Calcutta High Court
Sleepwell Industries Co. Ltd vs Lmj International Ltd on 9 July, 2018
Equivalent citations: AIR 2019 (NOC) 616 (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
GA 3307 OF 2016
EC 488 OF 2013
SLEEPWELL INDUSTRIES CO. LTD.
VS.
LMJ INTERNATIONAL LTD.
For the Award Holder : Mr. Tilak Bose, Sr. Advocate,
Mr. S. Jain
Mr.A.K. De
For the Judgment Debtor : Mr.Anindya Kr. Mitra, Sr. Advocate
Mr. Surajit Nath Mitra, Sr. Advocate,
Ms. Sananda Mukhopadhyay.
Hearing concluded on : 06.07.2018
Judgment on : 09.07.2018
Soumen Sen, J.: This is an application by the judgment-debtor
company challenging the enforcement of a foreign award.
Before I deal with the scope and ambit of Section 48 of the Arbitration
and Conciliation Act with regard to the power of the Court in scrutinizing a
foreign award it is necessary to consider the facts of the case and the nature of
the objection raised by Mr.Anindya Kumar Mitra, learned senior Counsel in
assailing the award in this forum.
Briefly stated, the objections are that the Arbitral Tribunal has made out
a third case for the parties and have passed an award disregarding the written
terms of the contract. The Tribunal has disregarded the fact that the amounts
claimed before the Tribunal representing 2.22 per cent of the invoice value of
the goods are to be released only upon presentation of the quality inspection
certificate at the port of destination and that being the only source and mode
of payment, the award-holder having failed to produce such quality inspection
certificate, is not entitled to any amount. There is no obligation on the part of
the award-debtor to discharge de hors the terms mentioned in the Letter of
Credit. The award-holder has not even alleged that the award-debtor was
under an obligation to produce the quality inspection certificate at the port of
destination and has acted in breach thereof. In the absence of any such
pleading and allegation and having regard to the payment terms in the Letter
of Credit, the award-holder could not have maintained an action before the
Tribunal. The Tribunal had no jurisdiction to refer to the GAFTA Rules in
order to find out ways and means for the award-holder to obtain an award as
such rules were never part of the contract.
These objections without reference to the authorities relied upon by Mr.
Mitra are to be considered in juxtaposition to the claim made by the award
holder before the Arbitral Tribunal.
The award-holder (hereinafter referred to as 'Sleepwell') has entered into
a contract dated 25th October, 2010 for sale of 10,000 MT ±5% by buyer's
option non-basmati par boil rice 15% (maximum) broken, 2009-10 or latest
crop, Thailand origin @ USD 450 per MT. The contract contains a stipulation
that the quantity would be final at the port of loading as per final net
certificate issued by SGS at the costs of the seller namely, Sleepwell. The
award-debtor (hereinafter referred to as 'LMJ') under the contract was required
to open an irrevocable confirmed unrestricted Letter of Credit in USD in favour
of Sleepwell within seven working days from the date of signing of the contract
through a scheduled bank of India which, in this case was the Standard
Chartered Bank (India) for the value of the goods to be shipped under the
contract.
The contract is an FOB contract. The contract stipulates that 100 per
cent value of the contracted cargo would be payable on receipt of the shipping
documents by the Letter of Credit negotiating bank at 30 days sight. The
contract mentions about eleven shipping document to be submitted for
receiving payment under the Letter of Credit. 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 as per GAFTA 125 in London.
The goods were meant for the Government of People's Republic of
Bangladesh. The 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 11th November, 2010 through its
banker, Standard Chartered Bank, and the same was communicated to the
award holder on 12th 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 (LC), the terms of the contract were 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." (emphasis added)
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.
The effect of the above said amendment on payment condition was that
the LMJ was to pay only 97.78% of the total invoice value on receipt of the
shipping documents and the balance 2.22 % of the total invoice value after
receipt of the quality inspection report at the destination port. The Letter of
Credit was also amended. The validity of the Letter of Credit was extended till
January, 15, 2011. Sleepwell on 27th December, 2010 issued an invoice in
respect of the balance on 2.22 per cent in respect of the shipment. On 12th
February, 2011 Sleepwell received a debit note from LMJ of USD 73500 on
account of their alleged inferior quality claim. Sleepwell objected to the said
debit note by its e-mail dated 15th February, 2011 as under :
"We are very surprised to receive your debit note for MV. Sturdy Falcon
and MV Genlus Mariner which we do not agree.
We have never received any inferior quality claim from you before nor we
are responsible for any inferior quality claim.
