IN THE HIGH COURT OF JUDICATURE AT HYDERABAD
FOR THE STATE OF TELENGANA AND THE STATE OF ANDHARA
PRADESH
***
EXEP.No.3 of 2017
Between:
Keytrade AG,
Zurcherstrasse 68, CH-8800 Thalwil,
Switzerland
Through General Power of Attorney Holder
Mr.Mayank Kashirsagar, Advocate,
24, Firoze Gandhi Road, Flat No.4,
Lajpat Nagar-III, New Delhi.
......... Decree Holder/Petitioner
And
Nagarjuna Fertilizers & Chemicals Ltd.
D.No.8-2-248, Nagarjuna Hills,
Punjagutta, Hyderabad - 500082,
Telangana.
.......Judgment Debtor/Respondent
Date of Judgment pronounced on : 27-11-2018
HON'BLE SRI JUSTICE M.S.RAMACHANDRA RAO
1. Whether Reporters of Local newspapers : Yes/No
May be allowed to see the judgments?
2. Whether the copies of judgment may be marked : Yes
to Law Reporters/Journals:
3. Whether The Lordship wishes to see the fair copy : Yes/No
Of the Judgment?
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THE HON'BLE SRI JUSTICE M.S. RAMACHANDRA RAO
EXEP.No.3 of 2017
%27-11-2018
# Keytrade AG,
Zurcherstrasse 68, CH-8800 Thalwil,
Switzerland
Through General Power of Attorney Holder
Mr.Mayank Kashirsagar, Advocate,
24, Firoze Gandhi Road, Flat No.4,
Lajpat Nagar-III, New Delhi.
......... Decree Holder/Petitioner
Versus
$ Nagarjuna Fertilizers & Chemicals Ltd.
D.No.8-2-248, Nagarjuna Hills,
Punjagutta, Hyderabad - 500082,
Telangana.
.......Judgment Debtor/Respondent
< GIST:
> HEAD NOTE:
!Counsel for the Petitioner : Sri K.Vivek Reddy
^Counsel for the respondent : Sri N.Ashwani Kumar
? Cases referred
1. (2014) 2 SCC 433
2. (1976) 4 SCC 89 at Para 6
3. AIR 1994 SC 860
4. AIR 1959 SC 781
5. MANU/DE/0965/2017
6. (2018) 12 SCC 471
7. (2001) 6 SCC 356
8. AIR 1951 SC 177
9. AIR 1943 PC 29
10. 2004(2) ALD 635 (DB)
11. (2018) UKSC 24
12. AIR 1958 SC 512
13. (2005) 12 SCC 764
14. (1976) 4 SCC 89
15. (2015) 3 SCC 49
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HON'BLE SRI JUSTICE M.S.RAMACHANDRA RAO
EXEP.No.3 of 2017
ORDER:
This Execution Petition is filed under Section 47 of the Arbitration and Conciliation Act, 1996 read with provisions of Section 2(1)(c), 7 and 10(i) of the Commercial Courts, Commercial Division and Commercial Appellate Division of the High Courts Act, 2015 (Act 4 of 2016) to recover a sum of US $ 2,143,168 equivalent to INR 14,27,75,708.87ps pursuant to an Arbitral Award passed in London on 05.04.2016 by a Three-Member Arbitration Tribunal (for short 'the Tribunal') after adjudicating the dispute between the parties. THE BACKGROUND FACTS
2. The petitioner herein is a Company incorporated in Switzerland and is engaged in the business of trading in fertilizers.
3. The respondent is a Company registered under the Companies Act, 1956 having its registered office at Hyderabad, India, which is also engaged in the business of trading in fertilizers.
4. The petitioner and respondent entered into a contract 'KTS 201310338' dt.30-4-2013 whereby the petitioner agreed to sell and the respondent agreed to by 50,000 Metric Tonnes (M.T.) of Di Ammonium Phosphate (for short, 'D.A.P.') (later split into two contracts) with a shipping tolerance of ±10% at the option of the petitioner at a price of US $ 515 per M.T. on C.F.R. basis. The value 4 MSR,J exep_3_ 2017 of this contract is US $ 25.75 Million equivalent to Rs.167.37 crores. It provided that payment was to be by irrevocable confirmed Letter of Credit (for short 'LC') payment at sight and the LC was to be established by State Bank of India or another bank acceptable to sellers.
5. Subsequently, on 28.05.2013, the above contract was split into two contracts (KTS201310338.1 and KTS201310338.2) of 25,000 M.T. each at the option of the petitioner. All other terms and conditions including the price which was US $ 515 M.T. remained the same. In this split contract the mode of payment was by an irrevocable LC established by State Bank of India or any Bank acceptable to petitioner. It provided that the governing Law was to be English Law and in the event of disputes, the arbitration was to be held in London under the L.C.I.A. Rules by a panel of three arbitrators who shall be commercial men.
6. After the contracts were signed, petitioner nominated a vessel 'MV Bulk Leo' with a capacity of 50,000 M.T. The respondent however requested for extension of the shipping date on the ground that they were waiting for payment of a Government subsidy, and in the meantime was not in a good enough financial condition to open the required LCs. So the petitioner agreed to the respondent's request.
7. Later parties entered into four different amendments by extending the shipping dates from time to time as mentioned below.
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8. According to petitioner, these amendments were pursuant to respondent's request due to different reasons.
9. Under the Amendment No.1, reflecting the delayed shipping date until 2nd half of June, 2013 the petitioner nominated a vessel 'MV Aoyama' of capacity 50,000 M.T. on 12.6.2013 and requested the respondent for opening of the L.C.
10. This was not acted upon in view of the respondent's request on 12-6-2013 to delay the shipping date until July, 2013 citing the non receipt of anticipated government subsidy as well as falling value of the Indian Rupee vis-a-vis the US $. This was agreed to by the petitioner.
11. On 20.6.2013, petitioner again nominated a vessel 'MV Harrier' with Laycan 4/10 July,2013, but the respondent again requested for extension of the shipping date stating that their Banker was refusing to open the LCs.
12. In view of the said request, the parties entered into Amendment No.2 on 20.6.2013 reflecting the revised shipping dates pushing them back to 25/30 July, 2013 , but all other terms of contract remained the same. Though the above vessel's nomination was accepted by respondent on 21.6.2013, respondent sought reduction in price, credit/usance to the maximum possible. Petitioner at that time refused to reduce the price, but offered to modify the payment clause allowing the LCs to be paid 60 days from the Bill of Lading date.
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13. Thereafter, the parties entered on 10.07.2013 into an Amendment No.3 as per the request of the respondent incorporating the deviation in payment clause as above.
14. It is not in dispute that on 03.05.2013 the Government of India issued an Office Memorandum reducing the price for availing subsidy for D.A.P. to Rs.24,000 per M.T. and on 26.06.2013, it issued another Office Memorandum reiterating the same.
15. On 08.07.2013, the respondent's representative sent an e-mail to the petitioner informing it about the challenges faced by the respondent due to the formulation of policies relating to the fertilizer industry.
16. After the Amendment no.3 was signed, on 11.07.2013, the petitioner nominated a vessel 'Nikolaos A' to load 50,000 M.T. with Laycan put on 21/28 July 2013, but the respondent contacted the petitioner and rejected petitioner's vessel nomination by sending an e-mail on 11.07.2013.
17. On 12.07.2013, discussion took place between the parties through a conference call wherein the respondent referred to its financial problems, and in addition, asked for more time proposing a number of other destinations for the cargo including a proposal for sale by the petitioner of the cargo to some third party albeit at the lower current market price to which petitioner's representative responded that loss should be borne by the respondent if such a 7 MSR,J exep_3_ 2017 mitigation sale took place. The petitioner in turn proposed that if respondent honoured the parties' contracts at the agreed price of $ 515 per M.T., it could possibly sell the cargo at $ 470 Dollars per M.T. and submitted on 13.07.2013 the Amendment No.4 for respondent's counter-signature pushing the shipment dates to mid- September, 2013 and requiring the respondent to open L.C.s by five days prior to the vessel's Laycan.
18. The 4th amendment was counter-signed by the respondent on 06.08.2013.
19. Before that on 19.07.2013, the petitioner's representatives met the respondent's representatives at New Delhi and in the said meeting, the respondent stated that it is in receipt of subsidy money and was in a position to open L.C.s, but the Fertilizer Association of India warned it against importing the cargo at a price well above the current market value. According to the petitioner, the respondent's representative Mr.Bhaskaran, while acknowledging that a contract is a contract, allegedly made a request to the petitioner for reducing price as well as the quantity of D.A.P. to 40,000 M.T. which would help the respondent to reduce its loss. This is disputed by respondent.
20. On 22.7.3013, petitioner proposed Amendment No.5 reducing the price to $ 505 and the quantity to 40,000 MT and providing payment through LC 60 days, with LC to be established by 16.8.2013 and shipment by 15.9.2013. This according to the petitioner is the 8 MSR,J exep_3_ 2017 Amendment No.5 and it is contended by petitioner that this was agreed to by respondent and is binding on the respondent.
21. The respondent however did not return the same to petitioner after it was signed by it's representative. The respondent contends that it had never signed Amendment No.5 to the contract, and contends that the petitioner cannot place any reliance on it and that the proposals contained in the said Amendment did not bind it.
22. On 12.08.2013, the petitioner nominated a vessel "MV Navios Arc' of 40,000 M.T. in terms of agreement which had a laycan of 23/30 August 2013.
23. On 13.08.2013, the respondent informed the petitioner on telephone that it would be hard to accept the vessel's nomination unless directed by their legal team; and through an email that it has not been receiving a favorable response from it's bankers in view of the price not being in accordance with the prevailing market prices and it's bankers are prohibiting them from proceeding further on the contracts; that the Government of India will also not consider favorably for release of subsidy at the prevailing prices in the agreement; that it wants to relocate the product to other markets and give it time to complete the transaction on FOB Tampa basis. It therefore requested petitioner to keep the vessel's nomination on hold.
24. On 16.08.2013, the petitioner requested respondent to confirm if they intended to reject the nomination of the vessel pointing out that 9 MSR,J exep_3_ 2017 in the event the respondent was rejecting the nomination, it should explain why the nomination of the vessel was not in accordance with the agreement. The respondent did not respond to this request. The petitioner therefore contends that the respondent failed to open the requisite L.C.s within the stipulated time period and committed breach of contract.
