Delhi High Court
Arosan Enterprises Ltd. vs Union Of India And Anr. on 20 May, 1993
Equivalent citations: 1993(2)ARBLR328(DELHI), 51(1993)DLT280, 1993(26)DRJ328, 1993RLR489
Author: Arun Kumar
Bench: Arun Kumar
JUDGMENT Arun Kumar, J.
(1) The subject matter of these proceedings is an award dated 18th August 1991 made by the arbitrators who were appointed by the respective parties. Under the award the respondents have been directed to pay to M/s Arosan Enterprises Limited (hereinafter referred to as the claimant) a sum of U.S. Dollars 29,28,000. The arbitrators have further directed that the payment in Us dollars will be subject to the permission being granted by the competent authorities under the Foreign Exchange Regulation Act 1973. In the event of the authorities not granting the permission, or even if such permission is granted but the respondents not paying the amount hereby awarded or not wanting to discharge their obligation by paying in foreign currency, the aforesaid amount be paid in equivalent Indian rupees calculated at the conversion rate prevailing on the date of decree by the court on the basis of the award.
(2) The award has been challenged by the Union of India as well as by the Food Corporation of India by filing objections. However, at the time of hearing, the Food Corporation of India alone was represented and pressed the objections filed on its behalf. The challenge to the award by the claimant is on two grounds, namely, none award of interest and the permission granted to pay the awarded amount in the equivalent of Indian rupees.
(3) Suit No.258 of 1990 is a suit filed by the claimant for permanent injunction to restrain the respondents from realisation of the performance bank guarantee submitted by the claimant in pursuance of the contract between the parties. During the pendency of the suit the claimant initiated the arbitration proceedings by appointing Shri K.C. Dewan, Advocate as its arbitrator. The respondents appointed Justice S.N. Shankar, retired Chief Justice of the Orissa High Court as an arbitrator on its behalf. In the course of proceedings in the suit the disputes mentioned in the rejoinder filed by the plaintiff/claimant were vide order dated 23rd November 1990 referred to the arbitration of the said two arbitrators and the suit was disposed of. It appears that since the disputes were referred to arbitration in Suit No.258 of 1990, the award made by the arbitrators and the proceedings were filed in the same suit. Notice of filing of award was issued to the parties on 9th September 1991. Both the parties filed separate petitions under Section 14 of the Arbitration Act for directions to the arbitrators to file the award and the proceedings in '63 court. The petition filed by the claimant was registered as Suit No.2795 of 1991 while the petition filed by the Food Corporation of India was registered as Suit No.3037 of 1991. Since the notice of filing of the award was issued in Suit No.258 of 1990 the rest of the proceedings were recorded in the said suit. The parties filed objections against the award. The respective objections of the parties Along with replies are in the files of their respective petitions under Section 14 of the Arbitration Act. On the basis of the objections issues were framed on 26th May 1990 to the following effect:- 1.Is the award liable to be set aside on the objections filed by the respective parties? 2. Relief.
(4) Counsel for the parties agreed to lead evidence by way of affidavits as well as to the record of the arbitration proceedings being read in evidence. Affidavits by way of evidence have been filed on behalf of both the parties. I have heard counsel for the parties at length.
(5) At the outset counsel for the claimant stressed that the objections against the award filed on behalf of the respondents were in the nature of challenge to the unanimous findings of the arbitrators based on the appreciation of the material on record. It was submitted that the court has a very limited jurisdiction while considering objections against an award. It cannot reappraise the evidence nor can it go into the questions of quality and quantity of evidence. It was added that even if on a given point two views may be possible and the court may be inclined to take a view different from that of the arbitrators, the court will not interfere with the award and will not substitute its judgment over that of the arbitrator. The submission of the learned counsel is that all the objections filed by the respondents against the award seek to challenge the findings of the arbitrators purely based on appreciation of evidence on record. The award is a reasoned award and the arbitrators have given their reasons for arriving at the various findings. The award does not suffer from any infirmity which falls within the scope of jurisdiction of the court to interfere with an award. The learned counsel has cited various judgments in support of his argument. On the basis of these judgments it is submitted that this court is precluded from considering the objections filed by the respondents against the award in the present case.
(6) The law on the question of scope and powers of the court to interfere with an award is almost settled through various judgments of this court and of the Supreme Court. For this reason I will only note the various judgments referred to in this connection. I do not consider it necessary to discuss the same. The judgments are:- 1.Coimbatore District P.T. Sangam Vs. Balasubramanian Foundary, . 2. State of Orissa Vs. Dandasi Sahu, . 3. Municipal Corporation of Delhi Vs. Jagannath, . 4. U.P. Hotels Vs. U .P.State Electricity Board, . 5. Jaghdish Chander Bhatia Vs. Lakshimi Dass Bhatia, 6. Gujarat Water Supply & Sewerage Board Vs. Uni Erectors (Gujarat) (P) Ltd. & another, . 7. M/s Sudarshan Trading Company Vs. Government of Kerala & another, . 8. Food Corporation of India Vs. Joginder Pal Mohinderpal, . 9. M/s Hind Builders Vs. Union of India, . 10. Associated Engineers Company Vs. Government of Andhra Pradesh, .
(7) However, for purposes of examining the question as to whether the award can be interfered with on account of the objections raised against it, it will be necessary to examine the objections. Before doing so, the facts leading to the making of the award have to be stated.
