Calcutta High Court
Sleepwell Industries Co. Ltd vs Lmj International Ltd on 22 August, 2017
Equivalent citations: AIR 2018 (NOC) 227 (CAL.)
Author: Soumen Sen
Bench: Soumen Sen
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
ORIGINAL SIDE
BEFORE:
THE HON'BLE JUSTICE SOUMEN SEN
G.A. 3306 of 2016
E.C. No.487 of 2013
SLEEPWELL INDUSTRIES CO. LTD.
Vs.
LMJ INTERNATIONAL LTD.
For the Award-Holder : Mr. Tilak Kumar Bose, Sr. Adv.,
Mr. Sailendra Jain, Adv.,
Mr. Asit Dey, Adv.
For the Judgment-Debtor/Applicant : Mr. Anindya Kr. Mitra, Sr. Adv.,
Mr. Surojit Nath Mitra, Sr. Adv.,
Mr. D.N. Sharma, Adv.,
Mr. S. Sarkar, Adv.,
Mrs. S. Mukhopadhyay, Adv.,
Mr. T. Aich, Adv.
Hearing Concluded On :10.08.2017.
Judgment On : 22nd August, 2017.
Soumen Sen, J.:- The judgment-debtor is the applicant.
The judgment-debtor has filed this application ostensibly under
Section 48 of the Arbitration and Conciliation Act, 1996 but essentially for
having a 'second look' at the foreign award, notwithstanding an earlier order
dated 4th September, 2014, by which the question of maintainability
including enforceability of the foreign award was decided.
The earlier challenge was oral.
This time an application has been filed disclosing further grounds of
challenge to the enforceability of the award. The present application
highlights a cosmetic difference between the expression "maintainability"
and "enforceability" used in the order dated 4th December, 2014.
The award-holder has filed an application for enforcement of a foreign
award in November 13, 2013.
Initially, the execution application was not accompanied by the
original award and a certified copy of the agreement for which a leave was
given to the decree-holder to produce the said documents, pursuant thereto
on 16th January, 2014, the original award and a certified copy of the
agreement were produced in Court. Justice I.P. Mukerji by an order dated
16th January, 2014 recorded the production of the said two documents and
photocopies of the said documents were taken on record without prejudice
to the rights and contentions to the judgment-debtor. The said order was
passed in presence of the judgment-debtor. The question of maintainability
of the application was kept open.
On 18th September, 2014, the judgment-debtor was directed to file an
affidavit disclosing the particulars of the bank accounts and the amounts
lying on to the credit of judgment-debtor in each of such bank accounts with
supporting documents mentioned in Paragraph 26 of the Affidavit in support
of the tabular statements. The said direction was passed without prejudice
to the rights and contentions to the judgment-debtor with regard to the
maintainability of the execution application. The judgment-debtor although
had filed an affidavit in terms of the earlier order but in the affidavit, the
judgment-debtor did not furnish any proof as required under Section 48 of
the Arbitration and Conciliation Act, 1996 questioning the enforceability of
the said award nor any independent application was filed challenging the
enforceability of the foreign award. In absence of any such application being
filed, the judgment-debtor was invited to make submission with regard to
the enforceability of the foreign award as by that time the original award and
the certified copy of the agreement were taken on record. The expression
"maintainability" in both the earlier orders was intended to mean and, in
fact, meant enforceability of the award. The judgment-debtor has also
understood the earlier orders in the same manner as would be evident from
the submissions made and recorded in the order dated 4th December, 2014.
It is significant to note that in the affidavit filed in terms of the order dated
18th September, 2014, the judgment-debtor did not dispute the agreement
or the award and not a single sentence was mentioned raising any objection
with regard to the enforceability of the award. Thereafter, when the
execution application was taken up for hearing on 4th December, 2014, I
permitted the respondent notwithstanding the objection raised by the
decree-holder that no challenge in writing has been made with regard to the enforceability of the award to argue on the maintainability of the award meaning thereby the enforceability of the award.
The judgment debtor raised five objections with regard to the enforceability of the said award.
The said objections are recorded in the order dated 4th December, 2014. The said objections as recorded in the order are reproduced below:-
"The first objection raised is that no prayer for declaration has been made in the application that the foreign award is enforceable. It is submitted that unless prayer is made seeking a declaration as to the enforcement of the award, the Court cannot assume jurisdiction. In this regard, the learned Senior Counsel has referred to a Single Bench decision of the Bombay High Court in the case of Toepfer International Asia Pvt. Ltd. Vs. Thapar Ispat Ltd., reported in 2000 (1) Arb. LR 230(Bombay) Paragraph 19.
The second objection is that a civil suit is pending between the parties in which there is a categorical observation both by the learned Single Judge as well as the Division Bench that any action taken by the parties to the suit during the pendency of the suit shall subject to and abide by the result of the suit. It is submitted that a cross appeal was preferred by the decree-holder and this observation of the learned Single Judge was not interfered with and accordingly the execution application is premature and unless the suit is decided, the award does not attain its finality.
The third objection is that the arbitration clause has not been properly invoked. It is submitted that arbitration clause is a two-tier clause. Before the arbitration clause could be invoked, the parties are required to first make an attempt to amicably settle their disputes and only upon failure, the parties could refer their disputes to the arbitration as per GAFTA clause for rice and arbitration rules 125. It is submitted that there is no averment in the petition that before invoking the arbitration clause there was any attempt to settle the disputes amicably. Since this stage has not been reached, the invocation of Arbitration Clause is void ab initio. In this regard, the learned Senior Counsel has referred to an unreported decision of a Single Bench of this Court in AP 112 of 2008 [Waidhan Engineering & Industries Private Limited vs. The Board of Trustees For The Port of Kolkata] decided on 5th May, 2010.
The fourth objection is that even if it is assumed for the sake of argument that this amicable settlement was not followed, even then Rule 3.1 was not followed with regard to the appointment of the sole Arbitrator. It is submitted that it was incumbent upon the decree-holder to inform the respondent about the appointment of a sole arbitrator and it was only on refusal to accede to such request that other procedures prescribed under the rules shall follow.
The fifth and the last objection appears to be that the nominee arbitrator of the respondent was appointed de hors the provisions of GAFTA Rules and accordingly the procedure adopted is irregular from the very beginning and the award is not enforceable."
These objections were considered and rejected. The relevant observations in this regard are:-
"In order to appreciate the objections raised by Mr. Mitra, it would be fruitful to refer to the grounds on which the Court can interfere with regard to the enforcement of the foreign award. The grounds are mentioned in Section 48, which states:
"Section 48.
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 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. - Without prejudice to the generality of clause (b) of this section, it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption.
(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."
Of the various grounds referred to in Section 48, the real objections raised by Mr. Mitra come very close to section 48 (b) of the said Act with regard to the prior notice of the appointment of arbitrator. On the basis of the disclosures made in this petition it appears that the decree-holder invoked the arbitration Clause by a communication dated 28th July 2011. The subsequent communications disclosed in these proceedings would show that after giving opportunity to the judgment- debtor to appoint an Arbitrator, the Tribunal had exercised its power under Rule 3.3.
Mr. Bose has referred to the preamble and the other provisions of the Act in order to impress upon the maintainability of the petition. The preamble to the Section, in my mind, is like a window to a room which gives a vision that one could get in by entering a particular room. It is the edifice on which the structure is built. The preamble set outs the object which is supplemented in the statement of objections and reasons. The legislature has consciously done away with the various statutes regarding enforcement of a foreign award. The legislative intent underlying the Act is to minimize the supervisory role of the courts in the arbitral proceedings and very limited interference. The objection raised by the petitioner appears to be more in quagmire of despondency and a desperate attempt to resist execution of an enforceable award rather than a real challenge thrown to the maintainability of the said petition. There is no document disclosed by the respondent to show that any objection was raised either with regard to the initiation of proceeding or thereafter. The only explanation offered was that such proceeding is vexatious, harassive and involves probative costs. This argument was not accepted by the Division Bench. In any event, when the notice invoking the arbitration was issued there was no reply to the said notice. Mr. Mitra submits that the disputes shall be required to be submitted to GAFTA, London for arbitration and the decree-holder would not be entitled to invoke the clause unilaterally for appointment of an arbitrator.
In my opinion, this submission cannot be accepted. It is an institutionalized arbitration, the rules provide the manner in which the parties are to act in matters relating to arbitration. Elaborate procedures and mechanisms are provided in the Act for conduct of the arbitration. Rule 3 of GAFTA Rules deals with appointment of the Tribunal. It clearly shows that the disputes shall be heard and determined by a Tribunal or three Arbitrators (appointed in accordance with Rule 3.2) or, if both parties agree by a single Arbitrator (appointment in accordance with Clause 3.1). Once the petitioner has named an arbitrator and sent the notice to the opposite party it was open to the opposite party either to accept the said name or to disagree with the same, not later than 9th subsequent day after serving of the said notice, failing which the consequences mentioned in the other rules shall follow. On the basis of the materials on record it cannot be said that GAFTA Rules have not been followed with regard to the appointment of the Arbitrator. In fact the judgment-debtor was informed about the exercise of option and by reasons of failure of the said judgment-debtor to appoint the arbitrator the Dispute Resolution Service on 22nd September, 2011 appointed the nominee arbitrator on behalf of the judgement-debtor. Even otherwise, it is always open for either of the parties to waive a particular procedure. Mr. Mitra would submit that mere silence would not amount to waiver or acquiescence. There cannot be any dispute with regard to the same but this is a factual matter which can be decided only on evidence. It is too late in the day to argue that there is procedural irregularity or the judgment-debtor has not waived its right. Moreover, having regard to the fact that a suit has been filed, it is very clear that question of amicable settlement of dispute by negotiation was farfetched.
In such facts and circumstances, this Court is of the view that the objection raised by Mr. Mitra with regard to the maintainability of the petition cannot be accepted. Such objection is overruled. This execution application is held to be maintainable."
A Special Leave Petition was preferred against the said judgment being SLP No.5612/2015. The Special Leave Petition was dismissed on 27th February, 2015. A bare reading of the Special Leave Petition shows that the order dated 4th December, 2014 was treated by the award-debtor as an order passed in relation to enforceability of the award.
It would be clear from the Special Leave Petition and the grounds taken thereunder that the award-debtor has understood the findings of this Court as a finding on Section 48 of the 1996 Act. If any point that was available to the respondent was not urged when an opportunity was given to the applicant/judgment-debtor to raise all objections with regard to the enforcement of the award it shall be deemed to have been waived and operate as a constructive res judicata. The order dated 4th December, 2014 is final in so far as the objections under Section 48 of the 1996 are concerned. It cannot be re-opened after two years by filing an application when the applicant notwithstanding a remedy available to it did not file any such application and allowed execution proceeding to continue. In fact, notwithstanding any application being filed by the judgment-debtor to question the enforcement of the foreign award, the said applicant was permitted to take all possible defences available to the applicant and it was only on consideration of such objections, the order dated 4th December, 2014 was passed.
A review application filed was also dismissed.
