepfer.6
. He submitted that House of Lords in Gill & Duffus7
has affirmed the decision in Alfred C. Toepfer6
. It was, thus, submitted that
the Arbitral Tribunal, GAFTA and the Board of Appeal having disregarded
the finality of the certificate issued by S.G.S. India, the awards were plainly
contrary to contract and, therefore, not enforceable in India. It was
submitted on behalf of the appellant that it was not an issue in dispute and
not the buyers’ case before the Arbitral Tribunal, GAFTA and/or the Board
of Appeal that the procedure adopted by SGS India was not in conformity
with the contract. It was, therefore, not open to the Board of Appeal to
render a finding which went beyond the scope of the buyers’ very case.
Accordingly, it was argued that the Board of Appeal dealt with the
questions not referred to it and which were never in dispute and, therefore,
award cannot be enforced because it is contrary to Section 48(1)(c) of the
1996 Act as well.
5 Agroexport Enterprise D’etat Pour Le Commerce Exterieur v. N.V. Goorden Import CY. U.S.A; (1956) 1 Q.B.
319
6 Alfred C. Toepfer v. Continental Grain Co (1974) 1 Lloyds Law Reports 11
7 Gill & Duffus S.A. v. Berger & Co.Inc. (1984) 1 Lloyd’s Law Reports 227
21Page 22
33. Learned senior counsel for the appellant highlighted that the
real problem in the present case was not that S.G.S. India did not properly
certify the goods and/or that they did not meet the contractual
specifications provided for under the contract between the buyers and
sellers but because the buyers were unable to use it for their forward
contract with OAIC Algeria. This is further fortified from the fact that the
buyers entered into a further contract with the sellers on 09.09.1994 for a
much larger quantity of the goods with the very same specifications. He,
thus, submitted that the judgment of the High Court should be set aside and
the appeal awards must be held to be not enforceable in India.
34. Mr. Jayant K. Mehta, learned counsel for the respondent, on
the other hand, supported the impugned judgment and submitted that the
High Court was justified in dismissing the objections of the appellant as no
ground was established or proved by the appellant on which enforcement
of the foreign awards could be refused under Section 48 of the 1996 Act.
35. Learned counsel submitted that the FOB contract has no
relevance to the liability of a seller to sell the contractual goods or to the
quality of the goods sold. It is only relevant for determination of risk and
liability during transportation of the goods which is not the issue in the
present case. With reference to D.K. Lall4
relied upon by the learned senior
counsel for the appellant, it was submitted that D.K. Lall4 was only on issue
of insurance liability and in that context the nature of FOB contract had
22Page 23
been discussed. D.K. Lall4
does not concern with the issue of sellers’
breach in selling uncontractual goods.
36. Mr. Jayant K. Mehta submitted that the findings of the Arbitral
Tribunal, GAFTA, as upheld by the Board of Appeal, are that (a) the
contract specified that the certification of quality is final at the time and
place of loading; (b) as per the contract certification by S.G.S. India was to
be conclusive based on sampling at the time and place of loading; (c) two
distinct aspects were required to be considered whether S.G.S. India was
the contractual party and, if yes, whether S.G.S. India certificate was in the
contractual form. While it was found that S.G.S. India was the contractual
agency, the sellers failed to establish that the S.G.S. India certificate was in
contractual form. Buyers, on the other hand, did establish that the S.G.S.
India certificate was not in contractual form, (d) S.G.S. India’s certification
was uncontractual as there were two fatal errors in the certification, firstly, it
did not follow the contractual specified mode of sampling in that the
contract required the result to be of an average sample taken at the port of
loading, not the weighted average of pre-shipment and shipment, secondly,
the analysis done by S.G.S. India was doubtful; (e) as the buyers held the
sellers to be in breach on the grounds of defective sampling and
certification by S.G.S. India, the buyers requested the sellers to attend at
discharge for joint sampling which was not accepted by the sellers and (f)
the method used for determining soft wheat used by S.G.S. India obviously
produced very different results to the methods used by Crepin and other
23Page 24
laboratories. On the balance of probabilities, the Arbitral Tribunal, GAFTA
found and the Board of Appeal agreed that the wheat described in the
certificate of quality and condition was soft wheat and, therefore, buyers
were entitled to damages.
