Progetto Grano S.P.A. vs Shri Lal Mahal Limited
2012 Latest Caselaw 891 Del

         IN THE HIGH COURT OF DELHI AT NEW DELHI

                            CS (OS) 2594A/2000

                                        Reserved on: December 13, 2011
                                        Decision on: February 9, 2012

 PROGETTO GRANO S.p.a.                        ..... Plaintiff
             Through: Mr. Jayant Mehta with
                       Ms. Bharti Badesra and
                       Ms. Tanya Khare, Advocates.

                 versus

 SHRI LAL MAHAL LIMITED                       ..... Defendant
              Through: Mr. Harish Malhotra, Senior Advocate
                       with Mr. Mahendra Rana, Advocate

 CORAM: JUSTICE S. MURALIDHAR

                             JUDGMENT

9.02.2012

Introduction

1. The present proceedings, which seek the enforcement of Foreign Awards being Appeal Award No. 3782 and Appeal Award No. 3783, both dated 21st September 1998 made by the Board of Appeal, Grain and Feed Trade Association ('GAFTA'), London, have been initiated under Section 49 read with Section 48 of the Arbitration and Conciliation Act, 1996 ('Act').

2. These proceedings filed in the first place by Italgrani S.p.a, an Italian company, were registered as Suit No. 2594A of 2000. Even at that stage the said company had been declared bankrupt. The Naples Tribunal, by its order dated 22nd September 1999, had appointed an Official Receiver for the Plaintiff company. The present proceedings were filed by the Official Receiver.

3. Both foreign Awards were in favour of Italgrani S.p.a and against Shivnath Rai Harnarain (India) Co. a partnership firm based in India having its office at Bhagwan Das Nagar, New Delhi. During the pendency of these proceedings, by an order dated 28th July 2011 in IA No. 3598 of 2011 Shri Lal Mahal Limited was substituted for the M/s. Shivnath Rai Harnarain (India) Co. This Court was informed that the assets and liabilities of Italgrani S.p.a had been taken over by M/s. Progetto Grano S.p.a under a scheme of composition. Consequently, by the same order dated 28th July 2011, in IA No. 3599 of 2011, M/s. Progetto Grano S.p.a was substituted for Italgrani S.p.a. In the present judgment M/s. Progetto Grano S.p.a (as the successor in interest of Italgrani S.p.a) is referred to as 'the Plaintiff' and Shri Lal Mahal Limited (as the successor in interest of Shivnath Rai Harnarain (India) Co.) is referred to as 'the Defendant'.

Factual background

4. The Plaintiff entered into a contract dated 12th May 1994 with the Defendant agreeing to purchase from the Defendant a quantity of 20,000 tonnes Durum wheat of Indian origin, 5% more or less at Defendant's option, FOB stowed Kandla. In terms of the contract, the packing was to be in bulk, the date of shipment was 1st-30th June 1994, the quantity was to be final at loading as per the first class international company certificate 'SGS'. The quality conditions were "all final at time and place of loading as per first class international company certificate 'SGS' nominated by the buyers". Certificate and quality showed in the certificate would be as per the result of an average of samples taken jointly at port of loading by the representatives of the sellers and the buyers. The other terms and conditions were to be as per the GAFTA Rules 64/125.

5. Clause 28 of the GAFTA Rule 64 provided that for the purpose of enforcing any award, it shall be deemed to have been made in England, and to be performed there, any correspondence in relation to the offer, the place of payment, and the Courts of England or arbitrators appointed in England shall "except for the purpose of enforcing of any award made in pursuance of the arbitration clause thereof, have exclusive jurisdiction over all disputes which may arise under this Contract". Further, such disputes "shall be settled according to the law of England, whatever the domicile, residence or place of business of the parties to this Contract may be or become". Clause 29 of GAFTA Rule 64 provided for settlement of disputes by arbitration in accordance with Arbitration Rule No. 125 of GAFTA.

6. The case of the Plaintiff is that the quality of the soft wheat supplied by the Defendant was not in accordance with the contract. Although the maximum permissible percentage of soft wheat was 1.5%, the admixture of soft wheat in the consignment sent to the buyer was found to be 90% or thereabouts. The case of the Defendant was that samples had been tested at the time and place of loading as per the first class international certificate SGS and certification of quality done. The Defendant objected to the certificate issued by the SGS Geneva. The Plaintiff rejected the consignment of the Defendant and the disputes between the parties were referred to arbitration in terms of the GAFTA Rules.