In view of the aforesaid, the objection raised with regard to the composition of the Arbitral Tribunal and that the procedure for appointment of Mr. R. Eikel as second Arbitrator on behalf of the petitioner by GAFTA was not in accordance with the agreement of the parties (GAFTA Rules) and the petitioner was not given proper notice of appointment of Eikel as the Arbitrator on their behalf is final and cannot be reopened. In fact, this argument runs counter to the pleadings made in the plaint. The petitioner cannot be allowed to re-agitate the said point, on which the objection was already considered in the order dated 4th December, 2014. In the Special Leave Petition, same point was urged. The Hon'ble Supreme Court did not interfere with the order dated 4th December, 2014.
Mr. Anindya Kr. Mitra, the learned senior Counsel appearing on behalf of the applicant/award-debtor submits that the said order is not conclusive with regard to the enforcement of the foreign award as at the stage of receiving an application for execution of a foreign award, the Court is only required to find out that the party applying for enforcement of a foreign award, has produced before this Court the original award or a copy thereof duly authenticated, the original agreement for arbitration or a duly certified copy thereof or such evidence, as may be necessary, to prove that the award is a foreign award. The Court on satisfaction that the requirements of Section 47 of the Arbitration and Conciliation Act, 1996 are fulfilled permits an application to be filed for execution of the foreign award. However, the enforcement of the foreign award is a step subsequent to acceptance of the execution application and could be refused at the instance of the award debtor on the grounds enumerated in Section 48 of the said Act. The learned Senior Counsel submits that although in the order dated 4th December, 2014, some aspect of Section 48 of the Arbitration and Conciliation Act, 1996 was considered but the said order is not conclusive as it has not decided various other points that are required to be taken into consideration under Section 48 of the 1996 Act. It is submitted that the earlier order has taken care of Sections 48(b) and 48(d) but other issues have not been touched and, accordingly, the said order cannot be treated to be a res judicata inasmuch as the said order is only interlocutory in nature and an interlocutory order cannot be treated as a res judicata when the matter now is required to be finally decided on merits.
Although at this stage, the Court could have easily declined to consider the objections raised at such a belated stage and find considerable substance in the argument made on behalf of the award-holder that this application is barred by issue estoppel, cause of action estoppel and constructive res judicata, however, an opportunity was given to the petitioner/applicant to argue with regard to the enforceability of the award. On other points as I felt that if the award is contrary to public policy of India it should not be enforced.
Before I deal with the objections raised in relation to the enforceability of the award, a brief narration of facts necessary to understand and appreciate the nature of objections are stated below.
The award-holder entered into a contract dated 25th October, 2010 for sale of 15000 metric tons +/- 5% at Buyer's option, Non Basmati Parboiled Rice 15% (Maximum) broken, 2009-10 or latest crop, Thailand origin at the rate of USD 450 per metric ton. The contract contains stipulation that the quantity would be final at the Port of loading as per official weight certificate issued by SGS at the seller's cost meaning thereby the award-holder. The award-debtor under the contract was required to open an irrevocable, confirmed, unrestricted letter of credit in US Dollar in favour of the award- debtor within 5 working days from the date of signing of contract through Standard Chartered Bank (India) for the value of the goods to be shipped under the contract.
The contract is a FOB contract. The contract stipulates that 100% value of the contracted cargo shall be payable on receipt of the shipping documents by the L/C negotiating bank at 30 days sight. The contract mentions about 16 shipping documents to be submitted for receiving payment under the L/C. The contract in "Other Terms" provided that all other terms and conditions not in contradiction with the stipulated terms of the contract shall be governed by GAFTA 48 and disputes to be resolved by Arbitration as per GAFTA 125 in London.
The goods were meant for Government of People's Republic of Bangladesh. In 'special instruction' it was mentioned that "except invoice, packing list and shipment, appropriation in all documents" consignment to be shown as "to order" notifying "M/s. Director General of Food, Government of People's Republic of Bangladesh, 16 Abdul Ghani Road, Dhaka". The buyer opened a Letter of Credit on 3rd November, 2010 through its banker Standard Chartered Bank and the same was communicated to the award holder on 5th November, 2010. On a request being made on 5th December, 2010 by the award holder for amendments in the contract and in the letter of credit, the terms of the contract was amended on 7th December, 2010 by which the following amendment to the parent contract was agreed upon:-
"1. Quantity Now to be read as 15000 Metric Tons - 5% more or less in Buyer's option, final at loading as per official weight certificate issued by ISC at Seller's cost.
2. Specifications Clause II - To be amended to 17 Pct Max I/O 15 Pct.
Clause IV - To be amended to 6 Pct. Max I/O 3 Pct in total.
All other specifications will be remain unchanged.
3. Payment Value @ US$ 440.00 per MT of the contracted cargo payable at 30 days after shipment date and balance amount @ US$ 10.00 per MT will be payable after receipt of quality inspection report of destination port.
4. Shipment By 31/12/2010
5. Documents Required Certificates under Sl. No.G, I, J & K issued by ISC are acceptable I/O existing."
The contract stipulates that the shipment shall be by 15th November, 2010. The original L/C dated 3rd November, 2010 mentioned date and expiry of L/C as 21st December, 2010 and latest date of shipment as 30th November, 2010 respectively. All the three shipments were made after 21st December, 2010. In order to extend the shipment both contract and L/C were amended.
Under the amended contract dated 7th December, 2010, shipment was to be made by 31st December, 2010. The buyer, accordingly, amended the Letter of Credit on 9th December, 2010 by extending the period of shipment. The validity period of the Letter of Credit after first amendment was 15th January, 2011 and the latest date of shipment was mentioned as 31st December, 2010. Within the validity period of the Letter of Credit the buyer could manage to arrange for only two vessels. The first two shipments of small quantity of goods were made on 27th December, 2010 and 31st December, 2010. Since the third consignment could not be shipped, a further amendment to the Letter of Credit was made on 31st December, 2010 by which the latest date of shipment was extended until to 15th January, 2011 with new date of expiry of L/C on 30th January, 2011. The validity of the Letter of Credit thereafter was not extended neither the latest date of shipment beyond the aforesaid dates.
Seller shipped the consignment as follows:
1. 1,610.00 mt on board of MV Study Falcon on 27 December, 2010
2. 3,430.00 mt on board of MV Genius Mariner on 31 December, 2010
3. 8,689.55 mt on board of MV Tuman Gang [sic] on 17th January 2011 For each single shipment invoices had been issued by Sellers in accordance with the addendum to the Contract displaying the first instalments at each USD 440.00 per metric ton, totalling at USD 6,041,139.30, as follows:
1. Invoice No.2021C/2010/PB/LMJ dated 27 December 2010 for USD 708,416.10
2. Invoice No.2021D/2010/PB/LMJ dated 31 December, 2010 for USD 1,509,234.30
3. Invoice No.2021E/2011/PB/LMJ dated 17th January 2011 for USD 3,823,488.90.
On 17th January, 2017, the buyer arranged for a North-Korean Vessel, namely, MV Tu Man Gang for shipment of 8689.55 MTs after the last date of shipment expired on 15th January, 2011. At the time of the said loading, there was no valid and subsisting Letter of Credit. The award-holder on 26th January, 2010, informed the buyers to arrange for the remaining quantities to be shipped against the contract and requested them to make arrangement latest by 31st January, 2011 followed by an intimation by the sellers on 27th January, 2011 to the buyers that the negotiating bank, namely, Standard Chartered Bank, Bangkok declined to negotiate the documents related to partial shipment of 8,698.55MT on the board of MV Tu Man Gan for the reason that the said vessel is a North-Korean vessel. At this stage question arose with regard to the extension of the Letter of Credit by amending Letter of Credit including the latest date of shipment. On 26th January, 2011, the award-holder pointed out to the buyer that the Letter of Credit had expired and it is at this stage, the buyers in view of the problem faced by sellers in negotiating the documents requested the sellers on 27th January, 2011 to present the export documents as per contractual terms to Bank of Baroda, Kolkata. The buyers confirmed that they would accept the documents on presentation. This consignment was not covered under the Letter of Credit. This arrangement was confirmed by the award-debtor in an e-mail on 27th January, 2011 stating that:-
"upon receipt of documents Bank of Baroda will send a SWIFT message to your bank in Bangkok confirming the acceptance of documents and payment thereof."
The buyers on 1st February, 2011 wrote to Bank of Baroda as under:-
"With reference to above, we understand that you have received the original shipping documents valued USD 3,823,488.90 from M/s. Sleepwell Industries Co. Ltd., Thailand for 8,689.55 MT of Non-Basmoti Parboiled Rice.
We hereby accept the documents under your import intimation Ref No.1152FIBC006711 dt.01/02/2011 and authorized you to remit USD 3,823,488.90 by debiting out current account equivalent in INR on maturity date, i.e. on 16/02/2011 under advice to us.
Please release the original shipping documents at the earliest."
The sellers received the message from the Bank of Baroda, Kolkata on 3rd February, 2011 stating that the collection bill of the seller for USD 3,823,488.90 has been accepted by the buyers. The buyers, however, did not accept the sellers' offer to take delivery of the remaining quantity of about 2000 MT. The sellers, accordingly, informed the buyers on 4th February, 2011 that the contract for the remaining quantities is foreclosed and the contract should be treated as completed. The buyers, however, by its e-mail dated 5th February, 2011 did not accept the decision of cancellation of balance quantity and had agreed to establish fresh L/C for the balance quantity of about 2000 MT. The buyer alleged that the cargo as loaded on the vessel was of inferior quality for which their ultimate buyer was not accepting the cargo. The buyers asked the sellers to depute their representative to Mongla, Bangladesh to check the quality.
The buyers by their e-mail dated 8th February, 2011 asked for details of the person visiting Mongla to check the quality. The buyer alleged that the preliminary report on the quality is not satisfactory. The seller responded to the said e-mail on the same day, that is, on 8th February, 2011 and asked for the report as to the exact nature of the complaint. The seller on 10th February, 2011 informed the buyer that the surveyors have confirmed by their e-mail dated 9th February, 2011 that the rice shipped strictly conformed to the contractual specifications.
The required invoices for the amended balance payments at each USD 10.00 per metric ton, totalling at USD 137,148.20, were provided by sellers as follows:
1. Invoice No.2021C/2010/PB/LMJ dated 15th February, 2011 for USD 16, 083.90
2. Invoice No.2021D/2010/PB/LMJ dated 15th February, 2011 for USD 34,265.70
3. Invoice No.2021E/2010/PB/LMJ dated 15th February, 2011 for USD 86,808.60 The sellers also reminded for the payment. The sellers on 15th February, 2011 issued the invoices in respect of the balance payment of 2.22% in respect of the three shipments. On 15th February, 2011, the sellers received a message from Bank of Baroda that they have been informed by the buyers that they have prepared only 90% of the due payment, that is, 90% of the invoice value of USD 3,823,488.90 to which the sellers' bank, that is, Bangkok Bank objected to in a return e-mail dated 16th February, 2011. The Bank of Baroda was requested to remit the complete invoice amount. In between, on 14th February, 2011, the award-
holder agreed to accept provisional payment of 90% of the value of the invoice amounting to USD 3,823,488.90 submitted to bank of Baroda and balance 10% to be settled after inspection and finalization. LMJ was requested to arrange to remit 90% funds to Bangkok Bank. On the same date, another e-mail was sent by the seller to LMJ giving particulars of two persons who would visit Mongla Port for carrying out the necessary inspection. LMJ on receipt of the said communication, accordingly, instructed his banker for release of payment. Ultimately, the seller received 90% payment of the invoice of USD 3,823,488.90 on 21st February, 2011. The correspondence and e-mail both dated 14th February, 2011, however, were not disclosed in the arbitration proceeding and serious exception was taken by the petitioner in this proceeding for non-disclosure of the said two documents. The seller thereafter on 9th March, 2011 requested the buyer to pay the balance of 10% to which the buyers replied the next date advising sellers, inter alia, that also with the first two partial shipments, quality problems did indeed arise. Nevertheless and so did buyer's advice, a final settlement would only be done upon finalization of the quality in Bangladesh. Within the same message, the buyers informed the sellers that the balance payment for MV Tu Man Gang would be effected as soon as the final accounts of the Bangladesh would be received.
