Bombay High Court
Agri Marketing Co. Sarl vs Imperial Exports Limited on 1 October, 2001
Equivalent citations: 2002(2)BOMCR646
Author: F.I. Rebello
Bench: F.I. Rebello
JUDGMENT F.I. Rebello, J.
1. The present petition by the petitioners is for enforcement of the Foreign Award under section 47 read with section 48 of the Arbitration & Conciliation Act, 1996. A few facts relevant for the purpose of deciding the issue in controversy that has arisen in the petition may now be set out. The contract as per the Proforma/Invoice was to be between M/s. Aavanti Industries Pte. Ltd. as Seller and M/s. Agrimar France SARL, Paris, France, as the buyer. It was in respect of a commodity which is described as "Indian Solvent Extracted Yellow Soyabean Meal". It was the case of the buyer that the seller had committed breach of the agreement. On 22nd August, 1996 the buyer invoked the arbitral clause. The arbitration agreement was in terms of the Rules framed by GAFTA. An Award came to be passed on 5th December, 1997. The award showed the claimant and the respondent in terms of the perform/invoice. The Arbitral Tribunal awarded in favour of the claimants i.e. buyers US $ 417,724 together with interest at the rate of 7% per annum from 18th May, 1996 till the date of the award. Costs were awarded in terms as set out in the Award.
2. An appeal came to be preferred against the said Award. In the appeal a preliminary issue was raised and argued. In the opening submission before the Appellate forum it was pointed that the proper identity of sellers in arbitration proceedings was Ruchi International Limited and they are treated as the Sellers for the purposes of the appeal. The respondents agreed. Consequently finding was given that RUCHI INTERNATIONAL LIMITED, as sellers are appellants. In so far as the claimant were concerned, it was contended that the claimants were incorrectly described as Agrimar France SARL. That should be corrected to Agri Marketing Co. SARL., because on 27th January, 1997 Agrimar France SARL had assigned its claim in Arbitration No. 12040 to Agri Marketing Co. SARL. Notice of the assignment had been given to GAFTA, Mr. Scott, (Buyers' appointed Arbitrator) and to RUCHI by AGRIMAR's fax on 12th February, 1997. The appellants RUCHI INTERNATIONAL LIMITED, for short hereinafter referred to RUCHI contended before the Appellate Board that Agrimar France SARL commenced voluntary dissolution which was completed on 31st January, 1997 and it was deleted from the Versailles Trade Registry on that date. Various documents apart from the Versailles Trade Register and the Minutes of the shareholders Meeting of Agrimar France SARL dated 24th December, 1996 and 31st January, 1997 and Article 391-2 of French Company Law dated 24th January, 1966 confirmed that Agrimar France SARL was liquidated on 31st January, 1997. The French legal opinion sought confirmed the official date of dissolution as of 31st January, 1997. It was, therefore, argued that GAFTA Arbitration No. 12/040 therefore, lapsed on 31st January, 1997. No notice of assignment was given either to the Seller or to the Arbitrators by that date. There was a denial of a valid assignment and that the alleged notice given were invalid under French Laws. The law relating to assignment of rights under arbitration clauses which take place after arbitration proceedings have been commenced has been considered in Montedipe SPA v. JTP-Ro Jugotanker the "JORDAN NIVOLOV", 1990(2) Lloyd's Rep. 11. Hobhouse, J., who has held that an Arbitration clause is assignable even after arbitration proceedings have commenced and that the assignee may simply take over the assignors proceedings without the need to start afresh. That right was subject to two important qualifications :---
(i) The notice to the arbitrator must be given within a reasonable time.
(ii) If required by the other party, the party claiming the benefit of the assignment must prove title to sue by providing evidence that the requirements of section 136 of the Law of Property Act 1925 have been fulfilled :---
i.e.---Absolute assignment of clause
-In writing.
-With notice to the other party (and the arbitrators).