(8) On 4th October 1989 the Union of India floated a tender for purchase of sugar to meet the urgent requirement of sugar in the Indian market for the ensuing Dussehra/Deepawali festival season in November 1989. On 16th October 1989 the claimant offered to supply one lac metric tonne of sugar @ Us $ 480 per metric tonne C.I.F., delivery within thirty days of the receipt of letter of credit. The claimant's agent at New Delhi informed the Ministry of Food on 19th October 1989 that the sugar is lying ready for dispatch on ships afloat high seas and the same could be delivered at Indian ports before 31st October 1989. On 23rd October 1989 the claimant agreed to the contract for floating cargo on standard terms and conditions of contract. On 24th October 1989 the claimant confirmed to the Joint Secretary (Sugar), Department of Food, Government of India, the price for the sugar to be supplied by it at Us $ 480 per metric tonne C.I.F. The offer was accepted by the Union of India on 24th October 1989. A contract dated 25th October 1989 came into existence between the parties with a stipulation that the effective contract date will be 24th October 1989. The contract stipulated - "(A)That the claimant shall supply 58,000 M.T. of sugar (Net weight plus/minus 5% at sellers option) (b) That the claimant shall arrange Shipment of entire quantity of the contracted sugar so as to reach Indian Ports not later than 31st Oct. 1989;- shipment within the contracted, delivery period was to be the essence of the contract. In case of delay the seller was to be deemed to be in contracted default with a right to the buyer to cancel the contract. The buyer could however extend the delivery period at a discount as may be mutually agreed between the buyer and the seller. (c) That price payable was to be U.S. dollar 480 per M.T. (d) That the seller had to establish an unconditional irrevocable performance guarantee in favor of the buyer by any Indian Nationalised Bank at New Delhi for 10% of the total contract value of the maximum guaranteed quantity to be shipped, within 7 days of the contract. (e) That the payment was to be made to the seller by irrevocable letter of credit covering 100% value of the contract quantity. This L/c was to be established by the buyer within seven days of the receipt of an acceptable performance Bank guarantee (PBG). (f) The performance Bank guarantee (PBG) was to be by any Indian Nationalised Bank at New Delhi and was to be kept valid for a minimum period of ninety days beyond the last date of contract shipment period."
(9) In pursuance of the said terms and conditions the claimant furnished a performance bank guarantee (PBG) on 24th October 1989 issued by the State Bank of India for Us Dollars 29,28,000 . The buyers also performed their part of the contract in opening a confirmed and irrevocable letter of credit for the full value of the quantity of sugar contract. The claimant failed to make the supplies up to 31st October 1989. The contract was cancelled vide letter dated 8th November 1989 from the Joint Secretary (Sugar) Government of India addressed to the claimant. On 11th November 1989 the letter of cancellation was withdrawn by the respondents. The fact remains that no supplies were made at all. Finally on 25th January 1990 the respondents cancelled the contract at the risk and cost of the claimant and encashed the performance bank guarantee which the claimant had furnished. The amount of the performance bank guarantee was forfeited by the respondents.
(10) The claimants filed a claim for the refund of the amount realised by the respondents under the performance bank guarantee, i.e. Us Dollars 29,28,000. The claimants also claimed a sum of Us Dollars 77,11,268 on account of loss of profit and other expenses. Thus a total claim for Us Dollars 1,06,39,263 was made on behalf of the claimants before the arbitrators. The claimant further specifically asked the arbitrators to make an award in Us Dollars and not in Indian currency. While denying the claims of the claimant and justifying their action in forfeiting the amounts under the performance bank guarantee, the respondents made counter claim for damages suffered on account of breach of contract on the part of the claimant.
(11) The arbitrators have found that the breach of contract was on the part of the respondents. The basis of this finding is:- (A)Non fixing of a fresh date of delivery by the respondents after the letter of cancellation of contract was withdrawn on 11th November 1989; (b) failure of the respondents to suitably amend the letter of credit which the respondents had opened in favor of the claimant in pursuance of the contract.
(12) The learned counsel appearing on behalf of the Food Corporation of India has challenged the findings of the arbitrators on both these grounds.
(13) Regarding the first ground, i.e. non-fixation of a fresh delivery date by the respondents it is submitted that in the facts and circumstances of the case it was not necessary for the respondents to fix a fresh delivery date, To appreciate this point it is necessary to refer to certain correspondence exchanged between the parties at the relevant time. Admittedly the claimant failed to supply sugar up to the stipulated delivery date, i.e. 31st October 1989. There is a telex message on record dated 3rd November 1989 from the Joint Secretary (Sugar), Department of Food, Government of India to the claimant's representative at Delhi informing the claimant that it had failed to make the supplies up to 31st October 1989 in pursuance of the contract. The claimant was requested to meet the Joint Secretary immediately with shipment particulars. There is another telex on record dated 3rd November 1989 from the local representative of the claimant to the Food Corporation of India informing the latter that three ships laden with 25,000 metric tonnes of sugar were heading towards Indian Western Coast. The details and particulars thereof were to be supplied within the next twelve hours. The Food Corporation of India was requested to keep directions regarding off loading of the cargo ready. The claimants offered to supply another 25,000 metric tonnes of sugar at the same rate as another ship laden with said quantity of sugar was available. There is a telex dated 6th November 1989 on record which contains the particulars regarding the ships and the cargo. On 8th November 1989 the Food Corporation of India issued a telex which shows that the shipping instructions and the particulars of the ship etc. had not been received till then. The Food Corporation of India further complained that more than a week had elapsed since the stipulated delivery date. The claimant was asked to furnish vessel-wise details. The Food Corporation of India also made a complaint about delay in delivery in the said telex. There is a letter dated 8th November 1989 on record issued by the Joint Secretary (Sugar) whereby the contract for supply of 58,000 metric tonne of sugar was cancelled at the risk and cost of the supplier, i.e. the claimant because the claimant failed to arrange for the shipment of the entire quantity so as to reach the Indian Ports not later than 31st October 1989. This letter, though dated 8th November 1989, appears to have been issued on 9th November 1989. On 8th November 1989 itself a telex was issued by the local representative of the claimant to the Joint Secretary (Sugar), Department of Food, Govt. of India containing the vessel and the cargo details. On 9th November 1989 another telex had been issued by the local representative of the claimant to the Joint Secretary (Sugar), Department of Food, Govt. of India pointing out receipt of some garbled message on the same morning and informing the expected arrival date of the cargo on the West Coast of India as 14th November 1989. The particulars of the cargo and the vessel were also mentioned in the said telex. The last para of this telex is very material and is quoted as under:- "WESHALL Be Grateful For Immediate Positive Response And Acceptance Including ENHANCE- Ment Of The Amount In L/C. We Have Made All These ARRANGEMENTS."
