Telangana High Court
Keytrade Ag vs Nagarjuna Fertilizers And ... on 12 October, 2023
Bench: C.V. Bhaskar Reddy
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?
2 MSR,J
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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
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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
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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
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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
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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.,
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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.
22 MSR,J
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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
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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.
24 MSR,J
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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).
25 MSR,J
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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
(2014) 2 SCC 433
26 MSR,J
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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:
(1976) 4 SCC 89 at Para 6
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(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.
28 MSR,J
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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
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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.
AIR 1994 SC 860
AIR 1959 SC 781
30 MSR,J
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(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.
MANU/DE/0965/2017
31 MSR,J
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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
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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. "
33 MSR,J
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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
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(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,
(2018) 12 SCC 471
35 MSR,J
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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
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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
(2001) 6 SCC 356
37 MSR,J
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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.
38 MSR,J
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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.
39 MSR,J
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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
AIR 1951 SC 177
40 MSR,J
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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
AIR 1943 PC 29
2004(2) ALD 635 (DB)
41 MSR,J
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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.
42 MSR,J
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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
(2018) UKSC 24
43 MSR,J
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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
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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
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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
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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
AIR 1958 SC 512
(2005) 12 SCC 764
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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
(1976) 4 SCC 89
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
(2015) 3 SCC 49
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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
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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.
B/o.
Ndr/Vsv