To this contention on behalf of the respondents before the appellate forum it was argued that the Agrimar France SARL was struck off and Versailles Trade Registry on 26th February, 1997 and that was the date of voluntary dissolution. The contention that notice of assignment had not been given was denied. It was pointed out that the earliest date when Agrimar France SARL ceased to exist was 26th February, 1997 and notice of the assignment was given before that date. It was also pointed out that under French Law a company in winding up continues to exist until the procedure for the liquidation of its rights and obligations have been concluded. The liquidation of Agrimar's rights and obligations in relation to the contract of assignment could not be completed until notice had been duly given. Article 391 of the French Companies Code provided that dissolution of a company only takes effect in relation to third parties as from the date when it is published in the Register of Commerce and Companies. Legal opinion support thereto was submitted before the appellate forum. The assignment notice given to Ruchi International Limited before Agrimar France SARL ceased to exist, were also relied upon. It was, therefore, contended that the contention that the arbitration has lapsed is without foundation.
After considering the contention of the respective parties appearing before it the appellate forum found that AGRIMAR FRANCE SARL had assigned its rights under the contract dated 3rd April, 1996 to SARL AGRI MARKETING including the right to recover damages under Arbitration Case No. 12040. This had been notified to Ruchi International Ltd., and that considering the French Law, Agrimar France SARL continued to be a corporate legal entity until 26th February, 1997 and as such they could have signed their rights, until 26th February, 1997. In the instant case Agrimar France SARL assigned their rights under the contract to Agri Marketing Co. SARL before 26th February, 1997. The assignment was validly and properly made.
A specific finding has been given that Ruchi International Limited was served with notice of the assignment. The appellate forum, therefore, held that Agri France SARL had validly assigned their right to Agri Marketing Co. SARL and that Agri Marketing Co., SARL are entitled to pursue substantive claim for damages in arbitration as on service of assignment notice, it was English Law that was applicable and in the appeal in respect of the dispute under the subject contract. The objection, therefore, raised that the arbitration agreement fails was rejected. Considering the powers vested the names of the parties were substituted. It was further awarded that the sellers defence to buyers claim on the grounds that the arbitration lapsed or that the claim was not properly assigned fails.
3. The appeal thereafter came up for hearing and the appellate forum found in favour of the respondents. The appeal filed by Ruchi International Limited was dismissed and they were directed to pay to Agri Marketing Co. SARL damages for default in a sum of US $ 399,295 with interest thereon at the rate of 8% per annum from 29th May, 1996 to the date of the Award. The said award was challenged by Ruchi International Limited in the High Court of Justice. Queen's Bench Division, Commercial Court. By order dated 13th January, 2000 the appeal was dismissed.
4. The petitioners have now moved this Court under the Arbitration & Conciliation Act, 1996 for its enforcement. In meantime Ruchi International Ltd., has come to be known as Imperial Exports Limited, consequent to subsequent changes and as such the award is sought to be enforced against them.
At the hearing of the petition on behalf of the respondents the enforcement of the Award is challenged on the ground that the enforcement would be contrary to the public policy of India. The contention urged is that under section 6(e) of the Transfer of Property Act, a mere right to sue cannot be transferred. The relevant portion of section 6(e) reads as under :---
"6(e). A mere right to sue cannot be transferred".
Learned Counsel places reliance in support, on the commentary on Transfer of Property by Mulla, 9th Edition to the following observations :---
"The assignment of a right to sue is as much opposed to public policy as is gambling in litigation. Gambling in litigation is forbidden as opposed to public policy ......."