7. The Defendant challenged the existence of the arbitration agreement by filing Suit No. 1082A of 1995 in this Court. By a detailed judgment dated 8th July 1996 this Court dismissed the suit holding that the provisions of the Foreign Awards (Recognition and Enforcement) Act, 1961 ['Foreign Awards Act'] would be applicable and that the proper law of the contract

would be proper law of arbitration as per Clause 27 and that would be the English Law. The Special Leave Petition against the said order was dismissed by the Supreme Court on 20th December 1996.

8. The Defendant also raised an objection about the existence and validity of the arbitration agreement before the Arbitration Tribunal, GAFTA. This was rejected by the Arbitral Tribunal by an Interim Award dated 16th October 1995. Thereafter a final Award (No. 11715-A) was rendered by the GAFTA Arbitral Tribunal on 4th December 1997 in which it was directed:

"Sellers shall pay Buyers forthwith the sum of US$ 1,023,750.00 being the difference between the FOB contract price - US$ 162.00 per tonne less US$ 2.00 per tonne penalty for extending the shipment period i.e, US$ 160.00 per tonne, and the FOB price of the soft wheat shipped on m.v. 'HACI RESIT KALKAVAN' i.e. US$ 111.25 per tonne, amounting to US$ 48.75 per tonne on 21,000 tonnes, equating to US$ 1023.750 together with interest thereon at the rate of 7% per annum from 24th August 1994 to the date of this Award.

Sellers shall pay Buyers forthwith the sum of US$ 303,007.60 being the loss incurred in replacing the wheat shipped on m.v. MACI RESIT KALKAVAN with Dhrum Wheat shipped on M.V. 'EUROBULKER 1' and .. 'SEA DIAMOND H' together with interest thereon at 7% per annum on:

US$ 276,512.40 (the loss on M.V. "EUROBULKER1") from 1st October 1994 to the date of this Award.

And US$ 26,495.20 (the loss on M.V. "SEA DIAMAND H") from 5th December 1994 to the date of this Award."

9. The Final Award further directed:

"That Sellers shall pay Buyers forthwith the sum of US$ 138,590.20 being demurrage incurred on M.V. "HACI RESIT KALKAVAN" amounting to 19 days 19 hours 10 minutes at

US% 7,000 per day/pro-rata equating to US$ 138,590.28 together with interest thereon at a rate of 7% per annum from 30th September 1994 to the date of this Award."

10. The Plaintiff had also made a separate claim in respect of the Defendant's breach of the arbitration agreement in bringing legal proceedings in India. As regards this claim, a separate award (No. 12159) was made by the GAFTA Arbitral Tribunal on 4th December 1997 in favour of the Plaintiff directing the Defendant to pay a sum of UK Pounds 19,497.70 towards damages.

11. While the Defendant did not file an appeal against the Interim Award dated 16th October 1995, it filed two appeals against Award Nos. 11715-A and 12159 dated 4th December 1997. The Board of Appeal, GAFTA, by its Appeal Award No. 3782 dated 21st September 1998 against the Award No. 11715-A directed as under:

"(a) The Defendant shall forthwith pay to the Plaintiff the sum of US$ 10,23,750.00 being the difference in value of US$ 48.75 per tonne between the goods supplied and goods of contractual description, calculated on 21,000 tonnes, together with interest thereon at 7% per annum from August 24, 1994 till September 21, 1998 (i.e. US$ 10,23,750 + US$ 2,97,257 = US$ 13,21,007);

(b) the Defendant shall forthwith pay to the Plaintiff a sum of US$ 1,38,590.20 being demurrage incurred at load together with interest thereon at 7% per annum from September 30, 1994 to September 21, 1998 (i.e. US$ 1,38,590.20 plus US$ 38,592.61 = US$ 1,77,182.81).

(c) the Defendant shall forthwith pay to Plaintiff the sum of UK Pounds 4,340.00 being the fees and expenses of Arbitration No. 11715A.