37. Learned counsel submitted that the findings recorded by the
Arbitral Tribunal, GAFTA and the Board of Appeal were in the realm of
interpretation of the contract and appreciation of the evidence which cannot
be reopened by arguing that the foreign award is contrary to the contract
and, therefore, its enforcement would offend public policy of India. About
the decisions of the English courts in Agroexport5 and Alfred C. Toepfer6
,
learned counsel submitted that decisions of English courts cannot form part
of public policy of India. This Court does not exercise appellate jurisdiction
over the foreign awards and cannot be called upon to enquire as to whether
foreign awards are contrary to the principles of English law. Learned
counsel submitted that in any case the judgments of the English courts in
Agroexport5 and Alfred C. Toepfer6 do not apply to the fact situation of the
present case. Learned counsel also submitted that the decision of House of
Lords in Gill & Duffus7 has no application to the present case.
38. Learned counsel for the respondent argued that once the
sampling by S.G.S. India has been found to be uncontractual, that
certificate cannot bind the buyers and, therefore, no error or illegality was
committed by the Arbitral Tribunal, GAFTA, or the Board of Appeal to look
into the certificate issued by Crepin. Learned counsel for the respondent
24Page 25
thus, submitted that the Delhi High Court was justified in rejecting the
objections of the appellant.
39. It is not necessary to advert to the findings recorded by the
Arbitral Tribunal, GAFTA as what is sought to be enforced by the buyers is
the two awards of the Board of Appeal.
40. The challenge to the enforceability of the foreign awards
passed by the Board of Appeal is mainly laid by the sellers on the ground
that the Board of Appeal has gone beyond the terms of the contract by
ignoring the certificate of quality obtained at the load port from the buyers’
nominated certifying agency, i.e., SGS India which was final under the
contract. The Board of Appeal, while dealing with the question whether the
SGS India certificate was issued by the contractual party and in contractual
form, noticed the clause in the contract in respect of quality and condition
and it held that SGS India was an acceptable certifying party under the
contract. As regards the other part of that clause that provided, “certificate
and quality showed in the certificate will be the result of an average
samples taken jointly at port of loading by the representatives of the sellers
and the buyers”, the Board of Appeal recorded its finding as follows:
“The SGS India certificate shows that an inspection took
place at the suppliers godowns inland, and
representative samples taken. Sealed samples were
inspected lotwise and the cargo meeting the contractual
specifications was allowed to be bagged for dispatch to
Kandla.
Continuous supervision of loading into the vessel was
also carried out at the port. The samples drawn
periodically were reduced and composite samples were
25Page 26
sealed; one sealed sample of each lot was handed over
to the supplier, one sealed sample of each lot was
analysed by SGS and the remaining samples were
retained by SGS for a period of three months unless and
until instructions to the contrary were given.
The analysis section of the certificate states that “The
above samples have been analysed and the weighted
average Pre-shipment and Shipment results are as
under:
We find that this procedure was not in conformity with
the requirements of the Contract, which required the
result to be of an average sample taken at port of
loading, not the weighted average of pre-shipment and
shipment samples. Accordingly the certificate is
uncontractual and its results are not final.
In consequence the Board is obliged to evaluate all the
evidence presented, including the evidence of the
uncontractual SGS India certificate to decide whether or
not the goods were of the contractual description, i.e.
Durum wheat Indian origin.”