It is, therefore, urged that no legal proceeding could have been commenced in India based on a right to sue which was transferred. If such legal proceedings could not be commenced in India, an award based on such proceedings cannot be enforced in India being opposed to the fundamental principles of Indian Law. Factually proceedings were already pending before the arbitral Tribunal. Proceedings in winding up had commenced at which stage there was an assignment, but before the company was wound up. Reliance further was placed on a judgment of this Court in the case of Hirachand Amichand Gujar v. Nemchand Fulchand Marwadi, A.I.R. 1923 Bom. 403. In that case in respect of a transaction for sale of goods on account of refusal of the defendant to take delivery, Hirachand Amichand who had entered into contract suffered losses. It could have been open to them to file a suit against the defendants for damages for breach of the contract. Instead of so doing Hemchand, one of the partners of the said firm, purported to transfer to the plaintiff the right to recover damages. The suit initially was dismissed on the ground that the defendant did not break the contract. In appeal the Division Bench held that the right to claim damages against the defendant's firm could not be transferred under section 6(e) of the Transfer of Property Act as it was not actionable claim, but merely a right to sue. That judgment from the discussion earlier and hereafter will show is clearly distinguishable, considering that an Award has been passed and what is sought to be enforced is the foreign Award. Reliance was also placed on the Division Bench judgment of the Madras High Court in the case of M.T. Rajamanickam Chetty and another v. T.R. Abdul Halim Sahib A.I.R. 1914 Madras 389. In that case the suit had been filed for damages arising from wrongful termination of the lease. During the pendency of the suit the plaintiffs sold the whole of his assets to the respondent under a Registered Deed of Sale. Pursuant to that agreement it was common ground that the respondent bought "the profit and loss" of this suit and that the deed purported to confer upon him the right to conduct it. The plaintiff died five days later after its execution. The party who had taken over the right sought to implead himself in the place of the deceased plaintiff. The application of the party was allowed against which appeal was preferred. A Single Judge of the Madras High Court concurred with the decision of the subordinate Judge. In the appeal against the said judgment the Division Bench has observed as under :--
"It is lawful however for a plaintiff in a pending suit to assign the benefit which he may obtain under the decree to be passed in the suit; but this does not give the assignee of the fruits of the action the right to interfere in proceedings in the action: vide Glegg v. Bromley, 1912(3) K.B. 474 which was accepted by the Privy Council as correctly stating the law in 48 Mad. 230".
It was, therefore, held that a person who had purchased the rights had no right to be substituted. Based on the judgment it is sought to be pointed out that the petitioner claimed his right to continue the Arbitration proceedings based on assignment and the Award being based on that assignment cannot be enforced as it will be contrary to the public policy of India.
5. We are concerned with a Foreign Award. Admittedly in such matters what would be applicable would be the principles of Private International Law. What is public policy in Private International Law. To my mind this issue is no longer in issue as similar language as contained in the Act of 1996 was also there in the repealed statute namely Foreign Awards (Recognition and Enforcement) Act, 1961. The expression "Public Policy" under the Foreign Awards Act came for consideration before the Apex Court in the case of Renusagar Power Co. Ltd. v. General Electric Co., . In that case what was in issue was an award which was urged would be contrary to the Foreign Exchange Regulation Act of this country. While considering the law the Apex Court observed that the expression "public policy" does not mean the public policy of the country where the Award was made, but the public policy of the country where it is sought to be enforced. Pursuant to that judgment the law also under the Act of 1996 would be the same and it would be the public policy of India that would have to be considered while considering whether the award can be enforced. Useful reference may be made to the following observations of the Apex Court :---
"Since the expression "public policy" covers the field not covered by the words "and the law of India" which follow the said expression, contravention of law alone will not attract the bar of public policy and something more than contravention of law is required."
The Court then noted the distinction between a matter governed by domestic law and a matter involving conflict of law and held that the application of doctrine of public policy in the field of conflict of law is more limited than in the domestic law.
The Apex Court then held as under :---
"Applying the said criteria it must be held that the enforcement of a foreign Award would be refused on the ground that it is contrary to public policy if such enforcement would be contrary to (i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality."
The respondents, therefore, will have to show that though property of any kind may be transferred, a mere right to sue cannot be and an award obtained before a foreign Tribunal under a law which permits assignment of an arbitrable clause even after arbitration proceedings have commenced is contrary to fundamental policy of India, justice or morality. Earlier under section 6(e) of the Transfer of Property Act even an actionable claim was included in the said clause. The statutory bar was removed subsequently. Under section 131 of the Transfer of Property Act every notice of transfer of an actionable claim has to be in writing and must comply with other requirements. The argument here is that the mere right to sue for damages is not an actionable claim it not being a debt. Reliance for that purpose is placed on the judgment of the Apex Court in the case of Union of India v. Raman Iron Foundry, . It may be mentioned that the issue involved in that case was whether the Government could retain certain amounts in exercise of its lien. The Court held that there was no authority to appropriate pending amounts of other bills as a clause for damages was not a clause for a sum presently due and payable. There is no discussion in respect of section 6(e) for the proposition advanced against enforcement of a foreign Award. Can it, therefore, be said that a provision which prevents the transfer of a right to sue is against the fundamental policy of Indian law or justice or morality. The contract was not contrary to Indian law.