25. The matter was referred to Arbitration by the Three-Member Arbitration panel as provided in the contract. THE AWARD OF THE ARBITRATORS
26. The arbitrators rendered a unanimous Award on 05.04.2016 holding that petitioner is entitled to US $ 1,840,000 with interest at the rate of 5% per annum compounded at three monthly intervals commencing from 12.09.2013 until the date of the Award and thereafter at the same rate compounded on the same basis until the date of payment.
27. The Arbitral Tribunal:
(a) accepted the evidence of the petitioner's witness Mr. Seth that on 19.07.2013 at a meeting in New Delhi, the respondent requested for reduction in price as well as reduction in quantity to 40,000 M.T. in order to reduce its loss and rejected the contention of the respondent that it never requested or agreed to a change in the quantity of the D.A.P.;
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(b) rejected the contention of the respondents that it was the
petitioner who made the offer or proposal on 22.07.2013, that the respondent was not obliged to accept the said proposal, and that it had not done so and so no contract on the premise of the Amendment No.5 proposal dt.22.07.2013 arose;
(c) also rejected the respondent's contention that there could not have been a breach of contract which never existed under the 22.07.2013 proposal;
(d) took note of the statement made by the petitioner in its letters dt.17.08.2013 addressed to the State Bank of India, Corporate Accounts Group Branch, Punjagutta, Hyderabad that the respondent had entered into a sale contract with the petitioner for import of 20,000 M.T. of D.A.P. in bulk, and it was enclosing applications for establishing L.C. for US $ 10,100,000 together with copy of the sale contract dt.30.04.2013 requesting arrangement of the L.C. at the earliest. It also relied upon the petitioner's nomination of the vessel NAVIOS ARC to ship 39,000 to 40,000 M.T. On the basis of this evidence, it concluded that there was no merit in the respondent's contentions referred to above;
(e) noted in para 172 the respondent's contention that the Amendment No.5 dt. 22.07.2013 proposal did not take effect as a binding contractual agreement and observed that petitioner's case in this regard was somewhat opaque, but yet what really mattered was what the oral and written evidence showed, i.e., 11 MSR,J exep_3_ 2017 that there was in fact a binding agreement on 22.07.2013 to vary the contract quantity to 40,000 M.T., conditional upon the respondent actually moving forward with the deal and there was no option to the respondent to decide whether to perform or not. It held that if the respondent did not perform, then it would be in breach of contract;
(f) rejected the contention of respondent that since petitioner pressed for return of the Amendment No.4 which was prior to the 22.07.2013 proposal, the parties had intended that unless there was an agreement in writing there would not be a binding contract. It observed that the request of the petitioner for the return of the Amendment No.4 to the contract duly signed by the respondent only reflected good post-contractual practice in ensuring that all the documentation was signed off properly and that it showed nothing more than good house-keeping;
(g) accepted the petitioner's submission that the evidence supports petitioner's argument of a bilateral agreement to revise the quantity sold and supports also their case that the respondent's obligation to pay for the subject cargo was triggered.
(h) also rejected the argument of the respondent based on the I.C.C. Force Majeure Clause, 2003. The contention of the respondent was that under Sections 10(4) and 10(5) of the Foreign Exchange Management Act, 1999, the State Bank of 12 MSR,J exep_3_ 2017 India was required to satisfy itself of the bona fides of the transaction between the petitioner and the respondent in order to ensure that the transaction did not contravene the provisions of the said Act and the refusal of the Bank to issue L.C. would be a force majeure event excusing the respondent to discharge its obligation under the proposal dt.22.07.2013.
The Tribunal concluded that there was no intervening Governmental order, rule, regulation or direction falling within the scope of the force majeure Clause that prevented the respondents from opening the L.C., that the contracts were bona fide transactions and the State Bank of India never raised any doubt about compliance with Section 10(4) of the F.E.M.A. or about the bona fides of the subject contracts in general. It noted that the State Bank of India's concern was only about opening L.C.s for transactions and purchase prices greater than the market price (as can be seen from the letter dt.08.07.2013 written by the State Bank of India which indicated that doing so would create a risk of further defaults when the respondent had been consistently defaulting on their L.Cs. which was also reiterated in the State Bank of India's second letter dt.24.08.2013). It concluded that the respondent's bad credit caused by their failure to honour its obligations towards State Bank of India did not give rise to a force majeur defence. It rejected the evidence of respondent's witness that the State Bank of India was not satisfied with the bona fides of the 13 MSR,J exep_3_ 2017 transaction and accepted petitioner's submission that the respondent could have approached another bank acceptable to petitioner to open L.Cs. in accordance with the contracts if the State Bank of India did not agree to do so;
(i) held that it was a classic case of a party attempting to excuse its breach of contract on force majeure grounds where the market had moved against them; and the respondent took no steps to open L.C.s after receiving State Bank of India's letter dt.24.08.2013 because the respondents believed that at that time it had became a bad deal;
(j) rejected the defence of frustration raised by the respondent on the ground that considerations for the said defence were, in effect, identical to those arising in relation to force majeure;
(k) concluded that the measure of the petitioner's loss was to be determined pursuant to Section 50 of the English Sale of Goods Act, 1979.
On that basis, since the respondent also agreed that the correct approach was to take the relevant F.O.B. Tampa Price and add allowance for freight to India, it then applied mid-point price of $ 402 per M.T. for the F.O.B. Tampa Price as at 12.09.2013, and computed the difference between the baseline C.F.R. Price of $ 505 per M.T. with F.O.B. Tampa plus freight $ 459 and arrived at difference of $ 46. This figure was multiplied with 40,000 M.T. which was the quantity under the 22.07.2013 proposal, and 14 MSR,J exep_3_ 2017 determined that $1,840,000 is to be paid by respondent to petitioner. It also granted interest and costs thereon.
28. No petition was filed in any English Court under Sec.68 of the English Arbitration Act, 1996 challenging the said Award.
29. Alleging that the respondent did not satisfy the decree in spite of the Award, the present E.P. is filed under Order XXI Rule 11 C.P.C. for realization of the Award amount with interest by
(i) attaching the properties mentioned in the Schedule under Order XXI Rule 43 and (ii) by sale of such properties under Order XXI Rule 54 r/w Order XXI Rule 64 and 66 read with Section 49 of the Indian Arbitration and Conciliation Act, 1996.
30. Notice was ordered in the E.P. on 16.06.2017. COUNTER/OBJECTIONS FILED BY RESPONDENT TO THE EXECUTION PETITION FILED BY THE PETITIONER.
31. In the counter filed by the respondent, the following objections to Execution of the Arbitral award dt.05-04-2016 are raised:
(a) The present petition as framed for execution of the award, is not maintainable without there being any relief sought for a declaration that the subject award is enforceable under Section 47 of the Arbitration and Conciliation Act, 1996; that the foreign award could not be treated as a decree and ; it is capable of execution only after the Court concludes that the award is enforceable under Chapter I of Part II of the 15 MSR,J exep_3_ 2017 Arbitration and Conciliation Act, 1996; in the absence of the petitioner setting out and evidencing compliance with Section 47 of the Act and a prayer for declaring that the said foreign award is enforceable, the Execution Petition simpliciter cannot be maintained in law; the adjudication as regards enforceability of a foreign award is a step in aid for the purposes of adjudication of the EP and thus it is a condition precedent before the matter is taken up for Execution as urged by the petitioner.
(b) According to respondent, Government of India provided subsidies to Fertilizer Companies in relation to their activities in the DAP sector and the Urea sector and this allowed businesses to remain commercially viable and were therefore a necessary component of the respondent's cash flow; in addition to the DAP subsidy, payments to respondent were outstanding in relation to Urea subsidy receivable from the Government of India; and Banks were unwilling to open LCs for respondent.
(c) For the above reason, nominations made of vessels by petitioner pursuant to the Amendment No.1 to the contract on 31-05-2013, Amendment No.2 to the Contract on 12-06-2013 were not accepted.
(d) According to respondent, unforeseen difficulties arose in regard to opening of LC due to a Maximum Retail Price directive issued by the Government of India in June, 2013 compelling 16 MSR,J exep_3_ 2017 Indian Fertilizer Companies to sell DAP less than or equal to a maximum price fixed by the Government; on account of the said directive, Banks in India were, more than ever, careful to open LCs only when the contract price was in accordance with the market price: firstly, to ensure statutory compliance with the Foreign Exchange Management Act, 1999 which regulated their ability to extend credit only to bonafide transactions; and secondly to ensure that the Company seeking LC would be able to meet their payment obligations under the relevant LC. It contended that continued delays in the receipt of Government subsidies, combined with the effect of the MRP directive, meant that respondent continued to face obstacles when attempting to open LCs and therefore rejected the nomination of the vessel by petitioner pursuant to the Amendment No.3. It is further stated that the prevailing market price of the DAP continued to fall because of which the State Bank of India and alternative Banks would not open an LC at the instance of the respondent in favour of the petitioner.
(e) Respondent claimed that it endeavored to find alternative purchasers for the DAP under the contracts, with the intention of securing a favorable outcome for both parties. On 12-07-2013, the parties held a teleconference where the possibility of selling the DAP to a third party identified by respondent was discussed and this sale would have resulted in a 17 MSR,J exep_3_ 2017 loss of $ 15 per MT to respondent, but no loss or cost to petitioner. The respondent continued to search for viable solutions for reallocating the DAP throughout July and August, 2013, but petitioner withheld its permission to allow respondent to sell the DAP on its behalf.
(f) Respondent contends that on 13-07-2013, petitioner sent Amendment No.4 to the contracts for respondent's signature which was done on 06-08-2013 and by this amendment, the shipment date was postponed to 15 or 20-09-2013 depending on the shipment origin on the same payment terms that were included in Amendment No.3.
(g) According to the respondent, the Amendment no.4 signed by it on 06-08-2013 superseded all prior amendments to the contract; and the obligations of the parties were framed only by the agreements dt.30-04-2013 whereby it had agreed to purchase 50,000 MT of D.A.P. with a shipping tolerance of +/- 10% in petitioner's option at $ 515 per MT CFR and amendment No.4 signed by it on 06-08-2013.