(d) the Defendant shall forthwith pay to the Plaintiff the sum of UK Pounds 1,750.00 being the costs and expenses of Plaintiff's representatives in preparing and presenting the said case."

12. Likewise, the Board of Appeal passed an Appeal Award No. 3783 dated 21st September 1998 in the appeal against Award No. 12159 and directed as under:

"(a) Defendant to pay forthwith to the Plaintiff a sum of UK Pounds 1,762.50 being the reasonable charges and disbursements incurred by the Plaintiff's London Solicitors in considering and responding to the proceedings taken by the Defendant in India.

(b) Defendant to pay forthwith to the Plaintiff a sum of UK Pounds 15,924.00 being the total of four invoices of the Plaintiff's Indian Solicitors M/s. O.P. Khaitan, or such lesser than as shall in the agreed between the parties or assessed in India.

(c) Defendant to pay to the Plaintiff forthwith costs and expenses of the first tier Arbitration No. 12159 in the amount of UK Pounds 2,190 plus UK Pounds 85.00 being the fee for appointment of an Arbitrator on Defendant's behalf.

(d) Defendant to pay to the Plaintiff forthwith a sum of UK Pounds 500 being the costs and expenses of Plaintiff's representative in preparing and presenting the said appeal."

13. The petition filed by the Defendant challenging the Appeal Award No. 3782 was dismissed by the High Court of Justice at London on 21st December 1998. The Appeal Award No. 3783 dated 21st September 1998 was not challenged by the Defendant.

14. The case of the Plaintiff is that the Appeal Award Nos. 3782 and 3783, both dated 21st September 1998, are 'foreign awards' within the meaning of Section 44 of the Act and are enforceable as such. The Plaintiff referred to the Notification dated 25th October 1976 issued by the Government of India and submitted that the said Awards are valid both under the Indian Law and the laws of the United Kingdom ('UK'). The said Awards have become

final in the UK by the provisions of GAFTA Rules of Arbitration and the English law. The said Awards are in respect of matters which may be settled by arbitration under the Indian law and are not in conflict with or contrary to the public policy of India. According to the Plaintiff, in terms of the two Awards, on the date of filing of the present proceedings, it was entitled to receive from the Defendant a sum of US$ 14,98,189.81 and UK Pounds 26,551.90 along with future interest and costs.

15. Notice was issued in the present proceedings on 22nd November 2000. It took four years for completion of pleadings. The Defendant filed I.A. No. 8692 of 2004 seeking a direction for treating the present proceedings as a suit, fixing the date for framing of issues and for permitting parties to lead evidence by way of affidavit. This application was disposed of by an order dated 2nd September 2005 in which, inter alia, the Court referred to the judgment of the Supreme Court in Fuerst Day Lawson v. Jindal Exports Ltd. AIR 2001 SC 223 in which it is held that there were two stages in the enforcement of a foreign award. The first stage was that the Court would make an enquiry into the enforceability of the award. If the conditions for enforcement were fulfilled, then at the second stage the award would be deemed to be a decree of the court and would be executed as such. The Supreme Court also referred to the decision in Thyssen Steel Unit v. Steel Authority of India AIR 1999 SC 3923 in which it is pointed out that there was hardly any difference between the provisions of the Foreign Awards Act, 1961 and the 1996 Act in the matter of enforcement of a foreign award. The only difference was that under the Foreign Awards Act a decree followed whereas under the new Act the foreign award was already stamped as the decree.

16. This Court in the said order dated 2nd September 2005 rejected the contention that the proceedings filed under Part-II of the Act were to be treated and tried as a civil suit within the meaning of the Code of Civil Procedure. However, it was held that the JD must be entitled to full opportunity to render the proof envisaged in sub-section (1) of Section 48 of the Act in order to establish one or more grounds mentioned in clauses

(a) to (e) of sub-section (1) of Section 48 of the Act. Consequently in para 9 of the said order dated 2nd September 2005 the Court held as under:

"9. For the above stated reasons, while it is not possible to treat and try the present proceedings as a suit, but all what is necessary in the direction of holding a judicial inquiry, as envisaged by sub-section (1) of Section 48 of the Act, must be adhered to. This Court, therefore must hold that the respondent is well within its right to lead evidence in support of the purported objections under Section 48 of the Act on the basis of which such refusal of enforcement of the foreign award is sought."