(14) By this telex for the first time the claimant requested the respondents for acceptance of a fresh delivery date which was suggested as 14th November 1989 and for enhancement of the amount in the letter of credit. The enhancement of the amount was probably for the reason that additional cargo of 25,000 metric tonne was offered by the claimant to the Govt. of India. On 11th November 1989 the Govt. of India withdrew the letter dated 8th November 1989 whereby the contract had been cancelled. It is stated in the said letter that "the matter has since been reconsidered and the letter dated 8.11.89, referred to above, may be treated as withdrawn, without prejudice to the claims of the Govt. of India in terms of the contract". On 14th November,1989 the local representative of the claimant sent a telex to the Food Corporation of India with copy to Joint Secrctary(Sugar) requesting for declaring the discharge ports as two vessels with their cargo of sugar were heading for Indian Western Coast and their expected date of arrival was 15th November,1989. He further pointed out that the cargo which was heading for India earlier had to be diverted. Therefore, fresh arrangement had to be made which caused delay. He requested for extension of delivery period up to 30th November,1989 and amendment of the Letter of Credit. On 15th November 1989 the claimant's representative at New Delhi wrote a detailed letter, addressed to the Food Corporation of India explaining the claimant's difficulty. It was particularly pointed out in that letter that on account of cancellation of the contract on 8th November 1989 the cargo had to be diverted which resulted in loss of time. They offered to do their best to ensure arrival of the second cargo at the earliest and requested for extension of delivery period up to 30th November 1989 with consequential amendment in the letter of credit for acceptance of document. This letter is significant particularly for two points, i.e. the claimant's request for extension of delivery period up to 30th November 1989 and amendment in L/c so that the documents mentioned in the L/c could be accepted by the bank with extension of the delivery. The delivery date in the document to be submitted in pursuance of the L/c had to be amended and, therefore, the documents to be submitted for the L/c could not be the same as stipulated when the delivery had to be effected by 31st October 1989, i.e. the original stipulated date. On 20th November 1989 the claimant's representative at New Delhi sent another communication to the Joint Secretary (Sugar), Department of Food, Govt. of India drawing his attention to the correspondence exchanged between the parties including those dated 8th November 1989, 11th November 1989 and 15th November 1989. It was pointed out that the claimant had requested for extension of the delivery period up to 30th November 1989. However, no communication in this respect had been received by the claimant. Thus the claimant made a grievance that the decision of the Govt. of India as to whether extension of time was granted or not had not been communicated to the supplier till then. The claimant assured of its continued best efforts to make the supplies and hoped that the Govt. of India would agree to the request of the claimant for extension of time up to 30th November 1989. In this letter it was also pointed out that the cancellation of the contract on 8th November 1989 bad adverse repercussions on the goodwill of the suppliers and bad caused grave loss to them.
(15) Admittedly inspite of these requests of the claimant for extension of delivery period no fresh delivery date was notified by the respondents. Thus the extension of delivery period was never granted nor intimated to the supplier/claimant. The next material letter in this chain is the letter dated 25th January 1990 of the Joint Secretary (Sugar), Govt. of India to the claimant cancelling the contract at the risk and cost of the claimant. This letter is reproduced as under:- New Delhi, January 25, 1990 M/SArosan Enterprises Ltd., 3390, Midland Avenue, Scarborough Ontaria, Miv 4V7, Fax No.(416)299-0291 M/s I.T.P. (India) D-5/17,Vasant Vihar, New Delhi Tix No-031-72259 Itpl In Sub:contract No.2-23/SUG-IMP/89-ES,dated 24/25.10.1989 for supply of 58,000 tonnes of imported sugar. Sir, Your attention is invited to the contract mentioned above for supply of 58,000 MTs of imported sugar, Clause 3 whereof stipulates that the sellers shall arrange shipment of the entire quantity so as to reach Indian ports,basis coast as per Clause 4(i) ibid not later than 31st October 1989. 2. As you have failed to fulfill the contractual obligation within the stipulated time and time being the essence of the contract, the contract is hereby cancelled at your risk and cost. 3. The Performance Bank Guarantee tendered with reference to the above contract is also forfeited for the reasons mentioned above. For and on behalf of the President of India sd/- Joint Secretary (Sugar)"
(16) From the aforesaid correspondence and as a matter of law it has to be found whether extension of delivery period was required or not. From such a finding will follow the conclusion as to who has committed breach of contract. If extension of delivery period was necessary, the Govt. of India having failed to grant extension, the breach will be on the part of respondents. On the other hand if the extension of delivery period was not necessary it will follow that there was no breach of contract en the part of the respondents. In this behalf the arbitrators have found that the extension of delivery period was necessary and the respondents having failed to fix a fresh delivery date, committed breach of contract. The reasoning adopted by the arbitrators in this connection is that the withdrawal of the letter of cancellation bad the effect of reviving the original contract with all its terms and conditions except thc date of delivery. The date of delivery in original contract was 31st October 1989 and for delivery time was the essence of the contract. With the revival of the contract the term also stood revived. The arbitrators have noted that there is no reply from the respondents to the various letters/telexes of the claimant requesting for extension of delivery period and fixation of a fresh delivery date. In fact the arbitrators have noted the letter dated , December 1989 of the claimant to the Joint Secretary (Sugar) Govt. of India to the following effect:- "ln case for any reason whatsoever Government is not interested in taking the delivery of sugar from us, kindly intimate your firm decision so as to enable us to divert and dispose off the material held by us, in which case you are requested to release our performance bank guarantee forthwith.."