On 31st May, 2011, Buyers through their bank, the Bank of Baroda, informed Sellers that the balance of 10% of the invoice in reference with the shipment on board of MV Tu Man Gang will only be effected after completion of a joint inspection of the landed cargo at the port of discharge.
On 3rd June 2011, Sellers through their bank, the Bangkok Bank, replied that the weight and the quality were final at loading port Bangkok as per certificate issued by the surveyor ISC nominated by Buyers themselves. Subsequently, Sellers rejected a joint inspection in the country of destination, i.e. Bangladesh.
Sellers on 10th June 2011 sent to Buyers a further reminder for payment of the unpaid invoices. Only on 29th June 2011 Buyer replied and stated, inter alia, that the goods shipped under the contract "were not of the prescribed specification and the dead, damaged and discoloured grains were in much excess of the maximum limit of 3% specified" in the contract.
Further, Buyers stated that both parties to the Contract agreed, at least by Sellers email dated 4th February 2011 and by "mutual discussions which had taken place" to a "discount of USD 10.00 per metric ton" and that sellers would "reimburse" Buyers for "expenses and other miscellaneous costs incurred" by Buyers " for effecting the final sale to" Buyers sub-buyers.
Sellers replied on 11th July 2011 and denied, inter alia, that the "specification for dead, damaged and discoloured rice was restricted to a maximum of 3% but rather at 6% by way of addendum to the contracts.
Sellers further denied within this message to Buyers that the rice shipped was of inferior quality and that thus a quality report was shown to Sellers. "such was irrelevant as it was provisional and subsequent."
Sellers on 28th July 2011 claimed arbitration and appointed Mr. R. Barber as Arbitrator, Buyers failed to respond and Sellers requested GAFTA to appoint an arbitrator on their behalf in accordance with GAFTA Arbitration Rules 125. GAFTA duly appointed Mr. R. Eikel as second Arbitrator on 22nd September, 2011.
On 25th June 2012 GAFTA appointed Mr. C. Debattista as the third Arbitrator and Chairman of the Tribunal.
The first objection raised on behalf of the petitioner is that the impugned award was induced and/or affected by fraud and, therefore, is in conflict with the Public Policy of India. It is submitted that the Public Policy of India has received consideration by which High Courts including the Hon'ble Supreme Court means:-
i) Fundamental policy of Indian law;
ii) Patent illegality going to the root of the matter;
iii) Wednesbury principle of reasonableness;
iv) Natural justice;
v) Non-judicial approach;
vi) Against terms of the contract.
In this regard reliance has been placed on the decisions of the Hon'ble Supreme Court in Associate Builders Vs. Delhi Development Authority reported at 2015 (3) SCC 49 Paragraphs 40 to 42 and Delhi Development Authority Vs. R.S. Sharma and Co., New Delhi reported at 2008 (13) SCC 80 Paragraph 21.
The learned Senior Counsel has referred to the Explanation to Section 48(2) of the Arbitration and Conciliation Act, 1996 and submits that in view of the suppression of two communications of the claimant both dated 14th February, 2011, the said award is required to be declared null and void. It is submitted that the two communications, one is by way of a letter dated 14th February, 2011 and e-mail of the same date, the claimant accepted that they had sent inferior quality of rice and had promised that they would send the representatives to destination Port in Bangladesh for joint inspection of the consignment of rice. The existence of the said two documents although is not in disputes by suppressing the said letter and the e-mail, the claimant was emboldened to make false statement in Paragraph 19 of the claim submission that states:
"The sellers were under tremendous pressure as the payment of the invoice was not being released by the buyers despite the fact that they had received the cargo. The seller, therefore, under pressure agreed for release of 90% payment of the invoice of USD 3,823,488.90 which was received by them on 21st February, 2011."
The above statement is in conflict to the letter of February 14, 2011 by which the claimant proposed and agreed that they will accept 90% payment provisionally against their bill of exchange and the balance will be paid after joint inspection and settlement of claim. However, as soon as 90% payment was received by the claimant against the bill of exchange from Bank of Baroda on 21st February, 2011 the claimant omitted to send their representatives for joint inspection and finalization of the claim. Suppression of the said letter and e-mail both dated February 14, 2011 is an act of fraud upon the Arbitral Tribunal and it vitiates the award. In this regard, reliance has been placed on Paragraph 5 of the decision of the Hon'ble Supreme Court in S.P. Chengalvaraya Naidu Vs. Jagannath & Ors. reported at (1994) 1 SCC 1.
The petitioner deliberately concealed from the Arbitral Tribunal that it had not raised any invoice for payment of balance 2.22 of the agreed value of the goods. On the contrary, in the claim submission at Paragraph 16, they falsely represented before the Arbitral Tribunal that they have raised three invoices for the balance 2.22% and enclosed fictitious copies of the non- existent invoices to the claim submission. The claimant also suppressed form the Tribunal that the claimant did not receive payment of the balance 2.22% under the subsisting letters of credit though the entire payment of 97.78% of the first two consignments was obtained by operation of letter of credit.
The claimant did not raise any claim for payment of the balance 10% from Bank of Baroda under the bill of exchange, because they avoided holding of joint inspection and finalization at 10% and settlement after joint inspection as agreed by the claimant by its letter and e-mail dated February 15, 2011. This letter of 15th February, 2011 was relied upon by the claimant for misleading the Arbitral Tribunal into thinking that buyer had instructed Bank of Baroda to release of 90% of the 3rd invoice without mentioning that it was because the claimant's agreement to accept 90% payment of the 3rd invoice on the terms and conditions as confirmed by the letter of 14th February, 2011. The claimant suppressed the letter dated 14th February, 2011 and only disclosed the letter of 15th February, 2011 before the Arbitral Tribunal with a view to mislead the Tribunal.
The claimant did not raise any invoice for the balance 2.22% of the sale price payable under the L/C and balance 10% receivable under the Bill of Exchange and hence no dispute could have arisen regarding balance 2.22% of the sale price of fictitious invoices and 10% of the 3rd invoice but still obtained the ex parte award by suppression that there was no pre- existing dispute regarding the same.
For the same amount a claim of 10% of the balance price of 3rd shipment was made before the Arbitral Tribunal a suit has been filed being Suit No.196 of 2011 against Bank of Baroda only and no leave has been obtained to file a claim for the same amount from the Tribunal. The petitioner has deliberately suppressed on the Tribunal that parallel proceedings are initiated for realization of the said amount in respect of an alleged cause of action against the petitioner. The petitioner was also not made a party in the said suit.
The award has been obtained by the claimant by suppression of breach of the agreement as recorded in the letter of 14th February, 2011 of the claimant that the balance 10% to be settled after inspection and finalization by practicing fraud upon the Tribunal.
The second objection is that the Tribunal has made out a new case for the parties what is impermissible in law.
The learned Senior Counsel has submitted that the seller did not even contend before the Tribunal or in their claim submission that a certificate of inspection report of the destination Port was to be procured by the buyer.
The case that the buyer was to produce certificate of inspection of the destination port Bangladesh was not even made out in the claim submission of the claimant. No dispute was referred to or raise even before the Tribunal by the claimant that the buyer was to provide certificate of inspection of the discharge port.
However, the Arbitral Tribunal proceeded on the basis that the buyer was obliged to provide certificate of invoices of discharge port. The Tribunal has made a new case for the parties, which is not permissible in law. The Tribunal proceeds on a wrong assumption and has gone beyond the scope of submission to arbitration. The award, therefore, is without jurisdiction. Another new case was made out by the Tribunal with regard to the requirement of certificate of analysis. It is submitted that Arbitral Tribunal made out a case that the buyers under clause 6.1 of GAFTA Sampling Rules 124 were obliged to provide certificate of analysis. It was not the case of the claimant and even in the claim submission that under the GAFTA Sampling Rules buyer was obliged to provide certificate of analysis. Even in the claim submission it is not averred by the claimant that under GAFTA Sampling Rules 124 the buyer was obliged to provide certificate of analysis. This new case made out by the Arbitral Tribunal in paragraph 6.2.1 of the award is also in violation of principles of natural justice. The buyer was never informed that such new case would be made out by the Arbitral Tribunal in their award.
The new cases made out by the Arbitral Tribunal were beyond the scope of submission to arbitration and, accordingly, not enforceable under Section 48(1)(c) of the Act.
The Tribunal has no jurisdiction to make out a new case or to consider the dispute not raised by the claimant in their claim submission. In this regard reliance is placed on Mathuradas Goverdhandass Vs. Khusiram Benarshilal reported at 53 CWN 873 and Jasraj Inder Singh Vs. Hemraj Multanchand reported at AIR 1977 SC 1011.
The third objection is that the award is perverse.
The Arbitral Tribunal's uncalled for reliance on GAFTA Sampling Rules 124 clause 6.1 is wholly perverse. The contract as amended and recorded in the award in Paragraphs 6, 15, 6.16 and 6.17 does not provide that the buyer was to obtain quality inspection report of the destination port and to hand over the same to the seller nor does the amendment provide that if the quality inspection report of the destination port is not provided that if the quality inspection report of the destination port is not provided by the buyer, the seller will be entitled to balance amount of price. GAFTA Sampling Rules 124 Clause 6.1 is not applicable in this case. GAFTA Sampling Rules 124 does not provide that the buyer is to acquire the quality inspection report. It was not even the case of the claimant that said GAFTA Sampling Rules provide that a quality inspection report was to be provided by the buyer.
It is submitted that in paragraph 6.18 the Tribunal has quoted GAFTA Sampling Rules 124, without holding that the said clause 6.1 provided that the certificate of analysis was to be sent to the seller by the buyer. The finding in paragraph 6.20 that "with respect to clause 6.1 of the GAFTA Sampling Rules 124 buyer was obliged to provide certificate of analysis" is without any reasons and is not supported by paragraph 6.18 of the award. It is not a case of interpretation of GAFTA Rules No.6.1 by the Tribunal, who have not analysed or interpreted Clause 6.1 of the Rule. Suddenly, the Tribunal have made an observation in paragraph 6.20, without any reason in support of their assumption, which is not really a finding. It is totally unreasonable, contradictory and wholly perverse.
The award is contrary to the terms of the agreement to be read with Letters of Credit as required under English Law and, therefore, makes the award contrary to public policy. The award proceeds on the basis that the buyer failed to forward the certificate.
The contract is governed by the English law. It is nowhere provided that the buyer is to produce the certificate, but the correspondent L/C amended contemporaneously with amendment of the Contract enjoin that the quality analysis report is to be produced by the holder of L/C (the seller) for receiving payment of the Balance amount. L/C was accepted by the seller.