17. Thereafter, the Defendant filed an affidavit in support of its objections to the enforcement of the two Awards. The Defendant's witnesses were examined and the evidence concluded on 18th February 2011.

18. An application dated 10th August 2011 was filed by the Defendant objecting to Mr. Jayant Mehta, learned Advocate appearing on behalf of the Plaintiff. The said objection was rejected by this Court by a detailed judgment dated 7th September 2011 directing the Defendants to pay costs of Rs. 1 lakh to Mr. Jayant Mehta and further costs of Rs. 1 lakh to the Advocates' Welfare Fund within one week. The appeal against the said order was dismissed as withdrawn by the Division Bench of this Court on 24th October 2011.

Submissions of counsel

19. The submissions of Mr. Harish Malhotra, learned Senior counsel appearing for the Defendant and those in the Defendant's written note of submissions are as under:

(a) The impugned Awards were contrary to the public policy of India inasmuch as they were contrary to the express provisions of the contract entered into between the parties. The GAFTA Arbitral Tribunal erred in accepting the test report issued by SGS Geneva whereas under the contract it was the test report of SGS India that was material. The goods in question were inspected at the point of discharge in the absence of the Defendant's representatives. In terms of the contract between the parties, the inspection certificate was given by SGS India which was nominated by the Plaintiff itself. There was no requirement for any inspection at the point of discharge of the consignment. The responsibility of the Defendant ceased after the said obligation was fulfilled. Reliance was placed upon the decision in ONGC v. Saw Pipes Limited 2003 (2) Arb LR 5, Venture Global Engineering v. Satyam Computer Services Ltd. (2008) 4 SCC 190, Japan Travel Services v. All Nippon Airways Co. Ltd. 2010 (4) RAJ 223 (Del) and Brijesh Goyal v. Daily Foods (India) AIR 2009 Del 118.

(b) While dismissing the Defendant's suit under Section 33 of the Arbitration Act, 1940 this Court did not grant any costs to the Plaintiff. Similarly, while dismissing the Special Leave Petition, the Supreme Court did not grant any costs to the Plaintiff. The GAFTA Arbitral Tribunal could not have awarded costs to the Plaintiff in respect of those proceedings. Therefore, the said Award was

contrary to the public policy of India. Reliance is placed on the decision in C.B. Aggarwal v. Krishna Kapoor AIR 1995 Delhi

154.

20. The reply submissions of Mr. Jayant Mehta, learned counsel for the Plaintiff were as under:

(i) The plea raised before the GAFTA Tribunal on the certificate issued by the SGS Geneva was a question of appreciation of evidence and determination of a question of fact that was beyond the scope of the proceedings under Section 48 of the Act. It is further submitted that the Defendant cannot be permitted to reopen questions of fact as already decided by the GAFTA Arbitral Tribunal, which were affirmed by its Bard of Appeal and the High Court of Justice at London.

(iii) There is nothing in the arbitral Awards which could be said to be against the public policy of India, the interests of India, justice or morality or suffering from a patent illegality which goes to the root of the matter. Relying on the decisions in Renusagar Power Company Limited v. General Electric Company (1994) Supp 1 SCC 644, Smita Conductors v. Euro Alloys Limited (2001) 7 SCC 728, and Penn Racquet Sports v. Mayor International Limited 177 (11) DLT 474 it is submitted that enforcement proceedings were not meant to reopen the foreign awards on merits.

Challenge to the foreign Awards fails on merits

21. The principle objection of the Defendant is to the reliance placed by the GAFTA Arbitral Tribunal on the certificate issued by SGS, Geneva.