(17) The arbitrators have found that the conduct of the respondents in maintaining a complete silence in this connection was totally unjustified and illegal. Thus the respondents were found to have committed breach of contract. The learned arbitrators have observed that in the final letter of cancellation of contract dated 25th January 1990 the respondents have given the ground 'for cancellation as failure to fulfilll the contractual obligation of supplying the material by the stipulated date, i.e. 31st October 989. The said date already stood waived in view of the revival of the earlier cancellation of contract, therefore, there could be no cancellation of contract again account of non-supply of material up to the original stipulated date, i.e. 31st October 989.
(18) The learned counsel for the objector vehemently argued that the Govt. was not required to fix any fresh date of delivery and, therefore, there was no question issuing any formal letter of extension of delivery period. He has referred to the telexes on behalf of the claimant dated 8th and 9th November 1989 showing that goods were heading towards Western Coast of India with laden cargo and were expected to reach the ports by 14th November 1989. He has stressed that it was on the basis of these representations of the claimant that cancellation of contract was withdrawn on 11th November 1989 which according to the learned counsel means It delivery date automatically got extended up to 14th November 1989 and it was not necessary for the Govt. to notify this date separately. The learned counsel went 1991 to submit that goods did not arrive on 14th November 1989, in fact they never arrived. In such circumstances he posed the question as to whether the Govt. was still expected to continue to wait turn the goods and keep on specifying fresh delivery dates? It is further submitted that the supplier ought to have supplied the goods and it was for the buyer whether to accept late delivery or not. In a nutshell the argument on behalf of the objector is that when the revival of the contract was on the basis of representation of the claimant that the goods will be reaching Indian ports by 14th November 1989, it was not necessary for the Govt. to specify a fresh delivery date. The revival of the contract is on the basis of specific representation about the date of delivery and the Govt. was not called upon to fix a fresh delivery date.
(19) Having considered the whole argument on behalf of the objector in the background of the material on record firstly I am unable to persuade myself that I can interfere with the finding of the arbitrators. The finding is purely based on appreciation of the material on record and the legal consequences flowing there from. There is no error apparent on the face of the record nor there is any excess of jurisdiction on the part of the arbitrators. Secondly, even on appreciation of the material on record in this connection I am of the considered view that no view other than the view taken by the learned arbitrators is possible on this point. The finding of the arbitrators is fully justified on the basis of the material on record and in law. The contract itself envisages that the respondent buyer can take delivery of the material after the stipulated date with levy of some penalty. However in that event the buyer had to extend the delivery period. The buyer intended to take delivery after 31st 0ctober,1989 is clearly established. The Food Corporation of India letter dated 8th November 1989 shows that the Govt. was still interested in taking the delivery of the goods. Therefore, the claimant was justified in asking for extension of deliver) period or fixation of a fresh delivery date. Again, the claimant notified to the buyer the approximate date of the ships reaching the Western Coast of India as 14th November 1989 which means that 14th November 1989 was not a firm date and in the same telex dated 9th November,1989 a request for immediate positive response was made, i.e. the claimant wanted to know whether the Govt. was prepared to accept the delivery on or about 14th November 1989. These messages of the claimant clearly envisaged a positive response regarding extension of delivery period on fixation of fresh delivery date.
(20) Looking at the question from another angle the same conclusion flows. The original stipulated date of delivery was 31st October 1989 and date of delivery was essence of the contract. The contract was cancelled vide letter dated 8th November 1989. The letter dated 8th November 1989 was withdrawn on 11th November 1989. This means that the contract which was cancelled on 8th November 1989 stood revived. With the revival of the contract all the terms and conditions of the contract stood revived. However, the condition of supply of material by 31st October 1989 had to be fixed afresh, since that date had already passed. Time of delivery was of essence of the contract and 31st October 1989 as the delivery date did not survive, a fresh deliver date had to be stipulated. The buyer had to fix a fresh delivery date and it having failed to do so, could not blame the supplier for non-delivery as per the contract. In other words when on 11th November 1989 the original contract was revived, a fresh delivery date had to be fixed. The effect of non-fixing of a fresh delivery date is that the contract was revived without a delivery date. The cancellation of the contract on 25th January 1990 on the basis of non-delivery of material by 31st October 1989 was totally misconceived, untenable and illegal because 31st 0ctober,1989 had admittedly ceased to be the delivery date. The date of delivery had to be fixed by the buyer, therefore, breach of contract was on the part of the buyer.
(21) Another point to be noted in this connection is if the contention of the learned counsel for the objector that 14th November 1989 or 15th November 1989 was the fresh delivery date is correct and this is what the Govt. believed to be correct, why in the final letter of cancellation dated 25th January 1990 this date was not mentioned as the date on which non-performance of the contract took place? Further, if the respondents rely on the claimant's telex of 9th November, 1989 for the representation regarding 14th November,1989 being the delivery date, they cannot be permitted to ignore another part of the same telex where claimant sought positive response about amendment of telex. Again accepting the argument that 14th November,1989 or 15th November,1989 were the fresh delivery dates will amount to permitting respondents to blow hot and cold. This is because 14th November,1989 or 15th November,1989 can be said to be fresh delivery dates only on the basis of telexes of claimant up to 9th November,1989. Then why did the respondents issue cancellation of contract on 9th November,1989? Why extend delivery date as well as cancel the contract? In this respect the legal position as set out by Benjamin on Sale of Goods at page 345 needs to be stated : WAIVER: Where the buyer voluntarily accedes to a request by the seller that delivery of the goods be postponed, he may be held to have waived his right to insist that the goods be delivered within the time fixed by the contract of sale. Such a waiver need not be in writing and no consideration for the waiver need be proved to have moved from the seller. The buyer may likewise be held to have waived (or to be estopped from asserting) his right if, by words or conduct, he has led the seller to believe that he will accept delivery at a later time than that stipulated in the contract. But the seller must prove a clear and unequivocal representation to that effect, and also that he has altered his position in reliance on the representation, or at least acted or omitted to act in reliance on it so that it would be inequitable in all the circumstances for the buyer to go back on the representation. If he can establish such waiver, then the buyer will not thereafter be entitled to reject the goods on the ground that they were not delivered within the contract time. If the period of postponement is not specified, the buyer can give reasonable notice to the seller requiring that the goods be delivered within a certain time, and, if he so specifies a new time limit, delivery at the time thus specified becomes of the essence of the contract. Since the waiver is for the benefit of the buyer, he too is precluded from relying on the time originally specified in the contract.