(Emphasis supplied by us)
41. Thus, having held that SGS India was the contractual agency,
the Board of Appeal further held that the sellers failed to establish that the
SGS India certificate was in contractual form. Two fundamental flaws in the
certification by SGS India were noted by the Board of Appeal, one, SGS
India’s certification did not follow the contractual specified mode of
sampling and the other, the analysis done by SGS India was doubtful. The
Board of Appeal then sifted the documentary evidence let in by the parties
and finally concluded that wheat loaded on the vessel Haci Resit Kalkavan
was soft wheat and the sellers were in breach of the description condition
of the contract.
42. It is pertinent to state that the sellers had challenged the award
(no. 3782) passed by the Board of Appeal in the High Court of Justice at
26Page 27
London. The three decisions; (i) Agroexport5 by Queen’s Bench Division,
(ii) Toepfer6 by Court of Appeal, and (iii) Gill & Duffus7 by House of Lords,
were holding the field at the time of consideration of sellers’ appeal by the
High Court of Justice at London. In Agroexport5 , it has been held that an
award founded on evidence of analysis made other than in accordance with
contract terms cannot stand and deserves to be set aside as evidence
relied upon was inadmissible. The Court of Appeal in Toepfer6 has laid
down that where seller and buyer have agreed that a certificate at loading
as to the quality of goods shall be final and binding on them, the buyer will
be precluded from recovering damages from the seller, even if, the person
giving the certificate has been negligent in making it. Toepfer6 has been
approved by the House of Lords in Gill & Duffus7
. The High Court of Justice
at London can be assumed to have full knowledge of the legal position
exposited in Agroexport5
, Toepfer6 and Gill & Duffus7 yet it found no
ground or justification for setting aside the award (no. 3782) passed by the
Board of Appeal. If a ground supported by the decisions of that country was
not good enough for setting aside the award by the court competent to do
so, a fortiori, such ground can hardly be a good ground for refusing
enforcement of the award. Accordingly, we are not persuaded to accept
the submission of Mr. Rohinton F. Nariman that Delhi High Court ought to
have refused to enforce the foreign awards as the Board of Appeal has
wrongly rejected the certificate of quality obtained from the buyers’
nominated certifying agency and taken into consideration inadmissible
27Page 28
evidence in the nature of certificates obtained by the buyers’ for the
purposes of forwarding contract.
43. Moreover, Section 48 of the 1996 Act does not give an
opportunity to have a ‘second look’ at the foreign award in the award -
enforcement stage. The scope of inquiry under Section 48 does not permit
review of the foreign award on merits. Procedural defects (like taking into
consideration inadmissible evidence or ignoring/rejecting the evidence
which may be of binding nature) in the course of foreign arbitration do not
lead necessarily to excuse an award from enforcement on the ground of
public policy.
44. In what we have discussed above, even if it be assumed that
the Board of Appeal erred in relying upon the report obtained by buyers
from Crepin which was inconsistent with the terms on which the parties
had contracted in the contract dated 12.05.1994 and wrongly rejected the
report of the contractual agency, in our view, such errors would not bar the
enforceability of the appeal awards passed by the Board of Appeal.
45. While considering the enforceability of foreign awards, the
court does not exercise appellate jurisdiction over the foreign award nor does it enquire as to whether, while rendering foreign award, some error has been committed.
Under Section 48(2)(b) the enforcement of a foreign award can be refused only if such enforcement is found to be contrary to
(1) fundamental policy of Indian law; or
(2) the interests of India; or
(3) justice or morality.
The objections raised by the appellant do not fall in any
28Page 29
of these categories and, therefore, the foreign awards cannot be held to be contrary to public policy of India as contemplated under Section 48(2)(b).
46. The contention of the learned senior counsel for the appellant
that
the Board of Appeal dealt with the questions not referred to it and which were never in dispute and, therefore, these awards cannot be enforced being contrary to Section 48(1)(c) is devoid of any substance and is noted to be rejected.
47. In the circumstances, we hold that appeal has no merit. It is
dismissed with no order as to costs.
.……………………….J.
(R.M. Lodha)
……..………………...J.
(Madan B. Lokur)
.……………………...J.
(Kurian Joseph)
NEW DELHI
JULY 03, 2013.
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