The Arbitral Tribunal analyzed the certificate issued by SGS, India and considered the submission of the Plaintiff that the same samples tested by SGS India when analyzed by SGS Geneva showed that it did "not conform to the requirements of quality." The GAFTA Arbitral Tribunal held as under:

"The actual analysis figures themselves throw doubt upon the method and results produced by SGS India. Analysis results presented as evidence from samples taken at the godowns were from 8,000 tonnes. Taking two items from those results, Moisture 10.20% and Vitreous Wheat 80% and using them as the basis for all the godown pre-shipment analyses, the Tribunal calculates that to arrive at a weighted average of pre- shipment and loaded samples, recorded on the certificate as Moisture 7.5% Vitreous 88%, the samples taken at loading must be analysed at Moisture 4.8% Vitreous 96%. Apart from questioning the exceedingly low moisture content of the certificate at 7.5% the Tribunal questions how, if the same wheat is subjected to the same methods of testing at pre-shipment and loading, the moisture content dropped from 10.20% to 4.80%, equating to a decrease of 53% and the Vitreous Kernels increased from 80% to 96% equating to 20% rise, all between the time of testing at the godowns and at loading. The Tribunal concludes that on the balance of probabilities SGS India, as Superintendents acting for Sellers at loading, produced a certificate which was inaccurate and according to Sellers submission in 3:7 was produced before loading commenced."

22. It was further noticed that although the Plaintiff had on its own sent further samples of the wheat to SGS, Geneva to carry out the analysis under the sale contract entered into by the OAIC (Government of Nigeria) and did not really concern the Defendant, once that certificate showed that the wheat was soft wheat and not durum wheat, the buyers had the right to pursue the matter on the basis that "description was not covered by the

certificate issued by SGS India and used by Sellers to obtain payment under the L/C." The Arbitral Tribunal found that the request made by the Plaintiff that the Defendant should attend the point of discharge in Oran for joint sampling was not accepted by the Defendant. With SGS denying responsibility for the certificate, the Plaintiff appointed Bureau Veritas to carry out the sampling at the point of discharge. These samples were sent to the three analysts - two in Greece; one a private laboratory and the other a State Laboratory - and one in England, viz., the Flour Milling and Baking Research Association, ('FMBRA'). These test results confirmed that the samples were 90% plus soft wheat. The Arbitral Tribunal further noted that in spite of the Plaintiff requesting that further samples taken at loading be sent from India, only the sample sent to Crepin was taken at the point of loading. Further, the said sample as well as the three samples taken at the point of discharge were found to contain soft wheat. On analyzing these facts the Tribunal concluded as under:

"On the balance of probabilities the Tribunal therefore concludes that the wheat, described on the Certificate of Quality and Condition presented by Sellers as Durum wheat of Indian origin, was soft wheat. The certificate was therefore uncontractual and with regard to description sellers were in breach of the contract".

23. The above conclusion of the GAFTA Arbitral Tribunal is based on an appreciation of the evidence produced by the parties. The stark finding, confirmed by the reports of three independent analysts, two in Greece (one a private lab and another State lab) and the FMBRA in England, was that the consignment sent by the Defendant contained only 9 % durum wheat. 90% was soft wheat. In the circumstances, the only conclusion possible was the one arrived at by the Arbitral Tribunal viz., "the wheat, described on the Certificate of Quality and Condition presented by Sellers as Durum

wheat of Indian origin, was soft wheat." This conclusion has been affirmed by the impugned Appeal Award No. 3782 by the Board of Appeal, GAFTA. It has been further affirmed by the rejection by the High Court of Justice at London of the Defendant's petition challenging the Appeal Award No. 3782. The above conclusion cannot be held to be contrary to the terms of the contract or to the public policy of India. Further, this Court is not expected, in enforcement proceedings, re-determine questions of fact. The grounds enumerated in Section 48 of the Act are meant to be construed narrowly and does not permit a review of the foreign award on merits.

24. The affidavit of evidence filed by the Defendant seeks to re-agitate the entire issue on merits. This cannot be permitted in proceedings under Section 48 read with Section 49 of the Act. Significantly, in the cross- examination of one of the deponents, i.e., Mr. Ram Lal Thakur he stated that samples were not taken by SGS India in his presence. He added: "I do not know what are the GAFTA Rules regarding samples." He further stated as under:

"I am not aware whether Defendant company is indulged in litigation with other importers or not. I have not gone through the Award passed against the Defendant on 4th December 1997. I am not aware if the defendant had challenged the award before the Court in England. There is no document on the record which may show that demurrage was not included within the arbitration agreement. It is correct that the vessel could not dock at Kandla Port. There is no document on the record whereby Defendant intimated the Plaintiff that vessel could not be docked at the port due to the fault of Plaintiff. I do not know, what is Section 48 of the Arbitration Act. I have not gone through the reply filed by the Defendant company in the present proceeding. There is no document on the Court record which may show that Mr. Prem Garg

had no authority from the Defendant to enter into contract with the Plaintiff on behalf of the Defendant. It is wrong to suggest that I have no knowledge about the case and I have filed the affidavit at the instruction of my masters."