The Tribunal failed to apply its mind to the Letters of Credit which was on record and also the Bill of Exchange. Non-consideration of material on record vitiates the Award.
The Arbitral Award does not contain any reason for assuming that the discharge port quality inspection report would be required to be furnished by the buyer.
In short, obtaining an award for balance price without presentation of quality inspection report of the destination port and without inspection and finalization as proposed and agreed by the seller should shock judicial conscience. The award is totally contrary to Wednesbury principle of reasonableness and would shock judicial conscience.
The learned Senior Counsel has referred to the contract terms set out at page 5 of the claim submission which reads:-
"all other terms/conditions not in contradiction with the above as per GAFTA Contract No.48."
The amendment of the contract is also admitted by the claimant in the claim submission and also by the Tribunal in Paragraph 6.17 of the award.
There is no explanation, reason or justification given by the Arbitral Tribunal on the basis of which it holds that the buyers were obliged to provide the certificate of analysis. Clause 6.1 of the GAFTA Sampling Rules No.124 nowhere provides that the buyers were obliged to provide the certificate of analysis.
There is a complete non-judicial approach. The findings of the Arbitral Tribunal in paragraphs 6.18, 6.20 and 6.22 is contradictory to its own finding given in paragraphs 6.15, 6.16 and 6.17 of the award which would demonstrate that the Tribunal lacked judicial approach in the matter.
The Arbitral Tribunal has failed to apply its mind and has not at all considered that since GAFTA Contract No.48 is in contradiction with the amended contract and the letter of credit, GAFTA Contract No.48 would not be applicable in the instant case. Consequently, GAFTA Sampling Rules No.124 would also be in applicable. Therefore, the inference drawn by the Arbitral Tribunal in paragraphs 6.18, 6.20 and 6.22 of the award is on the fact of its untenable as it is against the specific contract terms.
Furthermore the Arbitral Tribunal has omitted to consider that GAFTA Sampling Rules if in contradiction with the terms of the contract would not be applicable. The terms of the contract read with letter of credit clearly mean that certificate of quality inspection report of the destination port was to be acquired by the seller. Accordingly, reliance on the GAFTA Sampling Rules is perverse, contrary to the terms of the contract and void.
The fourth objection is that award suffers from patent illegality as it fails to appreciate that it was the obligation of the buyer to provide the certificate of analysis under Clause 6.1 of the GAFTA Sampling Rules 124 is perverse, unreasonable and suffers from patent illegality and cannot be sustained on the basis of the materials on record.
There is a patent illegality in the award which goes to the root of the matter. There is no finding that the issuing bank wrongfully refused to honour their L/C. There is no finding that the seller presented the document as required under LC for payment of the balance 2.22%. Therefore, the award is vitiated by patent illegality which goes to the root of the matter. A seller would approach the buyer for payment only if the issuing bank wrongfully refuses to honour the LC which was not claimed by the seller in the claim submission.
The seller having not submitted the required agreed documents it is required both under the contract and under the L/C cannot insist for payment under the L/C. The non-submission of the required documents as prayed between the parties would absolve the buyer from making any payment in respect of the balance amount. The seller having not complied with the terms cannot insist that notwithstanding such compliance either the bank or the buyer would be liable to pay for the balance of amount. In this regard, the learned Senior Counsel has relied upon the decision of the House of Lords in Shamsher Jute Mills Ltd. v. Sethia (London) Ltd. reported at (1987) 1 Lloyds Law Report 388 at Pages 390-393 which considers W.J. Alan & Co. v. El Nasr Export & Import Co. reported at (1972) 2 All ER 127 and Ficom S.A. v. Sociedad Cadex Limitada reported at (1980) 2 Llyod's Law Report 188. Therefore, the award suffers from patent illegality going to the root of the matter.
This illegality goes to the root of the award.
The learned Senior Counsel has, thus, concluded that it would be evident from the aforesaid that the award is contrary to Public Policy of India as envisaged under Section 48(2)(b) and Explanation therein. Therefore, the award is not enforceable in India.
The learned Senior Counsel has relied upon the decision of the Hon'ble Supreme Court in Oil and Natural Gas Corporation Ltd. Vs. Western Geco International Ltd. reported at 2014 (9) SCC 263 Paragraph 38 in support of the contention that the objection with regard to the enforceability of the award on the ground of public policy can be raised even without any pleading. Although in the instant case, it is admitted that the grounds of challenge on public policy may not have been properly pleaded and not exactly in the manner in which the matter has been argued.
Per contra, Mr. Tilak Kumar Bose, the learned Senior Counsel representing the decree-holder submits that the instant application is not maintainable on the ground of res judicata estoppel, cause of action estoppel and/or principles analogous thereto. It is submitted that the public challenge to the enforceability of the foreign award as opposed to public policy is not as wide as Section 34 of the Arbitration and Conciliation Act, 1996 as held in Shrilal Mahal Ltd. Vs. Progetto Grano SPA reported at (2014) 2 SCC 433.
It is submitted that in Shrilal Mahal (supra) it has been categorically held that the public policy grounds available for setting aside of the domestic award under Section 34 are not the same "public policy grounds"
mentioned under Section 48 of the Arbitration and Conciliation Act, 1996.
Mr. Bose has requested this Court to consider the fundamental and preliminary objections before considering the merits of the matter.
It is submitted that the contract is a FOB contract. The fundamental basis of a FOB contract is that the seller loads the goods at the loading port and thereafter the seller is not informed the respondents for the goods. The moment, the goods are loaded on board the vessel, obligation of the seller ceases. That is why in the list of "documents required" mentioned in the contract, one fundamental document is missing, namely, the contract of insurance. In FOB Contract, it is the obligation of the buyer to select the vessel and have a contract of insurance having prepared. The Sleepwell was the seller and the LMJ was the buyer of the goods. LMJ is causing delivery of the goods to its ultimate buyer which is Government of Bangladesh.
Sleepwell has no privity with this ultimate buyer and for that reason there is not even mentioned of a discharge port in the contract. Mr. Bose referred to the various features of the original and amended contract and submits that the buyer under the contract is to open a Letter of Credit. It is the obligation of the buyer not only to have a credit opened but to ensure that such Letter of Credit is valid and subsisting. Mr. Bose has referred to the pleadings in the statement of claim as well as the findings of the arbitral tribunal in Paragraph 6.25 and Paragraph 6.26 to contend that no fresh Letter of Credit was established for the balance quantity of 2000 MT in the old contract. LMJ by the letter dated 5th February, 2011 informed the Sleepwell that extension of existing L/C from Standard Chartered Bank was not acceptable and that fresh L/C shall have contemplated for balance 2000 MT. This 2000 MT is the balance quantity that had remained undelivered out of the contractual quantity of 15000MT. Mr. Bose has referred to the e-
mails dated 26th January, 2011 and 27th January, 2011 to show that it is an admitted position that the Letter of Credit had expired and, accordingly, the question of submitting any document to the negotiating banker under the L/C even for the earlier of shipments covered by the Letter of Credit could not and does not arise inasmuch as the third shipment is not covered by any L/C but by the Bill of Exchange. Mr. Bose has emphasized on the finding of the arbitral tribunal that the contract came to an end since no new L/C was established after the latest date of shipment under the amended L/C expired on 15th January, 2011 and the shipment was done on 17th January, 2017.
In responding a submission made on behalf of the applicant regarding non-receipt of invoices it is submitted that the said issue is wholly irrelevant inasmuch as LMJ has not filed any defence to the claim submission nor did LMJ participate in the arbitration proceeding. If such a challenge had been thrown by LMJ in arbitration certainly the claimant would have been called upon to answer such issues before the Arbitral Tribunal. The existence or non-existence of the invoices was never an issue before the Arbitral Tribunal. The claimant has in its possession an email message dated 25th February, 2011 by which various invoices were again submitted by the claimant. However, this being not an issue arising out of the award and beyond the scope of the application under Section 48 of the Arbitration and Conciliation Act, 1996, such documents has not been disclosed. If called upon, the claimant is willing to disclose such documents. The arbitral tribunal, however, has not relied upon the invoices at all. Instead, the arbitral tribunal has passed the award on the basis of the value of the goods. The total value of the goods was 450 USD per MT. The first three invoices representing 97.78%, represented 440 USD per MT. The balance three invoices represented 2.22% of the value of the goods and this constituted balance 10 USD per MT.
Mr. Bose submits that the claim on account of bill of exchange is for 97.78% of value of goods loaded on MV Tu Man Gang. It is clear from the contract as well as the amendment dated 7th December, 2010 that recovery of 97.78% of value of goods was never dependant on any "Quality Inspection Report", yet only 90% of 97.78% of the goods has been recovered from Bank of Baroda. The balance claim of 10% was referred to arbitration and this has been awarded along with balance 2.22% of the value of goods in respect of all three shipments.
In responding to the arguments that the balance 2.22% of the price of the goods in respect of all of the shipments could not have been awarded as the Letter of Credit was a complete discharge of payment and the seller having agreed to present quality inspection report and having failed to do so can no longer demand payment, it is submitted that there was no valid Letter of Credit opened by the buyer under which the seller could have obtained payment at least since January, 2011. The last date of shipment was 15th January, 2011. The first two shipments were on 27th December, 2010 and 31st December, 2010. Under the contract payment of the first instalment (440 USD per M.T.) was payable 30 days from the date of shipment. Obviously, the balance USD 10 per MT was to be paid subsequently after receipt of quality inspection report at destination port.
The claimant by several emails asked for valid Letter of Credit. Mr. Bose has referred to the emails dated 26th January, 2011, 27th January, 2011, 4th February, 2011 and 5th February, 2011.
In the meantime, the validity of the entire Letter of Credit by reason of shipment on MV Tu Man Gang became questionable. It is LMJ who suggested that the document should now be presented outside Letter of Credit. By the time the original documents under MV Tu Man Gang in respect of 97.78% were released, even the validity period of the Letter of Credit, which was valid till 30th January, 2011, expired. It is preposterous to argue that for MV Tu Man Gang, the documents relating to 97.78% of the goods could not be negotiated under the Letter of Credit, but for the balance 2.22% of goods under the same shipment documents can be validly negotiated under the same Letter of Credit. Similarly, by the time the second instalment i.e. 2.22% of the value of goods for the first two shipments could be realized under the Letter of Credit, dispute with regard to the Letter of Credit had already arisen. Even the validity period of Letter of Credit expired on 30th January, 2011.
The arbitral tribunal has correctly, therefore, not referred to the terms of the Letter of Credit. The arbitral tribunal was aware of the fact that the shipment period was till 15th January, 2011 and that shipment on MV Tu Man Gang was done after last date of shipment. The discussions and findings of the arbitral tribunal, therefore, are correctly based on construction of the contract.
It is submitted that it is the buyer's obligation to furnish quality inspection report at the destination port. The construction of the contract will show that a FOB seller never has any obligation at a destination port. It is pertinent to mention that from the contract itself, it would appear that the documents which were to be furnished by the seller were all related to the loading Port. The contract of insurance was on account of LMJ International Ltd. The risk in the goods had passed to LMJ the moment the goods were loaded at the Load Port by the seller. Thereafter, it was between LMJ arranged for shipment to the Port in Bangladesh. It was the choice of LMJ. The moment LMJ on 1st February, 2011 accepted the bill of exchange and asked for release of export documents and finally got the documents, the property in the goods were transferred to LMJ. The claimant retained no right, title and interest in respect of the goods. In fact, LMJ caused delivery to another third party, namely, Government of Bangladesh. It is, in this context, submitted that it has to be examined as to whose obligation it was to furnish "Quality Inspection Report" at the destination Port.
