Kerala High Court
M/S.Afreco vs The Kerala State Cashew Development ... on 20 February, 2019
Author: V.Chitambaresh
Bench: V.Chitambaresh
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE V.CHITAMBARESH
&
THE HONOURABLE MR. JUSTICE R. NARAYANA PISHARADI
WEDNESDAY,THE 20TH DAY OF FEBRUARY 2019 / 1ST PHALGUNA, 1940
Arb.A.No. 10 of 2008
AGAINST THE ORDER IN OPARB 89/2002 of DISTRICT COURT,KOLLAM DATED
08-06-2007
APPELLANT/PETITIONER:
M/S.AFRECO, SA AFRICAINE D' ECHANGES,
COMMERCIANE, 04, BP 1078, ABIDJAN 04, IVORY COAST,
WEST AFRICA, REPRESENTED BY POWER OF ATTORNEY HOLDER
B.ABDUL RAHSEED, THEVALLY BUNGALOW, MANGADU P.O.,
KOLLAM.
BY ADV. SRI.ANIL XAVIER
RESPONDENT/RESPONDENT:
THE KERALA STATE CASHEW DEVELOPMENT CORPORATION LTD.
CASHEW HOUSE, MUNDAKKAL, KOLLAM, REPRESENTED BY ITS
MANAGING DIRECTOR.
ADV.SRI.C.UNNIKRISHNAN(KOLLAM)
THIS ARBITRATION APPEALS HAVING BEEN FINALLY HEARD ON 13.02.2019,
THE COURT ON 20.02.2019 DELIVERED THE FOLLOWING:
Arb.A.No.10/2008
2
"CR"
V.CHITAMBARESH
&
R.NARAYANA PISHARADI, JJ.
**************************
Arb.Appeal No.10 of 2008
----------------------------------------------
Dated this the 20th day of February, 2019
JUDGMENT
R.Narayana Pisharadi, J Liability to pay the price of the goods lost in transit, which were the subject matter of a C&F contract, is the core issue for consideration in this appeal.
2. M/s.AFRECO (hereinafter referred to as 'the seller') is a company incorporated in Ivory Coast. The seller and the Kerala State Cashew Development Corporation Limited (hereinafter referred to as 'the buyer') entered into an agreement on 07.01.1997. As per this agreement, the buyer agreed to buy and the seller agreed to sell 5000 metric tons of dry cashew nuts in shell of Ivory Coast origin. It was a C&F contract with special conditions. The price agreed to was 700 US dollars per metric Arb.A.No.10/2008 3 ton of landed weight and landed quality. The payment had to be effected by irrevocable letter of credit for 95% of the price against shipping documents and the balance 5% after any deduction that may had to be made after the certificate of weight and quality obtained from Society General de surveillance (SGS), Cochin.
3. Pursuant to the contract, the seller shipped 5498.145 metric tons of raw cashew nuts. The port of loading was Abidjan in Ivory Coast. The port of delivery was Cochin. It was the buyer to insure the goods for shipment by sea. The cargo reached Cochin Port on 11.04.1997. As per the certificate issued by SGS, the quantity of raw cashew nuts arrived at Cochin Port was only 5019.245 metric tons. There was also reduction in quality of 0.359%.
4. The buyer alleged that the seller had overdrawn the amount as there was shortage in quantity of goods delivered at Cochin. The buyer instituted a suit as O.S.No.157/1997 in the Sub Court, Kochi for realisation of the amount overdrawn by the seller. Since the contract between the parties provided for Arb.A.No.10/2008 4 resolution of the disputes by arbitration, the dispute was referred to arbitration. A retired Judge of the High Court of Kerala was appointed as the arbitrator.
5. The arbitrator found that the buyer is entitled to realise from the seller an amount of Rs.55,739.43/- US dollars with interest at the rate of 18% from 04.04.1997 till the date of payment or recovery.
6. The appellant/seller filed application under Section 34(1) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act') in the District Court, Kollam challenging the award passed by the arbitrator. As per the order dated 08.06.2007, the District Court dismissed the aforesaid application. The appeal is filed against the aforesaid order.
7. We have heard learned counsel for the parties and perused the records.
8. The facts narrated earlier are not in dispute. There is no dispute with regard to the fact that when the cargo reached the Cochin Port, the quantity was less than the quantity loaded on ship at the port of shipment.
Arb.A.No.10/20085
9. Learned counsel for the appellant made the following submissions: The contract was a C&F contract. The sale was complete when the seller loaded the goods on ship and delivered the documents to the buyer. Thereafter, the buyer was the owner of the goods. The seller had no control or title over the goods in transit in the ship. There were irregularities in conducting the survey at the port of delivery. The seller is not responsible for such irregularities. The certificate of survey issued cannot be accepted as reliable on account of the defects in the weighing of goods. There was no breach of contract committed by the seller. The goods were not properly weighed on arrival on account of laches on the part of the buyer. The seller is not responsible for the shortage of goods, if any found.