(h) Respondent contends that though there was nomination of the vessel MV Navios Arc to load 39000/40000 MT on 12-08-2013 made by petitioner pursuant to Amendment No.4, its capacity was less than the contracted quantity of 50000 MT and so on 13-08-2013, respondent informed petitioner that the nomination "would be hard to accept" without a favourable response from 18 MSR,J exep_3_ 2017 their Bankers and requested petitioner to hold the vessel nomination.
(i) It is the contention of the respondent that obligation to open LC as per valid contract (Amendment No.4) starts with petitioner nominating a vessel of 50000 MT, and since there was no such nomination by petitioner, it had no obligation to open LC.
(j) According to the respondent, vide e.mail dt.22-07-2013, petitioner offered revision of the contracts reducing the quantity to 40000 MT +/- 10%, reducing the price to $ 505 per MT and LC of 60 days subject to LC being established by 16-08-2013; but this offer of the petitioner was not accepted by respondent; and so there was no occasion or obligation for respondent to accept the nominated vessel MV Navios Arc.
(k) It is contended that it was the petitioner who was in breach of its contractual obligation by not nominating vessel in accordance with the terms and agreement (since the said vessel MV Navios Arc had less than the required capacity of 50000 MT) and this resulted in the respondent unable to fulfill its obligations to supply DAP for onward sale to customers.
(l) According to the respondent, the basis of the claim of the petitioner is the alleged breach of contract by respondent of purchase of 50000 MT whereas, the alleged cause of action arose out of alleged breach of proposal for 40000 MT which 19 MSR,J exep_3_ 2017 was never accepted by it, and so the award passed on the basis that respondent did not purchase 40000 MT, cannot be executed and enforced.
(m) It is contended that the State Bank of India, which was approached by the respondent to open the LC, was unable to open the LC in favour of the petitioner since it was an "authorized dealer" under Section 10(4) of FEMA, 1999 which required compliance with general or special directions or orders imposed by RBI; and the Master Circular issued by RBI on Import of Goods and Services on 01-07-2014 directed the authorized dealer such as SBI to be satisfied with the bonafides of the transactions.
LEGAL SUBMISSIONS
(n) Relying on clauses 3(a) to (g) of the ICC Force Majeure Clause, 2003, it is contended that the finding of the Arbitrators regarding applicability of the said Clauses violates "fundamental policy of Indian law" (as per Section 48 of the Act) and "basic notions of morality or justice"; and that it is the fundamental policy of India law not to enforce contractual obligations, when the obligations of one of the parties to the contract turned impossible of performance, on application of the above clauses and also Section 56 of the Contract Act;
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(o) In the present case, the price of the contracted commodity had come down due to market forces, which was not the reason why the respondent could not perform its obligations. Having regard to the policy of Government of India in relation to subsidy in respect of fertilizer products and having regard to the credit policy framed by the SBI, on policy directive from the Union of India, the SBI, a nationalized bank, did not agree for opening the LC, on account of huge variance in the market price at the time of the request and the contracted price. Such a variance and the refusal of the SBI in that regard, were not within the reasonable control, anticipation of the respondent and the SBI, having been guided by a policy formulation of the Union of India, refused to open the LC.
(p) The finding of the Arbitral Tribunal at para-189 that "Nagarjuna's bad credit caused by their failure to honour their separate obligations towards the SBI does not give rise to a force majeure defence" is clearly erroneous and contrary to record and does not disclose a judicial approach to the determination of the subject matter by the Arbitral Tribunal. Findings based on surmises and conjectures and which are contrary to record, perverse and irrational, have been given by the Arbitral Tribunal to the prejudice of the respondent.
(q) It is clear that the principle of a 'judicial approach" demands that a decision be fair, reasonable and objective. On the 21 MSR,J exep_3_ 2017 obverse side, anything arbitrary and whimsical would obviously not be a determination which would either be fair, reasonable or objective.
(r) The finding of the Arbitral Tribunal that the respondent is guilty of breach of contract by its conduct of not securing the LC from SBI, is vitiated in law for lacking in judicial approach and is utterly perverse.
(s) The award is patently antithetical to the concept of law, morality and justice in Indian context, and enforcement of such awarded monies on such basis, would fall foul of the parameters ingrained in Section 48 of the Arbitration and Conciliation Act, 1996 in as much as it has ignored that the doctrine of frustration is a part of law where discharge of contract occurs by reason of supervening impossibility or illegality of the act agreed to be done.
(t) The Arbitral Tribunal created a contract between the parties that did not exist. Such an exercise by the Arbitral Tribunal is contrary to Indian law, morality and justice. Therefore the award falls foul of Section 44 of the Arbitration and Reconciliation Act, 1996 r/w S.7 and S.2(e)(ii) of the said Act for this Court to be a 'Court' for exercising powers under Section 49 for enforcement. The Award cannot be enforced as being contrary to public policy, morality and justice.
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(u) In such situation, it would be opposed to the tenets of justice and morality to hold the respondent liable to pay the awarded damages to the petitioner. The petitioner has clearly not made out any case for enforceability of the subject award in the Indian Jurisdiction and consequently, the present Execution Petition filed by the petitioner is not tenable in law and deserves to be dismissed.
REPLY OF PETITIONER TO ABOVE CONTENTIONS OF RESPONDENT
30. In reply to the above contentions of the respondent, the petitioner contended:
(1) The Office Memorandum dt.03.05.2013 issued by the Government of India reducing the price for availing subsidy for the product D.A.P. is applicable only to those companies who chose to avail of the Nutrient-Based subsidy policy for fertilizers which is sought to be implemented under it, and it would not apply to an import transaction like the transaction between the petitioner and respondent; that Office Memorandum did not put a cap on the import prices; and it was issued even prior to the execution of the twin contracts between the parties on 28.05.2013, when the original contract dt.30.04.2013 to buy 50,000 M.T. of D.A.P. was split into two contracts of 25,000 M.T. each.
(2) The split contracts do not even mention the word 'subsidy' or that the respondent was to avail of the same, and so there is no link 23 MSR,J exep_3_ 2017 between the contract price of the D.A.P. fertilizer and the respondent availing the subsidy.
(3) The respondent, having executed the split contracts on 28.05.2013 after the publication of the Office Memorandum dt.03.05.2013, was fully aware of the said Office Memorandum and still chose to enter into contracts at US $ 515 per M.T. (4) The Office Memorandum dt.26.06.2013 issued by the Government of India merely reiterated the fixation of subsidy of D.A.P. made under the Office Memorandum dt.03.05.2013 fixing Rs.24,000 per M.T. for D.A.P. and did not change the price. (5) The State Bank of India which was approached by the respondent addressed a letter dt.08.07.2013 to the respondent stating that it had been "consistently defaulting on the L.C.s" and also stating that "unless the procurement prices are equal to or lower to current market prices, it would be difficult for the Bank to approve the L.C.s, despite the company having L.C. limits as there is a risk of further defaults". The said letter did not refer to any legal impediment for issuing L.C.s. It is clear from the said letter that it was the conduct of the respondent which prevented the S.B.I. from issuing L.C.s to avoid further defaults and not because of any force majeure event. Thus, the real reason is the poor credit rating of the petitioner because of the past history of defaults.
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(6) Having stated in its two letters dt.17.08.2013 addressed to the
State Bank of India admitting that it had entered into sale contracts with petitioner for import of 20,000 M.T. of D.A.P. (total 40,000 MT), the respondent cannot contend that it had not agreed to the 5th amendment to the contract dt.22.07.2013 reducing the quantity under the contracts to 40,000 M.T. at a price of US $ 505 C.F.R. per M.T.
(7) The petitioner's conduct in searching for a vessel for delivery of 40,000 M.T. as opposed to four prior nominations of vessels for 50,000 M.T. as well as the oral evidence of the parties that the contract was entered into for the reduced quantity which was subject to cross-examination, was rightly relied upon by the Arbitrators to reject the respondent's contention that the 5th amendment had not come into effect and it was still at the proposal stage. (8) On 24.08.2013, admittedly the State Bank of India returned respondent's application for L.C. stating that it was unable to honour the respondent's request in view of the difference in the application of the L.C. and Amendment No.4, and the contract price not being in accordance with the market price.
(9) The findings of the Arbitral Tribunal are based on evidence adduced by the parties, and the respondent, in this application under Section 48 of the Act, cannot request this Court to go into the merits of the dispute and review the evidence which is prohibited by Explanation 2 to Section 48(2).
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(10) The contention of the respondent that the Arbitral Tribunal failed to take into account certain e-mails is liable for rejection in view of the judgment in Shri Lal Mahal v. Progetto Grano1 which held that 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; and Section 48 does not give an opportunity to have a second look at the foreign award in the award enforcement stage. (11) If the respondent is aggrieved by the findings of fact of the Tribunal relating to the coming into effect of the 5th amendment, the respondent ought to have challenged the Award under Section 68 of the English Arbitration Act, 1996 before an English Court, and having failed to do so, it cannot oppose its enforcement in India. (12) The respondent had not raised any contention before the Tribunal that even if the 5th amendment had been agreed to orally, such oral amendment to a written contract / amendment is not valid in English Law, and therefore it is precluded from raising the same under Section 48, and in fact, this objection was not even pleaded before this Court specifically.
(13) Without prejudice to the above plea, the petitioner contended that Indian Law did not prohibit an oral amendment to a written contract and 4th Proviso to Section 92 of the Evidence Act, 1872 1 (2014) 2 SCC 433 26 MSR,J exep_3_ 2017 expressly permitted parties to adduce evidence of any distinct subsequent oral agreement modifying any written agreement and the Supreme Court in Niranjan Kumar v. Dhyan Singh2 held that an oral amendment to a written agreement is permissible. (14) Alternatively, even under English Law an oral amendment to a written contract is permissible unless a contract categorically states that the amendment has to be in writing and there is no such clause in the instant case.
(15) The respondent cannot raise any objection on English Law before this Court stating that if the Award was contrary to English Law, the proper and contractually agreed remedy would have been to challenge the Award on merits before the seat court, i.e., the Courts in London. But, in the present case, since the Award has attained finality before the seat court, it cannot be challenged on English Law before the executing Court, i.e., this Court. (16) Force Majeure is a question of interpretation of contract. The Supreme Court in Shri Lal Mahal (1 supra) held that erroneous interpretation of contract is not a public policy violation under Section
48. (17) Force Majeure clause in the contract can be invoked if the following conditions are satisfied:
2
(1976) 4 SCC 89 at Para 6 27 MSR,J exep_3_ 2017
(i) If the impediment is listed in S.3(a) to 3(g) of I.C.C.