The fact that it was the obligation of the buyer to provide the Quality Inspection Report at the discharge Port is also evident from the documents on record. LMJ has never furnished the final Quality Inspection Report at the discharge Port. The attention of this Court is drawn to the letter of Bangkok Bank dated 5th June, 2011, the letter of Sleepwell dated 10th June, 2011 and its reply by LMJ dated 29th June, 2011. It is submitted that the arbitral tribunal on interpretation of the contract at Paragraph 6.8 held that no Quality Inspection Report has been presented by the buyers despite various reminders from sellers. This finding of the arbitral tribunal cannot be faulted.
With regard to the composition of the Arbitral Tribunal the learned Senior Counsel has relied on the findings arrived at by this Court earlier in the order dated 4th December, 2014 by which it was held that the composition of the Arbitral Tribunal does not suffer from any infirmity. It is submitted that this finding is final and cannot be reopened in this application.
However, he has submitted that the notice invoking the arbitration is dated 28th July, 2011. The email referred to in the said letter is [email protected]. Receipt of this email is not disputed. There is yet another letter dated 28th July, 2011. The letter relates to the second contract, but there is a similar one for the first contract which has not been annexed. The said letter is addressed to [email protected]. The letter specifically refers to Rule 3.2(a) and (b) of the GAFTA Rules, 125 and appointment of Mr. R.A. Barber as Arbitrator on behalf of the claimant. This letter is also not disputed by LMJ. In fact, Paragraph 31 and 32 of the application reads as follows:
"31. By a cryptic letter dated 28th July, 2011, the award holder informed the petitioner.....
32. By a letter also dated 28th July, 2011, the award holder purported to appoint one R.A. Barber...."
It is submitted that the allegation of LMJ that the letter dated 23rd August, 2011, was not received is without any basis and no credible evidence is forthcoming. By the letter dated 23rd August, 2011, GAFTA Tribunal was reminded that the requisite nine day period mentioned in Rule 3.2(b) of the GAFTA Rules had expired and that the arbitrator on behalf of LMJ had to be appointed. A copy of the said letter was also sent to LMJ at the same email address.
Rule 20(3) of GAFTA Rules states that for the purpose of the GAFTA Rules, the date when the 'nine consecutive days' should start will not be taken into account. Thus, even after 28th July, 2011, the nine consecutive days thereafter expired on 6th August, 2011. After 6th August, 2011 the claimant became entitled to request GAFTA to appoint arbitrator on behalf of LMJ. By the letter dated 23rd August, 2011, the claimant requested GAFTA to appoint arbitrator on behalf of LMJ since the requisite nine day period had already expired.
The subsequent letter dated 19th September, 2011 also addressed at the said email address, [email protected], is not a notice under Rule 3.3 of the GAFTA Rules. Necessary request to GAFTA had already been made on 23rd August, 2011. The subsequent letter dated 19th September, 2011 was merely a reminder particularly since the ex parte order of injunction which LMJ had obtained in the Civil Suit had been vacated on 9th September, 2011. Rule 20 of the GAFTA Rules has no manner of application so far as the letter dated 19th September, 2011 is concerned. The letter dated 19th September, 2011 was not issued "pursuant to these rules".
Mr. Bose has submitted that the objection to enforcement of the award was rejected by the order dated 4th December, 2014. LMJ raised various issues regarding enforcement and chose not to raise various other issues, some of which have been argued presently. There are other issues which still remain dormant in the section 48 application which were neither raised on 4th December, 2014 nor during the course of argument of the present application.
The fact that objection regarding "enforcement" was being considered and had been rejected on 4th December, 2014 has been clarified in a subsequent order dated 17th March, 2015. From the order dated 4th December, 2014, a Special Leave Petition was filed which was rejected on 27th February, 2015. In the Special Leave Petition, LMJ always treated the order dated 4th December, 2014 as disposing of objections regarding enforcement.
A Review Petition was filed. In the Memorandum of Review also LMJ treated the order dated 4th December, 2014 as disposing of objection regarding enforcement. The order dismissing the review petition is dated 8th June, 2015. The words 'maintainable' and 'enforcement' both, however, appears in the order dated 4th December, 2014 and LMJ now wants to contend that enforceability was not decided on 4th December, 2014. It is pertinent to mention that the word 'maintainable' does not appear anywhere in Section 48 and the only two relevant words are 'recognition' and 'enforcement'. In any event, LMJ is estopped from contending that the objection regarding enforceability was not considered on 4th December, 2014.
In distinguishing the decisions relied upon by the applicant on the question of res judicata it is submitted that it is preposterous to argue that a matter regarding enforceability which has been decided by a learned Single Judge against which Special Leave Petition and review have been dismissed will not attain finality. Regarding whether principles of res judicata apply, it is submitted that even from the guidelines of res judicata outlined in Syed Mohd. Salie Labbai & Ors. Vs. Mohd. Hanifa & Ors. reported at (1976) 4 SCC 780 and the four guidelines mentioned therein, the present application is barred under the principles of res judicata.
The two cases, namely, Kanshi Ram Vs. Bansi Lal reported at AIR 1977 HP 61 (Paragraphs 6 and 7) and Sm. Muktakesi Dawn & Ors. Vs. Haripada Mazumdar & Anr. reported at AIR 1988 Cal 25 (Paragraph 6) were all cases involving orders of injunction for which principles of res judicata usually do not apply.
Apart from the question of res judicata, the application is also barred under the principles of estoppel. Principles of estoppel may be similar to that of res judicata, although the strict requirements of res judicata may not apply to principles of estoppel. It is barred by Issue Estoppel and Cause of Action Estoppel. Issue Estoppel means, if an issue has been raised, the unsuccessful party cannot raise the same issue again. Cause of Action Estoppel means, if a party had a particular cause of action and has exhausted that cause of action or failed to exhaust the same, then the same cause of action cannot be agitated later. A brief guideline of Issue Estoppel and Cause of Action Estoppel is given by the Apex Court in Bhanu Kumar Jain Vs. Archana Kumar & Anr. reported at (2005) 1 SCC 787 as also by the English Courts in Fidelitas Shipping Co. Ltd. Vs. V/O Exportchleb (1966) 1 QB 630 and SCF Finance Company Ltd. Vs. Masri reported at 1987 (1) All E.R. 194. It is submitted that the present application under section 48 is hit both by the principles of with "Issue Estoppel" and "Cause of Action Estoppel".
LMJ had already resisted enforcement by raising the issue that the award was not enforceable. There were many sub-issues under this. LMJ on 4th December, 2014 raised some issues and chose not to raise other issues. The same even applies now. There are many other grounds mentioned in the present section 48 application which have not been raised. If the law is that LMJ can go on raising new grounds whenever it wants to, then there will be no finality in the declaration that the award is enforceable. This cannot be permitted.
It is argued that the fundamental issue is, whether the award is enforceable or not. It has been declared to be enforceable on 4th December, 2014 and the LMJ is estopped from raising this issue again.
When an application for enforcement of a foreign award is filed, a party who wishes to contest the enforceability of the said award has a cause of action and this cause of action is to contest the enforceability. This he may do merely by filing an affidavit or by filing an application or resisting orally the execution application. The question is whether LMJ exhausted this cause of action or not. If LMJ has exhausted this cause of action then there is cause of action estoppels operating against LMJ.
Mr. Bose submits that the three English judgments referred to by LMJ in support of the proposition that by reason of a valid Letter of Credit opened by buyer LMJ, payment obligation has been discharged by the buyer and the seller cannot look for payment other than under the Letter of Credit are academic. Firstly, there was no valid Letter of Credit inasmuch as the valid date of the Letter of Credit and the last date of shipment was 15th January, 2011 whereas the bulk shipment of over 8000 MT was done on MV Tu Man Gang only on 17th January, 2011 after the expiry of the last date of shipment. By the time the goods were discharged and Quality Inspection Report at the discharge port could have been made available by the buyer, the validity of the Letter of Credit expired. In fact, it was the buyer's obligation to open the Letter of Credit. The buyer knew that documents could not be negotiated under the Letter of Credit. Presentation of documents under the Letter of Credit, therefore, was not even a possibility.
In Shamsher Jute Mills Ltd. (supra) and Ficom S.A. (supra) can both be distinguished by one sentence, viz. "the buyer had not taken delivery of the goods" in such cases. A buyer who takes delivery of goods is obliged to pay for the value of the goods.
Mr. Bose has referred to two standard and celebrated Books on Letter of Credit, namely:-
(a) Jack on Documentary Credits where specifically mentioned the situation "where the buyer has received the goods", and
(b) Guttridge and Megrah's Laws of Bankers Commercial Credit where the entire discussion on the various case laws referred to by LMJ have been discussed and the buyer's frustration of a Letter of Credit and the consequence of breach are outlined.
The disputes regarding whether a Letter of Credit payment is conditional or absolute arises only when there is a valid and subsisting Letter of Credit opened by the buyer. This has not happened in this case. Secondly, such issues arise only when a buyer refuses to accept delivery of goods on the ground that documents are not in conformity with the Letter of Credit. It is preposterous to argue that if a buyer accepts goods, it will not make payment raising flimsy arguments like it was the obligation of seller to hand over documents. Mr. Bose emphasized that in the instant case, it is on the basis of representation of LMJ that without receiving any payment, export documents of MV Tu Man Gang were released and handed over.
Mr. Bose has distinguished the judgments relied upon by the petitioner in relation to public policy by submitting that the said judgments are all based on the definition of "Public Policy" appearing under Section 34 of the Arbitration and Conciliation Act, 1996 in respect of the domestic award. The term "Public Policy" is to be given a narrow meaning when used and applied in the context of a foreign award. Mr. Bose has referred to Shrilal Mahal Ltd. (supra) and submits that the principles of public policy applied in relation to foreign award governed by the Foreign Award (Recognition and Enforcement) Act, 1961 had been extended by the Hon'ble Supreme Court in the context of foreign awards under the Arbitration and Conciliation Act, 1996. It is submitted that the same view has been reiterated by Justice Sanjib Banerjee in an unreported decision in Canadian Commercial Corporation Vs. Coal India Limited being G.A. No.3547 of 2013 with E.C. No.281 of 2013 dated 21st September, 2016.
It is submitted that the judgment in S.P. Chengalvaraya Naidu (supra) cannot assist the petitioner as a party who does not choose to appear in the arbitration proceedings cannot raise such grounds of fraud. The fact that Statement of Claim was served and received by LMJ is admitted. If LMJ was so concerned about suppression it should have pointed out the same to the Arbitral Tribunal.
Mr. Bose submits that LMJ not having contested the Arbitration proceeding and filed the written statement is estopped from contending that documents have been suppressed and such suppression amounts to fraud. In any event, there has been no suppression. The letter dated 14th February, 2011 clearly states that Sleepwell was accepting 90% of the Bill of Exchange amount provisionally and the same was also conveyed to its bankers who was initially insisting on 100% payment. It is only when Sleepwell requested his banker 90% of the Bill of Exchange provisionally from the bank of Baroda, that bank of Baroda released 90% of the Bill of Exchange amount. The relevant documents have been disclosed in the statement of claim.
