Delhi High Court
Food Corporation Of India vs M/S. Arosan Enterprises Ltd. And ... on 12 May, 1995
Equivalent citations: 1995IIAD(DELHI)505, AIR1996DELHI126, 1995(1)ARBLR585(DELHI), 1995(33)DRJ648, AIR 1996 DELHI 126, (1996) ILR(DEL) 1 DEL 185, 1995 (1) ARBI LR 585, (1995) 33 DRJ 648, (1996) ILR 1 DEL 185, (1996) 4 LANDLR 204, (1995) 1 ARBILR 585, (1997) 1 BANKLJ 179
Author: Y. K. Sabharwal
Bench: Y.K. Sabharwal, Dalveer Bhandari
ORDER Y. K. Sabharwal, J.
1. The Union of India (UOI) floated on 4th October, 1989 a tender for purchase of sugar to meet the urgent requirement of sugar in the Indian Market for the ensuing November, 1989 Dussehra/Dipawali festival season, M/s. Arosan Enterprises Ltd. (hereinafter referred as the Seller) offered to supply 1 lac metric tonne of sugar at the rate of US $ 480 per metric tonne C. I. F. delivery within 30 days of the receipt of letter of credit. The Seller informed the Ministry of Food on 19th October, 1989 that sugar is lying ready for despatch on ships afloat high seas and the same could be delivered at Indian ports before 31st October, 1989. On 23rd October, 1989 the Seller agreed to the contract for floating cargo on standard terms and conditions of contract. On 24th October, 1989 the Seller confirmed to the Joint Secretary (Sugar), Department of Food, Government of India, the price for the sugar to be supplied by it at US S 480 per metric tonne C.I.F. The offer was accepted by Union of India on 24th October, 1989. A contract dated 25th October, 1989 came into existence between the parties with a stipulation that effective contract date will be 24th October, 1989. The contract, inter alia, stipulated that :--
"(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 October, 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 favour 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 conversing 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."
2. Pursuant to the terms and conditions of the contract the seller furnished a Performance Bank Guarantee (for short hereinafter referred to as "PBG") on 24th October, 1989 issued by the State Bank of India for US $ 29,28,000. The contract was assigned by Union of India in favour of Food Corporation of India. The buyers also performed their part of the contract in opening a confirmed irrevocable letter of credit for the full value of the quantity of the sugar. The Seller failed to make the supplies up to 31st October, 1989. By letter dated 8th November, 1989, the contract was cancelled. The letter of cancellation was, however, withdrawn by issue of letter dated 11th November, 1989. Infact, the sugar was never supplied. Finally, by letter dated 25th January, 1990 the contract was cancelled at the risk and cost of the seller and the PBG furnished by the seller was encashed and the amount forfeited by the Government/FCI (hereinafter referred to as 'Respondents').
3. the cancellation of the contract and forfeiture of the amount of PBG led to arbitration proceedings between the parties. The seller claimed the refund of US $ 29,28,000 and also made a claim for US $ 77,11,268 on account of the loss of profit and other expenses. The respondents denied the claim of the seller and justified their action of forfeiture of the amounts under PBG. Besides, they also preferred counter-claim for damage suffered on account of breach of contract on the part of the seller in making the supply of the sugar.
4. The arbitrators found that the breach of contract was on the part of the respondents and the basis of the finding is:--
(a) Non-fixing of 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 favour of the seller in pursuance of the contract.
5. The award dated 18th August, 1991 made by the arbitrators directed the respon-
dents to pay to the seller US $ 29,28,000. The arbitrators 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 and in the event of the authorities not granting the permission or even after such permission is granted but the respondents do not pay the awarded sum or not wanting to discharge their obligations of paying in foreign currency, the awarded amount be paid in equivalent Indian rupees calculated at the conversion rate prevailing on the date of decree by Court on the basis of the award.
6. The award was challenged by respondents, According to objection of respondents the breach of contract had been committed by the seller and not by them and the action of forfeiture of the amount of the PBG was justified. The award was also challenged by the seller to the extent that it did not direct the payment of interest to the claimant and also the option given to the respondents to pay the awarded amount in Indian rupees.
7. The objections to the award filed by the respondents were dismissed by the learned single Judge. The objections filed by the seller were, however, partially allowed; the award was modified and it was directed that the amount under the award be paid to the seller in US Dollars and further learned single Judge held that the seller is entitled to simple interest at the rate of 10% p.a. on the amount of the award with effect from 11th August, 1990 till payment. The award dated 18th August, 1991 as modified by the learned single Judge was made a rule of the Court and decree has been passed in terms thereof.
8. Aggrieved by the judgment of the learned single Judge these two appeals have been preferred, one, by Food Corporation of India and the other by UOI.