6. Firstly we must consider that the action was not initiated by the present respondents, but the action was initiated by the party to the contract. It was in the course of the proceedings for voluntary winding up and as per the provisions of the French Law that the right in the contract was assigned in favour of the present respondents. That assignment was held to be valid as notice of assignment in terms of French Law had been given. The issue of validity of assignment of the claim was in issue as a preliminary issue before the appellate forum. The appellate forum has given a finding of fact that on notice being served the applicable law is English Law as parties had agreed that under the Domicile and Arbitration clause under GAFTA that English law should apply. The law in England as explained in Montedepe SPA (supra) is that an arbitration clause is assignable. There is then a specified finding that the clause was validly assigned and that notice of claims assignment was properly and timeously given. The contention that the arbitration lapsed or that the clause was not properly assigned was rejected. Leave sought to appeal was rejected by the High Court of Justice. Queens Bench Division, Commercial Court. The assignment of the arbitral clause was in issue before the appellate forum. It is, therefore, clear that atleast under the law of the country in which the company was wound up it was eligible and entitled to assign its rights. Similarly, the arbitrable clause was assignable in the country where the arbitration proceedings commenced and the Award passed. The arbitration proceedings were subject to English Law. Secondly the respondents herein were aware of the situation. They had contended before the arbitral Tribunal that consequent to the assignment of the rights in the respondents the arbitral clause governing the parties ceased to exist. The respondents did not urge or argue before the arbitral Tribunal, which argument would have been available, that the company could not in law considering the Indian Law have assigned its interest. It may be mentioned that in so far as the contract is concerned, it was governed by English Law. It may also be mentioned that it is now well settled that arbitral clause can be considered de hors other terms of the agreement as an independent agreement by itself. On consideration of the contentions the appellate forum gave a finding that the assignment was valid and as such the name of the respondent in the appeal was allowed to be substituted.
7. Therefore, assuming that the award has to be enforced in India, will the bar of section 6(e) of the Transfer of Property stand in the way of this Court refusing to grant recognition to the petitioners herein to enforce the Award on the ground that the right to sue was not assignable. It must be noted that the Award passed was in favour of Buyer Agrimar France SARL the original claimant and not the present petitioners. It was in the course of the appellate proceedings that the petitioner applied to be substituted. On passing of an Award a debt came into existence and it ceased to be a mere right to sue for damages. Let us, therefore, examine whether the award obtained is illegal or a nullity and contrary to public policy as only then, can the respondent succeed. The judgment of this Court and of the Madras High Court proceeded on the footing that the suit if instituted in respect of damages could not be filed or pursued by a person who had purchased or had an assignment of right in his favour. In the matter of a company in winding up it is not the fundamental principle of Indian Law that actions against the company cannot be pursued or continued. At the highest they can be continued by the Official Liquidator. Can a foreign Award based on an assignable right by a company in winding up be said to be against the fundamental policy of Indian Law, merely because the 'right to sue' is not transferable under Indian Law. Can that considering the test of Private International Law, be applied whilst seeking enforcement of foreign Award, which under the law of the Country in which the company was incorporated was assignable. Courts in India apart from recognizing International Conventions must give due regard to the laws of the country where the right was assigned as also the award was passed. Dicey & Morris in "The Conflict of Laws" XIth Edition in Chapter 16 in the matter of application of foreign law has observed-that English Courts will refuse to enforce a foreign Award only if the legal rule or provision involved is of a mandatory character and is directed against that enforcement itself rather than the contents of the Award which must have been meant is that the Court will not enforce an Award if its enforcement would lead to the violation of the provisions such as those contained in English Revenue, Exchange Control, Import or Export Control or Sanitary Legislation". The Award could have been obtained by the buyer who had commenced the arbitration proceedings. On account of subsequent events of the company being wound up in the course of the proceedings but before it was wound up, it could validly assign its rights according to law. It cannot in such circumstances be said that enforcement of the Award would be contrary to the public policy of India, in its application to conflict of laws and bearing in mind the ratio of the judgment in Renusagar Power Co. Ltd. v. General Electric Co., (supra). In my opinion, it cannot be said that the Award is contrary to the fundamental policy of Indian law. The objection raised, therefore, is devoid of any merit.