Force Majeure Clause 2003 or any other similar event of the same class, AND
(ii) By due diligence, the party invoking, was unable to prevent or overcome the said event.
(18) The Arbitral Tribunal found that the second condition was not satisfied (See Para 184 of Award at page 2098 of Vol.V). This finding of fact and which is on the "merits of the dispute" cannot be challenged under Section 48 of the Act.
(19) The petitioner also pointed out that the Respondent had relied on the Government of India Office Memorandum dt.26.06.2013 fixing the subsidy price as Rs.24,000/- per M.T, but this Office Memorandum was issued pursuant to 3rd May, 2013 Office Memorandum. This was prior to the execution of contracts by the respondent and so there cannot be a force majeure event if the so- called unforeseeable event occurred prior to the execution of the contract.
(20) Further, the Office Memorandum was confined to fixing the price at which the Company can avail subsidy and there was no cap on the price for importing fertilizer. If the respondent were to import fertilizer at the contractual price, it would not be in violation of any law.
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(21) SBI's refusal to issue the L.C. was not in view of Section 10(4) and 10(5) of FEMA and therefore it does not give rise to a force majeure event.
(22) SBI gave two letters declining to give L.Cs., viz., (i) First letter dt.08.07.2013 Vol.III at page 990, and (ii) Second letter, dt.24.08.2013, Vol.III at page 1009; that the first letter of SBI does not make any reference to Sections 10(4) and 10(5) of FEMA; and the second letter of SBI also does not decline the L.C. because of Sections 10(4) and 10(5) of FEMA. It is evident from the letters that the SBI declined to provide the L.C. in view of the continuous defaults by respondent. It was a business decision. The Arbitral record also shows that the respondent was part of CDR mechanism (Corporate Debt Restructuring). It was the basis for its Counter Claim. A Corporate Entity is in C.D.R. when it defaults on its loan obligations to the consortium of banks; this supports the SBI's assessment that respondent would be unable to honour L.C.s, if they were invoked; and Section 10(4) only states that the Authorized Person shall act in accordance with the general or special directions or orders of RBI. (23) The respondent has not shown how the import of D.A.P. at U.S. $ 505 is in violation of any R.B.I. direction or order. Section 10(5) of F.E.M.A. states that the authorized person (i.e., a person who deals with foreign exchange) shall not undertake any transaction on foreign exchange on behalf of any person until that person gives a declaration that the transaction is not in violation of the F.E.M.A. or any rules / 29 MSR,J exep_3_ 2017 regulation / notification / director or order made under the F.E.M.A. In the present case, the respondent has not pointed out as to how import of D.A.P. at U.S. $ 505 is in violation of any provision of the F.E.M.A. or Rules and Regulations. This is consistent with the S.B.I. not referring to the F.E.M.A. at all in its two letters. This is simply because there was no violation of F.E.M.A. whatsoever. (24) The Arbitral Tribunal also found that the respondent did not make any efforts to obtain L.C. from another bank, which it was required to do under the Contract. In fact, the respondent is in breach of the contract for not having obtained the L.C. from another bank. The respondent did not challenge this finding. (25) None of the objections raised by the respondent fall within the framework of sub-section (2)(b) of Section 48 of the Act. (26) The Supreme Court in Renusagar Power Co. v. General Electric Co3 dealt with phrase "public policy" as follows:
(a) The Supreme Court relied on the 'narrow view' approach upheld in Gherulal Parakh v. Mahdeodas Maiya4 in the context of enforcement of foreign award, wherein it was held that public policy ground can be invoked in clear and incontestable cases of harm to public.
(b) The narrow view would facilitate international trade and commerce.
3 AIR 1994 SC 860 4 AIR 1959 SC 781 30 MSR,J exep_3_ 2017 (c) Since foreign awards are governed by private
international law, the narrow view of public policy as applicable in private international law must be applied.
(d) Contravention of law alone will not attract the bar of public policy and something more than contravention of law is required.
(e) To represent 'narrow view' on public policy, the Supreme Court used the phrase 'fundamental policy of Indian law'. The scope of 'public policy' would be limited to: (i) Fundamental policy of Indian Law; (ii) The interests of India;
and (iii) Justice and morality.
(27) After the amendment to the Act, the Delhi High Court in Cruz City 1 Mauritius Holdings v. Unitech Limited5 dealt with the meaning of 'fundamental policy' and held that it connotes the basic and substratal rationale, values and principles which form the bedrock of laws in our country. It further held that the objections to enforcement on ground of public must offend the core values of a member State's national policy and which it cannot be expected to compromise. It also held that one of the principle object of the New York Convention is to ensure enforcement of awards notwithstanding that the awards are not rendered in conformity to the national laws.
5
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THE CONSIDERATION BY THE COURT
31. Enforcement of Foreign Arbitral Awards is dealt with by Part-II of the Arbitration and Conciliation Act, 1996.
32. Section 47 requires a party applying for enforcement of a Foreign Award to file the copy of the Award and the original Agreement for Arbitration or copies thereof.
33. Section 48 sets out the conditions for enforcement of Awards. It states:
"Section 48 -Conditions for enforcement of foreign awards. - (1) Enforcement of a foreign award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the court proof that-
(a) The parties to the agreement referred to in section 44 were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or
(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains 32 MSR,J exep_3_ 2017 decisions on matters submitted to arbitration may be enforced; or
(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or
(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.
(2) Enforcement of an arbitral award may also be refused if the court finds that-
(a) The subject-matter of the difference is not capable of settlement by arbitration under the law of India; or
(b) The enforcement of the award would be contrary to the public policy of India.
[Explanation. 1- For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if, -
(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of Indian Law; or
(iii) it is in conflict with the most basic notions of morality or justice.] [Explanation 2.- For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.] (3) If an application for the setting aside or suspension of the award has been made to a competent authority referred to in clause (e) of sub-section (1) the court may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security. "
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34. Thus under Section 48(1)(a) of the Act, enforcement of an award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the Court proof that the parties to the agreement were, under the law applicable to them, under some incapacity, or the said agreement is not valid under law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made.
35. Under Section 48(2)(b) of the Act, enforcement of foreign awards may be refused if its enforcement would be contrary to public policy of India. Explanation I thereto clarifies that an award is in conflict with public policy of India only if (i) the making of the Award was induced or affected by fraud or corruption or was in violation of Section 75 of Section 81; or (ii) it is in contravention with the fundamental policy of Indian Law; or (iii) it is in conflict with the most basic notions of morality or justice. Explanation II states that the test as to whether there is a contravention with the fundamental policy of Indian Law shall not entail a review on the merits of the dispute.
36. In Shri Lal Mahal (1 supra), the Supreme Court followed Renusagar (3 supra) and held that for the purposes of Section 48(2)(b), the expression "public policy of India" must be given a narrow meaning and the enforcement of the foreign award would be refused on the ground that it is contrary to the public policy of India if it is covered by one of the three categories enumerated in Renusagar 34 MSR,J exep_3_ 2017 (3 supra), i.e., (i) fundamental policy of Indian law; or (ii) interests of India; or (iii) justice or morality. It also declared that Section 48 does not give an opportunity to have a "second look" at the foreign award in the award enforcement stage and the scope of enquiry under Section 48 does not permit review of the foreign award on merits. In particular, it held that 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, does not lead necessarily to excuse an award from enforcement on the ground of public policy.
37. In H.R.D. Corporation v. GAIL (India) Ltd.6, the Supreme Court held that after amendment to Section 48 and Section 34, "public policy" will now include only "fundamental policy of Indian Law" and "justice or morality" and the ground "interest of India" is no longer available; and the term "justice or morality" is now to be understood as meaning only basic notions of justice and morality, i.e., such notions as would shock the conscience of the Court. It further held that construction of the terms of the contract is primarily for the arbitrator to decide unless it is found that such a construction is not a possible one; and for Part I awards arising out of arbitration other than an international commercial arbitration, one more ground of challenge is available, i.e., patent illegality appearing on the face of the award. It held that the ground of patent illegality would not be established, 6 (2018) 12 SCC 471 35 MSR,J exep_3_ 2017 if there is merely an erroneous application of the Law or a re- appreciation of evidence.
38. These principles will be kept in mind while considering the contentions of both sides.
A. Whether the petitioner should have filed an application to declare that the foreign award is enforceable before seeking its execution
39. I shall first deal with the respondent's objection that the present petition as framed for execution of the award, is not maintainable without there being any relief sought for a declaration that the subject award is enforceable under Section 47 of the Arbitration and Conciliation Act, 1996; that the foreign award could not be treated as a decree and ; it is capable of execution only after the Court concludes that the award is enforceable under Chapter I of Part II of the Arbitration and Conciliation Act, 1996; in the absence of the petitioner setting out and evidencing compliance with Section 47 of the Act and a prayer for declaring that the said foreign award is enforceable, the Execution Petition simpliciter cannot be maintained in law; the adjudication as regards enforceability of a foreign award is a step in aid for the purposes of adjudication of the EP and thus it is a condition precedent before the matter is taken up for Execution as urged by the petitioner.
40. Under Section 49 of the Arbitration and Conciliation Act, 1996 where the Court is satisfied that the foreign award is enforceable under Chapter I of Part II of the Act, the award shall be deemed to be 36 MSR,J exep_3_ 2017 a decree of the Court. Thus, what the law requires is the satisfaction of the Court that the foreign award is enforceable and there is no necessity for the successful party in the foreign arbitration to seek a declaration that the award is enforceable under Section 47 of the Act.
41. In Feurst Day Lawson Ltd. v. Jindal Exports Ltd.7, the Supreme Court, after considering the provisions of Part II of the Arbitration and Conciliation Act, 1996 rejected the contention that a party holding a foreign award has to file a separate application and produce evidence as contemplated under Section 47 and also satisfy the conditions laid down under Section 48 and it is only after the Court decides about the enforceability of the Award, it should be deemed to be a decree under Section 49 as available for execution. It held that the object of the Act is to minimize the supervisory role of the Courts in the arbitral process and to give speedy justice and this would be defeated if it is held that a party must separately apply before filing an application for execution of a foreign award; that if separate proceedings are to be taken, one for deciding the enforceability of a foreign award and the other thereafter for execution, it would only contribute to protracting the litigation. It held that a party holding a foreign award can apply for enforcement of it but the Court, before taking further effective steps for the execution of the Award has to proceed in accordance with Sections 47 to 49; in one proceeding there may be different stages; in the first stage the Court may have to decide about the enforceability of the 7 (2001) 6 SCC 356 37 MSR,J exep_3_ 2017 Award and with regard to the requirement of the said provisions and once the Court decides that the foreign award is enforceable, it can proceed to take further effective steps for execution of the same; and there arises no question of making foreign award a rule of Court / decree again.
42. This judgment is a complete answer to the contention of the respondent.
B. Whether the arbitration clause is attracted to the dispute
43. Counsel for respondent also contended that petitioner's claim before the arbitrators arose out of Amendment No.5 proposed by it which did not take the shape of a concluded contract; that the respondent did not accept the modification in writing; and the arbitrators could not have inferred that there is a concluded contract on the basis of conduct of parties; and consequently, the arbitration clause is not attracted to such a dispute.
44. The Arbitration Clause contained in the contracts dt.30.04.2013 is very wide and it contemplated that "any dispute, controversy or claim arising out of or relating to this contract, or the breach, termination or validity thereof, shall be referred to arbitration ... ...".
45. In view of the fact that any dispute, controversy or claim relating to the contracts would be covered by the arbitration clause, I see no merit in this contention of the counsel for respondent.
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C. Whether the arbitrators erred in law in granting relief to the petitioner on the basis of Amendment no.5 dt.22.07.2013 ?
46. The counsel for the respondent stated that the proposal contained in the e-mail dt.22.07.2013 (the Amendment No.5 proposed) was not an agreement under English Law, that it was only a proposal and without unconditional acceptance, either expressly or by conduct, of the respondent, there was no agreement valid under law; that there was no plea of estoppel raised by petitioner; that the Arbitral Award could not have been based on the proposal for Amendment No.5; and the Award therefore should be refused enforcement.
47. It is not in dispute that before the Arbitral Tribunal the petitioner's claim was in fact on the original quantity of 50,000 MT as per the original contract dt.30.04.2013 and during the course of arbitration, the petitioner appears to have made a claim pursuant to the proposal contained in the e-mail dt.22.07.2013 (Amendment No.5 proposal) for a reduced quantity of 40,000 MTs at $ 505 per MT.
48. The Arbitral Tribunal noted in para 172 of its Award that petitioner's case on the 22.07.2013 proposal "was rather opaque", but what really mattered, according to the Tribunal, was what the oral and written evidence showed and it found that there was evidence of a binding agreement on 22.07.2013 to vary the contract quantity to 40,000 MT conditional upon the respondent actually moving forward with the deal.
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49. In law, a plaintiff who made a claim in the plaint against the defendant is not precluded from making an alternative claim if there is foundation laid in the pleading.
50. In Firm Sriniwas Ram Kumar v. Mahabir Prasad8 a suit for specific performance of a contract was filed and plaintiff alleged that in part performance he paid the defendant some money. The defendant denied the contract and pleaded that the money was taken by him as a loan. The Supreme Court held that Court can pass a decree for recovery of the loan in favour of the plaintiff even if he failed to prove the contract and even though he failed to plead and claim relief on the alternative case. It explained :
"A plaintiff may rely upon different rights alternatively and there is nothing in the Civil Procedure Code to prevent a party from making two or more inconsistent sets of allegations and claiming relief thereunder in the alternative. The question, however, arises whether, in the absence of any such alternative case in the plaint it is open to the court to give him relief on that basis. The rule undoubtedly is that the court cannot grant relief to the plaintiff on a case for which there was no foundation in the pleadings and which the other side was not called upon or had an opportunity to meet. But when the alternative case, which the plaintiff could have made, was not only admitted by the defendant in his written statement but was expressly put forward as an answer to the claim which the plaintiff made in the suit, there would be nothing improper in giving the plaintiff a decree upon the case which the defendant himself makes. A demand of the plaintiff based on the defendant's own plea cannot possibly be regarded with surprise by the latter and no question of adducing evidence on these facts would arise when they were expressly admitted by the defendant in his pleadings. In such circumstances, when no injustice can possibly result to the defendant, it may not be 8 AIR 1951 SC 177 40 MSR,J exep_3_ 2017 proper to drive the plaintiff to a separate suit. As an illustration of this principle, reference may be made to the pronouncement of the Judicial Committee in Babu Raja Mohan Manucha v. Babu Manzoor9. This appeal arose out of a suit commenced by the plaintiff appellant to enforce a mortgage security. The plea of the defendant was that the mortgage was void. This plea was given effect to by both the lower courts as well as by the Privy Council. But the Privy Council held that it was open in such circumstances to the plaintiff to repudiate the transaction altogether and claim a relief outside it in the form of restitution under Section 65 of the Indian Contract Act. Although no such alternative claim was made in the plaint, the Privy Council allowed it to be advanced and gave a decree on the ground that the respondent could not be prejudiced by such a claim at all and the matter ought not to be left to a separate suit. It may be noted that this relief was allowed to the appellant even though the appeal was heard ex parte in the absence of the respondent."
51. This principle was followed by the Division Bench of this Court in Kusam Satyanarayana Reddy and Ors. Vs. Kusam Sambrajyamma (died) by LRs. and Ors.10 It was held:
"It may also be, however, noted that under Order 7, Rule 7 of the Code although the Court can grant a relief which has not been asked for, but it cannot grant a relief which is larger than the relief claimed by the plaintiff, but where the relief claimed by the plaintiff is larger and the Court grants a relief which is smaller than the one claimed, it would be legal. In the present case the plaintiffs claimed whole property, but on facts the Trial Court found that they could claim part of the property as legal representatives of the original owner along with some of the defendants. Therefore, in our view, the Trial Court was right in granting the decree of partition."
52. Thus, there is no bar for the Arbitral Tribunal to grant a relief on an alternative basis if there is no surprise to the defendant and 9 AIR 1943 PC 29 10 2004(2) ALD 635 (DB) 41 MSR,J exep_3_ 2017 when there is a foundation in the pleading, and if the petitioner makes out a case for grant of the alternative relief.
53. Therefore, it cannot be said that the Arbitral Tribunal committed any error in law in granting relief to the petitioner on the basis of Amendment no.5 dt.22.07.2013 instead of granting relief on the original quantity of 50,000 M.T. and price of US $ 515 after finding that the petitioner established such a claim. D. Whether the Arbitral Award's enforcement ought to be refused under Section 48 :
(a) Whether enforcement of the award can be refused under Section 48(1)(a) of the Act ?
54. It is the contention of the respondent that Section 48(1) of the Act gives power to the Court to adjudicate on the award and ascertain for itself, whether there has been a proper application of law which the parties have subjected themselves to and the Court can come to the conclusion whether the agreement was valid under the law governing the contract i.e. English law in the instant case.
55. Elaborating the same, counsel for the respondent contended that the award was based on the proposal contained in the e.mail dt.22-07-2013 of the petitioner (Amendment No.5) and the arbitrators were not correct in holding that the proposal contained in the e.mail dt.22-07-2013 constituted a valid contract under English law.
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56. Admittedly, the contract between the parties is governed by English law.
57. There is no dispute that the original contract signed by the parties on 30-04-2013 whereby the petitioner agreed to sell to the respondent 50,000 MT of DAP at $ 515 per MT is valid under English law.
58. The questions therefore are:
(i) whether the e.mail dt.22-07-2013 containing Amendment No.5 proposed by the respondent varying the quantity under the contract to 40,000 MT at $ 505 per MT was accepted by the respondent ? and
(ii) whether such a modification is valid under English law, when the initial contract was signed by the parties but there is no document signed by respondent accepting the terms of Amendment No.5 contained in the e.mail dt.22-07-2013 proposed by the petitioner? THE LEGAL POSITION IN ENGLAND
59. In Rock Advertising Limited Vs. M.W.B. Business Exchange Centers Limited11, the United Kingdom Supreme Court considered (a) whether a contractual term prescribing that an agreement may not be amended save in writing signed on behalf of the parties (commonly called a "No Oral Modification" clause) is legally effective and (b) whether an agreement whose sole effect is to 11 (2018) UKSC 24 43 MSR,J exep_3_ 2017 vary a contract to pay money by substituting an obligation to pay less money or the same money later, is supported by consideration.
60. In that case, clause 7.6 of the agreement ( referred to as the 'No Oral Modification' clause) between the parties provided:
"This Licence sets out all of the terms as agreed between MWB and Licensee. No other representations or terms shall apply or form part of this Licence. All variations to this Licence must be agreed, set out in writing and signed on behalf of both parties before they take effect."
61. The Court accepted that the position in England was equivocal but held that the law should and does give effect to a contractual provision requiring specified formalities to be observed for a variation; but held that parties cannot validly bind themselves as to the manner in which future changes in their legal relations are to be achieved, however clearly they express their intention to do so. It held that nevertheless No Oral Modification clauses are commonly included in written agreements; there are legitimate commercial reasons for agreeing a clause like 7.6; and the law of contract does not normally obstruct the legitimate intentions of businessmen, except for overriding reasons of public policy. Therefore there is no mischief in No Oral Modification clauses, nor do they frustrate or contravene any policy of the law.
62. It held that No Oral Modification clauses like Entire Agreement clauses achieve contractual certainty about the terms agreed.
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63. Then it considered the question "what if the parties make a collateral agreement any way and would it otherwise bind them?"
64. The Court answered the said question stating that what the parties to a No Oral Modification clause have agreed is not that oral variations are forbidden, but that they will be invalid. The mere fact of agreeing to an oral variation is not therefore a contravention of the clause. It is simply the situation to which the clause applies. It is not difficult to record a variation in writing, except perhaps in cases where the variation is so complex that no sensible businessmen would do anything else. The natural inference from the parties' failure to observe the formal requirements of a No Oral Modification clause is not that they intended to dispense with it but that they overlooked it. If, on the other hand, they had it in mind, then they were courting invalidity with their eyes open.