9. The law with regard to the power of the Court to interfere with an award is well settled by various pronouncements of the Apex Court. We are full alive to the limit of our jurisdiction while considering the objections to the award. The approach of the Court has to be to support the award if it is reasonably possible, rather than to declare it illegal. It is not permissible for us to reappraise the evidence or to go into the questions of quality and quantity of evidence. If two views are possible the Court even if inclined to take a view different from that taken by the arbitrators is not entitled to substitute its view over that of the asbitrators. But at the same time, it being an award which sets out reasons, though it is not permissible to go into the reasonableness of the reasons yet this Court can set aside the award on finding errors apparent on the face of the award. It is well settled that an award can be set aside if there is an error of law on the face of the award. It is also well settled principle of law that it would be error of law if award is based on some legal propositions which are erroneous. On this aspect we may only reproduce one paragraph from a latest pronouncement of the Supreme Court in the case . of Bijendra Nath Srivastava (Dead) through LRs. v. Mayank Srivastava, , as under (at pp. 2575-76 of AIR) :--
"We would now proceed to deal with the question as to whether the High Court was right in setting aside the award made by the arbitrator. As regards an award made by an arbitrator under the Act the law is well settled that the arbitrator's award is generally considered binding between the parties since he is the Tribunal selected by the parties. The power of the Court to set aside an award is restricted to the grounds set out in Section 30 of the Act, namely, (a) where the arbitrator has misconducted himself of the proceedings; (b) where the award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under Section 35; and (c) where the award has been improperly procured or is otherwise invalid. The Court can set aside the award under clause (c) of Section 30 if it suffers from an error on the face of the award. An award might be set aside on the ground of an error on the face of it when the reasons given by the decision, either in the award or in any document incorporated with it, are based upon a legal proposition which is erroneous. In the absence of any reasons for making the award, it is not open to the Court to interfere with the award. The Court cannot probe the mental process of the arbitrator and speculate, where no reasons are given by the arbitrator, as to what impelled the arbitrator to arrive at this conclusion. An award is not invalid merely because by a process of inference and argument it may be demonstrated that the arbitrator has committed grave mistake in arriving at his conclusion. The arbitrator is under no obligation to give reasons in support of the decision reached by him unless under the arbitration agreement or deed of settlement he is required to give such reasons. If the arbitrator or umpire chooses to give reasons in support of his decision it would be open to the Court to set aside the award if it finds that an error of law has been committed by the arbitrator or umpire on the basis of the recording of such reasons. The reasonableness of the reasons given by the arbitrator cannot, however, be challenged. The arbitrator is the sole judge of the quality as well as the quantity of the evidence and, it will not be for the Court to take upon itself the task of being a judge of the evidence before the arbitrator. The Court should approach an award with a desire to support it, if that is reasonably possible, rather than to destroy it by calling it illegal. (See : Champsey Bhara and Co. v. Jivraj Hallo Spg. and Wvg. Co. Ltd., AIR 1923 PC 66; Jivarajbhai Ujamshi Sheth v. Chintamanrao Balaji, ; Sudarsan Trading Co. v. Government of Kerala, , Raipur Development Authority v. Chokhamal Contractors, and Santa Sila Devi v. Dhirendra Nath Sen, )."
10. In judgment under appeal it has been held that the findings of the arbitrators are based on appreciation of material on record and the legal consequences flowing therefrom and that there is no error apparent on the face of the record nor there is any excess of jurisdiction on the part of the arbitrators. It has been further held that even on appreciation of material on record no view other than the view taken by the arbitrators is possible and that the finding of the arbitrators is fully justified on the basis of material on record and in law. In order to appreciate the respective contentions, certain basic facts and the correspondence exchanged between the parties after the execution of the contract dated 25th October, 1989, may first be noticed.
11. It cannot be disputed and indeed has not been disputed that there was urgent need for the supply of sugar and for this reason the contract stipulated that for huge quantity of sugar, namely, 58,0000 M.T. the seller shall arrange shipment so as to reach Indian Ports within a short span of about one week of the execution of the contract, i.e. not later than 31st October, 1989, and that the shipment within the contracted delivery period was to be the essence of the contract. It also stipulated that 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. Another undisputed fact is that neither up to 31st October, 1989 nor thereafter the sugar reached Indian Ports.
12. By telex message dated 30th October, 1989 the seller was advised to urgently flash shipment details as last date for arranging arrival of cargo on Indian Ports basis coast as per the contract was 31st October, 1989 and till then nothing had been heard from the seller. The telex further stated that shipment within the contract delivery period is essence of the contract and for delay the seller is deemed to be on contractual default in terms of clause (3).
13. The eagerness of the respondents regarding the timely supply of the sugar is also evident from another telex dated 31st October, 1989 whereby the seller was requested to intimate the estimated time of departure and estimated time of arrival of vessels of the quantity shipped and other shipping particulars by return transmission to Department of Food or FCI. The telex dated 30th October, 1989 was replied on behalf of the seller by Message No. 4236 dated 3Ist October, 1989 addressed to FCI which reads.
as under :--
"Please refer to your telex dated 30th October, 1989, delivered late in the a evening, after 8,40 p.m. regarding supply of sugar against contract No.2-23/SUG/IMD/89-ES, dated 25th October, 1989.
(2) You would kindly recall that we submitted the offer along with BID Bond on 16th October, 1989, but operative letter of credit was opened only on Saturday, the 28th October, 1989 in the evening. You are aware that Saturday and Sunday are closed holidays in all the countries in the Western World and as such the late opening of L/ C could not be taken any cognizance of by the bankers of our principals viz M/s. Arosa Enterprises Ltd. before Monday. On account of difference of timing by 10-1/2 hours between IST and Canadian time, our principals with whom we are continuously in touch, are doing their best to fulfill their contractual commitments. We shall revert back as soon as our principals get the shipping details. Hope Department would realise our position and would be kind enough to bear with us."
14. The next important document is a message dated 3rd November, 1989 sent to seller by respondents. By this message the respondents again informed the seller that the shipment had to reach Indian coasts not later than 31st October, 1989 but the shipping particulars are still awaited and requested that the same be immediately furnished as the matter is most urgent. By a telex message No. 4249 dated 3rd November, 1989, the seller stated that three ships laden with 25 thousand MT of sugar are heading towards the Indian Western coast and are three days ahead of Dubai Port towards India and the exact details about location, call signal and name of the ships will be given during the next twelve hours. The message also said that it is expected that shipment would reach Indian waters during next 72 hours.