(22) It appears that the argument that 14th November,1989 or 15th November, 1989 were the fresh delivery dates is an afterthought. If the respondents believed that these were the delivery plates, nothing prevented them from saying so at the relevant time. The claimant repeatedly asked them to fix fresh delivery date. Respondents could reply that these were the dates.
(23) In the alternative the learned counsel for the objectors contended that the effect of the telexes dated 8th and 9th November,1989 from the claiment to the respondents was that the goods stood appropriated to the contract and it was the obligation of the seller to supply those very goods to the respondents. No other goods could be offerred or delivered by the supplier subsequently. This contention has been extended to even say that the supplier was bound to effect delivery in view of the appropriation of the goods to the contract and fixation of any delivery date by the buyer was not at all necessary. I have considered this contention. However, I am unable to accept the same. Stage for appropriation of the goods to the contract never arose. Facts on record show that the claimant failed to supply the goods by 31st 0ctober,1989, the date stipulated in the original contract. The offer to supply goods thereafter could only be subject to consent and approval of the respondents. The consent and approval never came from the respondents side. Therefore, it cannot be said that goods were appropriated to the contract.
(24) The other ground on which the learned arbitrators have found that the respondents committed breach of contract is the failure of the respondents to amend the letter of credit. In this connection, it is to be noted that it was admittedly a term of the contract that the payment of the entire contracted quantity had to be made through an irrevocable letter of credit. There is no dispute that an irrevocable letter of credit had been opened in favor of the supplier/claimant as per the stipulation under the contract. The question raised is in view of the fact that original stipulated delivery date was not adhered to, did the letter of credit opened by the buyer require any amendment? The learned counsel for the objector submits that in view of the words, language and terms & conditions of the letter of credit, no amendment was required. On the contrary, the case of the claimant is that in the facts and circumstances of the case the letter of credit furnished by the buyer required amendment. Learned Arbitrators have held in the impugned award that the letter of credit required amendment which the buyer/respondents failed to carry out and, therefore, the respondents committed breach of contract. The question of amendment of the letter of credit has been raised in the context of the fact that the originally stipulated delivery date was not adhered to. According to the learned counsel for the claimant, the letter of credit incorporates the date of delivery and it requires certain documents to be furnished before the letter of credit could be operated, The documents to be furnished have to indicate the date of delivery. The original delivery date incorporated in the letter of credit was 31st 0ctober,1989. Unless the said date was amended, the bank would not have honoured the letter of credit and the claimant would not have been able to realise the price of the goods supplied. Therefore, without amendment of the letter of credit, the claimant could not take the risk of supply of the goods. Respondents' reply to this is that the letter of credit was valid for three months from the date of its issue i.e. it was valid up to 29th January,1990 and, therefore, it was not necessary to incorporate any fresh delivery date under the letter of credit by way of its amendment. According to the learned counsel for the objector, the letter of credit is an independent document and operates on its own force. It is further submitted that the letter of credit does not contain any limitation about its enforceability and was valid for three months. Therefore, for any delivery made within three months period, the same could have been operated and money realised. In order to make out a case for interference with the award by this Court, it was submitted that the letter of credit was furnished in pursuance of the contract and, therefore, was part of the contract. The learned counsel for the objector further submitted that the learned arbitrators misread the letter of credit and, therefore, interference by this Court was called for. To make good this submission, learned counsel submitted that the arbitrators wrongly based their decision on the format of the letter of credit rather than on the actual letter of credit. In the format the relevant term is given as under:- "THIS credit is valid for shipment during up to - And for negotiation up to - subject to negotiation within 21 days from the date of last Bill of Lading if shipment is from Latin American or Caribbean Port(s). Otherwise negotiation should be within 15 days from the date of last Bill of Lading."
In the actual letter of credit, the corresponding clause is as under- "This credit is valid for negotiation up to 3 months from the date of letter of credit subject to negotiation within 21 days from the date of the report of independent/joint surveyor referred to in clause 5 of the document."
(25) On the basis of the clause reproduced above, it is submitted that the actual letter of credit does not contain any shipment date and is valid for negotiation for three months. Therefore, it does not require any amendment even if the original stipulated delivery date did not survive. On the face of it, this argument may look attractive. However, a reference to the actual letter of credit as a whole totally demolishes the argument. In the above reproduced clause of the actual letter of credit, of course, there is no mention of the delivery date. However, there are other provisions in the letter of credit which make date of delivery very important. In the list of documents required for the purpose of operation of the letter of credit, serial No.3 is "beneficiery's certificate to the effect that all the terms and conditions of the contract dated 24th 0ctober,1989 and its annexures between the beneficiary and the applicants for the credit have been fully complied with - one original and two copies". Under serial No.5 certificate of inspection of quality, weight and packing etc. issued by independent surveyors are required. In these certificates, amongst other things date of commencement and completion of discharge are required to be mentioned as per sub clause 'D'. Along with these certificates of inspection also there is a requirement of submitting photocopy of signed contract between the beneficiary and applicants for the credit as per sub clause 6. The other instructions in the letter of credit provide in clause 3 "documents with discrepancy should not be negotiated without our approval." Under the head "other terms and conditions" is mentioned the requirement at serial No.4 that the negotiating bank should forward the documents to the instructing bank while certifying that the terms and conditions of the credit have been complied with giving the following details : A.Letter of credit number and date. b. Invoice number. c. Name of the vessel. d. Date of shipment. e. Quantity shipped.