65. More importantly it held that the enforcement of No Oral Modification clauses carries with it the risk that a party may act on the contract as varied, for example by performing it, and then find itself unable to enforce it. The Court referred to the Vienna Convention and the UNIDROIT Model Code and stated that they qualify the principle that effect is to be given to No Oral Modification clauses, by stating that a party may be precluded by his conduct from relying on such a provision to the extent that the other party has relied (or reasonably relied) on that conduct; in some legal systems this result would follow from the concepts of contractual 45 MSR,J exep_3_ 2017 good faith or abuse of rights; and in England, the safeguard against injustice lies in the various doctrines of estoppel. It stated that the scope of the estoppel is that (i) at the very least there would have to be some words or conduct unequivocally representing that the variation was valid notwithstanding its informality; and (ii) something more would be required for this purpose than the informal promise itself. It also held that it is unnecessary to deal with existence of 'consideration' for the variation and is undesirable to do so.
66. Thus, according to English law as decided in Rock Advertising Limited (11 supra), normally No Oral Modification clauses would be enforced except where a party acts on the contract as varied, for example by performing it. In such an event, the doctrine of estoppel is applied.
67. It is important to note that before the Arbitral Tribunal, no contention was raised by the respondent that even if an oral agreement/amendment had occurred pursuant to the e.mail dt.22-07-2013 (Amendment No.5), such oral amendment to the written contract is impermissible under English law. Without raising the said contention before the Arbitrators or filing a petition under Section 68 of the English Arbitration Act, 1996 before the English Court, I am of the opinion that the respondent cannot be allowed to raise it before this Court in proceedings to execute the award.
68. Assuming that it is entitled to raise the said plea, it is important to note that, in the instant case, there is no clause prohibiting oral 46 MSR,J exep_3_ 2017 modification to the contracts. There was no clause akin to clause 7.6 in Rock Advertising (11 supra). In such circumstances it cannot be said that an oral modification vide e.mail dt.22-07-2013 to the written contract dt.30-04-2013, if proved to have occurred by consent of both sides and their conduct, is prohibited by law or impermissible in law. THE LEGAL POSITION IN INDIA
69. In Indian law, there is no prohibition for a promisee to accept as performance of a promise made to him, part performance of it, or some other satisfaction of the said promise. Even if there is no later agreement in writing, this can be established by him through oral evidence or by evidence of conduct of parties.
70. Sec.63 of the Contract Act, 1872 states that every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit. Illustration (b) thereto states "A owes B Rs.5000/-. A pays to B, and B accepts, in satisfaction of the whole debt Rs.2000/-, paid at the time and place at which Rs.5000/- were payable. The whole debt is discharged."
71. The Supreme Court has held that under Section 63, extension of time for performance of a contract (which is usually one of the terms of a contract/promise) may even be orally agreed or may be inferred 47 MSR,J exep_3_ 2017 from conduct. In Keshavlal Lallubhai Patel v. Lalbhai Trikumlal Mills Ltd12. the Court explained::
"8. The true legal position in regard to the extension of time for the performance of a contract is quite clear under Section 63 of the Indian Contract Act. Every promisee, as the section provides, may extend time for the performance of the contract. The question as to how extension of time may be agreed upon by the parties has been the subject-matter of some argument at the Bar in the present appeal. There can be no doubt, we think, that both the buyer and the seller must agree to extend time for the delivery of goods. It would not be open to the promisee by his unilateral act to extend the time for performance of his own accord for his own benefit. It is true that the agreement to extend time need not necessarily be reduced to writing. It may be proved by oral evidence. In some cases it may be proved by evidence of conduct. Forbearance on the part of the buyer to make a demand for the delivery of goods on the due date as fixed in the original contract may conceivably be relevant on the question of the intention of the buyer to accept the seller's proposal to extend time. It would be difficult to lay down any hard and fast Rule about the requirements of proof of such an agreement. It would naturally be a question of fact in each case to be determined in the light of evidence adduced by the parties. Having regard to the probabilities in this case, and to the conduct of the parties at the relevant time, we think the appellants are entitled to urge that their oral evidence about the acceptance of the respondent's proposal for the extension of time should be believed and the finding of the learned trial Judge on this question should be confirmed."(emphasis supplied)
72. This principle was reiterated in S. Brahmanand v. K.R. Muthugopal13, where the Court held :
"34. Thus, this was a situation where the original agreement of 10-3-1989 had a "fixed date" for performance, but by the subsequent letter of 18-6-1992 the defendants made a request for 12 AIR 1958 SC 512 13 (2005) 12 SCC 764 48 MSR,J exep_3_ 2017 postponing the performance to a future date without fixing any further date for performance. This was accepted by the plaintiffs by their act of forbearance and not insisting on performance forthwith. There is nothing strange in time for performance being extended, even though originally the agreement had a fixed date. Section 63 of the Contract Act, 1872 provides that every promisee may extend time for the performance of the contract. Such an agreement to extend time need not necessarily be reduced to writing, but may be proved by oral evidence or, in some cases, even by evidence of conduct including forbearance on the part of the other party."(emphasis supplied)
73. Also proviso (4) to Section 92 of the Evidence Act, 1872 permits parties to prove the existence of any distinct subsequent oral agreement to rescind or modify a contract except where such contract is by law required to be in writing, or has been registered according to the law in force for the time being as to the registration of documents. This is an exception to the general principle contained in Section 92 that when terms of any contract are required by law to be reduced to the form of a document, no evidence of any oral agreement or statement shall be admitted, as between the parties to such contract for the purpose of contradicting, varying, adding to or subtracting from, its terms.
74. In Niranjan Kumar and others Vs. Dhyan Singh and another14, the Supreme Court applied the above principle in a case where the 1st respondent gave a shop on rent to 2nd respondent for 11 months by executing a rent note. A partnership firm occupied the shop on the authority of the rent note and continued its business in the 14 (1976) 4 SCC 89 49 MSR,J exep_3_ 2017 shop even after the expiry of the period of the rent note. The respondent No.2 also retired from the firm under a deed of dissolution and the other persons continued in the same premises under a reconstituted partnership. The respondent No.1 sought possession of the shop from respondent No.2 and partners of the firm, who were appellants before the Supreme Court under the East Punjab Urban Rent Restriction Act, 1949 alleging that respondent No.2 was the tenant of the shop in his personal capacity and had unlawfully sublet the shop to the firm. The appellants contended that respondent No.2 did not take the shop on rent in his personal capacity but as partner of the firm and there was no subletting in favour of the firm or its partners. The Rent Controller accepted this contention and dismissed the application, but the District Judge on appeal reversed this finding accepting the plea of respondent No.1. This was confirmed by the High Court. The Supreme Court held that under proviso (4) to Section 92, it was open to the appellants to lead evidence to show that there was, apart from the rent note, a distinct subsequent oral agreement under which the terms of the original contract or grant were modified and that the partners of the firm, both before and after its recomposition, were the real tenants of the shop. After considering the evidence on record, the Supreme Court dismissed the appeal stating that there is no evidence to accept the appellant's case that respondent No.2 had taken the premises from respondent No.1 on behalf of the firm and not in his personal capacity.
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75. Therefore, both under English law and Indian law, it was permissible for the petitioner to prove that the original contract was in fact modified by an oral agreement whose terms were contained in the e.mail dt.22-07-2013 (Amendment No.5). This can be done by relying on oral evidence or by evidence of conduct of parties. Whether in the facts of the case, the Arbitral Tribunal was right in holding that Amendment No.5 proposed by the petitioner was accepted by respondent
76. It is the contention of the petitioner that in a meeting held at New Delhi on 19-07-2013, the respondent requested for a quantity reduction to 40,000 MT from 50,000 MT and a price reduction as well.
77. In the pre-hearing brief submitted by petitioner before the arbitrators, at para 26 there is a specific plea by the petitioner that after the meeting held at New Delhi on 19.7.2013, petitioner stood by the respondent and, on 22.7.2013 accepted the respondent's offer to reduce the quantity and price. But this acceptance was conditional upon the respondent moving forward with the deal. It is also pleaded that in addition petitioner agreed to accept payment on basis of LC to be established by 16.8.2013 and payable 60 days from Bill of Lading Date and to extend the shipment periods to 15.9.2013; that for more than a week thereafter there was no substantive response by respondent confirming this proposal; that in a telecom with Ravindra (respondent) on 31.7.2013, he again requested to sell cargo somewhere else and promised to pay the difference; but the next day 51 MSR,J exep_3_ 2017 i.e 1.8.2013, Bhaskaran ( respondent) called Seth ( petitioner) and informed that his legal department had asked him not to take a decision and matter would be referred to respondent's Board on 9.8.2013; that on 5.8.2013, in a conference call, the respondent 's representatives expressed that they were committed and wanted to fulfill all their obligations under the contract, and to do so "ethically"; this was noted in the diary of the petitioner's representative Mr.Keyman; but after the Board meeting of respondent , petitioner did not hear anything. So petitioner nominated on 12.8.2013, the vessel "MV Navios Arc" with lay/can 24/30 August, 2013 and which could carry cargo of 39,000/40,000 MT and only on the next day, respondent flatly refused to move forward on the contracts. It was contended that respondent's plea that there was no agreement to reduce the quantity did not make sense as the respondent had several times confirmed it, and once petitioner agreed to reduce the quantity, everything they did and said afterwards was framed in terms of 40,000 MT for both contracts. In para 58 a specific plea was raised by petitioner stating that the nomination of the vessel with reduced capacity of 40,000 MT was only at the request of the respondent on 19.7.2013 which was acquiesced on 22.7.2013; that there was no reason for petitioner to nominate a vessel with 10000 MT more than the quantity the parties intended to load and incur substantial dead load freight charges; and having requested for reduction of quantity, the respondent should be estopped from contending that petitioner's nomination of the vessel capable of carrying 40000 MT was not in 52 MSR,J exep_3_ 2017 accordance with the contracts. In para 61, reference was also made to respondent's admission in the two letters addressed to State Bank of India about the reduced quantity. Thus the plea of estoppel by conduct of respondent was also specifically raised by petitioner and the counsel for respondent is not correct in contending that there was no such contention raised by the petitioner before the tribunal. The statement of respondent's witness Mr.Ravindra that the respondent never requested or agreed to a change in the quantity of DAP was denied in para-24 of the petitioner's pre-hearing brief.