I have considered the rival contentions.
Section 48 of the 1996 Act materially corresponds to Section 7 of the Foreign Awards (Recognition and Enforcement) Act, 1961. Section 48(1)(a)(b)(c)(d) and (e) of the Act corresponds to provisions of Section 103(2)(a)(b)(c)(d)(e) and (f) respectively of the English Arbitration Act, 1996. Sub-sections 48(2) and 48(3) of the Act correspond to sub-sections 103(2) and 103(5) respectively of the English Arbitration Act. For the sake of convenience and brevity Section 48 of the 1996 Act is set out below:-
"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 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.--Without prejudice to the generality of clause (b) of this section, it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption. (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."
The grounds of challenge enumerated in the aforesaid section are meant to be construed narrowly and do not permit review of the foreign award on merits. The Courts are not expected in proceedings to re-apprise and re-appreciate the evidence. In Shrilal Mahal Ltd. (supra) in paragraph 45 of the report, the Hon'ble Supreme Court has specifically held that Section 48 of the 1996 Act does not give an opportunity to have a "second look" at the foreign award in the award enforcement stage. The scope of inquiry under Section 48 does not permit review of the foreign award on merits. 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.
The scope of "Public Policy" in relation to enforcement of a foreign award was considered in Renusagar Power Company vs. General Electric Company reported at 1990 (92) Bom. L.R. 70, paragraphs 109 to 113. In Renusagar (supra) the award was challenged on the ground that it granted interest on interest and awarded heavy costs not entirely incurred in arbitration proceedings. It was contended that allowing these claims is contrary to law. The Division Bench was considering whether the enforcement of an award which grants compound interest is contrary to our public policy. It was held that the challenge to enforcement of the foreign award on the ground of public policy should receive a narrow interpretation. It would not be enough to show that the award is contrary to our laws. The Hon'ble Division Bench of the Bombay High Court made a distinction between what is contrary to public policy and what is contrary to our laws. The said decision accepts the observation of the United States Court of Appeals, Second Circuit in Parsons & Wittemore Overseas Inc. Vs. RAKTA reported at 508F 2d 969 (1974) that the public policy defence should be construed narrowly and enforcement may be denied only where enforcement, would "violate the forum State's most basic notions of morality and justice". The function of the Court basically would be the guardian of the "fundamental moral convictions or policies of the forum". Thereafter the Hon'ble Division Bench discussed the scope of public policy in the following words:-
"80. The Courts, however, will recognize only public policy as embodied in the Constitution, the laws and judicial decisions. There may be matters of public policy which are not embodied in laws or judicial decisions or the Constitution. The Courts will not take cognisance of such matters. But what is contrary to law may not necessarily be contrary to public policy. It is only when a law embodies public policy that its violation will lead to an action which is contrary to public policy.
81. In the case of (Murlidhar Agarwal v. State of Uttar Pradesh), reported in A.I.R. 1974 S.C. 1624 the Supreme Court considered the public policy aspect of the Rent Control legislation. The Supreme Court has observed (pg. 28):
"The expression 'public policy' has an entirely different meaning from 'policy of the law' and one much more extensive............... It seems clear that the conception of public policy is not only now quite distinct from that of the policy of law but has in fact always been so except in some exceptional instances of confusion which have had no substantial effect on the general course of authority.
X X X X X 'public policy' has been defined by Winfield as a principle of judicial legislation or interpretation founded on the current needs of the community."
82. In the case of (Gherulal Parakh v. Mahadeodas Mairye), reported in A.I.R. 1959 S.C. 781 the Supreme Court considered whether a wagering contract is contrary to public policy. It held that "the common law of England and that of India have never struck down contracts of wager on the ground of public policy; indeed they have always been held to be not illegal notwithstanding the fact that the statute declared them void" It said that there is no definite head or principle of public policy evolved by Courts or laid down by precedents which would directly apply to wagering contracts. Even if it is permissible for Courts to evolve a new head of public policy under extraordinary circumstances giving rise to incontestable harm to the society, wager is not one of such instances of exceptional gravity, for it has been recognized for centuries and has been tolerated by the public and the State alike. Applying the same principle to compound interest, one can say that granting of compound interest has been tolerated in several types of cases and the Courts have not evolved any public policy ground on which awarding of compound interest by the arbitrators can be invalidated. The Supreme Court in the above case observed at page 792 -
"The doctrine, as Lord Atkin remarked in a leading case, "should only be invoked in clear cases in which the harm to the public is substantially incontestable, and does not depend upon the idiosyncratic inferences of a few judicial minds.
X X X X X .... 'public policy', like any other branch of the Common Law, ought to be and I think is governed by the judicial use of precedents. If it is said that rules of public policy have to be moulded to suit new conditions of a changing world, that is true:
but the same is true of the principles of the Common Law generally."
83. In Halsbury's Laws of England, 3rd Edn. Vol. 8, pg.130, it is said that - "Any agreement which tends to be injurious to the public or against the public good is void as being contrary to public policy... It seems however that this branch of the law will not be extended. The determination of what is contrary to the so-called policy of the law necessarily varies from time to time. Many transactions are upheld now which in a former generation would have been avoided as contrary to the supposed policy of the law. The rule remains, but its application varies with the principles which for the time being guide public opinion."
84. In the present case, the awarding of compound interest by the arbitrators cannot be said to violate any public policy of this country. In the first place, there are several types of cases where even Courts award compound interest e.g. if there is an agreement between the parties to this effect. In fact, in all banking transactions which the Courts enforce the banks invariably charge on loans granted by them compound interest not merely with interest compounded annually but much more frequently such as every quarter. All these agreements are enforced by Courts and these have not been held as void on account of being contrary to any public policy. Had there been any public policy prohibiting charging of compound interest, the parties could not have, by an agreement between them, opted out of a matter, of public policy."
In an appeal from the said judgment by Renusagar, the Hon'ble Supreme Court upheld the judgment of the Division Bench. The decision is reported at AIR 1994 SC 860 (Renusagar Power Co. Ltd. Vs. General Electric Co.). It was held that the defence of public policy should be construed narrowly. It could be seen from the judgment that violation of the Foreign Exchange Act and disregarding orders of superior courts in India would be regarded as being contrary to the fundamental policy of Indian law. In this context reference may be made to Paragraphs 50, 51, and 63 to 66 of the said report. The said paragraphs read:-
"50. In the field of private international law, courts refuse to apply a rule of foreign law or recognise a foreign judgment or a foreign arbitral award if it is found that the same is contrary to the public policy of the country in which it is sought to be invoked or enforced. The English courts follow the following principles:
"Exceptionally, the English court will not enforce or recognise a right conferred or a duty imposed by a foreign law where, on the facts of the particular case, enforcement or, as the case may be, recognition, would be contrary to a fundamental policy of English law. The court has, therefore, refused in certain cases to apply foreign law where to do so would in the particular circumstances be contrary to the interests of the United Kingdom or contrary to justice or morality." (See : Halsbury's Laws of England, 4th Edn., Vol. 8, para 418.)
51. A distinction is drawn while applying the said rule of public policy between a matter governed by domestic law and a matter involving conflict of laws. The application of the doctrine of public policy in the field of conflict of laws is more limited than that in the domestic law and the courts are slower to invoke public policy in cases involving a foreign element than when a purely municipal legal issue is involved. (See : Vervaeka v. Smith10; Dicey & Morris, The Conflict of Laws, 11 th Edn., Vol. I p. 92; Cheshire & North, Private International Law, 12th Edn., pp. 128-
129). The reason for this approach is thus explained by Professor Graveson:
"This concern of law in the protection of social institutions is reflected in its rules of both municipal and conflict of laws. Although the concept of public policy is the same in nature in these two spheres of law, its application differs in degree and occasion, corresponding to the fact that transactions containing a foreign element may constitute a less serious threat to municipal institutions than would purely local transactions." (R.H. Graveson : Conflict of Laws, 7th Edn., p. 165).
63. In view of the absence of a workable definition of "international public policy" we find it difficult to construe the expression "public policy" in Article V(2)(b) of the New York Convention to mean international public policy. In our opinion the said expression must be construed to mean the doctrine of public policy as applied by the courts in which the foreign award is sought to be enforced. Consequently, the expression 'public policy' in Section 7(1)(b)(ii) of the Foreign Awards Act means the doctrine of public policy as applied by the courts in India. This raises the question whether the narrower concept of public policy as applicable in the field of public international law should be applied or the wider concept of public policy as applicable in the field of municipal law.
64. Keeping in view the object underlying the enactment of the Foreign Awards Act, this Court has also favoured a liberal construction of the provisions of the said Act. In Renusagar case I it has been observed: (SCC p. 723, para 50) "It is obvious that since the Act is calculated and designed to subserve the cause of facilitating international trade and promotion thereof by providing for speedy settlement of disputes arising in such trade through arbitration, any expression or phrase occurring therein should receive, consisting with its literal and grammatical sense, a liberal construction." (p. 492)
65. This would imply that the defence of public policy which is permissible under Section 7(1)(b)(ii) should be construed narrowly. In this context, it would also be of relevance to mention that under Article I(e) of the Geneva Convention Act of 1927, it is permissible to raise objection to the enforcement of arbitral award on the ground that the recognition or enforcement of the award is contrary to the public policy or to the principles of the law of the country in which it is sought to be relied upon. To the same effect is the provision in Section 7(1) of the Protocol & Convention Act of 1837 which requires that the enforcement of the foreign award must not be contrary to the public policy or the law of India. 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.
66. Article V(2)(b) of the New York Convention of 1958 and Section 7(1)(b)(ii) of the Foreign Awards Act do not postulate refusal of recognition and enforcement of a foreign award on the ground that it is contrary to the law of the country of enforcement and the ground of challenge is confined to the recognition and enforcement being contrary to the public policy of the country in which the award is set to be enforced. There is nothing to indicate that the expression "public policy" in Article V(2)(b) of the New York Convention and Section 7(1)(b)(ii) of the Foreign Awards Act is not used in the same sense in which it was used in Article 1(c)of the Geneva Convention of 1927 and Section 7(1) of the Protocol and Convention Act of 1937. This would mean that "public policy" in Section 7(1)(b)(ii) has been used in a narrower sense and in order to attract to bar of public policy the enforcement of the award must invoke something more than the violation of the law of India. Since the Foreign Awards Act is concerned with recognition and enforcement of foreign awards which are governed by the principles of private international law, the expression "public policy" in Section 7(1)(b)(ii) of the Foreign Awards Act must necessarily be construed in the sense the doctrine of public policy is applied in the field of private international law. 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.
V. Is the award contrary to public policy of India?"
The aforesaid decision was considered in Shrilal Mahal Ltd. (supra). In the said decision it was held that the expression "Public Policy of India" in Section 48(2)(b) has the same import as that of "Public Policy" in Section 7(1)(b)(ii) of Foreign Awards (Recognition and Enforcement) Act, 1961. The Hon'ble Supreme Court held that contravention of law alone would not attract bar of public policy and something more than contravention of law is required to be established to resist enforcement of a foreign award as contrary to public policy of India. After considering the decisions in Renusagar (supra) and ONGC Ltd. Vs. Saw Pipes Ltd. reported at (2003) 5 SCC 705, it is stated:-
"26. From the discussion made by this Court in Saw Pipes in paragraph 18, paragraph 22 and paragraph 31 of the Report, it can be safely observed that while accepting the narrow meaning given to the expression "public policy" in Renusagar in the matters of enforcement of foreign award, there was departure from the said meaning for the purposes of the jurisdiction of the Court in setting aside the award under Section 34.