(26) The letter of credit is dated 26th October, 1989. The letter of credit lastly incorporates that it is subject to the Uniform Customs and Practice for Documentary Credits (1983 Revision) International Chamber of Commerce, Publication No.4(X). Since the letter of credit was subject to Uniform Customs and Practice for Documentary Credits , it may be worthwhile to refer to some of its relevant provisions:-
ARTICLE3: Credits, by their nature, are separate transactions from the sales or other contract(s) on which they may be based and banks are in no way concerned with or bound by such contract(s), even if any reference whatsoever to such contract(s) is included in the credit.
ARTICLE4: In credit operations all parties concerned deal in documents, and not in goods, service and/or other performances to which the documents may relate.
ARTICLE10: An irrevocable credit constitutes a definite undertaking of the issuing bank provided that the stipulated documents are presented and that the terms and conditions of the credit are complied with:
ARTICLE15: Banks must examine all documents with reasonable care to ascertain that they appear on their face to be in accordance with the terms and conditions of the credit. Documents which appear on their fact to be inconsistent with one another will be considered as not appearing on their face to be in accordance with the terms and conditions of the credit.
ARTICLE16: (b) If upon receipt of the documents, the issuing bank considers that they appear on their face not to be in accordance with the terms and conditions of the credit, it must determine, on the basis of the documents alone, whether to take up such documents, or to refuse them and claim that they appear on their face not to be in accordance with the terms and conditions of the credit.
(27) The law is settled that the letter of credit is an independent contract and operates on its own-force. It is equally well settled that the letter of credit operates strictly as per its own terms and conditions and any deviation by the paying bank will be at its own risk. Therefore, banks have to be strict in enforcement of the terms and conditions of a letter of credit. This is what the aforesaid provisions of the Uniform Customs and Practice for documentary Credit lay down.
(28) Reference has already been made to some of the important and relevant terms of the letter of credit involved in the present case. These show that the original delivery date of the contract had become part of the letter of credit. Unless the same was modified and the modified date had been notified to the banks, the banks would be paying under the credit at their own risk. No bank would be willing to take such a risk. "The result that follows is that the payment to the supplier/claimant would have been in jeopardy unless the letter of credit was amended. The intention in the original contract was that the supplier should get immediate payment through irrevocable letter of credit. Without amendment of the letter of credit, the said intention of the contract could not be fulfillled. The supplier was justified in ensuring that he would get the payment for the material supplied by him before the supplies were made. Pagets Law of Banking, 9th edition has this to say on the point at page 543:- . ISSUING and intermediary bankers The contract between the issuing banker and the paying or negotiating (intermediary) banker may partake of a dual nature. The relationship is mainly that of principal and agent, mandator and mandatory. In order that he may claim reimbursement for any payment he makes under the credit or the indemnity of an agent, the intermediary banker must obey strictly the instructions he receives, for by acting on them he accepts them and thus enters into contractual relations with the issuing banker. Further it is stated: Where the intermediary banker either pays or negotiates the beneficiary's drafts, he is the issuing banker's agent, entitled to the indemnity of an agent, provided he pays or negotiates in accordance with the conditions of the credit.
(29) The argument of the learned counsel for the objector that the arbitrators have based their decision on the formal of the letter of credit rather than the actual letter of credit does not stand scrutiny. The strict compliance with the terms and conditions of the letter of credit involved in the present case would require reference to delivery date. The original contract stood incorporated in the letter of credit and it contained the stipulated delivery date as 31st 0clober,1989. Certificate was required to be issued that the original contract had been fully complied with. This made it necessary that the date of delivery for the purpose of the contract had to be corrected. The original date of delivery did not survive and a fresh date of delivery for the purpose of contract was required to be mentioned. Looking at it from another angle, if amendment in the letter of credit was not necessary the respondents could say so in reply to the various letters of the claimant in this connection. Respondents did not care to reply to any of the letters or telexes of the claimant. This shows that the argument now being advanced is an afterthought.
(30) In this connection, reference to certain passages in Benjamin on Sale of Goods (3rd edition) will be useful. Strict adherence to application form IF the banker agrees to open the documentary credit, he must adhere strictly to the buyer's instructions as set out in the application form. Thus, if the buyer has stipulated the form of any document against which payment is to bemade, the banker must at his peril insist upon complete compliance. "There is no room for documents which are almost the same, or which will do just as well. Business could not proceed security on any other lines". In Midland Bank Ltd. Vs. Seymour the buyer instructed the issuing banker to open in favor of the seller a documentary credit to be available in Hong Kong. The banker opened a documentary credit which provided for the acceptance of drafts in London instead of Hong Kong. Delvin J. held that if the banker was authorised to pay only in Hong Kong then although the place of payment might be commercially immaterial the banker had exceeded his mandate and could not recover. Similarly, in Rayner(J.H.) & Co. Ltd. Vs. Hambro's Bank Ltd. Goddard L.J. said that the banker should not attempt to exercise a discretion with a view to giving the best protection to the buyer; the banker's only concern is to carry out the orders given to him".
Banker's duty to examine the documents : Under article 15 of the U.C.P. banks must examine all documents with reasonable care to ascertain that they appear on their face to be in accordance with the terms and conditions of the credit. Documents which appear on their face to be inconsistent with one another are considered non-complying.
