National Agricultural Cooperative Marketing Federation of India v. Alimenta S.A. (Supreme Court); Civil Appeal No. 667 of 2012; 22/04/2020
FACTS
The parties in question i.e. the Appellant and the Respondent entered into a contract dated 12.01.1980 (“first agreement”) for supply of 5000 metric tons of India HPS groundnut (“the said goods”) at the rate of USD 765 PMT for the season 1979-1980. The Contract was not a Free on Board contract but a CIF contract as per the terms of Federation of Oils, Seeds and Fats Association (“FOSFA”).
The Appellant was a canalizing agency for the Government of India for exports of the said goods. The Appellant therefore, required an express permission from the government while carrying forward any export quantity from the previous year to the coming year.
On 03.04.1980, the Appellant entered into another agreement for export of 4000 MT at the rate of USD 770 PMT (“second agreement”), the shipment period for which was August-September, 1980. This agreement is not the subject matter of dispute in this appeal.
The Appellant could only ship 1900 MT out of the total quantity of 5000 MT as agreed under the first agreement due to damaged crops because of a cyclone. The balance 3100 MT of the said goods could not be shipped as scheduled due to Government restrictions.
It is pertinent to note that the first agreement contained a Force Majeure and Prohibition clause under Clause 14 whereby, a prohibition of export by the order of the executive or by law would be treated as a cancellation of the agreement.
In 1980-81, due to a crop failure in the United States of America, the price of the said goods increased in the course of season leading to execution of an Addendum to the first agreement whereby the period of export was changed to November – December, 1980 for the balance 3100 MT. On 08.10.1980, second addendum to the first agreement was executed wherein it was agreed that the said goods would be shipped during 1980-81 season, whereby the said goods would be packed in new double gunny bags with the buyers paying extra cost of USD 15 PMT.
The Appellant had permission of the Government of India to enter into exports for a period of three years between1977-80 but had no permission to carry forward the exports for the season 1977-80 to the year 1981. The Appellant claimed that they were not aware of this restriction at the time of executing the addendums to the first agreement.
The Appellant approached the Government of India for permission to release the quota in the current season to fulfil its commitments under the contracts, however the same was denied by the Ministry of Agriculture on 01.12.1980. The Appellant again requested for the permission to fulfil contracts on 06.12.1980 and 09.12.1980 but the same were rejected again.
This was informed to the Respondent on 13.02.1981, who was asked not to nominate the vessel for shipment of the crop due to the prohibition to supply the contracted quantity. This message was treated as a Notice of Default made to make the supply.
The Respondent therefore, filed arbitration proceedings before FOFSA, London on 13.02.1981 and the Appellant was asked to appoint an Arbitrator within 21 days. Vide Telex dated 18.02.1981, the Respondent requested the Appellant to send originals of the Government’s notices banning the exports to the Respondents, which was sent by the Appellant on 23.02.1981. On the same day. the Appellant also requested the Respondent to send a copy of the FOSFA Arbitration Rules, which were sent by the Respondent on 24.02.01981. On 05.03.1981 the Appellant asked for an extension in appointment of arbitration beyond the period of 21 days and this was request was honoured on 10.03.1981.
On 19.03.1981 the Appellant filed a petition bearing OMP No. 41 of 1981 against the Respondent and their Arbitrators before the Delhi High Court praying to restrain such arbitration proceedings as the agreement did not contain any specific arbitration clause. Accordingly, vide order dated 20.03.1981 the arbitration proceedings were stayed till 22.04.1981 by the Delhi High Court. This order was intimated to the Respondent on 23.03.1981 by the Appellant.
In disregard of the order of interim stay granted on 20.3.1981 by the High Court, the FOSFA by its telex requested the Appellant to appoint an Arbitrator on its behalf by 20.04.1981, failing which FOSFA would appoint an arbitrator on behalf of the Appellant. Through a telex message on 09.04.1981, the Appellant informed the Respondent and FOSFA that it had no jurisdiction to proceed with the arbitration in view of the order of stay by the Delhi High Court and any action taken by the Respondent. or by Mr. Scott of FOSFA would be illegal and void.