78. To buttress these contentions, e.mail dt.19-07-2013 addressed by Mr.Aditya Seth (for short 'Mr.Seth') of petitioner to others in petitioner Company is relied upon as also the oral evidence given by Mr.Seth before the Arbitral Tribunal.
79. The evidence on record shows that petitioner's representative sent the e.mail dt.22-07-2013 reducing the quantity to 40,000 MT and price to $ 505 MT permitting LC to be established by 16-08-2013. On 25-07-2013, the petitioner's representative Mr.Seth by e.mail requested Mr.Ravindra of the respondent to respond to its e.mail dt.22-07-2013. The respondent's representative Mr.Ravindra did not dispute or disagree with the proposal contained in the e.mail dt.22-07-2013 and merely stated that "we have discussed the proposal with our Bankers, in view of the concerns raised by them. We have already initiated the dialogue with them and shall revert to you." The petitioner's representative Mr.Seth again wrote an e.mail on 53 MSR,J exep_3_ 2017 26-07-2013 requesting prompt action from the respondent and followed it up with another e.mail on 29-07-2013 sent by it's President Melih Keyman.
80. It is not in dispute that the respondent addressed two letters both dated 17-08-2013 to the State Bank of India, Panjagutta Branch stating that "we have entered into a sale contract with Keytrade AG, Switzerland, for import of 20,000 MT of Di Ammonium Phosphate in bulk", that the shipment was scheduled for the 3rd week of September, 2013 and LC has to be established in favour of petitioner at the earliest. The quantity of DAP covered by these two letters is 40,000 MT and not 50,000 MT.
81. If the respondent had not accepted Amendment No.5 and intended to act on it, they would not have written those letters. This indicates that the Amendment No.5 proposed by the petitioner by e.mail dt.22-07-2013 was not only accepted by the respondent, but also acted upon by it. It cannot now turn around and contend that it had never accepted it, and liability cannot be imposed on it by treating it as a modification to the written contracts dt.30-04-2013 and the subsequent written modifications thereto.
82. Though counsel for the respondent contended that the petitioner was not aware of the letters dt.17-08-2013 addressed by the respondent to the State Bank of India until much later and so cannot rely on the said conduct, I do not agree with the said contention. When the question is whether respondent had accepted the 54 MSR,J exep_3_ 2017 Amendment No.5 proposal containing lesser quantity and lesser price, what the respondent did after it received Amendment No.5 through email dt.22-7-2013 is critical and has a direct bearing, and cannot be ignored merely because the petitioner at that time was not aware of it.
83. Inter alia the circumstance about nomination by petitioner of the vessel "Navios Arc" which can carry cargo upto 40,000 MT i.e the petitioner acting on the Amendment No.5, triggering an estoppel, is also mentioned in the order of the Arbitral Tribunal in support of its finding that there is a bilateral agreement to revise the quantity sold and its conclusion that the respondent's obligation to pay for the subject cargo was triggered.
84. These circumstances cannot be said to be irrelevant to support the said conclusion of the Arbitral Tribunal nor can the conclusion be said to be perverse.
85. Thus, I hold that the Arbitral Tribunal committed no error in holding that there was a binding agreement between the parties on the terms contained in e.mail dt.22-07-2013 (the Amendment No.5) which was an independent agreement and which was acted upon by both parties i.e. by the petitioner by nominating the vessel "Novios Arc" and by the respondent by writing letter to the State Bank of India on 17-08-2013 that there it had in fact accepted such an agreement.
86. In view of the above, the contention of respondent that there was no valid agreement in the eye of English law on the basis of the 55 MSR,J exep_3_ 2017 proposal contained in the e.mail dt.22-07-2013 between the parties is rejected.
87. Respondent's plea that by conduct of parties in relation to amendment nos.1 to 4 (form and format with signatures of both parties), both parties have agreed to a 'No Oral Modification' clause in their contractual relationship, cannot be accepted because if the parties really wanted such a clause, they would have specifically incorporated it, but admittedly, there is no such clause.
88. It's further plea that the prior amendments were all put in writing and signed by it and absence of such written document as regards Amendment No.5 indicate that it was only a proposal which was never accepted, also cannot be countenanced. The reasoning of the Arbitral Tribunal that signing and returning of earlier amendments is nothing more than good post contractual practice in ensuring that all the documentation was signed off properly and that it is nothing more than good house keeping, is unexceptionable.
89. Therefore I hold (i) that the Arbitral Tribunal was right in rejecting the respondent's contention that nomination on 12-08-2013 of the vessel "Navios Arc" with minimum/maximum cargo of 39,000/40,000 MT was not in accordance with the terms of the contracts (as amended by Amendment No.4) which contemplated purchase of 50,000 MT; and (ii) that the agreement inferred by the Arbitral Tribunal on the basis of the terms contained in Amendment 56 MSR,J exep_3_ 2017 no.5 contained in the e-mail dt.22.07.2013 was valid under English Law.
90. The respondent is also not correct in it's plea that the initial claim of the petitioner is based on the Amendment no.4 only before the Arbitral Tribunal and its alternative plea was based on the proposal in e-mail dt.22.07.2013 on the basis of facts which came into record during the course of arbitration (such as the two letters addressed to State Bank of India by the petitioner on 17.08.2013 mentioning that it had a sale contract with petitioner to import 20,000 M.T. of D.A.P.) and so estoppel by conduct cannot be applied on the basis of events which the petitioner was not aware of at that time.
91. According to respondent, there was in fact a request by the petitioner to reduce the quantity and price in the meeting between the representatives of both parties held at New Delhi on 19.07.2013 at which the respondent, while acknowledging that "a contract is a contract" requested for price reduction and quantity reduction too. Ex.69-email dt.19.07.2013 of Mr. Seth addressed to Mr. Keyman Melih corroborates this. It was in response to this request of the respondent, Amendment no.5 contained in e-mail dt.22.07.2013 emanated from the petitioner reducing the quantity and price.
92. In the e-mail dt.25.07.2013, the respondent merely stated that it has to discuss the proposal with its bankers (Ex.72) and would revert.
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93. The conduct of the respondent in not refusing the Amendment no.5, and after the vessel 'M.V. Navios Arc' was nominated on 12.08.2013 (Ex.82), not rejecting its nomination immediately but merely requesting through its e-mail dt.13.08.2013 "to hold the vessel nomination" are all factors on the basis of which the petitioner believed that there was an agreement in terms of Amendment No.5. The conduct of the respondent in addressing letters dt.17.08.2013 to S.B.I. is an additional circumstance which supports the petitioner's case since those letters contained an admission by the respondent that it had entered into a sale contract for 40,000 M.T. with petitioner.
94. For the aforesaid reasons, I am of the view that the enforcement of the award of the Arbitral Tribunal cannot be refused under Section 48(1)(a) of the Act.
Whether the Award lacks a judicial approach?
95. It is also the contention of the counsel for petitioner that certain other e-mails/correspondence exchanged between the parties indicate that it never agreed to Amendment No.5 and they were not taken into account by the Arbitrators and this indicates absence of judicial approach by the Arbitral Tribunal and renders the award in conflict with basic notions of justice attracting Explanation (1) (iii) clarifying 'conflict with public policy of India'.
96. This contention is without any merit in view of the principle laid down in Shri Lal Mahal (1 supra) that procedural defects like 58 MSR,J exep_3_ 2017 ignoring/rejecting the evidence in the course of a foreign arbitration do not lead necessarily to excuse an award from enforcement on the ground of public policy.
97. Also, the e-mails on which reliance is placed by the respondent do not in any way reduce the effect of the conduct of the respondent in writing to the State Bank of India on 17-08-2013 seeking LCs by stating that it had entered into two agreements to purchase 20,000 MT each (in all for only 40,000 MT modifying the earlier quantity of 50,000 MT) from the petitioner. No prejudice therefore can be said to have been caused to the respondent by not referring to the other e-mails exchanged between the parties.
Whether the award is contrary to the public policy of India? and Whether the Arbitrators were right in holding that the respondent cannot plead force majeure ?
98. It is the contention of the respondent that the contract contemplated an LC to be given by State Bank of India, but the said Bank refused to provide LC facility to the respondent relying on policy of the Union of India with regard to Fertilizer Price Control Order under the Essential Commodities Act, 1955.
99. Counsel contended that for 2012-13, the Government approved proposal for fixation of rates of subsidy on DAP at Rs.14,350/- per MT in order to make them available at a price lower than its delivered cost, but for 2013-14, there was a further change made on 03-05-2013/25-06-2013 reducing the subsidy on DAP to Rs.12,350/- per MT and this was done because of the falling International prices 59 MSR,J exep_3_ 2017 having no corresponding decrease in domestic prices. According to him, it became mandatory for all Fertilizer Companies to submit certified Cost Data while claiming subsidy and if MRP is not found reasonable, the Government would restrict or deny subsidy. According to him, the State Bank of India was reluctant to open LCs for the above reason.
100. It is not in dispute that the State Bank of India addressed two letters to the respondent on 08-07-2013 and 24-08-2013 in response to the request of the respondent for opening LC to buy the cargo of DAP from the petitioner.
101. The first letter dt.08-07-2013 gives two reasons for not opening LC as per the respondent's request: (a) that respondent was consistently defaulting on its LCs that year and (b) its procurement price is higher than the current market price and so it would be difficult for the Bank to approve LCs despite the respondent having LC limits as there is a risk of further defaults.
102. The second letter dt.24-08-2013 also states that the contract price was not in accordance with the prevailing market price. No doubt another reason viz., that there is a difference in the application of LC (which was made for 40,000 MT DAP purchase) and the agreement dt.30-04-2013 and Amendment No.4 dt.12-06-2013 (which mentioned 50,000 MT DAP purchase). There is no mention of the Government of India Fertilizer Policy at all in this letter.
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103. In my opinion, the main anxiety of the State Bank of India appears to be the fact that there was a delay in receipt of Government subsidy and if there is a high cost of import, it would push up the respondent's selling cost and increase the subsidy receivables. It therefore advised in its letter dt.08-07-2013 to the respondent to reduce input cost and expedite realizations so that there will not be any risk of further defaults on the LCs. Thus the refusal of the Bank to open LCs appears to be a purely commercial decision of the Bank based on bad credit history of the respondent.