10. Per contra, learned counsel for the respondent contended that the contract was not a pure and simple C&F contract. It was a C&F contract modified by other conditions. Therefore, the buyer had not become the absolute owner of the goods on delivery of the documents and shipment of goods. The liability of the buyer to pay the price of the goods was subject to Arb.A.No.10/2008 6 the quantity and quality of the goods which reached the port of destination.
11. Before adverting to the controversial issues, the characteristics of a C&F contract may be noted. The expression "C and F" means that the price includes cost and freight to the named destination. C&F contract is not a destination but a shipment contract. If the seller has properly performed all his obligations with respect to the goods, the risk of loss or damage to the goods will pass on to the buyer upon shipment. Delivery to the carrier amounts to delivery to the buyer for purposes of risk and title. If the seller fulfils his duty on shipment of the goods, the risk thereafter is on the buyer unless other terms of the contract indicate a contrary intention. Delivery of possession of the goods is accomplished by delivery of the bill of lading and tender of the required documents. The bill of lading, in law and in fact, represents the goods and possession of the bill of lading places the goods at the disposal of the purchaser. The buyer must pay the agreed price without awaiting the arrival of the goods. If the goods are lost or damaged after proper shipment, Arb.A.No.10/2008 7 the buyer must seek his remedy against the carrier or insurer (See Wheels India Limited v. Khemchand Rajkumar:
(1970) 2 MLJ 648).
12. A transaction of C.I.F contract means the contract for the sale of goods at a price to cover cost, insurance and freight. Unless otherwise agreed, a C&F contract has the same effect and imposes upon the seller the same obligations and risks as a C.I.F. contract except the obligation as to insurance. It is well settled that the essential feature of an ordinary C.I.F. contract as compared with an ordinary contract for the sale of goods rests in the fact that, in the former, performance of the bargain is to be fulfilled by delivery of documents representing the goods and not by the actual physical delivery of the goods by the seller.
13. The House of Lords in the oft-quoted case Johnson v. Taylor Bros and Company (1920 A.C. 144) has explained the duties of the seller under a C.I.F contract. They are: First, to make out an invoice of the goods sold. Second, to ship at the port of shipment goods of the description contained in the contract. Third, to procure a contract of affreightment under Arb.A.No.10/2008 8 which the goods will be delivered at the destination contemplated by the contract. Fourth, to arrange for an insurance upon the terms current in the trade which will be available for the benefit of the buyer. Fifthly, with all reasonable despatch to send forward and tender to the buyer the shipping documents, namely, the invoice, bill of lading and policy of assurance, delivery of which to the buyer is symbolical of delivery of the goods purchased, placing the same at the buyer's risk and entitling the seller to payment of their price. These principles have got the seal of approval by the Supreme Court in Phulchand Exports Ltd vs Ooo Patriot : (2011) 10 SCC 300.
14. In Mahabir Commercial Company Limited v. C.I.T, West Bengal : AIR 1973 SC 430, the Supreme Court has held as follows:
"In a c.i.f. contract the seller has first to ship at the port of shipment goods of the description contained in the contract. He must then procure the shipping documents (contract of affreightment) as contemplated by the contract upon the terms current covering the whole transit of the goods. He must arrange for an insurance Arb.A.No.10/2008 9 for an amount equal to their reasonable value of shipment upon the terms current in the trade which will be available and it should be for the benefit of the buyer. He must also make out an invoice which is a written account of the particulars of goods delivered to the buyer with value of the goods or their price and charges etc. annexed. This invoice is made out debiting the buyer with the agreed price and giving him credit for the amount of freight which he will pay the ship owner on actual delivery. And lastly the shipper should tender the shipping documents to enable the buyer to deal with the goods in the usual way of business. He is also required to tender such other documents as are specified in the contract and if the contract is silent it is sufficient if the seller tenders the bill of lading, policy of insurance and invoice. All these documents must be valid on tender. Under the c.i.f. contract prima facie the property in the goods passes once the documents are tendered by the seller to the buyer or his agent as required under the contract. But where the seller retains control over the goods by either obtaining a bill of lading in his name or to his order, the property in the goods does not pass to the buyer until he endorses the bill to the buyer and delivers the Arb.A.No.10/2008 10 documents to him".
15. It is open to the parties to stipulate any conditions which they choose while entering into a contract for the sale of goods. Apart from the general features of a C&F contract, as mentioned earlier, it can take and assume various forms and patterns. According to the exigencies of every situation and the peculiar requirements of individual buyers and sellers, conditions may be incorporated in a C&F contract to suit the needs and demands in each case. Each and every C&F contract may not follow a rigid pattern.
16. In the instant case, the agreement entered into between the parties is not a pure and simple C&F contract. The agreement contains specific conditions regarding payment of price and delivery of goods. The price of the goods fixed was 700 US dollars per metric ton on landed weight landed quality. The contract contained the stipulation that payment of price shall be by irrevocable letter of credit, 95% against shipping documents and balance 5% after any deduction as against SGS certificate of weight and quality. The contract also contained the stipulation Arb.A.No.10/2008 11 that if weight is found less than that as specified in Bill of Lading and invoice, the amount proportionate to the quantity so found less shall be reduced from the price. Therefore, the contract between the parties was a C&F contract but modified or varied by the conditions mentioned above.
