Communication of de-canalisation Order within time is must to substantiate non-execution of Contract

H. J. Baker And Bros. Inc. Vs Minerals and Metals Trade Corporation Ltd. (MMTC) (Supreme Court of India)

Conclusion: In present facts of the case, the Appeals were dismissed by Hon’ble Supreme Court and have affirmed the Order of the Arbitral Tribunal wherein de-canalisation order by the Government was not communicated within time.

Facts: In present facts of the case, appeals are directed against a common judgment of the Delhi High Court, which partly interfered with an arbitration award. One appeal has been preferred by the respondent to the extent that the impugned judgment did not set aside the award, and the other appeal by the arbitration claimant to the extent it did.

The Respondent entered into an agreement dated 14-01-1986 with the Appellant for the purchase of US-origin sulphur. In terms of the agreement, the Respondent was to purchase on an annual basis 60,000 metric tons of sulphur. The agreement was to be operative for three years, to be extended annually on ever green basis unless terminated by either party through six month’s written notice. Under the contract, the Respondent purchased the material till 1991. On 20-12-1991, the Respondent telexed the Appellant, confirming supply-price for the period from January to June 1992. As no vessel was nominated for this purpose, by a fax dated 27-01-1992, the Appellant requested nomination of a vessel. On 31-01-1992, the Respondent communicated that it would be nominating its vessel in March 1992 for 25,000 metric tons of sulphur in May-June 1992. Thereafter some correspondence was exchanged between the parties over the nomination of the vessel.

The quantity of 50,000 metric tons of sulphur for January-July 1992 was not lifted by the Respondent. Instead, the Respondent by fax, on 08-04-1992 informed the Appellant that the import of sulphur was de-canalised by the Union Government on 20-02­-1992 and consequently, it could not nominate any vessel against the balance quantity in the contract. The Appellant did not accept the Respondent reason for not nominating the vessel and lifting the balance quantity of sulphur. The Appellant kept insisting upon lifting the desired quantity and also stated that because of the Respondent inaction, it was incurring storage expenses as well. The Respondent, by its letter dated 21/22-05-1992 stated that import of sulphur directly from the Gulf was at lower landed costs and because of the changed situation, namely, de-canalising of sulphur import by the Union Government, its import from the USA or Canada ceased to be competitive. The Respondent requested for cost and freight prices (hereafter, “C & F prices”) mentioning that it was eager to continue relations with the Appellant. The latter maintained that de-canalisation would not affect the contract between the parties and the Respondent had to purchase the quantity at agreed prices. Ultimately, the Appellant sent a legal notice to the Respondent claiming damages for the past three half-yearly semesters i.e. January-June 1992, July- December 1992 and January-June 1993. This was followed by another legal notice dated 19-07-1993. By this legal notice, arbitration was invoked by the Appellant.

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