25. The above evidence shows that the Defendant has no serious defence to the enforcement of the two foreign Awards. It has used these proceedings to buy time to somehow postpone enforcement. The GAFTA Arbitral Tribunal Award on claims (No. 11715-A) as well as the Appeal Award (No. 3782) are neither contrary to the clauses of the contract nor to the public policy of India. The contentions of the Defendant in that regard are rejected.

Award of litigation costs by the GAFTA Tribunal

26. As regards the Plaintiff's claim for costs incurred by it in defending the proceedings brought before this Court by the Defendant by way of Suit No. 1082A of 1995, it must be noted that that the parties had agreed that any dispute between them arising out of the contract would be subject to the GAFTA Arbitration Rules. Yet, the Defendant instituted proceedings in this Court for a declaration that there was no valid enforceable contract between the parties and alternatively that in any event it was subject to Indian law. This plea of the Defendant was rejected by this Court as well as the Supreme Court. The Plaintiff had to contest every round of litigation at that stage. In the circumstances, the finding of the GAFTA Arbitral Tribunal that by initiating litigation in courts in India, the Defendant committed a breach of contract cannot be faulted. The above conclusion of the Tribunal is based on a correct analysis of the contractual provisions. Again, the said conclusion has been confirmed by the Appeal Award No. 3783 of the Board of Appeal, GAFTA and not challenged thereafter by the Defendant. There is no ground made out by the Defendant under Section

48 of the Act for resisting the enforcement of the said Award. Consequently the objections raised by the Defendant to the enforcement of the Award on costs rendered by the Arbitral Tribunal (Award No. 12159) and the corresponding Appeal Award (No. 3783) are rejected.

Other grounds of objection

27. In its affidavit by way of evidence the Defendant has sought to re- agitate many of the grounds raised by it before the GAFTA Arbitral Tribunal as well as the Board of Appeal. As regards existence and validity of the arbitration agreement, it was agitated by the Defendant by filing Suit No. 1082-A of 1995 which was dismissed by this Court on 8th July 1996. The SLP preferred by the Defendant was also dismissed by the Supreme Court on 20th December 1996. Further this point was agitated again before the Arbitral Tribunal which rejected it by its Award on jurisdiction (No. 11715) dated 16th October 1995 which was not challenged by the Defendant. The Defendant ought not to be permitted to re-agitate this issue and that too at the stage of enforcement.

28. With so many rounds of litigation, where the Defendant has been represented by counsel, it is difficult to accept its contention that it did not have sufficient opportunity to effectively represent itself or proceed with its defence in the arbitral proceedings. There is also no merit in the other plea that Mr. Prem Garg who signed the contract on behalf of the Defendant had no authority to do so. The contract having been acted upon by both parties it is too late in the day to raise this plea.

Conclusion

29. None of the grounds enumerated in Section 48 of the Act have been

able to be established by the Defendant. The objections of the Defendant to the enforcement of the foreign Appellate Awards (Nos. 3782 and 3783) of the GAFTA Appellate Board dated 21st September 1998 are hereby rejected. It is held that the said Appellate Awards are enforceable under Chapter-I Part-II of the Act.

30. The Defendant will pay the Plaintiff Rs. 1 lakh as costs of these proceedings concerning the Defendant's objections within four weeks.

31. For consideration of the other prayers of the Plaintiff, list on 19th March 2012.

32. On 2nd September 2005 itself, this Court had in its order directed "the present proceedings shall not be treated as a civil suit and the Registry will assign a new category of proceedings and should be read as an OMP." For some reason, the above direction has not been carried out. The Registry is directed to register and number these proceedings as an execution petition.

S. MURALIDHAR, J.

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