27. In our view, what has been stated by this Court in Renusagar with reference to Section 7(1)(b)(ii) of the Foreign Awards Act must equally apply to the ambit and scope of Section 48(2)(b) of the 1996 Act. In Renusagar it has been expressly exposited that the expression "public policy" in Section 7(1)(b)(ii) of the Foreign Awards Act refers to the public policy of India. The expression "public policy" used in Section 7(1)(b)(ii) was held to mean "public policy of India". A distinction in the rule of public policy between a matter governed by the domestic law and a matter involving conflict of laws has been noticed in Renusagar3. For all this there is no reason why Renusagar should not apply as regards the scope of inquiry under Section 48(2)(b). Following Renusagar3, we think that for the purposes of Section 48(2)(b), the expression "public policy of India" must be given narrow meaning and the enforcement of foreign award would be refused on the ground that it is contrary to public policy of India if it is covered by one of the three categories enumerated in Renusagar3. Although the same expression 'public policy of India' is used both in Section 34(2(b)(ii) and Section 48(2)(b) and the concept of 'public policy in India' is same in nature in both the Sections but, in our view, its application differs in degree insofar as these two Sections are concerned. The application of 'public policy of India' doctrine for the purposes of Section 48(2)(b) is more limited than the application of the same expression in respect of the domestic arbitral award.
28. We are not persuaded to accept the submission of Mr. Rohinton F. Nariman that the expression "public policy of India" in Section 48(2)(b) is an expression of wider import than the "public policy"
in Section 7(1)(b)(ii) of the Foreign Awards Act. We have no hesitation in holding that Renusagar must apply for the purposes of Section 48(2)(b) of the 1996 Act. Insofar as the proceeding for setting aside an award under Section 34 is concerned, the principles laid down in Saw Pipes1 would govern the scope of such proceedings.
29. We accordingly hold that enforcement of foreign award would be refused under Section 48(2)(b) only if such enforcement would be contrary to (i) fundamental policy of Indian law; or (2) the interests of India; or (3) justice or morality. The wider meaning given to the expression "public policy of India" occurring in Section 34(2)(b)(ii) in Saw Pipes1 is not applicable where objection is raised to the enforcement of the foreign award under Section 48(2)(b).
30. It is true that in Phulchand Exports, a two-Judge Bench of this Court speaking through one of us (R.M. Lodha, J.) accepted the submission made on behalf of the appellant therein that the meaning given to the expression "public policy of India" in Section 34 in Saw Pipes1 must be applied to the same expression occurring in Section 48(2)(b) of the 1996 Act. However, in what we have discussed above it must be held that the statement in paragraph 16 of the Report that the expression "public policy of India used in Section 48(2)(b) has to be given a wider meaning and the award could be set aside, if it is patently illegal" does not lay down correct law and is overruled."
It is pertinent to note that the agreement which contains arbitration clause is not in dispute. It is also undisputed that the buyers have accepted the goods. The buyer in spite of notice of the arbitration has failed to participate. The attempt by the buyer to resist commencement of the arbitration proceeding has also failed. The buyers now want to contend that the award is vitiated by reason of non-disclosure of the letter dated 14th February, 2011.
In my view, it is not open for a party who has consciously avoided a proceeding and did not participate in the arbitration proceeding to allege at the stage of enforcement that the award is vitiated by fraud by non- disclosure of a document. It was incumbent upon the buyer to respond to the several notices issued by the Tribunal and to submit its defence. Although, the said letter may not have been produced but subsequent correspondence between the parties were disclosed which clearly shows that the claimant buyer has categorically denied its obligation to produce any quality inspection report at the port of destination. The Tribunal was conscious of the fact that payment was refused in view of alleged failure by the seller to produce the quality inspection report at the port of destination and dealt with the issue and arrived at a finding that the seller is not responsible. The Tribunal has the jurisdiction to decide the issue and has decided the issue in one way or the other. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law. Arbitration is consensual and some amount of laxity should be given while scrutinizing an award. A sense of informality is attached to such proceeding. It cannot be scrutinized with an Eagle's eye or as an appellate authority. The objection to enforcement of a foreign award is extremely limited. Moreover, in view of the order passed by the Division Bench in refusing to pass any order of injunction restraining commencement and/or continuation of the arbitration proceedings it cannot be said that the award was passed in violation of any order passed by a superior Court. The relevant observations of the Division Bench in this regard are:-
"The intention of the parties to have their disputes resolved by arbitration cannot be doubted. The parties have entered into such contract with their eyes wide open. They have decided that all disputes are to be resolved, adjudicated and decided by arbitral tribunal to be constituted under the GAFTA Rules. The principal ground for avoiding the said Tribunal is of forum inconvenience. The additional grounds appeared to be that there is no agreement between the plaintiff and the defendant to refer any dispute arising out of the said contract to arbitration either as per GAFTA Rules, 125 in London or otherwise. In deciding the said issue, the reference is required to be made to the contract containing such arbitration clause. There cannot be any dispute that the obligation to make payment or avoidance of any such payment is arising out of a transaction covered by the contract which contains the arbitration the arbitration clause.
In the instant case, there is no dispute that the said contract containing arbitration clause has been validly and duly executed by the parties.
The ground to resist the said arbitration is that it involves prohibitive costs. The appellant was not compelled to execute the said agreement. The appellant precisely knew at the time of execution of the contract that in the event of any dispute arising out of the said contract, it would be governed by the GAFTA Arbitration Rules, 125. In absence of any demonstrable injustice or harassment being caused by reason of initiation of the arbitral proceedings or participation in such proceeding and having regard to the fact that the agreement is not in dispute, in our view, the plaintiff is not entitled to an order of injunction."
The buyer, of course, is not challenging the order on that ground. The circumstances are such which clearly debars the buyer to challenge the award on the ground that it is against public policy.
The buyer has argued that there has been a breach of natural justice and the finding of the arbitral tribunal that the buyer was responsible to produce the quality certificate at the port of discharge is contrary to the terms of the contract which should shock the conscience of the Court and such finding is against justice and morality. It is a settled law that interpretation of the contract and appreciation of the evidence by the arbitral tribunal cannot be reopened by arguing that the foreign award is contrary to the contract and, therefore, its enforcement would offend public policy of India. A party who has consciously and deliberately avoided a proceeding knowing fully well that the result of the proceeding may be adverse to its interest cannot complain of violation of natural justice. The petitioner was under no disability and nothing has prevented the petitioner to file its statement of defence along with documents. The petitioner is in effect seeking a review of the foreign award on merit which is not permitted in this proceeding. Lord Mansfiled in Holman v. Johnson stated that the principle of public policy is ex dolo malo non oritur action. No Court of law will lend its aid to a man who founds his cause of action upon an immoral or illegal act. The rule has been further illustrated by Russel by stating that grounds of public policy on which an award may be set aside include: (1) that its effect is to enforce an illegal contract; (2) that the arbitrator, for instance manifested obvious bias too late for an application for his removal to be effective before he made his award.
None of the above conditions apply in the instant case. The petitioner is not alleging fraud or bias by the arbitrator.
Even under the domestic award, a possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus, an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score. Once it is found that the arbitrators approach is not arbitrary or capricious, and then he is the last word on facts. The construction of the terms of the contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair minded or reasonable person would do, of course, the arbitrator cannot wander outside the contract and deals with the matters not forming the subject matter or allotted to him as in that case he would commit jurisdictional error.
The judgment in Associate Builders (supra), which was passed in relation to a domestic award also recognized and reaffirmed the settled law that where a cause or matters in differences are referred o an arbitrator, whether lawyer or layman, he is considered to be the sole and final judge of all questions of law and of fact obviously with the limited grounds of interference, namely, if it is opposed to fundamental policy of Indian Law, interest of India, justice or morality and patent illegality. It is an admitted position that the buyer did not participate in the proceeding nor has filed its pleading. The Tribunal on the basis of the materials on record has arrived at the following finding:-
"6.10. If we disregard the alternations envisaged by the Amendment to the Contract dated 7th December 2010, granting an even higher level for "Broken Grains" and "Dead, Damages and Discoloured Grains", the results provided by ISC were well within the parameters foreseen for the quality under the Contract. 6.11. The Tribunal therefore finds that the quality of the cargo shipped on the three vessels was within the amended contractual specifications.
6.12. In addition to the above, the relevant provision of the Quality Clause 5 of GAFTA Contract No.48, being a Tale Quale contract as such, states, inter alia:
"Certificate of Inspection at time of loading shall be final as to quality".
6.13. Consequently, and under consideration of the Payment Term of the Contract providing for payment "on receipt of the shipping documents", inter alia the above Pre-Shipment Certificates as issued by ISC and provided by Sellers, Sellers were duly entitled to trigger payment under the Contract.
6.14. We therefore find that Sellers' claim for payment of USD 440.00 per metric ton for all three partial shipments succeeds. 6.15. In reference with the balance of USD 10.00 per metric ton for each partial shipment, as agreed under the Amendment dated 7th December, 2010, the Amendment provided that the "Balance amount @ US$ 10.00 per MT will be payable after receipt of quality inspection report of destination port".
6.16. This indeed establishes an alteration to the original provision of the Contract that the quality would be final at the port of loading, at least as far as the balance of USD 10.00 per metric ton is concerned. On interpretation and construction of the Contract itself and its Amendment dated 7th December, 2010, the Tribunal notes that the Amendment itself defines in "1. Quantity" that the weight in accordance with the Contract would be still "final at loading" while the amended Payment Term now states that "a balance amount of US$ 10.00 per MT" would only "be payable after receipt of a quality inspection report of destination port". 6.17. We therefore find that the Contract had been validly altered to the provision that Sellers could only have triggered payment of the balance of USD 10.00 per metric ton after presentation of a quality inspection report from the port of destination, i.e. Bangladesh.
6.18 As no such quality inspection report had been presented by Buyers, despite various reminders from Sellers, until the present day, the GAFTA Sampling Rules No.124, cl. 6:1 provide that a "certificate of analysis" should be sent to the other party "within 14 consecutive days" after dispatch of the samples to the analyst.
6.19. Buyers in their message of 5 February, 2011 firstly explained that the quality of the cargo on the last vessel, i.e. MV Tu Man Gang, was inferior.
6.20. The Tribunal therefore finds that Buyers, with respect to cl. 6:1 of the GAFTA Sampling Rules No.124 were obliged to provide a certificate of analysis latest 14 days after that message dated 5th February, 2011, therefore, latest 20 February, 2011." The aforesaid finding, in my view, is in the realm of the interpretation of contract and passed on appreciation of evidence. This finding cannot be interfered with in this proceeding. The findings are not opposed to justice or morality or contrary to the public policy of India. The said award is not passed in contravention of any law of the land. Even the English decisions on the basis of which it was argued that the buyer stands discharged because of non-submission of the quality certificate at the port of destination does not assist the petitioner.