104. Moreover, the Office Memorandums dt.03-05-2013 and 26-06- 2013 relied upon by the respondent deal with the price at which a Company can avail subsidy on DAP, but do not deal with import of DAP nor do they prohibit it's import. They also did not put any cap on the price for importing fertilizer. So respondent can still import the DAP and sell it, but it cannot claim subsidy. So if the respondent were to import fertilizer at the contractual price, it would not be committing violation of any law.
105. Also, no where in the contracts entered into between the parties or four amendments thereto is there any mention about performance of the contracts being subject to the respondent availing subsidy.
106. A further contention was raised by the respondent that the State Bank of India refused to open LC in its letter dt.24.08.2013 in view of the policy change enunciated by the Government of India contained in 61 MSR,J exep_3_ 2017 the notification issued on 03.05.2013 with regard to reduction in the subsidy of fertilizers and this constituted a force majeure event absolving the respondent of any liability.
107. This contention is not tenable as the Office Memorandum dt.03-05-2013 providing subsidy for 2013-14 was issued by the Government of India much prior to Amendment No.5 dt.22-07-2013. It therefore cannot be said to be a force majeure event which was unforeseeable at the time when Amendment No.5 was agreed between the parties.
108. Counsel for respondent sought to link the conduct of the SBI also to Sections 10(4) and 10(5) of the Foreign Exchange Management Act, 1999 (F.E.M.A.) and sought to contend that pursuant to Section 10(5) of the F.E.M.A., the SBI was required to satisfy itself of the bona fides of the transaction between the parties in order to ensure that the transaction did not contravene the provisions of F.E.M.A. and the letter dt.24.08.2013 of SBI addressed to the respondent indicated that SBI was not satisfied with the bona fides of the transaction.
109. Before dealing with the above contention, I shall consider the provisions of Section 10(4) and 10(5) of the FEMA.
110. Section 10(4) of FEMA requires an authorized person dealing with Foreign Exchange to comply with the directions and orders of the Reserve Bank and prohibits him from engaging in any transaction 62 MSR,J exep_3_ 2017 involving Foreign Exchange except with the previous permission of the Reserve Bank.
111. Section 10(5) requires an authorized person, before undertaking any transaction in Foreign Exchange on behalf of any person, require that person to make a declaration and to give such information as will reasonably satisfy him that the transaction will not involve, and is not designed for the purpose of any contravention or evasion of the F.E.M.A. Act or rules and regulations made thereunder, and if such person refuses to comply with such a requirement or makes only unsatisfactory compliance therewith, the authorized person shall refuse in writing to undertake the transaction and shall, if he has reason to believe that any such transaction or evasion as aforesaid is contemplated by the person, report the matter to the Reserve Bank.
112. In other words, these provisions require the SBI (the authorized person) to follow the directions of the Reserve Bank and require any person approaching it for Foreign Exchange to give a declaration that the transaction will not involve and is not designed for purpose of any contravention or evasion of the F.E.M.A. Act. If such person refuses to give declaration, it can refuse to undertake the Foreign Exchange transaction and may also report it to the Reserve Bank that it has reason to believe that such contravention or evasion is contemplated by the person who approached it.
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113. In the instant case, the refusal to open LCs by SBI is not on any of the above grounds, as can be seen from the letters dt.8.07.2013 and 24.08.2013.
The decision in Cruz City 1 Mauritius Holdings (5 supra)
114. More importantly, the Delhi High Court in Cruz City 1 Mauritius Holdings (5 supra) considered the question whether violation of any regulation or any provision of F.E.M.A. would ipso jure offend the public policy of India. After considering the decisions in Renusagar Power Company (3 supra), Shri Lal Mahal (1 supra) and others, the Delhi High Court held that a contravention of a provision of law is insufficient to invoke the defence of public policy when it comes to enforcement of a foreign award; contravention of any provision of an enactment is not synonymous to contravention of fundamental policy of Indian Law; the expression "fundamental policy" connotes the basic and substratal rationale, values and principles which form the bedrock of laws in our country. It held that a foreign award may be based on foreign law, which may be at variance with a corresponding Indian statute and if the expression "fundamental policy of Indian Law" is considered as a reference to a provision of the Indian statute, the basic purpose of the New York Convention to enforce foreign awards would stand frustrated. It explained that the principal objective of the New York Convention is to ensure enforcement of Awards notwithstanding that the Awards are not conformity to the national laws and the objections to enforcement 64 MSR,J exep_3_ 2017 on the ground of public policy must be such that offend the core values of a Member State's national policy and which it cannot be expected to compromise and not a provision of any enactment.
115. It held that there is a material change in the fundamental policy of exchange control as enacted under the Foreign Exchange Regulation Act, 1993 and the Foreign Exchange Management Act, 1999; that the former was enacted at a time when India's economy was a closed economy and the accent was to conserve foreign exchange by effectively prohibiting transactions in foreign exchange unless permitted; but after liberalization of the economy, it was felt that it should be repealed and thereafter F.E.M.A. was enacted in 1999. It held that events since 1993 such as substantial increase in the Foreign Exchange reserves, growth in foreign trade, rationalization of tariffs, current account convertibility, liberalization of Indian investments abroad, increased access to external commercial borrowings by Indian Corporate and participation of Foreign Institutional Investors in the Stock markets created a paradigm shift in the statutory policy; and the focus shifted from prohibiting transactions to a more permissible environment.
116. It explained that the fundamental policy of F.E.M.A. no longer proscribes or prohibits Indian entities from expanding their business overseas and accepting risks in relation to transactions carried out outside India, that the policy now is to manage foreign exchange; under F.E.M.A. all foreign account transactions are permissible 65 MSR,J exep_3_ 2017 subject to any reasonable restriction which the Government may impose in consultation with R.B.I.; and it is now permissible not only to compound irregularities but also seek ex post facto permission. It therefore held that the question of declining enforcement of a foreign Award on the ground of any regulatory compliance or violation of a provision of F.E.M.A. would not be warranted.
117. I respectfully agree with the view expressed by the Delhi High Court in the above decision.
118. I am of the opinion that firstly, violation of any regulation or any provision of F.E.M.A. would not ipso jure offend the public policy of India; and the term "fundamental policy of Indian law" in Section 48 (2)(b) of the Act permitting an executing Court to refuse enforcement of a foreign award would not be attracted to the instant case, not only for the reason that FEMA does not prohibit entering into oversees transactions provided there is compliance with the reasonable restrictions imposed by the Government of India in consultation with the RBI, but also because no evidence is placed on record by respondent to show that any alleged violation of FEMA was the cause for its refusal to open LCs. Alternatively, the instant foreign award based on English law cannot be tested on the basis of an Indian statute like FEMA and if it is so tested, it would frustrate the basic purpose of the New York Convention to enforce foreign awards.
119. The Arbitrators held that the contracts were bona fide transactions, that SBI never raised any doubt about the bona fides of 66 MSR,J exep_3_ 2017 the subject contracts in general, there was no force majeure event which by due diligence the respondent was unable to prevent or overcome, and price decline of D.A.P. was not unforeseen or unforeseeable to the extent that it was a relevant consideration. They also held that it was a classic case of the respondent attempting to excuse its breach of contract on force majeure grounds where the market had moved against it; that Section 10(5) did not make any mention of the concept of bona fides at all; and the respondent deliberately did not take steps to obtain LCs on receipt of the SBI letter dt.24.08.2013 because it wanted to avoid moving forward with the contracts, as by then, they had become a bad deal. These are all findings of fact based on appreciation of evidence by the Arbitrators and are unexceptionable.
WHETHER THE AWARD IS CONTRARY TO MORALITY AND JUSTICE?
120. In HRD Corporation (6 supra), the Supreme Court has explained that the terms "morality or justice" occurring in explanation (1) to Section 48(2)(b) of the Act have been tightened and they have to be understood as meaning only basic notions of justice and morality i.e. such notions as would shock the conscience of the Court as understood in Associate Builders Vs. DDA15. Instance mentioned in the Associate Builders (15 supra) case of an award being contrary to justice is one where much larger sum than what was sought is awarded without any acceptable reason or justification; and 15 (2015) 3 SCC 49 67 MSR,J exep_3_ 2017 illustration about an award being contrary to morality were confined to sexual morality only.
121. Applying these tests to the instant award show that it cannot be said to be contrary to justice or morality and its enforcement cannot be refused on the said ground.
122. For the reasons given by me in para nos. 98 to 121, I find that the subject award is not contrary to the 'public policy of India'; that there factually no violation of F.E.M.A.; and enforcement of a foreign Award like the subject Award ought not to be declined on any of the grounds raised by the respondent.
123. Moreover, Explanation 2 to Sec.48(2) of the Arbitration and Conciliation Act,1996 prohibits a review on merits of the dispute when considering the question of alleged contravention of fundamental policy of Indian law. As already noted by me earlier, in Shri Lal Mahal (1 supra), the Supreme Court followed Renusagar (3 supra) and held that for the purposes of Section 48(2)(b), the expression "public policy of India" must be given a narrow meaning and the enforcement of the foreign award would be refused on the ground that it is contrary to the public policy of India if it is covered by one of the three categories enumerated in Renusagar (3 supra), i.e., (i) fundamental policy of Indian law; or (ii) interests of India; or
(iii) justice or morality. It also declared that Section 48 does not give an opportunity to have a "second look" at the foreign award in the 68 MSR,J exep_3_ 2017 award enforcement stage and the scope of enquiry under Section 48 does not permit review of the foreign award on merits.
124. Accordingly, I reject all the contentions raised by the respondent opposing the execution of the Award dt.05.04.2016 passed by the Arbitral Tribunal and hold that it is executable.
125. Consequently, there shall be an order attaching the building with D.No.8-2-248, Nagarjuna Hills, Punjagutta, Hyderabad - 500082 as well as shares in Jaiprakash Engineering and Steel Company Limited (JESCO) owned by the respondent for recovery of US $ 2,143,168 which was awarded to the petitioner under the said Award under Order XXI Rule 46 and 54 of Civil Procedure Code, 1908.
126. For further steps, list on 29.11.2018 __________________________________ JUSTICE M.S.RAMACHANDRA RAO Date: 27-11-2018 Note :- L.R. Copy to be marked.
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Ndr/Vsv