M/S Ram Abhoshan vs M/S Pec Ltd
2018 Latest Caselaw 6737 Del

     * IN THE HIGH COURT OF DELHI AT NEW DELHI
     %                            Date of decision: 14th November, 2018

+     FAO(OS) 154/2018 & CM. No. 43148/2018

      M/S RAM ABHOSHAN
                                                                   ..... Appellant

                            Through:   Mr. Tarun Gulati, Mr. Neil Hildreth
                                       and Mr. Rahul Jain, Advs.

                   versus

      M/S PEC LTD
                                                                 ..... Respondent

                            Through:   Mr. Rajesh Kumar Gautam and
                                       Mr. Aakash Sehrawat, Advs.

      CORAM:
      HON'BLE THE CHIEF JUSTICE
      HON'BLE MR. JUSTICE V. KAMESWAR RAO

     V. KAMESWAR RAO, J. (ORAL)

CM No. 43148/2018 (for exemption) Exemption allowed subject to all just exceptions.

Application stands disposed of.

FAO(OS) 154/2018

1. This Intra-Court appeal has been filed by the appellant

challenging the order dated August 07, 2018 passed by the learned

Single Judge in OMP No.444/2015 whereby the learned Single

Judge has dismissed the petition under Section 34 of the Arbitration

& Conciliation Act, 1996 (for short "Arbitration Act, 1996") filed

by the appellant challenging the award of the Arbitral Tribunal

dated April 28, 2015.

2. The appellant is a proprietorship concern engaged in trading

of gold and bullion. The respondent is one of the eight agencies, as

notified by the Director General of Foreign Trade for import of gold

in India. A Tender dated May 12, 2014 was issued by the

respondent with respect to "Net Trading Margin of Sale of Gold by

PEC to be imported in 8th lot of 337 kg. under 20:80 scheme of the

RBI". It is a matter of record that the Reserve Bank of India (RBI)

vide its circular dated August 14, 2013 had clarified its instructions

with respect to import of gold by nominated banks / agencies /

entities whereunder the Nominated Banks / Nominated Agencies

and other Entities were to make available gold for domestic use

only to the entities engaged in jewellery business / bullion dealers

and to banks authorized to administer the Gold Deposit Scheme

(GDS) against full upfront payment on certain conditions. Under

20:80 Scheme of RBI, 20% of the quantity of imported gold was

earmarked for export purpose only and the remaining 80% quantity

of imported gold was meant for sale in domestic market. It is noted

from the impugned order that the respondent had floated the tender

only for 80% quantity of gold meant for domestic use.

3. The appellant submitted its bid for import of 200 kg of gold,

offering a Net Trading Margin of 6.25%. Pursuant thereto, a

contract came into existence between the parties.

4. By a circular dated May 21, 2014, RBI liberalized the policy

with respect to import of gold by permitting import of gold by Star

Trading Houses / Premier Trading Houses which were registered as

nominated agencies by the Director General of Foreign Trade

(DGFT) under 20:80 Scheme.

5. The appellant claims that due to such liberalization in the

policy, the gold prices and consequently, the profit margins of the

petitioner had considerably decreased, and had therefore claimed

Force Majeure by invoking Clause 7 of the Tender, as also Section

56 of the Indian Contract Act, 1872. The respondent did not agree

with such a plea and as a result, the appellant lifted the entire

quantity of gold in 10 lots upon making requisite payments to the

respondent / customs / supplier.

6. Thereafter, the appellant raised a claim for recovery of the

alleged excess Net Trading Margin paid by it to the respondent

claiming that due to the change in policy of the Government, the

Net Trading Margin had fallen to 0.40% as was evident from the

subsequent tender floated by the respondent. In other words, the

respondent is only entitled to Net Trading Margin of 0.40% and not

6.25% and it should return the excess Net Trading Margin received

by it.

7. The case of the appellant before the learned Arbitral

Tribunal was also relying upon Clause 7 stipulating Force Majeure

and Section 56 of the Indian Contract Act. The majority members

of the Arbitral Tribunal rejected the plea advanced on behalf of the

appellant upon consideration of the judgment of the Supreme Court

in the case of Satyabrata Ghose vs. Mugneeram Bangur & Co.,

AIR 1954 SC 44 and ultimately holding that the judgment has no

applicability to the facts of the case. The Tribunal was of the view

that the Supreme Court held, if the changed circumstances made the

performance of the Contract impossible, the parties are absolved

from further performance as they did not promise to perform an

impossibility.

8. The Tribunal also rejected the plea of the appellant that due

to change in import policy by RBI, the appellant had been wholly

prevented from carrying its contractual obligation. The Tribunal

held that because of the very fact that the appellant had performed

the contract, it cannot allege impossibility or frustration. The

Tribunal in its conclusion held as under:

"Irrespective of the above, we otherwise also do not find any applicability of clause 7 to the facts of the instant case. This is so since the word „preventing‟ has to be given an appropriate meaning to understand the context of clause 7. The claimant has, by its own conduct, established that there was no prevention from performing the contract by reason of change in import policy by RBI. For the case to be covered under clause 7, the situation and circumstances should be such which completely prevent the bidder from performing its obligations. For example, if the change in policy was such that there was absolutely no way in which the contract could have been performed, this would have been covered under the ambit of the word „preventing‟. Further, this was a commercial transaction and it is well known, in business circles that profit is not inbuilt in every contract. Sometimes, there may be supervising circumstances which might lead to suffering of losses as well. On the other hand, there may be certain situations where the supervening circumstances may increase the profit margin. These are risks which are inbuilt in any commercial transaction, but to brand each circumstances which leads to reduction in profit or incurring losses as Force Majeure would militate against the very essentials of a commercial transaction. The best possible case that can be urged by the claimant is suffering of losses due to

change in import policy, but not Force Majeure. As discussed above, suffering of losses in any commercial transaction is a routine incident, which cannot be given a different hue. In this connection, we would profitably refer to Halsbury‟s Laws of England, 4th Ed. particularly Paras 902, 904 and 906. In Para 902, various causes of frustration have been enumerated, viz:

(i) Physical destruction of subject-matter of contract;

          (ii)     Cancellation of an expected event;
          (iii)    Delay not attributable to any party;
          (iv)     Subsequent changes in law;
          (v)      Acts of State rendering the performance legally
          impossible;
          (vi)     Subsequent changes of foreign law;
          (vii)    Death of incapacity.

The case of the appellant does not fall under any of these heads. Merely because of change in policy, and not change in law, if there is any loss, the same cannot be stated to be covered under Force Majeure."

9. The Tribunal has also relied upon the judgment of the

Supreme Court in the case of Rajasthan State Industrial

Development & Investment Corporation vs. Diamond and Gem

Development Corporation Ltd. (2013) 5 SCC 470.

10. The learned Single Judge in the impugned order has

concurred with the majority view of the Arbitral Tribunal while

dismissing the objections under Section 34 of the Arbitration Act,

1996. Even before us, it is the case of the appellant through its

counsel that the word "preventing" as used in Clause 7 cannot be

read to mean physical impossibility. It includes within its ambit,

cases where it is practically impossible for the party to perform or

discharge the contract. In the present case, as a result of the change

in the policy formulated by the RBI, restrictions on import of gold

in India effectively terminated the monopoly enjoyed by the

nominating agencies such as the respondent. On account of change

in RBI policy, there was no occasion for the appellant to quote Net

Trading Margin for 6.25% particularly when in the subsequent

tenders floated by the respondent NTM of 0.40 to 0.60 was quoted

by other bidders to the tender.

11. In substance, it is the submission of the learned counsel for

the appellant that the learned Single Judge has erred in observing

that the contract between the appellant and the respondent was not

frustrated. He would rely upon the following judgments in support

of his contention:-

(i) Satyabrata Ghose vs. Mugneeram Bangur & Co., AIR 1954 SC 44

(ii) Delhi Development Authority vs. Kenneth Builders and Developers Private Limited and Others, (2016) 13 SCC 561;

(iii) Smt. Sushila Devi and Another vs. Hari Singh and Others, 1971 (2) SCC 288 and

(iv) Tarapore and Company vs. Cochin Shipyard Ltd., Cochin and Another, (1984) 2 SCC 680.

12. Having heard the learned counsel for the appellant, at the

outset we may state that the policy dated May 21, 2014 was not

issued by the respondent but by a third party i.e. the RBI. The

contract between the appellant and the respondent was executed

before such a policy was issued by the RBI, that too on the basis of

a bid submitted by the appellant with open eyes, wherein it offered a

Net Trading Margin of 6.25%. So, the respondent had no role to

play in issuance of a policy by the RBI. Such a policy cannot be a

ground for the appellant to invoke the Force Majeure clause in a

contract with the respondent.

13. The case of the appellant as noted by the learned Single

Judge, and also advanced before us, is that because of liberalization

in the policy, the gold prices and consequently, the profit margins of

the appellant, had considerably decreased and such a scenario is

contemplated in Force Majeure clause as the same has been defined

to mean an act of God, natural calamity, fire, Government of India /

RBI / DGFT Policy restrictions, war, military operations of any

nature and blockades preventing the seller / buyer from wholly or

partially carrying out his contractual obligations. The learned Single

Judge has held that because of change in policy, the appellant had

not been wholly or partially prevented from carrying its contractual

obligations. In other words, in terms of the policy no restrictions

have been put on the appellant to carry out its contractual

obligations. Rather, the appellant had continued with the contract

and discharge the same by lifting the gold so imported.

14. So, it is rightly held that the Force Majeure clause is not

applicable in the facts of this case. Reliance placed by the learned

counsel for the appellant on the judgments of the Supreme Court in

Satyabrata Ghose, Delhi Development Authority, Smt. Sushila

Devi and Another and Tarapore and Company (supra) have no

applicability in the facts of this case.

15. We also concur with the learned Single Judge, who had

placed the reliance on the judgments of the Supreme Court in

Naihati Jute Mills Ltd. vs. Khyaliram Jagannath 1968(1) SCR 821

and Energy Watchdog vs. Central Electricity Regulatory

Comission & Ors., 2017 SCC Online SC 378. That apart, the

present appeal being under Section 37(1)(c) of the Arbitration Act,

1996 and the fact that no submissions have been made by the

learned counsel for the appellant that the learned Single Judge has

failed to exercise jurisdiction in terms of Section 34 of the

Arbitration Act, 1996 and in view of the law laid down by the

Supreme Court in Associate Builders vs. DDA 2014 (4) ARBLR

307 (SC), we do not see any merit in the appeal, the same is

dismissed.

V. KAMESWAR RAO, J

CHIEF JUSTICE

NOVEMBER 14, 2018/aky