(31) The language of article 15 indicates that the issuing banker is not responsible if he fails to notice a defect that a prudent inspection is unlikely to disclose. Basically, the examination concerns the description of the goods and the regularity of each document. It is not the duty of the banker to consider the legal effect of each clause in a document or to look at it under a fine microscope. But the banker must undertake a more thorough examination if documents, which appear to comply with the provisions of the application form, contain any unusual feature. According to an American authority, such a "red flag" puts the banker under an obligation to scrutinise the documents for any clues which may aid in determining whether the terms of the documentary credit and the application form have been met. Construction of terms of credit :
(32) The insistence upon strict compliance is continually reiterated. In English, Scottish and Australian Bank Vs. Bank of Sough Africa, Bailhache J. remarkied: it is elementary to say that a person who ships in reliance on a letter of credit must do so in exact compliance with its terms. It is also elementary to say that a bank is not bound or indeed entitled to honour drafts presented to it under a letter of credit unless those drafts with the accompanying documents are in strict accord with the credit as opened. Thus, if a certificate signed by experts is required, a certificate signed by a single expert is a bad tender. Similarly, a set is non-conforming if the bill of exchange is drawn on the issuing bank instead of the buyer. The duty of strict compliance prevails in all the contracts which occur in a documentary transaction, that is, the contract between the buyer and the banker, the contract of banker and seller and in the relationship of issuing and correspondent banker. The doctrine is best illustrated by the fact that the rule de minimis non curat lex does not apply in documentary credit transactions. However, some mitigation of the harshness of the doctrine is to be found in the principle that the credit should be interpreted as a whole.
(33) The result of the above discussion is that it is not open to the objector to urge that the arbitrators were wrong in holding that it was incumbent on the buyer to inform the bank about the changed situation and suitable amendments in the letter of credit should have been made. Learned counsel for the objector is wrong when he states that the date of delivery is nowhere mentioned in the letter of credit. The date of delivery finds mention in view of the incorporation of the contract in the letter of credit and in view of the requirement of the letter of credit of the certificate regarding strict compliance of all the terms and conditions of the original contract.
(34) In the impugned award, learned arbitrators have found that the letter of credit bad been established on the basis of the original contract which stipulated a fixed time for delivery. After cancellation of the original contract and its revival the position had changed materially. It was incumbent on the respondents to apprise this position to the bank and make suitable changes in the letter of credit. The claimant could get payment under the letter of credit only after satisfying the bank that they had shipped the contracted sugar in accordance with the contract. There is nothing on record to show that the respondents took any steps to inform the bank of the changed position so that the shipping documents presented by the claimant after 31st 0ctober,1989 could be examined by the bank in the light of the new situation. On the basis of this, the learned arbitrators have found that "result of omission was that the letter of credit as opened originally could not be availed of by the claimants for shipment to be made after 31st 0ctober,1989. This was a clear breach of the obligation cast on the respondents by the term of the contract". The learned arbitrators have also referred to certain oral evidence recorded before them on this question to which an objection has been taken by the learned counsel appearing for the F.C.I. The objection is that in view of the provisions of Section 92 of the Indian Evidence Act, when the letter of credit is on record, oral evidence ought not to have been looked into. I have examined the question on the basis of the plain language of the letter of credit without reference to any oral evidence and found against the objector. Therefore, the argument based on Section 92 of the Indian Evidence Act need not be considered.
(35) I find no substance in the objection against the finding of the arbitrators that the letter of credit required amendment which the respondents failed to carry out and thus committed breach of contract.
(36) Under the circumstances and having perused all the objections of the objector, F.C.I, regarding finding of the arbitrator on the question of breach of contract, I find that the decision of the learned arbitrators can not be faulted. The findings of the learned arbitrators are perfectly in accordance with the material on record and law. This is besides my view that all the objections in this behalf are such that they do not fall within the scope of jurisdiction of this Court in dealing with an award. The findings of the learned arbitrators are purely based on appreciation of evidence and the material on record are in accordance with law.
(37) This brings me to the objections to the award on behalf of the claimant M/s Arosan Enterprises Ltd. The first objection is regarding the option given by the arbitrators to the respondents to pay the amount under the award in Indian currency. The second objection is on account of non-award of interest by the arbitrators on the amount awarded in favor of the claimants.
(38) So far as the question of payment of the awarded amount in Us dollars is concerned, it is submitted on behalf of the claimant that the claimant is a foreign party. The contract is in Us dollars and the price was payable in Us dollars for which purpose an irrevocable letter of credit had been established by the buyer in favor of the seller. The performance bank guarantee was furnished by the claimants in Us dollars. The money realised by the respondents under the performance bank guarantee was in Us dollars. Therefore, the claimant submits that it should be paid the awarded amount in Us dollars. According to the claimant it being a foreign party it will have no use for rupees and payment in Indian currency will mean nothing.
(39) In fact the arbitrators have held that "the claimants are entitled to relief in the same currency, i.e. Us dollars". Having held this the learned arbitrators have gone on to give an option to the respondents to pay in Indian currency if the permission for payment in Us dollars is not granted under the Foreign Exchange Regulation Act to the respondents. The arbitrators have further added in the award that even if the permission is granted and "the respondents do not or are unwilling to make payment in foreign currency the rupees equivalent of 29,28,000 Us dollars calculated at the rate of exchange prevalent on the date of this award is made a rule of the court, will be recoverable from the respondents". The learned arbitrators have relied on a judgment of Supreme Court in Forasol vs. Oil & Natural Gas Commission, . The point of distinction in the present case is that the award is against the Union of India itself. The contract was between the claimant and the President of India. The permission envisaged under the Foreign Exchange Regulation Act itself is to be granted by the Govt. Therefore, when the direction is to the Govt. to pay the money the question of permission under Fera should not come in the way of payment being made in foreign exchange. Apart from this legal aspect the fact cannot be ignored that the money under the performance bank guarantee was realised by the respondents in foreign currency. It has been held in the award that the realisation of the money under the performance bank guarantee was unjustified and illegal on the part of the respondents and, therefore, the respondents are being directed to pay back the said amount to the claimant. It will only be fair to ensure that the amount is returned to the claimant in the same currency in which it was realised from the claimant by the respondents. I do not find anything in the judgment in the Forasol case (Supra) which prevents the direction being issued that the respondents should pay the amount under the award to the claimant in Us dollars. The learned counsel for the respondents really did not have anything to say on this point.