17. In the light of the aforesaid conditions contained in the contract entered into between the parties, the contentions of the appellant, which are based on the premise that the contract was a pure and simple C&F contract, cannot be accepted. As per the contract, the buyer was obliged to pay the price only on the landed weight and landed quality of the goods. Therefore, the plea that on shipment of goods and delivery of documents, the buyer became the absolute owner of the goods and that the seller had no further liability or obligation under the contract cannot be accepted. As rightly pointed out by the learned arbitrator, when the settlement of accounts on the price of goods is deferred to a date after the arrival of the cargo at the port of destination, it substantially affects the nature and incidents of the contract as a C&F contract.
Arb.A.No.10/200812
18. When the price payable on the goods is fixed on the landed weight and landed quality of goods, it amounts to modification of a pure and simple C&F contract. Then, the obligation of the seller does not come to an end by the shipment of goods and delivery of documents. The seller has then the obligation to deliver the goods covered by the contract to the buyer. The liabilities of the seller do not altogether end with the shipping of the goods and the despatch or delivery of the shipping documents relating to them. Delivery of goods is the ultimate objective of any contract of purchase. The contract shall be performed in the manner indicated in the contract. If, after the goods reached the port of destination, the buyer finds them not to conform to the contract, either in regard to quantity or in regard to quality, he is only liable to pay the price as agreed by him in the contract, that is, on the landed weight and landed quality of goods.
19. Normally, even after the seller has delivered the shipping documents to the buyer and even after the buyer has paid the invoice price, the buyer still retains the right to examine Arb.A.No.10/2008 13 the goods shipped to him and to reject them, if he finds any deficiency in regard to either quantity or quality. In the instant case, the buyer has received only a lesser quantity of goods and he only seeks repayment of the amount overdrawn by the seller. The contract between the parties contained a specific stipulation that if the weight of the goods landed is found less than as specified in the documents and invoice, the amount proportionate to the quantity so found less shall be reduced from the price. Therefore, the buyer is entitled to get back the amount overdrawn by the seller. In such circumstances, it cannot be found that the award passed by the learned arbitrator is against the terms of the contract and therefore, patently illegal.
20. The appellant alleged irregularities in weighing the cargo at the port of destination and challenged the certificate issued by the SGS. The appellant contended that at the time of weighing the goods, his representative was not present. At this juncture, we may note that one Mr.Rajendran was the person who had entered into the contract on behalf of the seller. Mr.Rajendran was the representative of the seller. The Arb.A.No.10/2008 14 weighing and survey at the port of destination were conducted by the SGS at the request of the seller and not at the request of the buyer. Therefore, the seller cannot be heard to say that the representative of it was not present at the time of the survey or weighing of the goods. It may be noted that the seller did not examine Rajendran before the arbitrator to prove its contentions. The learned arbitrator has entered findings on these factual disputes based on the evidence adduced before him by the parties. The court cannot sit in appeal over such factual findings in an application filed under Section 34(1) of the Act. Even then, the learned District Judge has re-appreciated the evidence adduced by the parties before the arbitrator and found that there is no reason to disagree with the findings made by the arbitrator. We find no illegality or impropriety in the impugned order passed by the learned District Judge.
21. Unreasonableness of an award is not a matter for the court to consider unless the award is per se preposterous or absurd (See Pathrose v. State of Kerala : (2010) 12 SCC
100). Where reasons have been given by the arbitrator in Arb.A.No.10/2008 15 making the award, the court cannot examine the reasonableness of the reasons. While considering the challenge to an award, the court cannot sit in appeal over the award. The court cannot re-appreciate the evidence for the purpose of finding, whether on the facts and circumstances, the award in question could have been made (See P.R.Shah,Shares and Stock Brocker Private Limited v. M/s B.H.H.Securities Private Limited : AIR 2012 SC 1866). In the anxiety to render justice to the party to arbitration, the court cannot reappraise the evidence intrinsically with a close scrutiny and find that the conclusion drawn by the arbitrator on facts, according to the understanding of the court, is erroneous. Such exercise of power, which can be made by an appellate court with power to reverse findings of facts, is alien to the scope and ambit of challenge to an award under the Act. Only when errors of finding of facts having a bearing on the dispute are patent and is easily demonstrable without the necessity of carefully weighing the evidence, interference with the award is possible on the ground of patent illegality. Errors which do not appear on the face of the award cannot be a ground for the Court Arb.A.No.10/2008 16 to set aside the award.
22. In our opinion, it is evident from the award made by the arbitrator that he has considered all the specific issues raised by the parties in the arbitration proceedings and reached to his findings after giving cogent reasons. As noticed earlier, reasonableness of the reasons stated by the arbitrator cannot be gone into in an application filed under Section 34(1) of the Act. The learned District Judge has rightly dismissed the application filed by the appellant.
Accordingly, the appeal is dismissed. No costs.
(sd/-) V.CHITAMBARESH, JUDGE (sd/-) R.NARAYANA PISHARADI, JUDGE jsr/18/02/2019 True Copy PS to Judge