Our sales are based on weight / quality final at loading port as per
surveyor certificate appointed by you which we have given to you with our
documents presented through your bank and was accepted by you and
you have paid 97.78 pct and there is a balance of 2.28 pct (US$10.00 per
mton)"
LMJ however reiterated its claim alleging inferior quality in their e-mail
dated 16th February, 2011. LMJ, however, did not provide any quality
inspection report. Sleepwell in its letter dated 25th February, 2011 clarified that
there was no issue or claim in respect of the shipment made and requested for
the payment. LMJ however, in their letter dated 10th March, 2011 again raised
the issue with regard to the inferior quality without providing any inspection
report. LMJ, however, subsequently withdrew their quality claim by their email
dated June 1, 2011. Thereafter, there were some exchange of correspondences
between the parties and since the seller did not receive 2.22 per cent in respect
of the consignment, it had initiated the arbitration proceeding.
There is no dispute that the contract contains an arbitration clause and
that the award-debtor is a party to the said arbitration agreement. The said
arbitration agreement is not under challenge. The invocation of arbitration in
an earlier proceeding between the same parties having the same and/or similar
arbitration clause was upheld and enforcement of the foreign award was
allowed.
Mr. Anindya Mitra learned Senior Counsel has referred to the statement
of claim and submitted that there is no averment in the statement of claim
which would show that the Sleepwell has alleged that it is an obligation of the
buyer to produce the quality inspection certificate at the port of destination.
Mr. Mitra refers to the payment clause 3 of the addendum no.1 dated 7th
December, 2010 to the original contract and submits that under the said
clause US $ 10% per MT. would be payable after receipt of quality inspection
report of destination port. The modified Letter of Credit however contains a
clause which requires a "certificate of quality inspection report at port of
destination". This was a specific term in the amended LC although in the
addendum clause there is no mention of any certificate. The parties have
agreed that only upon production of a quality inspection certificate at the port
of destination that the payment under the LC would be receivable. Mr. Mitra
submits that once the parties have agreed that the only mode of payment is
through Letter of Credit and is the obligation of the Sleepwell to produce such
certificate at the port of destination in order to get payment under the LC, and
Sleepwell having failed to do so cannot independently sue for the price of the
goods sold to buyer. The buyers stand discharge from its obligation to make
any payment as the seller had failed to submit the required documents. Mr.
Mitra has referred to a decision of the Queen's Bench Division (Commercial
Court) in 'Shamsher Jute Mills Ltd. versus Sethila (London) Ltd' reported at
1887 (1) Lloyd's Law Reports and submitted that Mr. Justice Bingham in a
similar situation has discharged the buyer of its obligation to make any
payment under the letter of credit. The following observation of Lordship
Justice Bingham has been placed.
"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."
Mr. Mitra has submitted that the Tribunal has completely misdirected
its mind in referring to the Gafta Rules in order to find out whose
responsibility it is to produce the certificate at the port of destination as it has
not been alleged by the plaintiff in the statement of claim that it was the
obligation of the buyer to produce such certificate and buyer has failed to
perform its obligation.
In order to appreciate such submission, it may be necessary to refer to
the statement of claim as well as the correspondence annexed to the statement
of claim.
In the statement of claim, the seller has categorically stated in
paragraph 9 and I quote.
"The Buyers reiterated their claim of US$ 73500 on account of
alleged inferior quality in their email dated 16 February, 2011
which is attached as Page 54. The Buyers however did not provide
any Quality Inspection Report."
In paragraph 8 the claimant had referred to an email dated 15th
February, 2011 in which the claimant had categorically stated that the sales
were based on weight/quality final at loading port as per surveyor certificate
appointed by LMJ which were given to LMJ along with other documents and
accepted by LMJ and on that basis has paid 97.78%. The correspondence
mentioned in paragraph 9 to 15 of the claimant's submissions would show
that Sleepwell has all throughout insisted for payment and such payment was
denied by LMJ only on a specious plea that the goods supplied were of inferior
quality. LMJ had even gone to the extent of referring to test reports allowed to
be in its possession without disclosing them although asked for by Sleepwell.