8. Is the award against justice or morality. The foundation of the argument is based on the commentary in Transfer of Property Act by Mulla and the two judgments cited where this Court and the Madras High Court has refused to allow a party to sue based on an assignment or to be pleaded or substituted as party in pending proceedings. Earlier the right to sue, in respect of a transferred actionable claim was also barred. That bar has been removed by an amendment of the law. In the instant case we are really concerned with enforcement of an Award. Is the Award sought to be enforced against justice or morality. It cannot be against justice as the law when the company was incorporated namely French Law permitted assignment. The appellate forum in England where the arbitration proceedings took place upheld the right of the petitioner in assignment of the arbitral clause. The issue was directly in issue. The issue has been answered. That issue cannot be re-opened by the Court in enforcement proceedings. The limited scope is whether the finding on the issue in the enforcement of the Award will be contrary to public policy. If nothing else apart from the principles of res judicata or principles akin, the issue of estoppel would arise. Issue of estoppel and the principles thereto are also applicable to arbitral proceedings. See the observations of Lord Denning in Fidelitas Shipping Co. Ltd. v. Exportchleb, 1966(1) Q.B. 630.
Is it against morality. The contract itself is not a champertous contract. An Award or a decree obtained by the person entitled to sue could have been transferred. The bar is only in the nature of a prohibition on courts in not entertaining causes founded on such cause of action by the transfer of the right to sue in the transferee. The locus is taken away. This cannot be said to be against morality. English Courts have enforced contracts for the loan of money abroad to be sent on gambling abroad if gambling was not illegal. (See Saxby v. Fulton), 1909(2) K.B. 208, and for foreign loans which contravened the English Money Lenders Act. (See Shrichand v. Lacon), 1906(22) T.L.R. 245 (quoted from Dicey & Morris). Section 6(e) of the Transfer of Property Act is not a bar to enforcement of a decree or Award. In these circumstances to my mind it cannot be said that the Award is against morality. The express language of section 6(e) of the Transfer of Property Act is in filing a proceeding. The Madras High Court has proceeded to hold that it would also apply to continuation of proceedings. An award obtained by a party entitled to is not hit by the provisions of section 6(e). In the instant case the award was obtained by the party to the original contract was could have pursued the remedy. The only limiting factor is that in between there was assignment of the contract. The issue could have arisen if the present petitioner based on the assignment had sued in this country for damages. That is not so. Let me further elaborate. Section 6 of the Transfer of Property Act sets out that the property of any kind may be transferred except as otherwise provided by this Act or of any other law for the time being in force. Under section 6(e) a mere right to sue cannot be transferred. Therefore, there must be property and a right to sue in the property is sought to be assigned which cannot be done. Reading it another way if it is property it can be transferred. However, a mere right to sue cannot be transferred. If there is no property then the question of section 6(e) being attracted will not arise at all. It is this part in Mulla's Commentary on Transfer of Property Act which has commented to the effect that the assignment of right to sue is against public policy. It is further set out that this is because it is in the nature of gambling in litigation. The issue of gambling in litigation and public policy has been considered by various judgments of the English Courts. In Saxby v. Fulton Court of Appeal 1909(2) K.B. 208, Buckley, J., has summed up the principle as under :---
"Coming then to the question of public policy, I cannot see that it is contrary to public policy for the English Courts to recognize a debt contracted for the purpose of wagering abroad in a place where such wagering was legal. The case of Kaufman v. Gerson, (2) affords one of the best illustrations of the law on this point. In the present case there is nothing, in Kaufman v. Gerson (1) there was a great deal, to lead this Court to refuse to enforce the contract on the ground that, although it was valid by the law of the country in which it was made, it was in contravention of an essential principle of justice or morality. The English Courts will not lend their aid to enforce such a contract. But a betting or gaming contract in a country where betting or gaming is recognized by the law cannot be said to be contrary to essential principles of morality or justice".