In Shamsher Jute Mills Ltd. (supra) the issue was:-
"If an F.O.B seller who has contracted for payment under a letter of credit to be opened by the buyer ships the goods but fails to obtain payment under the credit because of a failure on his part to comply with its terms, may he recover the contract price or damages for non- acceptance against the buyer."
It appears from the judgment that there is no clear evidence to establish that what exactly happened to the goods. Neither buyers nor sellers derived any benefit. The sellers' central contention was that a letter of credit is conditional payment only. If, therefore, a seller duly ships the goods and fails to obtain the payment under the letter of credit he is entitled to recover the price directly from the buyer, at any rate once the letter of credit has expired. The buyers appear to have agreed that a letter of credit is a conditional payment only, but contend that it is under the parties' contract the sole method of payment agreed. Justice Bingham on consideration of the materials on record stated that "if the seller fails to obtain payment because he does not and cannot present the documents which the terms of the credit, supplementing the terms of the contract, require, the buyer is discharged: that was the Ficom case. In the ordinary case, therefore, of which the present is an example, the due establishment of the letter of credit fulfils the buyer's payment obligation unless the bank which opens the credit fails for any reason to make payment in accordance with the credit terms against documents duly presented. I know of no case where a seller who has failed to obtain payment under a credit because of failure on his part to comply with its terms has succeeded in recovering against a buyer personally. If this were an available road to recovery, many of the familiar arguments about discrepancies in documents would be unnecessary. Bearing in mind the likelihood that buyers will (as here) sell on to sub-buyers, such a result would, I think, throw the course of international trade into some confusion. It must in my view follow that the sellers here, not having complied with the credit terms, cannot recover against the buyers personally".
The aforesaid decision is distinguishable on facts inasmuch as the award is passed on interpretation of the contract clause read with the GAFTA sample rules. The Tribunal held that the buyer has failed to furnish proof of inferior quality of food grains.
In Ficom S.A. (supra) the Court was concerned with a contract of sale in which the terms of the letter of credit and in particular of the documents to be presented under the letter of credit - were undefined in the sale contract. In deciding the said issue, the following approach was adopted:-
"I approach the matter in this way. It is plain on the authorities that parties to a contract of sale, under which payment is to be made by means of a letter of credit, can, by subsequently agreeing to terms of the letter of credit which differ from those specified in the sale contract, hereby vary their contractual obligation under the sale contract: see W.J. Alan & Co. Ltd. V. El Nasr Export and Import Co. [1972] 2 Q.B. 189; [1972] 1 Lloyd's Rep. 313. A somewhat similar case may arise where the parties do not, in their sale contract, define the terms of the proposed letter of credit. Where that occurs the letter of credit, as subsequently agreed between the parties, may fill the contractual gap and so supplement the terms of the sale contract; if that is not done, for example, where the parties are unable to agree on the terms of a letter of credit to be issued under a contract of sale, then the dispute may have to be resolved by defining where possible by means of implication or by resort to any approved custom of the trade, the terms upon which the parties must be taken to have agreed that the letter of credit should in due course be issued."
In Gutteridge & Megrah's Law of Bankers' Commercial Credits, 8th Edition, the learned Author made the following observation with regard to the said decisions:-
"3-29 In Ficom SA v. Sociedad Cadex Limitada and Shamsher Jute Mills Ltd. V. Sethia (London) Ltd. non conforming documents were presented under the credit. In the former case the sellers then disposed of the goods for their own account and in the latter the goods appear to have been sold in satisfaction of freight or warehouse costs with neither seller nor buyer deriving any benefit. In both cases it was held that the seller could only obtain the price through the letter of credit. In Shamsher Jute, Bingham J. said:
If the seller fails to obtain payment because he does not and cannot present the documents which the terms of the credit, supplementing the terms of the contract, require the buyer is discharged: that was the Ficom case. In the ordinary case, therefore, of which the present is an example, the due establishment of the letter of credit fulfils the buyer's payment obligation unless the bank which opens the credit fails for any reason to make payment in accordance with the credit terms against documents duly presented. I know of no case where a seller who has failed to obtain payment under a credit because of failure on his part to comply with its terms has succeeded in recovering against a buyer personally.
3-30 In the Shamsher Jute, Bingham, J. was dealing with a case where the failure to present documents required by the terms of the credit is the fault of the seller. In Saffron v. Societe Miniere Cafrika the seller shipped goods under an F.O.B contract in circumstances which enabled the buyer to obtain control of the goods upon shipment prior to issue of the bill of lading. The buyer then obtained a bill of lading made out in terms that prevented the seller from complying with the terms of the credit and as a result the seller could not obtain payment from the bank. The seller sued for the price. The High Court of Australia upheld the claim, saying:
The question could only arise in special circumstances, e.g. if the bank responsible for the credit were to become insolvent, or as here, where notwithstanding that the documents tendered were not in conformity with the letter of credit, the seller had lost control of the goods to the buyer.
The Court held that property in the goods had passed to the buyer and, the buyer not having restored dominion over the goods to the seller, the seller was able to maintain an action for the price. The seller had sold and delivered the goods to the buyer and was entitled to payment unless there was a term in the contract excusing payment. It held that on the facts there was no such term since the letter of credit was not confirmed and provided for part payment only of the price. The Court then considered what the position would have been if the letter of credit had been intended as the "primary source of payment" and said:
Had the issue been whether the letter of credit was intended as the primary source of payment, the answer would have been that it was. In that event, the further question would have arisen whether the circumstances in which that primary source failed excused the defendant from payment altogether. It would seem that the only possible ground upon which the seller could have been defeated in his claim for the price would have been that the seller was solely responsible for the failure of the primary source of payment."
(emphasis supplied) The learned Authors have also discussed the consequences of breach in the following Paragraphs:-
"3-42.Where the buyer fails to open a letter of credit in accordance with the contract of sale by the date required by the contract, this constitutes a repudiation of the contract and the seller is entitled to treat the contract as terminated and claim damages for non-acceptance of the goods.
3-43. Where the seller fails to perform an obligation which is a condition precedent to the buyer's obligation to open the credit or fails to present conforming documents to the bank within the time stipulated in the credit, this constitutes a repudiation of the contract of sale and the buyer is entitled to treat the contract as terminated and claim damages for non-delivery of the goods.
3-44. If the seller presents conforming documents to the bank, this will discharge his obligations under the contract in relation to the documents and he will be able to recover the sum due under the letter of credit. This will usually be the whole contractual consideration, but it need not be. If it is not the seller is entitled to recover such further consideration from the buyer as is payable under the contract of sale. If, when the goods are delivered, they do not conform to the contract quality, the buyer may claim damages for breach of warranty, or if the facts justify it may reject the goods and claim damages for non-delivery or return of the price as for a consideration that has wholly failed. 3-45. If it transpires that the documents tendered to the bank are fraudulent (by, for example, the bill of lading being ante-dated) and the bank pays the seller, the buyer may be able to recover damages from the seller for breach of contract or, if the facts justify it in deceit."
(emphasis supplied) Jack on Documentary Credits, 4th Edition has also discussed this aspect of the matter. The learned Author observed:-
"3.60 Whether the credit is conditional or absolute payment, if the seller presents documents to the bank that do not comply with the credit and are rejected the seller cannot sue the buyer directly unless the buyer has actually obtained the goods. This is so whether or not the goods conform to the contract. This is the clear outcome of both Soproma (1) and Shamsher Jute (2).
1 [1966] 1 Lloyd's Rep 367: see para 3.50 above.
2 [1987] 1 Lloyd's Rep 388: see para 3.54 above.
3.63 The buyer may receive the goods and yet the seller remain unpaid in two contrasting situations. One is where the credit provides for deferred payment and the documents are duly processed and taken up by the buyer in order to obtain the goods. The other is where the documents are not accepted, perhaps because the bank rightly rejects them, but the buyer nonetheless obtains the goods. He may, for example take delivery from the vessel without bills of lading by giving an indemnity to the shipowner. An equivalent result may obtain by reason of a fraudulent scheme devised by the buyer. He may for example have ensured that the letter of credit demands a document that the seller is unlikely to be able to provide, or he may have failed to extent the period of the credit to cover a later shipment to which the parties have agreed.
3.65 Where the documents have not been accepted and yet the buyer has received the goods one may be confined that the buyer will be held liable for the price. However, the legal basis for reaching this solution may be difficult to predict without knowledge of the precise circumstances. It might be held that by instructing the bank not to pay against the documents because of the discrepancies (the bank will usually request the buyer's instruction), the buyer has waived and right to treat the credit as payment. Where, as is likely, the seller has retained the right to possession of the goods, he has an alternative to his action for the price, which is to sue in the tort of conversion for the value of the goods. The buyer will have converted the goods by taking them if he had no title to them and no right to possession. This remedy is of particular use where the market has risen so that damages may exceed the contract price. In such a situation if the buyer has himself sold the goods - perhaps for a higher price - the seller may alternatively pursue a restitutionary action to recover the amount received by the buyer as the proceeds of his tort. If the goods have been delivered to the buyer without the buyer having duly presented bills of lading, the seller, if he retains the bills, will have a cause of action against the carrier for misdelivery, in English law for conversion. For an example of such a claim being made against a carrier and admitted by him in exchange for an assignment of the seller's rights under the credit, see Mannesman Handel AG v Kaunlaran Shipping Corpn."
The aforesaid decision was cited primarily that when the contract is silent as to who would produce the quality certificate, terms of the letter of credit can be looked into to fill up the gap, if any, in order to ascertain whose obligation it would be to produce such certificate.
It is an admitted fact that when the third consignment was received by that time the validity of the L/C had expired and the parties had agreed to replace the L/C by bill of exchange. There was no stipulation concerning the said consignment that the payment is subject to production of the Quality Inspection Report by the seller at the port of destination. Even for 2.22% there was no valid and subsisting L/C. The buyer nonetheless obtained the goods. The findings of the Tribunal would show that the buyers in spite of notice did not furnish any proof of inferior quality of the goods. The Tribunal has interpreted the contract clause with regard to furnishing a quality certificate at the port of destination to be the responsibility of the buyer and, in absence of any document to show that the goods were inferior in quality returned a finding in favour of the seller. The Court in this limited jurisdiction and the narrower scope within which the Court has to act under Section 48 of the Arbitration and Conciliation Act, 1996 is unable to accept the submission of the buyer that the said award is contrary to public policy of India or opposed to justice and morality.
In the instant case, in so far as the seller is concerned, it is quite clear that certificate at the port of loading is final. The reference to GAFTA Rules for the purpose of interpretation of the relevant contractual terms to find out who is responsible for the production of the quality certificate at the destination port by the arbitral tribunal, in my view, is entirely within the domain of the Tribunal and is within the realm of interpretation of the contract. Even a Court in dealing with a domestic award would not touch the award on this ground. In any event, such grounds of challenge are not coming within the purview of Section 48 of the Act.
The Court unhesitatingly accepts the submission of Mr. Bose that the English cases at this stage are academic as the Tribunal has proceeded on the basis that the award-holder seller is an unpaid vendor and the seller has discharged its obligation under the contract.
The application being G.A. No.3306 of 2016, accordingly, stands dismissed.
Execution Case No.487 of 2013 stands adjourned for two weeks. However, there shall be no order as to costs.
Urgent Photostat certified copy of this judgment, if applied for, be given to the parties on usual undertaking.
(Soumen Sen, J.)