(40) As already observed the contract was with the Union of India and the award is against the Union of India which has been saddled with joint and several liability Along with the Food Corporation of India. The Food Corporation of India was only an agent of the Union of India to handle the contract. Inspite of the Food Corporation of India being in the picture, the contract has been mainly handled by the Union of India. When the Government has to pay, the provisions of the Fera do not come in the way. The provisions of the Fera are not attracted at all. In the Forasol case (supra) Union of India was not the judgment debtor. This is the essential point of difference between the present case and the judgment in the Forasol. Thus, the Forasol case does not apply in view of the peculiar facts of this case. This distinction appears to have escaped the learned arbitrators.
(41) In the peculiar facts of this case the question of option to pay in Indian currency to the respondents does not arise. This part of the award can be modified. I direct that the amount under the award be paid to the claimant in Us dollars.
(42) The claimant has also claimed interest @ 18% per annum from 1st May 1990 till payment on the amount claimed by it before the arbitrators. The claim of interest is made on the basis of provisions under the Interest Act,1978 as well as Section 34 of the Code of Civil Procedure. I may note here that the agreement between the parties does not contain any stipulation regarding interest. The claim of the claimant for award of interest was before the arbitrators for their consideration. The said claim had been rejected by the learned arbitrators only on the ground that there is no sufficient evidence on record to prove the claim. The claim for interest has not been rejected on the ground that the arbitrators had no power to award interest. The learned counsel for the claimant submits that the transaction involved is a commercial transaction. The claimant had to incur expenses for arranging for the performance bank guarantee and had been paying interest to its bankers on the amount of the performance bank guarantee. He further submits that the claimant has been deprived of the use of the money to which it was entitled specially in view of the fact that the breach of contract has been held to be on the part of the respondents and, therefore, the realisation of the money under the performance bank guarantee furnished by the claimant to the respondents was wrong and illegal. The claimant claims to be entitled to compensation for all the expenses and loss of interest suffered by it on this account. Learned counsel for the claimant has placed reliance on a-, recent judgment of the Supreme Court in Secretary, Irrigation Department, Govt. of India & Ors. vs. G.C. Roy, . In the said judgment the Supreme Court held that:-
"ON a conspectus of aforementioned decisions, the following principles emerge:- (i) A person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages. This basic consideration is as valid for the period the dispute is pending before the arbitrator as it is for the period prior to the arbitrator entering upon the reference. This is the principle of S. 34, Civil Procedure Code ., and there is no reason or principle to hold otherwise in the case of arbitrator. (ii).......... (iii).......... (iv) Over the years, the English and Indian Courts have acted on the assumption that where the agreement does not prohibit and a party to the reference makes a claim for interest, the arbitrator must have the power to award interest pendente lite..... (v).........
Further it was observed in para 45 of the judgment:- "When the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (along with the claim for principle amount or independently) is referred to the arbitrator, he shall have the power to award interest pendent lite. This is for the reason that in such a case it must be presumed that interest was an implied term of the agreement between the parties and therefore when the parties refer all their disputes - or refer the dispute as to interest as such - to the arbitrator, he shall have the power to award interest. This does not mean that in every case the arbitrator should necessarily award interest pendente lite. It is a matter within his discretion to be exercised in the light of all the facts and circumstances of the case, keeping the ends of justice in view."
(43) In view of this judgment power of arbitrators to award interest has not been disputed by the learned counsel for the respondents. He, however, submitted that there was no material on record for award of interest in favor of the plaintiff.
(44) On the basis of this judgment of the Supreme Court the claimant claims interest from the date the performance bank guarantee was realised by the respondents till the date of payment @ 18% perannum.'As already pointed out the agreement between the parties does not contain any stipulation regarding interest. That means the agreement neither grants interest nor prohibits grant of interest. Therefore, following the judgment of the Supreme Court I am of the view that the claimant is entitled to interest and the observation of the learned arbitrators that there is no sufficient evidence on record to prove the claim for interest is not justified. No formal evidence is required. The court can take judicial notice of the prevailing rate of interest in relation to commercial transaction and interest can be awarded on that basis. The claimant has claimed interest @ 18% per annum. In the facts and circumstances of the case I consider that interest @ -10% per annum would be a reasonable compensation to the claimant. The question still remains as to the date from which the .claimant should be entitled to interest. The claimant has claimed interest w.e.f. 29th January,1990, the date on which the amount under the performance bank guarantee was realised by the respondents. The claimant made a claim on account of interest for the first ' time in the statement of claim filed by it on 11th August 1990. I consider the said date to be the appropriate date from which the claimant should be allowed interest. The award can be modified to this extent and it is not necessary to remit the same to the arbitrators.
(45) Accordingly I grant simple interest in favor of the, claimant on the amount of the award @ 10% per annum w.e.f. 11th August, 1990 till payment of the awarded amount.
(46) This disposes of the objections of both parties against the award dated 18th August 1991.-The objections filed on behalf of the respondents are dismissed with costs. The objections filed on behalf of the claimant are allowed to the extent indicated above. The award dated 18th August, 1991 , modified by this judgment is made a rule of the court and a decree is passed in terms thereof. The modified award will form part of the decree. The parties are left to bear their respective costs.
(47) S.NO.258 of 1990, Suit No.2795 of 1991 Along with I.A.1062/91 and Suit No.3037 of 1991 Along with I.AJ311/92 stand disposed of.