Even presently for enforcement of foreign Awards English courts have been prone to enforce foreign Awards, if the transaction was legal in the country were the contract was entered into and the arbitral clause having been invoked award had been passed after consideration the objections. In the case of Westacre Investment Inc. v. Jugoimport-Spdr Holding Co. Ltd. & others, 1998(3) W.L.R. 770, an Award obtained in Geneva was sought to be enforced in England. It is pertinent to note that the contract was for sale of military equipment to Kuwait. In the arbitral proceedings it was contended that the arrangement was contrary to public policy because it had been for procuring sales, by fraud through bribery or alternatively by illicit personal influence of other kinds. That was rejected. Leave was granted to enforce the Award in England. It was contended therein that it would be contrary to English public policy as it was the intention of the parties that the plaintiff would exercise personal influence over Kuwaiti officials and other contentions. The contention was rejected on the ground that once the matter was in issue and has been decided by the arbitrators, it was inappropriate to retry the issue. It was observed that public policy of sustaining international arbitration awards outweighed the public policy of discouraging international commercial corruption. The Court then observed that even if it were shown that the contract was contrary to public policy in Kuwait, enforcement of the award; which was valid under the curial law would not offend international comity so as to be contrary to English public policy.
We then have the judgment in respect of an action to sue and property as set out in Glegg v. Bromley, 1912(3) K.B. 474. Gainful reference could be made to the observation of Parker, J. In that case. An action was commenced by one Mrs. Glegg against Mr. Hay for damages for false representation. That was dismissed for non-prosecution. Subsequently costs were awarded. Mrs. Glegg had also filed another suit against one Lady Bromley for slander. She was indebted to her husband and also to other creditors. By an Indenture between her and her husband, reciting her indebtedness and his request for further security she assigned by an agreement and in consideration of the sums so owing to him, all that interest or sum of money or premises to which she may become entitled under or by virtue of the said action. She succeeded in the action. Mr. Hay obtained a garnishee order to attach those damages in respect of the debt due to him for his costs. That was met by the assignment of the damages to captain Glegg based on the assignment in his favour. An interpleader issue was directed to try the validity of the assignment. The trial Court held in favour of Captain Glegg. Appeal preferred was dismissed. Parker, J., in the said judgment observed as under :---
"It is not an existing chose in action. It is, I think, necessary to bear this distinction in mind, particularly in view of the course taken by the argument of Counsel for the respondent. Ordinary choses in action were not assignable at law, but were, generally speaking, assignable in equity whether themselves legal or equitable choses. In the former case equity compelled the assignor to allow his name to be used for their recovery in legal proceedings, in the latter case the assignee could sue in equity in his own name. There was one exception to this rule. Equity on the ground of public policy did not give validity to the assignment of what is in the cases referred to as a bare right of action, and this was so whether the bare right were legal or equitable. I have looked at a good many authorities on that point, and I am satisfied that the real reason why equity did not allow the assignment of a bare right of action, whether legal or equitable, was on the ground that it savoured of or was likely to lead to maintenance."
Proceeding further he observed as under :---
"It is to be observed that an equitable assignee of a chose in action, whether it is legal or equitable, could institute proceedings and maintain proceedings for its recovery. The question was whether the subject matter of the assignment was, in the view of the Court, property with an incidental remedy for its recovery, or was a bare right to bring an action either at law or in equity. With regard to the assignments of future property, they stand, I think, on a totally different footing. Nothing passes, even in equity, until the property comes into present existence. Only when this happens can the assignment attach and an interest pass. It is clear, therefore, that no question of maintenance can ever arise."
Considering these two judgments it cannot be said that the enforcement of the Award would be contrary to public policy of India being against justice and morality. On the contrary considering that there is an award of a Foreign Tribunal which has become final in the country where it was passed and the issue raised against enforcement was raised and answered in favour of the petitioner, it would be proper to give effect to the Award.
9. Considering section 49 of the Arbitration & Conciliation Act, 1996 petition made absolute in terms of prayer Clauses (a), (b) and (c). In the circumstances, parties to bear their own costs.
In so far as prayer Clause (c) is concerned in the event of the authorities under the Foreign Exchange Management Act not granting permission for making payment to the petitioner in foreign exchange for enforcement of a decree or otherwise, if the respondents wish to make payment it will be open to the respondents to make payment in Indian Rupees at the exchange rate prevailing on the date of pronouncement of the judgment.
Parties/Authorities to act on an ordinary copy of this order duly authenticated by the Personal Assistant of this Court.