LMJ had never disputed that under the amended LC, LMJ is not required
and/or expected to submit the quality inspection report at the destination
port. In fact, at the port of loading, the quantity and quality of the goods were
certified by the surveyor of LMJ which fact has not been disputed. It is evident
from record that that by the time the dispute arose with regard to the
payment of 2.22%, the validity of the LC had expired. The Letter of Credit was
opened by LMJ and it was incumbent upon LMJ to keep the said LC renewed
till the dispute is resolved. LMJ did not extend the validity of the letter of
credit. Although enough opportunity was given to LMJ to appear before the
Tribunal and contest the proceeding, LMJ had deliberately avoided
participation. In absence of any contrary evidence and having regard to the
fact that the addendum no.1 only refers to a quality inspection at the port of
destination, the Tribunal arrived at a finding by reference to the Gafta Rules
1948 in order to find out as to who was responsible for producing the quality
inspection certificate and has arrived at a conclusion that buyer had failed to
perform its obligation under the contract. The relevant observations of the
Tribunal in this regard are.
6.9 "If we disregard of the alterations envisaged by the Amendment to the
Contract dated 7 December 2010, granting an even higher level of, at least for
"Broken Grains" and "Dead, Damaged and Discoloured Grains", the results
provided by ISC and OMIC were well within the parameters foreseen for the
quality under the Contract.
6.10 The Tribunal therefore FINDS THAT the quality of the cargo of the
shipment under the Contract is contractual.
6.11 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."
6.12 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
OMIC and as provided by Sellers, Sellers were duly entitled to trigger
payment under the Contract.
6.13 As Claimants were entitled to payment under the Contract, reference
must be made now to the balance of USD 10.00per metric ton for the
shipment, as agreed under the Amendment dated 7 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."
6.14 This indeed establishes an alternation 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 7 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."
6.15 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.
6.16 As no such quality inspection report had been presented by Buyers,
despite various reminders by Sellers, until the present day, the GAFTA
Sampling Rules No.124, cl. 6:1 provided that a "certificate of analysis"
should be sent to the other party "within 14 consecutive days" after
dispatch of the samples to the analyst.
6.17 Buyers by means of their debit note of 12 February 2011 firstly
purported that the quality of the cargo was inferior.
6.18 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 latest14 days after that message dated 12
February 2011, therefore latest 26 February 2011.
6.19 The date of default shall therefore be one day later, the 27 February
2011, and SO WE DO FIND.
6.20 As Buyers failed to forward the certificate within this time limit of 14
days, any claim for rejection or for an allowance in respect of any
matters dealt with under the Contract, and its Amendments, shall be
deemed to be waived and absolutely barred, AND SO WE DO FIND.
6.21 WE FIND THAT a total of 10,500.00 metric tons of Rice was shipped.
Therefore, Sellers' claim for payment of the balance invoices based on
USD 10.00 per metric ton, totalling USD 105,000.00, SUCCEEDS."
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. GAFTA contract No.48 was specifically incorporated
into the contract. The Tribunal has referred to Clauses 5, 11, 17, 24 and 28 of
the GAFTA contract No.48 and held that GAFTA would apply Clause 17 of
GAFTA contract No.48 reads:
"17. SAMPLING, ANALYSIS AND CERTIFICATES OF ANALYSIS-
the terms and conditions of GAFTA Sampling Rules No. 124 are
deemed to be incorporated into this contract. Samples shall be taken
at the time of discharge on or before removal from the ship or quay,
unless the parties agree that quality final at loading applies, in which
event samples shall be taken at time and place of loading. The
parties shall appoint superintendents, for the purposes of supervision
and sampling of the goods, from the GAFTA Register of
Superintendents. Unless otherwise agreed, analysts shall be
appointed from the GAFTA Register of Analysts."
There were altogether three shipments and all were in one Vessel M.V.
Sturdy Falcon. The three Bills of Lading aggregating to 10,500 MT of non-
Basmati parboiled rice are all dated 27th December, 2011. The original contract
contained payment clause which specified that 100% were to be received after
30 days. This contract was modified on 7th December, 2010 which stated that
US$ 440 was payable on receipt of shipping document and US$ 10 after quality
inspection at destination port. The LC accordingly was also amended. The
original LC states date of issue as 11th November, 2010 and clauses 41D and
42C state that credit is available by any bank by negotiation and payment by
draft would be at 30 days after shipment. LC was amended on several
occasions. The first amendment is dated 12th November, 2010 which also
states that drafts would be at 30 days sight. The second amendment dated 9th
December, 2010 is more important and new date of expiry is mentioned as 15th
January, 2011. Clause 46B of the LC states the documents required. For
payment no.1 it is mentioned that 97% will be made only after 30 days'
shipment against submission of all documents. These 30 days would expire on
27th January, 2011. Payment no.2 states that payment of 3% would be made at
site against submission of certificate of quality inspection at port of destination
provided payment no. 1 is accepted. The third amendment of the LC is dated
10th December, 2010 and 97% was changed to 97.78% and 3% was changed to
2.22% and "all other terms and conditions remain unchanged". Mr. Tilak Bose,
learned senior counsel, relying on such chain of events has accordingly
submitted that, there is no way the payment no.2 could have been triggered
before 27th January, 2011. LMJ as buyer accepted the goods and arranged for
payment of 97.78% but did not arrange for payment of 2.22% by opening a valid
LC under which payment could be obtained.
Mr. Mitra however, has contended that no such case was made out in the
statement of claim that the balance 2.22% could not be realized because there
was no valid Letter of Credit in existence. There is no finding by the arbitral
tribunal that the balance 2.22% could not be realized because there was no
valid Letter of Credit. This argument is unacceptable as this was not submitted
to the tribunal. In any event, it is an admitted position that 97.78% was
realized under the same irrevocable Letter of Credit established by the buyer
and accepted by the seller. Payment no. 2 being the balance 2.22% was
payable at sight against submission of certificate of quality inspection report at
port of destination provided payment no. 1 being 97.78% was accepted. The
acceptance of payment no. 1 means "acceptance of documents" required under
payment no. 1 by buyer when such documents are presented by the seller to its
banker which in terms negotiates the documents with the LC opening bank.
The right to obtain payment accrues the moment the documents are presented
by the seller and accepted by the buyer. It has nothing to do with the release of
funds by the seller's bank to the seller. The submission that there was no valid
Letter of Credit would be given beyond the award and wrongful assumption of
facts which are impermissible at this stage.
This argument cannot be accepted at this stage since it was not one of the
grounds on which a award could be challenged under Section 48 of the
Arbitration and Conciliation Act. It is not a ground under Section 48(1)(c) of
the Arbitration and Conciliation Act.
From the narration of facts stated earlier it cannot be said that 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. It has to be remembered that in spite of
repeated opportunity given to the petitioner to participate in the arbitration
proceeding the petitioner has avoided participation and cannot be allowed to
raise objection with regard to the enforcement of the award on any other
grounds not covered under Section 48 of the Arbitration and Conciliation Act.
The submission of Mr. Mitra that reference to GAFTA contract no.48 - GAFTA
Sampling Rules no.124 Clause 6:1 is contrary to contract is not accepted.
Neither the contract nor the amended payment term under the Letter of Credit
stipulates as to who would be required to produce the quality inspection
certificate. As mentioned earlier, the goods both with regard to the quality and
quantity were duly certified by an appointed agent of LMJ at the port of
loading.
The dispute with regard to inferior quality was raised by LMJ after 15th
January, 2011, that is say, after the expiry of the validity of Letter of Credit.
There is nothing on record to show that prior to expiry of the validity of Letter of
Credit any such dispute was raised. The debit note was issued only on 12th
February, 2011. The claimant had disclosed documents before the Tribunal to
show that the claimant had never received any inferior quality claim from LMJ
prior to February 15, 2011. In absence of any dispute being raised prior to the
expiry to the validity of Letter of Credit it is no more open for LMJ to insist that
the agreed mode of payment is through Letter of Credit and LMJ is absolved
from liability. In fact claimant in its email dated 10th June 2011 remonstrated
that LMJ had neither extended the Letter of Credit of Standard Chartered Bank
which expired on 15th January, 2011 nor had provided the amendment to the
Letter of Credit opened from Bank of Baroda as per addendum to the contract.
The said correspondence were annexed to the statement of claim. LMJ appears
to have withdrawn its quality claim by its email dated June 1, 2011. The
tribunal in paragraph 3.16 of the award has noted such fact. There is another
interesting feature which has emerged during the submission made by Mr. Tilak
Bose, the learned Senior Counsel representing the claimant in this proceeding.
In the instant case all shipments were made within the last date of
shipment by reason whereof 97.78% could be realized. However balance 2.22%
could not be realized as there was no valid Letter of Credit when such payment
of 2.22% could be triggered.
It is also pertinent to note that similar objection raised with regard to a
similar contract where similar dispute was raised with regard to another
contract having similar terms was rejected by this Court in G.A. No. 3306 of
2016 with EC No. 487 of 2013 (Sleepwell Industries Co. Ltd. Vs. LMJ
International Ltd. reported at 2017 (4) CHN (Cal) 621) the relevant
paragraphs where such objections were recorded are:
"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 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's 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."
These objections were dealt with in paragraphs 109 to 125 of the judgment and, on the basis of the reasons recorded therein, similar arguments were not accepted. The said paragraphs read:
"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." Mr. Mitra although tried to distinguish the said judgement on the ground that in the that case a Bill of Exchange was issued in respect of the last of the three Letters of Credit which is not the case here but the same does not make any difference as admittedly the validity of the Letter of Credit expired on 15th January, 2011 and the quality inspection certificate at the port of destination could not have been presented thereafter for payment even assuming that the Letter of Credit is the only mode of payment agreed between the parties. Even observations of Justice Bingham does not assist the applicant. In the said judgment it was stated that: "if the seller fails to obtain payment because he does not and cannot present the document which the terms of credit to the supplementing the terms of the contract, require, the power is discharged" would not be applicable in that case as seller had never failed inasmuch as even if the interpretation of the amended payment terms of the Letter of Credit is construed in favour of the buyer which reads:
"Certificate of quality inspection report at port of destination" would not have been possible as the validity of the Letter of Credit had expired on 15th January, 2011 and the acceptance of 97.78% of the invoice value is payable only 30 days after shipment date against submission of documents 1 to13 which clearly shows that the seller would receive payment 30 days after shipment date against production of such documents. Although Mr. Mitra urged that this was not a case made out in the statement of claim but this has now become necessary in view of nature of objections raised in this proceeding with regard to the enforcement of the foreign award. This issue was never raised before the Tribunal, not even in any of the correspondences between the parties.
Mr. Mitra has relied upon the decision of Delhi High Court in Toepfer International Asia Pvt. Ltd. Vs. Priyanka Overseas Pvt. Ltd. reported at 2007(4) Arbitration Law Report 499 for the proposition that the fundamental policy of Indian Law is that the law of the land must be obeyed and the law of the land is that an arbitral tribunal is bound by the terms of contract of which its creation is not in dispute. The said principle would apply provided the conditions are fulfilled. The 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 which 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 reliance of the arbitrator on the GAFTA Rules in order to find out the responsibility of the person required to produce such certificate in my view is not de hors the contract or a matter which does not fall within the jurisdiction of the arbitrator or falling within the terms of submission to arbitration. In the arbitration proceeding the seller had asserted three things. Firstly, invoices for the balance 2.22% of the invoice value was raised and accepted by the buyer, however, the said invoices had remained unpaid. Secondly, the seller never had received any inferior quality claim before 15th February 2011, nor was the seller responsible for any inferior quality claim. Thirdly, the buyers did not produce any quality inspection report. In the claim statement, the sellers have annexed relevant documents and correspondence between the parties. The buyer is not required to plead evidence. The tribunal proceeded on the uncontroverted statements made in the claim statement. The tribunal considered the documentary evidence and construed the payment terms mentioned in the amended contract as well as in the amended LC along with the correspondences exchanged between the parties to ascertain who would be required and responsible to produce the quality inspection certificate at the destination port. The tribunal in deciding the issue has neither acted contrary to the contract nor has exceeded its brief. It is not a case where the tribunal has travelled beyond its jurisdiction and decided a matter contrary to the terms of the contract. It is a possible view taken by the tribunal on the basis of the pleadings and evidence produced before the tribunal. I have already briefly indicated the nature of the documents that formed part of the statement of claim and also briefly indicated the reasoning of the tribunal based on such documents. It was open for the petitioner before the tribunal to raise all such objections which the applicant has conveniently avoided. The numerous correspondences between the parties would unmistakably show that the buyer had never raised the issue of production of quality inspection certificate at the port of destination by the buyer, inasmuch as the buyer although claimed to be in possession of the alleged inspection reports showing inferior quality, had never disclosed or furnished such reports to the seller or even the tribunal. The buyer, as could be seen from the email of 1st June, 2011, had written off its quality claim against the seller. LMJ could have submitted its defence in a communication to the tribunal, disclosing such report.
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 acts 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 is 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 allotted to him as in that case he would commit jurisdictional error.
Under such circumstances G.A.3307 of 2016 fails and is dismissed with cost assessed at Rs.1 lakh.
(Soumen Sen, J.) Later on:
The learned Counsel representing the award debtor has produced before this Court an order of the Hon'ble Supreme Court dated 4th July, 2018 in Special Leave Petition No.540 of 2018 by which the award holder was restrained to deal with the bank guarantee or any aspect of it without leave of the Hon'ble Supreme Court and the matter is listed before the Hon'ble Supreme Court on 23rd July, 2018.
The learned Counsel has prayed for stay of operation of this order. This order shall remain stayed till 31st July, 2018.
EC No.488 of 2013 shall appear on 31st July, 2018.
(Soumen Sen, J.)