15. In aforesaid message dated 3rd November, 1989 the shipping particulars were not provided, The message did not give details about the name of the vessel and shipper and other particulars. It is not disputed that neither the details were given in the next 12 hours as stated in this message nor did the Ships reach Indian waters in 72 hours as stated in the message. Resultantly the telex message dated 6th November, 1989 was sent by the respondents to the seller stating and emphasising that the shipping particulars and other relevant data had not been received till date and requested for intimation of full particulars and facts for further action as supply had been already delayed and the matter was most urgenl.
16. By message No. 3767-68 dated 8th November, 1989 sent by FCI again a complaint was made that supply had not been arranged which was to reach Indian Ports not later than 31st October, 1989 and more than a week had lapsed and that the requirement programme was getting dislocated adversely. Since supply within the stipulated period was not made the Joint Secretary (Sugar), Department of Food by letter dated 8th November, 1989 informed the seller that as it had failed to fulfill the contractual obligations within the stipulated time and time being the essence of the contract, the contract is hereby cancelled at seller's risk and cost. A copy of this letter was also sent to FCI with the request to take immediate action for enforcing the Performance Bank Guarantee for US $ 29,28,000 furnished by sellers in accordance with Clause 11 of the Contract.
17. The shipping particulars were supplied by the seller to Department of Food for the first time by Message No. 4265 dated 8th November, 1989 in respect of 25,000 M.T. of sugar. The particulars given were these :--
"Export Licence AB-6538497-1 Vessel Name : Thompson 11/V 323 Shipper : Continental Trade Co.
No. of bags: 500,00 50KG. Poly/Jute Sugar Bags on packets of 30 Bags each Sugar Wond-White Human consumption Gross Cargo 25,000 Metric Tons
Port of Origin : Aruba, Virgin Islands PIER to placement of receipt /-/Aruba Port.
Freight: Prepaid Charges."
18. By another Message No. 4277 dated 8th November, 1989 sent by seller to FCI, information was given that two cargo vessels carrying 25,000 MT of sugar each have already sailed and were heading towards India. The details of the vessels were given. This message reads :--
"We hereby inform you that two cargo vessels carrying refined/crystal while sugar have already sailed from load port and heading towards India. The vessels carrying sugar are M/V:--
(A) ANTARITICO B235 (B) MAGALLANES B246 Both the vessels are carrying 25 Thousand MT Qty. each. This is towards your contractual commitments under Contract No. 2-23/SUG : IMD/89-ES, Dated 25th October, 1989, with M/s. Arosan Enterprises Ltd. Canada and additional quantity of 17 thousand MT plus or minus 5%. This is further to the details about one vessel given to you vide our TLX No. 4266 dated November, 1989.
(2) The vessels likely ETA on the West coast of India is informed 12to 15th November, 1989. There has been some delay but it was on account of circumstances beyond our control.
(3) The vessel's arrival draft is 30FT. Shall appreciate to declare discharge Ports to enable us to tie up arrangements at the discharge Ports accordingly. Also inform the name of the surveyor whom FCI wishes to appoint at respective discharge Ports. We request your honour to extend the delivery period amending the letter of credit (L/C). We will bear the penalty of discount to be settled in due course because of the late delivery.
(4) We also request to declare the discharge Ports on West coast of India itself so that further delay in delivery is minimised as on the East Coast of India Ports. The danger of cyclone has been forecast and will not be in the interest of the supplier and the receiver.
(5) Anxiously awaiting your disport decision."
19. A perusal of seller's message No. 4278 dated 9th November, 1989 shows that it was sent after receipt of tatter of cancellation of contract. It reads:--
"This morning we found a garbled message landed on our machine. It appears to be from your Department.
2. In continuation of our TLX Msg. No. 4265 dated 8th November, 1989 please be informed that we have already arranged additional cargo vessels of 25 thousand MT plus-minus 5 per cent, whose arrival on any of the west coast of India basis at Bombay is 14th November, 1989 approximately.
3. LAO of vessel is 270 mattress with arrival draft of 30 FT. with Brazilian sugar. This vessel suits all the major Ports of W.C.I. We have arranged in anticipation of your approval for enhancing the quantity for supply keeping in view your continued urgent sugar requirement at price offered in our contract No. 2-23/Sug/IMB/89-ES, Dtd. 25-10-1989.
4. We shall be grateful for immediate positive response and acceptance including enhancement of the amount in L/C. We have made all these arrangements."
20. The seller by the aforesaid message stated that the vessels were likely to reach West coast of India between 12th to 15th November, 1989(Mess age No. 4277 dated 8th November, 1989) or West coast of India basis Bombay on 14th November, 1989 approximately (Message No. 4278 dated 9th November, 1989). According to the seller (Message No. 4277) the quantity of sugar in the three vessels was 75,000 M.T. i.e. 17000 MT more than the contracted quantity of 58,000 M.T. It appears that for this reason in Message No. 4277, a request was made to extend the delivery period amending the letter of credit. If additional supply of 17000 M.T. of sugar was to be made, enhancement of the amount in the letter of credit would have been necessary. By letter dated 11th November, 1989 sent by Joint Secretary (Sugar) the seller was informed that the matter had since been reconsidered and letter dated 8th November, 1989 cancelling the contract may be treated as withdrawn without prejudice to the claims of the Government of India in terms of the contract. The letter dated 11th November, 1989 was personally delivered to the representative of the seller as is evident from the endorsement on the letter.
21. The vessels still did not reach Indian Port either by 14th November or 15th November, 1989. There is no relevant message of Seller on the subject after 9th November, 1989 till sending of letter dated I5th November, 1989. By letter dated 15th November, 1989 by seller to FCI with copy to Joint Secretary (Sugar), it was requested that the delivery period be extended up to 30th November, 1989 with consequential amendments in letter of credit for acceptance of documents. The relevant part of the letter reads as under:--
"That in the process of cancellation and revival of the contract the Govt. have lost ten days' time to the disadvantage of the Govt. as well as the undersigned because the cargoes already arranged by us and committed for supply to the Food Corporation of India to discharge our contractual obligations though belated on penal charges have gone out of our control. We had to incur huge expenses in reorganising the supplies practically ab initio and thereby further loss of time has taken place. We, however, assure you Sir, that we are committed to the contractual obligation and are arranging two cargoes now of 25,000 MT each though at a very abnormal loss to us. One of the cargoes will be arriving Indian Port WCI within a few days while for the other we would now require a minimum of fifteen days' time. This request is based on the fact of actual loss of eight days from 8-11-1989 to 15-11-1989 because of continuous intervening holidays and minimum five days required to arrange second cargo. We shall try our best to endeavour earliest arrival of the 2nd cargo but shall request that delivery period be extended up to 30th November. 1989 with consequential amendments in L/C for acceptance of documents.
You are requested for extension of the L/C accordingly."
22. By another letter dated 20th November, 1989 the seller informed the respondents that they were making concentrated efforts to effect supplies. It may also be useful to reproduce the text of this letter. It reads:--
"This is to acknowledge receipt with thanks your letter No. 2-23/Sug: IMD/89/ES, Dtd 11th November, 1989 confirming withdrawal of your previous letter dated 8th November, 1989 received on 11th November, 1989 in which you had cancelled the contract cited abovd.
(2) In fact, we have already brought to your kind notice our good and bona fide intentions of supplying sugar against the above cited contract at the earliest vide our TLX/Letter dtd. 15th November, 1989. We had also requested for extending the delivery period up to 30th November, 1989. Unfortunately, we regret to point out that we have not received any communication in this regard conveying your decision about grant of extension.
(3) Meanwhile, we are making our best efforts to make supplies in the hope that you will be kind enough to agree to our request about grant of extension of time limit up to 30th November, 1989. We are making concerned efforts to effect supplies in spite of adverse repercussions on our goodwill in the market caused as a result of your cancellation of the contract and thereby causing us grave losses both monetarily and psychologically.
(4) We are pleased to inform you that our principal viz. M/s. Arosan have conveyed to us about the commitment they have already entered into by signing a back to back contract under which two cargoes each of 25,000 MT of sugar would be available for delivery in the next week/ten days' time. We are expecting complete shipping details in two to three days' time and assure you to furnish these details latest by 22nd November 1989, afternoon.
(5) We solicit your benign and co-operative decision on our request at the earliest."
23. By letter dated 24th November, 1989 the seller sought for release of PBG. It reads :--
"With reference to contract No. 2-23/ SUG-IMP/89-ES, dated 24th/25th October, 1989 for supply of 58,000 tonnes of imported sugar with due date for shipment of the entire quantity by 31 st October, 1989, it is submitted that in spite of our best efforts to arrange supply within the stipulated date we could not do so for several reasons. However, we are willing to arrange firm delivery of the quantity contracted by 30th November, 1989. It is, however, understood that the Government is not willing to accept such belated supply and they are not interested even for acceptance of the supply with due penalty. Since we are not in a position to ensure at this point of time immediate delivery and the Govt. is also not willing to accept belated supply, it is submitted that if agreed to mutually we may not proceed further with the contract. On our part we are willing to bear charges, if any, incurred by Food Corporation of India, for opening letter of credit etc. for the operation of the contract and also agree that we have no claim on our part against the Govt. in respect of the said contract. Kindly consider the matter further and intimate your decision in this regard and release the PBG of 10% accordingly."
24. Another letter dated 4th December, 1989 sent by the Seller more or less repeats what was stated in the letters dated 15th and 20th November, 1989. A grievance was also made that the letters of the seller dated 15th and 20th November, 1989 had not been replied. In yet another letter dated 20th December, 1989 addressed by seller to the Minister of Food and Civil Supplies, it was, inter alia, stated that the seller was asked on 23rd November, 1989 to prepare a bank draft for approximately Rs. 5 lacs to cover the expenses incurred by the Government in opening of letter of credit and assurance was given that performance guarantees posted by the seller would be released. It is true that no reply seems to have been sent by respondents to seller's letters dated 15th November, 1989, 20th November, 1989, 24th November, 1989, 4th December, 1989 and 20th December, 1989. The question, however, is as to the effect of not sending replies to these letters. What is the effect of silence on the part of the respondents after having received the afore- said letters ? Whether in law there was any duty or obligation on the part of the respondents to speak in response to these letters.
Which party committed the breach would to a great extent depend upon the answer to this question. Before we start looking for the answer we may also notice, that by letter dated 25th January, 1990 sent by Joint Secretary (Sugar) to seller the contract was cancelled. This letter reads as under :--
"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."
25. As already noticed the PBG was forfeited, the amount encashed which led to dispute leading to the making of the award, the dismissal of the objections to the award filed by the respondents and resultantly these appeals.
26. The learned arbitrators have found that the withdrawal of letter of cancellation had the effect of reviving the original contract dated 24th/25th October, 1989 and all its terms except the term that the sugar had to be delivered by 31st October, 1989 and that non-specification of the fresh date of delivery and not amending the letter of credit, was illegal and unjustified. According to the award it was incumbent for the respondents to appraise the bank for the changed position and make suitable changes in the letter of credit. In short, in the opinion of the arbitrators there was obligation on the respondents to fix fresh date of delivery after withdrawal of cancellation by letter dated 11th November, 1989 and fresh date of delivery having not been fixed and letter of credit having not been amended, the bank may not have paid to the seller the amount covered by letter of credit after the shipment had been received. In the opinion of the arbitrators after withdrawal of cancellation the respondents had waived their right to again cancel the contract on the ground that shipment had not been made up to 31st October, 1989 and thus the cancellation dated 25th January, 1999 was on non-existent ground and illegal. Regarding the argument that the cancellation had been withdrawn on the representation that seller had arranged the shipment of the contracted sugar the arbitrators held:--
"In the alternative Mr. Pern Behari Lal argued that the claimants in their letters preceding the revival of the cancelled contract had been representing that they had arranged for the shipment of the contracted sugar and the same would be arriving at the Indian Ports and it was on this understanding that the contract was revived and the cancellation of the original contract was withdrawn. The argument is without merits. If the contract was revived on the understanding why was not this fact communicated to the claimants in reply to their persistent queries about the date of delivery and why was the L/C not suitably modified and the Bank issuing the L/C informed accordingly. In fact there is no foundation to the pleadings for such a plea."
27. We may notice that the letter of credit was valid till 29th January, 1990. In the backdrop of aforesaid facts, we have to examine whether the breach was committed by the seller or the respondents. In this aspects, we will have to consider whether withdrawal of cancellation was on representation of the seller that the shipment would reach by 14th/15th November, 1989 or otherwise. Another aspect requiring consideration would be whether, in law, it was obligatory on the respondents to fix fresh date of delivery and also to amend letter of credit. Another connected aspect would be whether, in law, without amendments as aforesaid, and having regard to letter dated 11th November, 1989, the respondents refuse to accept delivery on 14th/15th November, 1989. We have also to examine whether the bank could refuse payment of the amount covered by letter of credit on the ground that supply had not been made within the stipulated period of 31st October, 1989?
28. As already noticed undisputedly the respondents were in the urgent need of sugar. It was not supplied up to the stipulated period. The shipping details were not furnished till 8th November, 1989. Under these circumstances the Government had no-option but to cancel the contract on 8th November, 1989. Various messages exchanged immediately before and soon after 8th November, 1989 have been extracted above. It is possible that some of these messages may have crossed each other. It is neither possible nor permissible in exercise of our present jurisdiction, nor necessary to go into the question of the exact time and date of despatch or receipt of these messages. One aspect is, however, clear that when the respondents were given particulars of shipments and were informed that the shipments would arrive on 14th/ 15th November, 1989, they withdrew the letter of cancellation realising that they would receive the supplies on or about 14th/ 15th November, 1989 and it may not be possible to arrange such a large quantity of sugar from some other source. We may also notice that at no stage before message dated 8th November, 1989 the seller had asked for extension of delivery period or amendment of the letter of credit. According to message of the seller dated 3rd November, 1989 the shipment was expected to reach Indian waters within next 72 hours i.e. on or about 6th November, 1989. If the seller was worried that for supply after 31st October, 1989, the bank may refuse to pay the amount covered by letter of credit without amendment of contract and letter of credit, the position was same even when message dated 3rd November, 1989 was sent by the seller. The seller at that stage did not ask for such amendments. Proceeding further a perusal of Message No. 4277 dated 8th November, 1989 shows that the seller asked for extension of delivery period amending the letter of credit stating that the seller will bear the penalty of discount to be settled in due course because of late delivery. That was for the reason that in the three vessels the, quantity was 75,000 M.T. as against co traded quantity of 58,000 MT and if the Government was to agree to accept the higher quantity, obviously the letter of credit had to be amended. This message docs not state that the amendment of the contract or letter of credit is necessary since without such amendment the seller will not get the payment. The same would flow from Message No. 4278 dated 9th November, 1989. In this regard the letter dated 15th November, 1989 has a vital bearing. This letter does not state that the supply could not be arranged because of apprehension that the seller would not get payment from the bank on account of the delivery period not being specified afresh or non-amendment of the liter of credit. It rather states that the cargoes arranged by the seller and committed for supply to FCI had gone out of the control of the seller in the process of cancellation and revival of the contract by Government of India. The letter also states about actual loss of 8 days from 8th November, 1989 to 15th November, 1989 because of continuous intervening holidays and minimum 5 days required for arrangement of second cargo. Another vital aspect is that after personally receiving the letter dated 11th November, 1989 there is a complete-silence on the part of the seller till 15th November, 1989 on the aspect of specification of fresh date of delivery and amendment of the letter of credit. The seller did not say that the cancellation having been withdrawn the UOI shall specify fresh date of delivery and amend the letter of credit since the shipment was arriving on 14th/15th November, 1989 and without these amendment they would not get payment from the bank. The seller instead of adopting such a course, wrote letter dated 15th November, 1989 requesting that the delivery period be extended up to 30th November, 1989 with consequential amendments in letter of credit for acceptance of documents. Apart from the urgent need for procurement of sugar in law the respondents could not refuse delivery if effected by 14th/ 15th November, 1989 on account of the respondents having withdrawn the letter of cancellation in the circumstances of the case.
29. The delivery was to be effected by 31 st October, 1989. On the representation of the seller as contained in their messages dated 8th and 9th November, 3989 the cancellation was withdrawn. That is the only conclusion possible. Any other conclusion will be wholly erroneous. We, therefore, cannot accept the submission that the withdrawal of cancellation was not on the representation of the seller. On this view the respondents were found in law to accept delivery if effected by 14th/ 15th November, 1989. It is implicit that the buyers had consented to take delivery by 14th/15th November, 1989. The contention of learned counsel for the seller that the mention of 31st October, 1989 by the respondents in letter dated 25th January, 1990 also shows that the respondents did not real 14th/15th November, 1989 as the extended delivery date cannot be accepted. Since delivery was not made at all, the mention of 31st October, 1989 in the letter of cancellation (25th January, 1990) by itself would not show that the buyer did not treat 14th/15th November, 1989 as delivery date. It thus cannot be said that the cancellation was on nonexistent grounds. The contract also stipulates that the buyer may extend the delivery period at a discount as may be mutually agreed to between buyer and seller. In this state of affairs the further contention that the supply could not be made by 14th/ 15th November, 1989 on account of non-amendment of the delivery period of the contract and non-amendment of letter of credit cannot be accepted. This plea is clearly an afterthought. Our attention has not been drawn to any legal proposition which casts an obligation, under these circumstances, on the buyer to fix a fresh date of delivery. The effect of accepting the contention of the seller would be that prior to 8th November, 1989, on the facts and circumstances of the present case, the breach was on the part of the seller but the buyer having withdrawn the cancellation and not having specified the fresh date of delivery, 31st October, 1989 having already passed, the breach would be on the part of the buyer. The contention on the face of it is fallacious. It has to be rejected.
30. Apart from the urgent need for supply of sugar, otherwise too, in commercial transactions of this nature, in law, ordinarily time is of essence. (See: M/s. China Cotton Exporters v. Beharilal Ramcharan Cotton Mills Ltd., ). Further, in the present case, the contract itself stipulates that the supply within the contracted delivery period was to be the essence of the contract. In this view the delivery of sugar firstly before 31st October, 1989 and later by 14th/15th November, 1989 was of essence and non supply within the aforesaid periods by the seller would show that the seller is in breach of the contract. The buyer having withdrawn the cancellation of the contract on seller's representation that the delivery will be made by 14th/15th November, 1989 could not have refused to accept delivery within the said period. It is also not possible for us to accept the contention that the cancellation was not withdrawn on the representation of the seller. On account of non-supply of sugar up to 8th November, 1989 and even failure to supply the shipping particulars the contract was cancelled by the buyer. Thereupon the seller supplied the shipping particulars and made a representation that the supply would be made on or before 14th/15th November, 1989. Under these circumstances the cancellation of the contract was withdrawn. The letter dated 11th November, 1989 withdrawing the cancellation states that on reconsideration of the matter the cancellation is withdrawn. In the letter dated 11th November, 1989 the absence of specific reference to the representation of the seller that the delivery would be made by 14th/15th November, 1989, under these circumstances, is of no consequence. As already noticed above, the letter dated 11th November, 1989 was personally handed over to the representative of the seller. On receipt of that letter the seller did not write to the buyer to specify the fresh date of delivery or to ask for amendment of the letter of credit. The next letter thereafter is dated 15th November, 1989. The seller did not say in this letter that pursuant to what had been stated by it in message dated 8th November, 1989 the Ships had entered Indian waters and as such the buyer should incorporate fresh date of delivery and amend the letter of credit so that shipping documents could be furnished by seller to the buyer and that without these amendments the bank may not pay the amount covered by the letter of credit. On the other hand, the seller in the letter dated 15th November, 1989 stated that the cargo had gone out of its control and fresh cargo would be arranged which will be arriving at Indian Port within a few days. The seller asked for minimum 15 days' time to supply the cargo and requested for delivery period being extended up to 30th November, 1989 with consequential amendments in the letter of credit for acceptance of the documents. The buyer was not obliged in law to extend the delivery period. The silence on the part of the buyer by not sending reply to the letter dated 15th November, 1989 and also not sending any reply to the subsequent letters dated 20th November, 1989, 24th November, 1989, 4th December, 1989 and 20th December, 1989 only shows that the buyer was not willing to extend the delivery period after 15th November, 1989. The sugar was required for the urgent need of Dussehra/Dipawali festivals o! November, 1989 and the supply not having made till 14th/15th November, 1989 the buyer was justified in not extending the delivery period.
31. The contract itself states that it is a C.I.F. contract. The essential features of such a contract is that a seller having bought afloat goods in accordance with the contract fulfills his part of the bargain by tendering to the buyer shipping documents and if he does this the seller is not in breach. The seller under such a contract performs its obligation by tendering documents which assumes that the seller has bought the goods afloat in accordance with the contract. The failure of the seller to do this must lead to inability to tender proper shipping documents and such a failure is real or substantial breach. After tendering documents the seller has only a negative duty not to prevent the goods from being delivered to the buyer at the destination in that the seller after delivery of documents cannot divert the goods elsewhere or order the carrier not to deliver the goods to the buyer. If the shipping documents in respect of the cargo in the ships mentioned in the message dated 8th November 1989 had been furnished by the seller to the buyer the goods would have stood appropriated to the buyer. In this regard reference may be made to the opinion of Lord Dickson as noticed in Sale of Goods by Bengamin, 4th Edition in Paragraph 19.015 that a seller "in shipping a definite parcel of goods in performance of a contract for the sale of unascertained goods by description ascertain the goods and prima facie he appropriates them to the contract." There is nothing on record to suggest ousting of this prima facie view if the seller had bought afloat the sugar in the ships mentioned in the. messages dated 8th November, 1989 for supply under the contract in question then the said goods stood appropriated to the contract and the seller was not justified in not furnishing the shipping documents thereof and in any case was obliged to explain how the said goods went out of the control of the seller. The plea of the seller that the said goods could not be supplied on 14th/15th November, 1989 or the same went out of seller's control in the absence of the amendment of the contract qua the delivery period and the absence of amendment of letter of credit is merely an afterthought. It is not so stated in the letter dated 15th November, 1989. As already noticed the seller did not write to say that the cargo had to be diverted or went beyond the control of the seller on account of the buyer not having amended the delivery period in the contract or absence of the amendment of the letter of credit. It cannot be held that the stage for appropriation of the goods to the contract did not arise on account of buyer's failure to fix fresh delivery date. We have already held above that it is implicit that the buyer agreed to accept the delivery by 14th/15th November, 1989. In this view, the goods stood appropriated to the contract. There was no requirement in law to amend the delivery date in the contract. Under these circumstances, the view of the arbitrators that the withdrawal of letter of cancellation had the effect of reviving the original contract with all its terms except the term that sugar had to be delivered by 31st October, 1989, is erroneous on the face of it. It is evident that the buyer had withdrawn cancellation and agreed to the delivery being made by 14th/ 15th November, 1989 on the representation of the seller. In our view, on this aspect, clearly there is an error apparent on the face of the award.
32. It is true that the seller could not risk the payment which was guaranteed by letter of credit. In view of letter of credit the bankers on fulfillment of the terms of the credit were bound to make payment to the seller. The letter of credit was negotiable for 3 months. The contract also stipulates that delivery could be made after 31 st October, 1989. The delivery period, in terms of contract, was extendable at a discount mutually agreed to between buyer and seller. It was not for the bank to enquire whether the goods had been delivered by 3kt October, 1989 or not and refuse payment on the ground that delivery had not been effected by 31st October, 1989. The term of the contract regarding payment reads as under:--
"By irrevocable Letter of Credit payable after discharge of the cargo and submission of survey report certifying the quality, quantity and packing of the consignment conforming to the specifications prescribed as rendered by nominated surveyor at the Port of discharge. The L/C covering 100% value of the contract quantity including plus tolerance as per Clause No. 1 above, but excluding the quantity to be supplied at the option of the Seller, if any, for which the option is yet to be exercised by the Seller as per contract terms, at a price as per Clause 4(i) above, will be established for the first shipment period by the Buyer, within 7 days of the date of receipt of acceptable Performance Bank Guarantee as per Clause No. 11 hereof, but not earlier than 21 days prior to the commencement of shipping the L/ C for the subsequent shipment period established latest 7 days prior to the. date of respective shipment period (s)."
33. For getting the payment under the letter of credit the seller was required to supply to the bank the documents mentioned in the credit. Under the letter of credit the documents were required to be supplied by the beneficiary. Reference to beneficiary is to the Seller. The mere fact that a signed contract between beneficiary i.e. the Seller and the Buyer was to be supplied does not show that the bank before making supply could go into the various clauses of the contract and refuse payment on the ground that one or the other clause of the contract had been breached by the Seller. The letter of credit is an independent contract. The only obligation of the bank is to examine with reasonable care all documents presented in order to ascertain that they appear on their face to be in accordance with the terms and conditions of the credit and, if so, to pay to the Seller beneficiary by whom the documents have been presented the sum stipulated by the credit or to accept or negotiate without recourse to drawer's draft drawn by the seller/beneficiary if the credit so provides. (Refer Bills of Lading and Bankers Documentary Credits by Paul Todd, 2nd Edition). The credits, by their nature, are separate transactions from the sales or other contract on which they may based and the banks are in no way concerned with or bound by such contracts. In this view the bank in law, could not go into the aspect of date of delivery.
34. The conditions on which payment under letter of credit has to be made by the bank have to be incorporated in the letter of credit itself. Nothing can be deemed to be incorporated in the letter of credit unless it is obvious. In Frey v. Sherbourne and National City Bank, (1920) 193 App Div S49, plaintiff had agreed to buy a quantity of sugar from Java and had obtained an irrevocable credit for the price from the defendant-bank, which was of the type which is intended to be shown to prospective negotiators of drafts under it and, therefore, contained a promise to bona fide holders of such drafts to honour them on presentation. The contract of sale gave the plaintiffs the right to cancel the contract in the event of delay in delivery. Such delay took place and the plaintiffs exercised" their right of cancellation. They also began an action claiming an injunction against the Sherbourne company to restrain the latter from negotiating or presenting drafts under the credit, and also an injunction to restrain the defendant-bank from paying such drafts. The action was dismissed and Greenbaum, J. in the course of his judgment said:--
"Interest of innocent parties who may hold drafts upon the letter of credit should not be made to suffer by reason of rights that may exist between the parties to the contract of sale in reference to which the letter of credit was issued. It would be a calamity to the business world engaged in transactions of the kind mentioned in the complaint if for every breach of a contract between buyer and seller a party may come into a court of equity and enjoin payment of drafts drawn upon a letter of credit issued by a bank."
35. Neither the issuing nor confirming banks have any obligation to go beyond the terms of the letter of credit and enter upon controversies between the beneficiaries and the party for whose account the letter was opened. In this view the apprehension that, the bank could have refused payment on account of delayed delivery in case the consignment was delivered on 14th/15th Nov. 1989 on the ground that the delivery was to be made up to 3Ist Oct. 1989, is mis-conceived. Further, by mere fact that the copy of the contract was to be supplied to the bank cannot lead by itself to the conclusion that contract of sale stood incorporated in the letter of credit. It would be error of law to assume so. The contract was governed by Uniform Customs and Practice for Documentary Credits (UCPDC). Article 3 thereof provides that the credits, by their nature, are separate transactions from the sales or other contract(s) on which they may be based and the 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. Article 10, inter alia," provides that 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. If the credit provides for negotiations to pay without recourse to drawers and/or bona fide holders, draft(s) drawn by the beneficiary at sight or at a tenor, on the applicant for the credit or any other drawee stipulated in the credit other than the issuing bank itself, or to provide for negotiation by another bank and to pay, as above, if such negotiation is not effected. When an issuing bank authorises or requests another bank to confirm its irrevocable credit and the later has added its confirmation, such confirmation constitutes a definite undertaking of such bank (the confirming bank), in addition to that of the issuing bank, provided that the stipulated documents are presented and the terms and conditions of the credit are complied with. Such undertakings can neither be amended nor cancelled without the agreement of (he issuing bank, the confirming bank (if any), and the beneficiary. Partial acceptance of amendments contained in one and the same advise of amendment is not effective without the agreement of all the above named parties. Article 15 provides that 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. The documents which appear on their face to be inconsistent with one another will be construed as not appearing on their face to be in accordance with the terms and conditions of the credit. No such contradiction on the face of it exists in the present case. Article 17 provides that the banks assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any documents, or for the general and/or particular conditions stipulated in the documents or superimposed thereupon; nor do they assume any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods represented by any documents, or for the good faith-or acts and/or omissions, solvency, performance or standing of the consignor, the carriers, or the insurers of the goods, or any other person whomsoever. From the aforesaid provisions of UCPDC and the discussion aforesaid, it is clear that the learned arbitrators committed an error apparent on the face of the record in coming to the conclusion that the seller to avail of letter of credit was bound to make the shipment up to 31st Oct. 1989 or the Bank could go into the aspect of date of delivery and refuse payment without amendment of the delivery date in the contract. It is further evident that the plea of the seller that the bank may have refused payment without amend-
ment of delivery date in the contract and letter of credit is merely an afterthought. In none of the correspondence referred above such a plea was put forth by the seller. Moreover, admittedly no request for amendment of letter of credit before 9th Nov. 1989 was made by the Seller. It follows that at that stage, even according to seller the amendment of contract or delivery date or amendment of letter of credit was not necessary for getting payment . from bank when the delivery was after 31st October 1989. If so, the position for getting payment under letter of credit would be same even after 9th Nov. 1989 and from this angle too it seems clear that such a plea was raised merely as an afterthought since the seller had failed to arrange for cargo which had gone out of the control of the Seller. There is nothing to show that without specification of fresh date of delivery the seller would not have received the payment. The award is, thus, based upon erroneous legal proposition.
36. The Supreme Court in United Commercial Bank v. Bank of India, , after survey of the entire case law held that a bank issuing or confirming a letter of credit is not concerned with the underlying contract between the buyer and the seller. Duties of a bank under a letter of credit are created by the document itself, but in any case it has the power and is subject to the limitations which are given or imposed by it, in the absence of appropriate provisions, in the letter of credit. The opening of a confirmed letter of credit constitutes a bargain between the bankers and the vendor of the goods which imposes on the banker an absolute obligation to pay. If, on their face, the documents presented to the confirming bank by the seller conform with the requirement of the credit as notified to him by the confirming bank, that bank is under a contractual obligation to the seller to honour the credit, notwithstanding that the bank has knowledge that the seller at the time of presentation of the confirming documents is alleged by the buyer to have, and in fact has already, committed a breach of his contract with the buyer for the sale of goods to which the documents appear on their face to relate that would have entitled the buyer to treat the contract of sale as rescinded and to reject the goods and refuse to pay to the seller the purchase price. The whole commercial purpose for which the system of confirmed irrevocable documentary credit has been developed in international trade is to give to the seller an assured right to be paid before he parts with control of the goods and does not permit of any dispute with the buyer as to the performance of the contract of sale being used as a ground for non-payment or reduction or deferment of payment. To this genera! statement there is one established exception; i.e., where the seller, for the purpose of drawing on the credit, fraudulently presents to the confirming bank documents that contain, expressly or by implication, material representations of fact that to his knowledge are untrue. The exception is based on the principle 'Fraud unravels all' (See United City Merchants (Investments) Ltd. v. Royal Bank of Canada (1982) 2 All ER 720). The present case does not fall in the exception. It is not the case of any of the parties that in the present case there was any element of fraud.
37. The entire matter can be looked from another angle as well. The delivery period stipulated in the contract was 31st Oct. 1989. The supply was not made within the delivery period. If the buyer still asks for goods after 31st Oct. 1989 and specifies no fixed delivery date, it would mean that the, goods would have to be delivered in a reasonable time (Refer Section 36 of Sale of Goods Act). In such a case it would be assumed that the contract is silent as to the time of performance. The law implies a reasonable time within which the contract is to be performed when the contract itself is silent as to the time of performance. Once a reasonable time is implied within the meaning of Section 36(2), the contract becomes a contract to be performed at a fixed time as much as if the parties themselves have fixed a specified time. In such a case if the delivery is not made within a reasonable time there would be breach unless such a time is extended. What is reasonable time depends upon facts and circumstances of each case: In the present case, however, the . supply was never effected and the goods never entered the Indian Waters (See Dinkerrai Lah't Kumar v. Sukhdayal Rambilas, AIR 1947 Bom 293).
38. In present case the seller never informed the buyer about the arrival of the goods. It is only after committing a breach of not delivering the goods that the seller started asking for amendment of letter of credit and the contract. In C.I.F. contracts there is a clear obligation on the seller to tender the shipping documents which were never tendered. Such being the position the buyer cannot be held to be in breach (See : B.R. Herman and Mohatta (India) Ltd. v. Pran Ballav Majumdar, ).
39. In view of the aforesaid discussion, the only conclusion that can be reached is that the breach was committed by the seller. The withdrawal of letter of cancellation was on representation of seller that sugar would reach Indian coasts by 14/15th Nov. 1989. The basis for finding by the arbitrators that the buyer committed breach since in law the buyer was obliged to fix fresh dates of delivery and it had not been fixed, was clearly erroneous in law. In our view, the buyer could not refuse to accept delivery before 14/15th Nov. 1989. As already stated the Bank could not refuse payment of amount covered by letter of credit on the ground that the delivery was effected after 31st Oct. 1989. To our mind clearly there are errors of law on the face of the award.
40. The other contentions raised by the appellants, in particular that they have no liability to pay interest or make payment of the awarded amount in US Dollars do not survive for consideration.
41. For the reasons aforesaid, we allow the appeals and set aside the judgment under appeal and the award dated 18th August, 1991. Parties are, however, left to bear their own costs throughout.
42. Appeals allowed.