On 22.04.1981, the Delhi High Court adjourned the matter and extended the interim relief granted to the Appellant till 21.07.1981. However, in disregard of the order passed by the High Court, FOSFA appointed Mr. F.A.D. Ralfe as an Arbitrator on behalf of the Appellant on 23.4.1981. Thus, the Appellant urged that it was deprived of the right to appoint its nominee Arbitrator and vide its letter dated 1.5.1981 informed FOSFA that despite the order of stay by the High Court, perverse steps were taken to appoint the Arbitrator on its behalf and it was further stated that the counsel appearing for the Respondent stated in the High Court that the Respondent would not proceed further in the arbitration. Ultimately, the Appellant filed proceedings in the nature of contempt on 30.10.1981 on the ground that appointment of Arbitrator on behalf of the Appellant violated the orders dated 20.3.1981 and 22.4.1981, passed by the Delhi High Court.
On 11.012.1981 the Delhi High Court held in OMP No. 41 of 1981 that the first agreement would be governed by the arbitration agreement incorporated in FOFSA 20 Contract while there was no arbitration agreement between the parties in so far as the second agreement was concerned. Resultantly, on 22.03.1982, the Respondent filed filed FAO (OS) No.24 of 1982 against the order dated 11.12.1981 and the same was later withdrawn.
On 01.04.1982 the Respondent filed a Special Leave Petition which was numbered as Civil Appeal No.1755 as against the order dated 11.12.1981 of the Delhi High Court. On 30.04.1982 the Supreme Court passed an order restraining the Respondent and FOSFA to proceed further in the Arbitration. On 04.05.1982, FOSFA sent a telex that the Supreme Court had no power to act in the matter nor to stay the arbitration and continued with the proceedings in violation of the order passed by the Supreme Court.
Vide order dated 09.01.1987 the Supreme Court upheld the decision of the Delhi High Court dated 11.12.1981 and relegated the parties to arbitration for the first agreement and to civil proceedings for the second agreement since there was no arbitration clause in the second agreement. Accordingly, the Appellant filed its written submission before the FOSFA on 10.01.1989 while pointing out that it was not allowed to appoint its Arbitrator despite specific order of restraint by the Delhi High Court and it was not allowed to be represented through its Counsel. The Respondent also filed additional written submissions before FOFSA on 19.06.1989.
On 15.11.1989, FOFSA passed an award directing the Appellant to pay a sum of USD 4,681,000 being the difference between the contract price of USD 765 PMT plus USD 15 PMT for double bags and the settlement price of USD 2275 per metric tonnes plus USD 15 per metric tonnes for double bags as damages. The Appellant was ordered to pay interest @ 10.5% per annum from 13.02.1981 till the date of the award.
On 16.01.1990 the Appellant filed an appeal against the award dated 15.11.1989 before the Board of Appeal (‘the Board’) and several requests were made by the Appellant to be represented by their solicitors since there were special circumstances and Indian Law was required to be explained. However, these requests were not accepted by the Board on 14.05.1990.
On 14.09.1990 Board enhanced the award against the Appellant while deciding the Appeal and the Respondent filed no appeal. The Appellant was directed to pay interest @ 11.25% per annum instead of 10.5% per annum. The Arbitrator nominee of the Respondent who passed the original arbitration award represented the case on behalf of Respondent before the Board.
The Respondent thereafter, filed a petition as Suit No.1885 of 1993 under Section 5 and 6 of the Foreign Awards (Recognition and Enforcement) Act, 1961 (“the Foreign Awards Act”) seeking enforcement of award passed by FOFSA and the Board of Appeal. The Single Judge of the Delhi High Court rendered the award to be enforceable vide order dated 28.01.2000.
The Appellant filed an Appeal bearing F.A.O. (O.S) No. 205 before the Division Bench of the Delhi High Court and stayed the execution on 28.02.2001. However, the stay and the order of appointment was questioned before the Supreme Court and the Supreme Court modified the interim order of the Delhi High Court dated 28.02.2001 and disposed of both the petitions in question on 05.05.2000 while passing certain interim orders.
On 09.09.2002, the Respondent filed an execution petition bearing Execution Petition No. 204 of 2002 seeking execution of the decree dated 28.01.2000 passed in Suit No. 1885 of 1993. The Appeal filed in the Delhi High Court was held to be non-maintainable and was dismissed on 06.09.2010. The Appellant, aggrieved by the said dismissal, filed the present Appeal bearing Civil Appeal No. 667 of 2012 before the Supreme Court for adjudication on merits.
ISSUES BEFORE THE SUPREME COURT
The following issues were considered by the Supreme Court:
1. Whether the Appellant was unable to comply with the contractual obligation to export groundnut due to the Government’s refusal?
2. Whether the Appellant could have been held liable in breach of contract to pay damages particularly in view of Clause 14 of the Agreement?
3. Whether enforcement of the award is against the public policy of India?
OBSERVATION
The Appellant contended that:
