# NATIONAL AGRICULTURAL COOPERATIVE MARKETING FEDERATION OF INDIA v. ALIMENTA S.A

- **Citation:** [2020] 7 S.C.R. 789
- **Court:** Supreme Court of India
- **Decided:** 2020-04-22
- **Case number:** Civil Appeal No.667 of 2012
- **Bench:** Arun Mishra, M. R. Shah, B. R. Gavai
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/national-agricultural-cooperative-marketing-federation-of-india-v-alimenta-s-a-34709
- **Pages:** 62

## Headnote

Foreign Awards (Recognition and Enforcement) Act, 1961:
s.7 - Agreement between NAFED and Alimenta S.A. for export of
groundnut (commodity) for the season 1979-80 - Agreement
contained arbitration clause - Terms and conditions were as per
FOSFA 20 contract, a standard form of contract - NAFED was a
canalizing agency for the Government of India for export of
commodity - Clause 14 in the agreement was that in case of
prohibition of export by executive order or by law, the agreement
would be treated as cancelled - NAFED could not export the entire
quantity due to damage caused to crop by cyclone - Government
did not grant permission to NAFED to carry forward previous year's
commitment to subsequent year - Because of refusal by Government,
it was not possible for NAFED to supply commodity to Alimenta
S.A. - Unfulfilled part was required to be cancelled - Arbitration -
Foreign award ordering NAFED to pay damages - Enforcement
challenged - Held: It is provided in s.7(1)(b)(ii) that if the court
dealing with the case is satisfied that the enforcement of the award
will be contrary to public policy, the foreign award may not be
enforced - The impugned award is ex facie illegal, and in
contravention of fundamental law, against the public policy as
envisaged in s.7 of the Act of 1961 - No export without permission
of the Government was permissible and without the consent of the
Government, quota could not have been forwarded to next season
- On the happening of contingency agreed to by the parties in Clause
14 of the FOSFA Agreement, the contract was rendered
unenforceable under s.32 of the Contract Act - As such the NAFED
cannot be held liable to pay damages under foreign award.
Contract Act, 1872 - s.32 - Applicability of - Held: s.32 of
the Contract Act applies in case the agreement itself provides for
[2020] 7 S.C.R. 789
789
A
B
C
D
E
F
G
H
790
SUPREME COURT REPORTS
[2020] 7 S.C.R.
contingencies upon happening of which contract cannot be carried
out and provide the consequences - In this case, s.32 of the Contract
Act is attracted and not the provisions of s.56 - It was an agreement
to do an act impossible in itself without permission, and that is
declared void by s.32 - Foreign Awards (Recognition and
Enforcement) Act, 1961.
Allowing the appeal, the Court
HELD: 1.1 Section 32 of the Contract Act provides for
enforcement of contingent contracts. Section 56 of the Contract
Act deals with the agreement to do an impossible act or to do
acts afterward become impossible or unlawful. It also provides
for liability of the promisor to do something which he knew or
might have known with reasonable diligence an act which is
impossible or unlawful; as such, the promisor must make
compensation for the non-performance of the promise.
[Paras 45, 46][812-C, G-H]
Davis Contractor Ltd v. Fareham Urban District Council
(1956) 2 All ER 145; Tsakiroglou & Co. Ltd. v. Noblee
& Thorl GmbH, [1961] 2 All ER 179; Ocean Tramp
Tankers Corporation v. V/O Sovfracht, [1964] 1 All ER
161; National Carriers Ltd. v. Panalpina (Northern) Ltd,
[1981] 1 All ER 161; Pioneer Shipping Ltd. & Ors. v.
BTP Tioxide Ltd.; The Nema, (1981) 2 All ER 1030;
Paal Wilson & Co. A/S v. Partenreederei Hannah
Blumenthal; The Hannah Blumenthal, [1983] 1 All ER
34; Delhi Development Authority v. Kenneth Builders
& Developers Private Limited and Ors., (2016) 13 SCC
561 - referred to.
1.2 Section 32 of the Contract Act applies in case the
agreement itself provides for contingencies upon happening of
which contract cannot be carried out and provide the
consequences. To this case, provisions of Section 32 of the
Contract Act is attracted and not section 56. In case an act
becomes impossible at a future date, and that exigency is not
provided in the agreement on the happening of which exigency,
impossible or unlawful, the promisor had no control which he
could not have prevented, the contract becomes void as provided
in section 56. However, section 56 also provides liability for a
A
B
C
D
E

## Text

_Characters 0–39,655 of 142,276. This is a partial read: ask again with offset=39655 for what follows._

A
B
C
D
E
F
G
H
789
NATIONAL AGRICULTURAL COOPERATIVE
MARKETING FEDERATION OF INDIA
v.
ALIMENTA S.A.
(Civil Appeal No.667 of 2012)
APRIL 22, 2020
[ARUN MISHRA, M. R. SHAH AND B. R. GAVAI, JJ.]
Foreign Awards (Recognition and Enforcement) Act, 1961:
s.7 - Agreement between NAFED and Alimenta S.A. for export of
groundnut (commodity) for the season 1979-80 - Agreement
contained arbitration clause - Terms and conditions were as per
FOSFA 20 contract, a standard form of contract - NAFED was a
canalizing agency for the Government of India for export of
commodity - Clause 14 in the agreement was that in case of
prohibition of export by executive order or by law, the agreement
would be treated as cancelled - NAFED could not export the entire
quantity due to damage caused to crop by cyclone - Government
did not grant permission to NAFED to carry forward previous year's
commitment to subsequent year - Because of refusal by Government,
it was not possible for NAFED to supply commodity to Alimenta
S.A. - Unfulfilled part was required to be cancelled - Arbitration -
Foreign award ordering NAFED to pay damages - Enforcement
challenged - Held: It is provided in s.7(1)(b)(ii) that if the court
dealing with the case is satisfied that the enforcement of the award
will be contrary to public policy, the foreign award may not be
enforced - The impugned award is ex facie illegal, and in
contravention of fundamental law, against the public policy as
envisaged in s.7 of the Act of 1961 - No export without permission
of the Government was permissible and without the consent of the
Government, quota could not have been forwarded to next season
- On the happening of contingency agreed to by the parties in Clause
14 of the FOSFA Agreement, the contract was rendered
unenforceable under s.32 of the Contract Act - As such the NAFED
cannot be held liable to pay damages under foreign award.
Contract Act, 1872 - s.32 - Applicability of - Held: s.32 of
the Contract Act applies in case the agreement itself provides for
[2020] 7 S.C.R. 789
789
A
B
C
D
E
F
G
H
790
SUPREME COURT REPORTS
[2020] 7 S.C.R.
contingencies upon happening of which contract cannot be carried
out and provide the consequences - In this case, s.32 of the Contract
Act is attracted and not the provisions of s.56 - It was an agreement
to do an act impossible in itself without permission, and that is
declared void by s.32 - Foreign Awards (Recognition and
Enforcement) Act, 1961.
Allowing the appeal, the Court
HELD: 1.1 Section 32 of the Contract Act provides for
enforcement of contingent contracts. Section 56 of the Contract
Act deals with the agreement to do an impossible act or to do
acts afterward become impossible or unlawful. It also provides
for liability of the promisor to do something which he knew or
might have known with reasonable diligence an act which is
impossible or unlawful; as such, the promisor must make
compensation for the non-performance of the promise.
[Paras 45, 46][812-C, G-H]
Davis Contractor Ltd v. Fareham Urban District Council
(1956) 2 All ER 145; Tsakiroglou & Co. Ltd. v. Noblee
& Thorl GmbH, [1961] 2 All ER 179; Ocean Tramp
Tankers Corporation v. V/O Sovfracht, [1964] 1 All ER
161; National Carriers Ltd. v. Panalpina (Northern) Ltd,
[1981] 1 All ER 161; Pioneer Shipping Ltd. & Ors. v.
BTP Tioxide Ltd.; The Nema, (1981) 2 All ER 1030;
Paal Wilson & Co. A/S v. Partenreederei Hannah
Blumenthal; The Hannah Blumenthal, [1983] 1 All ER
34; Delhi Development Authority v. Kenneth Builders
& Developers Private Limited and Ors., (2016) 13 SCC
561 - referred to.
1.2 Section 32 of the Contract Act applies in case the
agreement itself provides for contingencies upon happening of
which contract cannot be carried out and provide the
consequences. To this case, provisions of Section 32 of the
Contract Act is attracted and not section 56. In case an act
becomes impossible at a future date, and that exigency is not
provided in the agreement on the happening of which exigency,
impossible or unlawful, the promisor had no control which he
could not have prevented, the contract becomes void as provided
in section 56. However, section 56 also provides liability for a
A
B
C
D
E
F
G
H
791
cause where the promisor has agreed to do something which he
knew or with reasonable diligence might have known and which
the promisee did not know to be impossible or unlawful. Such a
promisor must make compensation to such promise and is liable
to pay damages. The latter part of section 56 is applicable when
promisee did not know the act to be impossible or unlawful and
that it was not known to the promisor; the action was impossible
or unlawful or with reasonable diligence might have known.
[Para 47][813-A-C]
1.3 In the present case, because of the clear stipulation in
Clause 14 of the Agreement, it is apparent that the parties have
agreed for a contingent contract. They knew very well that the
Government's executive, or legislative actions might come in
the way as provided in Clause 14 of the Agreement. Thus, in this
case, section 32 of the Contract Act is attracted and not the
provisions of section 56. It was an agreement to do an act
impossible in itself without permission, and that is declared to be
void by section 32. The NAFED was a canalising agency and could
not have supplied without prior permission of Government, nor
could it have lawfully carried forward last year's supply to next
year that too limited quota and to supply Government permission
was necessary to make it. Enforcement of such an award in
violation of export policy and the Government order would be
against the public policy as envisaged in section 7 of the Act of
1961. [Paras 48, 52][813-D-E; 821-A-B]
Satyabrata Ghose v. Mugneeram Bangur & Co., AIR
1954 SC 44 : [1954] SCR 310; Naihati Jute Mills Ltd.
v. Khyaliram Jagannath, AIR 1968 SC 522 :
[1968] 1 SCR 821; Boothalinga Agencies v. V.T.C.
Poriaswami Nadar, AIR 1969 SC 110 : [1969] 1 SCR
65; Smt. Sushila Devi and Ors. v. Hari Singh and Ors.
(1971) 2 SCC 288 : [1971] Suppl. SCR 671
- referred to.
Narayana Chandrasekhara Shenoy and Bros. by sole
Proprietor Narayana Shanbog v. R. Palaniappa
Mudaliar, AIR 1952 Mad. 670; Ram Kumar v. P.C. Roy
& Co. (India) Ltd., AIR 1952 Cal. 335 (338); Kunjilal
Manohar Das v. Durga Prasad Debi Prosad, AIR 1920
Cal. 1021 - referred to.
A
B
C
D
E
F
G
H
792
SUPREME COURT REPORTS
[2020] 7 S.C.R.
2. It would have been unlawful for NAFED to affect the
supply in view of the Government's refusal to accord the
permission, and both the parties knew it very well and agreed
that the contract would be cancelled in such an exigency for nonsupply in quantity. Thus, they were bound by the agreement. The
award pre-supposes supply could have been made after the
Government's refusal. If supply had been made, it would have
been unlawful. Thus, the parties agreed for its cancellation as
such an award is against the basic law and public policy as applied
in India. [Para 57][825-A-B]
3.1 It is provided in Section 7(1)(b)(ii) that if the court dealing
with the case is satisfied that the enforcement of the award will
be contrary to public policy, the foreign award may not be enforced.
The foreign award may also not be executed in the case as per
section 7(1)(a)(i) if the parties to the agreement under the law
applicable are under some incapacity or agreement is not valid
under the law. Similar exigency is provided in section 7(1)(a)(ii)
if proper notice of appointment of Arbitrator is not given or the
party was unable to present its case. Section 7(1)(a)(iii) provides
that if the award deals with the questions not referred or contains
decisions on matters beyond the scope of the agreement renders
award unenforceable. Section 7(1)(a)(iv) makes an award not
capable of enforcement in case the composition of the Arbitration
Tribunal or procedure is not in accordance with the agreement of
the parties. [Para 60][826-G-H; 827-A-B]
Renusagar Power Co. Ltd. v. General Electric Co.,
(1994) 1 Suppl. SCC 644 : [1993] 3 Suppl. SCR 22 -
relied on.
Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd.,
(2003) 5 SCC 705 : [2003] 3 SCR 691; Shri Lal Mahal
Limited v. Progetto Grano Spa, (2014) 2 SCC 433 :
[2013] 13 SCR 599; Associate Builders v. Delhi
Development Authority, (2015) 3 SCC 49 : [2014] 13
SCR 895; Ssanyong Engineering & Construction Co.
Ltd. v. National Highways Authority of India (NHAI),
(2019) 8 SCALE 41; Central Inland Water Transport
Corporation Ltd. & Anr. v. Brojo Nath Ganguly & Anr.
(1986) 3 SCC 156 : [1986] 2 SCR 278 - referred to.
A
B
C
D
E
F
G
H
793
3.2 Clause 14 of FOSFA Agreement and as per the law
applicable in India, no export could have taken place without the
permission of the Government, and the NAFED was unable to
supply, as it did not have any permission in the season 1980-81
to effect the supply, it required the permission of the Government.
It became void under section 32 of the Contract Act on happening
of contingency. Thus, it was not open because of the clear terms
of the Arbitration Agreement to saddle the liability upon the
NAFED to pay damages as the contract became void. There was
no permission to export commodity of the previous year in the
next season, and then the Government declined permission to
NAFED to supply. Thus, it would be against the fundamental public
policy of India to enforce such an award, any supply made then
would contravene the public policy of India relating to export for
which permission of the Government of India was necessary. The
award could not be said to be enforceable, given the provisions
contained in Section 7(1)(b)(ii) of the Foreign Awards Act. Thus,
award is unenforceable, and the High Court erred in law in holding
otherwise in a perfunctory manner. As such the NAFED could
not have been held liable to pay damages under foreign award.
[Paras 68, 69, 80][842-F-H; 843-A-C; 850-G]
Manohar Lal (Dead) by LRs. v. Ugrasen (Dead) by LRs.
& Ors.,(2010) 11 SCC 557 : [2010] 7 SCR 346; C.L.
Subramaniam v. Collector of Customs, Cochin (1972)
3 SCC 542 : [1972] 3 SCR 485; Board of Trustees of
the Port of Bombay v. Dilipkumar Raghavendranath
Nadkarni and Ors. (1983) 1 SCC 124 : [1983] 1 SCR
828; The State of Punjab & Anr. v. Shamlal Murari &
Anr., (1976) 1 SCC 719 : [1976] 2 SCR 82; Kailash v.
Nankhu & Ors., (2005) 4 SCC 480 : [2005] 3 SCR
289 - referred to.
 Case Law Reference
(2016) 13 SCC 561
referred to
Para 42
[1954] SCR 310
referred to
Para 49
[1968] 1 SCR 821
referred to
Para 50
[1969] 1 SCR 65
referred to
Para 51
A
B
C
D
E
F
G
H
794
SUPREME COURT REPORTS
[2020] 7 S.C.R.
[1971] Suppl. SCR 671
referred to
Para 55
[1986] 2 SCR 278
referred to
Para 62
[1993] 3 Suppl. SCR 22
relied on
Para 63
[2003] 3 SCR 691
referred to
Para 64
[2013] 13 SCR 599
referred to
Para 65
[2014] 13 SCR 895
referred to
Para 66
(2019) 8 SCALE 41
referred to
Para 67
[2010] 7 SCR 346
referred to
Para 71
[1972] 3 SCR 485
referred to
Para 73
[1983] 1 SCR 828
referred to
Para 73
[1976] 2 SCR 82
referred to
Para 75
[2005] 3 SCR 289
referred to
Para 76
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 667 of
2012.
From the Judgment and Order dated 28.01.2000 of the High Court
of Delhi at New Delhi in Suit No. 1885 of 1993.
Shyam Divan, C.A. Sundram, Sr. Advs., Aaditya Vijay Kumar,
Ms. Liza Baruah, Sunil Mathews, Ms. Akshita Katoch, Udayaaditya
Banerjee, Chitranshul A. Sinha, Anurag Tiwari, Ms. Sabah Iqbal Siddiqui,
Ms. Aditya Chadha, Shailendra Swarup, Ms. Bindu Saxena, Ms. Aparajita
Swarup, Dhruv Chand Saxena, Ms. Rohini Musa, Abhishek Gupta, Zafar
Inyat, Ms. Gunjan Mathur, Advs. for the appearing parties.
The Judgment of the Court was delivered by
ARUN MISHRA, J.
1. The question involved in the present appeal is the enforceability
of the foreign award. The main objections for its enforceability are (i)
whether NAFED was unable to comply with the contractual obligation
to export groundnut due to the Government's refusal?; (ii) whether
NAFED could have been held liable in breach of contract to pay damages
particularly in view of Clause 14 of the Agreement?; and (iii) whether
enforcement of the award is against the public policy of India?
A
B
C
D
E
F
G
H
795
2. The NAFED and the Alimenta S.A. entered into a contract for
the supply of 5,000 metric tonnes of Indian HPS groundnut (for short,
"commodity"). Clause 11 of the contract provided that terms and conditions
would be as per FOSFA, 20 Contract, a standard form of contract which
pertains to the CIF contract. The contract entered into was not a Free
on Board (FOB) contract.
3. NAFED was a canalizing agency for the Government of India
for the exports of the commodity. For any export, which is to be carried
forward to next year from the previous year, NAFED required the express
permission and consent of the Government of India, being a canalizing
agency. The said agreement was entered into by NAFED with the
Alimenta S.A. at the rate of USD 765 per metric tonnes (Free on Board).
The contract was for the season 1979-80. With the contracted quantity
of 5000 metric tonnes, only 1900 metric tonnes could be shipped. The
remaining quantity could not be shipped due to damage caused to crop
by cyclone etc. in the Saurashtra region. The agreement dated 12.1.1980
was the first agreement. The transaction was governed by covenants
such as Force Majeure and Prohibition contained in Clause 14 of the
Agreement, whereby in case of prohibition of export by executive order
or by law, the agreement would be treated as cancelled.
4. On 3.4.1980, NAFED executed a second Agreement with the
Alimenta S.A. to export 4,000 metric tonnes of the commodity at the
rate of USD 770 per metric tonnes. The shipment period for both the
contracts was August-September, 1980. The second Agreement dated
3.4.1980 is not the subject matter of dispute in the appeal.
5. In August 1980, NAFED shipped only 1900 metric tonnes of
commodity in receipt to the first Agreement. The balance stocks of 3100
metric tonnes of commodity could not be shipped as scheduled, due to
the Government restrictions.
6. In the year 1980-81, there was crop failure in the United States
of America due to which price of commodity rose high in the course of
the season. Yet another addendum was executed to First Agreement on
18.8.1980, whereby the period of shipment of the commodity was changed
to November-December, 1980 for balance 3100 metric tonnes under
the disputed first Agreement.
7. On 8.10.1980, second Addendum to first Agreement came to
be executed between the parties for supply of 3100 metric tonnes of the
A
B
C
D
E
F
G
H
796
SUPREME COURT REPORTS
[2020] 7 S.C.R.
commodity. It was agreed that the commodity would be shipped during
the 1980-81 season packed in new double gunny bags with the buyers
paying the extra cost of USD 15 per metric tonnes.
8. It is pertinent to mention that NAFED had the permission of
the Government of India to enter into exports for three years between
1977-80 but had no permission under the Export Control Order to carry
forward the exports for the season 1979-80 to the year 1980-81. At the
time of execution of the Addendum, NAFED claimed it was unaware of
the said situation of not having requisite authority to enter into the
Addendum.
9. On 21.11.1980, the NAFED intended to perform the first
Addendum in the oblivion of the fact that it had no permission under the
Export Control Order to carry forward the export for the season
1979-80 to the next year 1980-81. Being a Canalizing agency for the
Government of India, NAFED couldn't carry forward the supply for the
subsequent year. NAFED approached the Government of India to grant
permission.
10. The Ministry of Agriculture, Government of India, vide letter
dated 1.12.1980 directed NAFED not to ship any leftover quantities
from previous years. It was made clear that the export of commodities
was restricted under a quota system and that NAFED could not carry
forward the previous years' commitment to the subsequent year. The
commitment entered into by NAFED was objected to. Apart from that,
the price of the commodity had escalated thrice than the prevailing price
within one year. Inter alia, for the aforesaid reasons, the Government
of India asked NAFED not to implement the previous year contract. It
was for a particular season.
11. On 6.12.1980 and 9.12.1980, NAFED again requested the
Government of India to allow the release of quota in the current season
to fulfil its commitments under the contracts. The Government did not
grant permission. The NAFED informed Alimenta S.A. not to nominate
the vessel for shipment of the crop due to the Government of India's
prohibition to supply the contracted quantity.
12. The Alimenta S.A. on 29.12.1980 treated the telex message
dated 20.12.1980 sent by NAFED as a notice of default made to make
the supply. The Government of India finally rejected NAFED's request
to allow export against previous year's contract vide communication
A
B
C
D
E
F
G
H
797
dated 27.01.1981 because of the restricted export policy and quota ceiling.
Alimenta S.A. on 5.2.1981 granted the last opportunity to NAFED to
give the final offer, otherwise, the dispute would be referred to arbitration,
and their nominee would be Mr. A.G. Scott. Accordingly, NAFED was
asked to appoint its arbitrator.
13. On 13.2.1981,NAFED informed Alimenta S.A. that the export
of the contracted quantity was not possible because of the Government
of India's executive action banning such exports.
14. Ultimately, Alimenta S.A. filed arbitration proceedings before
the Federation of Oil, Seeds and Fats Associations Ltd. (FOSFA), London
on 13.2.1981. NAFED was asked to appoint an Arbitrator within 21
days. Alimenta S.A. vide telex dated 18.2.1981 requested to provide the
originals of the Government notices banning the export and the dates on
which they were confirmed. NAFED sent to Alimenta S.A. by its telex
vide letter dated 23.2.1981 the Government of India's order prohibiting
export and also requested to provide it a copy of the FOSFA Arbitration
Rules,which was provided by Alimenta S.A. to NAFED on 24.2.1981.
The NAFED requested for extension of time for appointing Arbitrator
on 5.03.1981, which was extended on 10.3.1981.
15. NAFED filed petition bearing OMP No.41 of 1981 on 19.3.1981
against Alimenta S.A. and their Arbitrators before the High Court of
Delhi. Prayer was made restraining Alimenta S.A. and FOSFA from
continuing the arbitration proceedings inter alia on the ground that
agreement did not contain any specific provision for arbitration. On
20.3.1981, the High Court stayed the arbitration proceedings till 22.4.1981.
NAFED intimated the order of stay by its telex dated 23.3.1981 to
Alimenta S.A.
16. In utter disregard of the order of interim stay granted on
20.3.1981 by the High Court, the FOSFA by its telex requested NAFED
to appoint Arbitrator on its behalf by 20.4.1981, failing which FOSFA
would appoint an arbitrator on behalf for NAFED.
17. On 9.4.1981, NAFED by telex message through their counsel
informed FOSFA that it had no jurisdiction to proceed with the arbitration
in view of the order of stay by the High Court and any action taken by
Alimenta S.A. or by Mr. Scott of FOSFA would be illegal and void. On
22.4.1981, the matter came up before the High Court of Delhi. The
counsel on behalf of the Alimenta S.A. was granted four weeks to file a
A
B
C
D
E
F
G
H
798
SUPREME COURT REPORTS
[2020] 7 S.C.R.
reply; the case was adjourned to 27.7.1981. The interim order of stay
was accordingly extended till 21.7.1981.
18. However, in disregard of the order passed by the High Court,
FOSFA appointed Mr. F.A.D. Ralfe as an Arbitrator on behalf of the
NAFED on 23.4.1981. Thus, the NAFED urged that it was deprived of
the right to appoint its nominee Arbitrator. The NAFED vide its letter
dated 1.5.1981 informed FOSFA that despite the order of stay by the
High Court, contumacious steps were taken to appoint the Arbitrator on
its behalf and it was further stated that the counsel appearing for Alimenta
S.A., stated in the Court that Alimenta S.A. would not proceed further
in the arbitration. Ultimately, NAFED filed proceedings in the nature of
contempt on 30.10.1981 on the ground that appointment of Arbitrator on
behalf of the NAFED violated the orders passed by the High Court
dated 20.3.1981 and 22.4.1981.
19. The Delhi High Court decided the said OMP No.41 of 1981
wherein it held that First Agreement would be governed by arbitration
agreement incorporated in FOSFA 20 Contract while there was no
arbitration agreement between the parties in so far as the Second
Agreement was concerned. On 22.3.1982, Alimenta S.A. filed FAO
(OS) No.24 of 1982 against the order dated 11.12.1981, the same was
later withdrawn. Alimenta S.A. filed a special leave petition before this
court on 1.4.1982, which was numbered as Civil Appeal No.1755 as
against the order dated 11.12.1981 of the High Court. This court passed
the order on 30.4.1982, restraining Alimenta S.A. and FOSFA to proceed
further in the arbitration. On 4.5.1982, FOSFA sent a telex that this
court had no power to act in the matter nor to stay the arbitration and
continued with the proceedings in violation of the order passed by this
Court.
20. NAFED on 9.1.1984 sought a clarification from the
Government of India as to whether the direction given by the Ministry of
Agriculture not to make the supply was lawful and binding. Ministry of
Commerce, Government of India, stated that directions issued by the
Ministry of Agriculture refusing fulfilment of previous years contract
was a lawful direction and, as such, was binding on NAFED.
21. Ultimately, this court vide judgment and order dated 9.1.1987
upheld the decision of the High Court dated 11.12.1981. Concerning the
First Agreement, the parties were relegated to pending arbitration, while
A
B
C
D
E
F
G
H
799
for the Second Agreement, as there was no arbitration clause, the parties
were relegated to the civil proceedings.
22. On 10.1.1989, NAFED filed its written submission before the
FOSFA, pointing out that it was not allowed to appoint its arbitrator
despite specific order of restraint by the High Court andit was not allowed
to be represented through its counsel. Alimenta S.A. also filed additional
written submissions on 19.6.1989 before FOSFA. Ultimately, FOSFA
passed an award on 15.11.1989 by which NAFED was directed to pay
a sum of USD 4,681,000 being the difference between the contract
price of USD 765 per metric tonnes plus USD 15 per metric tonnes for
double bags and the settlement price of USD 2275 per metric tonnes
plus USD 15 per metric tonnes for double bags as damages. The amount
was ordered to be paid with interest at the rate of 10.5% per annum
from 13.2.1981 till the date of the award.
23. Being aggrieved by the award, NAFED filed an appeal before
the Board of Appeal on 16.1.1990, however, on 13.5.1990 and 30.5.1990
multiple requests were made by M/s. Clyde and Co. (solicitor firm) to
represent NAFED before the Board of Appeal, considering there were
special circumstances and Indian law was required to be explained. The
Board of Appeals rejected the request by NAFED to be represented
through its Solicitors on 14.5.1990.
24. Ultimately, the Board of Appeal on 14.9.1990 while deciding
the appeal compounded NAFED's issues by enhancing the award,
whereas Alimenta S.A. filed no appeal. NAFED was directed to pay
interest components at the rate of 11.25% instead of 10.5% p.a. The
interest was enhanced in the absence of an appeal by Alimenta S.A.
The Arbitrator nominee of Alimenta S.A., who passed the award,
represented the case on behalf of the Alimenta S.A. before the Board
of Appeal.
25. The Alimenta S.A. filed a petition as Suit No.1885 of 1993
under sections 5 and 6 of the Foreign Awards (Recognition and
Enforcement) Act, 1961 (for short, "the Foreign Awards Act") seeking
enforcement of the initial as well as appellate award passed by the FOSFA
and Board of Appeal.
26. NAFED filed objections to the enforceability of the award, on
the ground that it was opposed to the public policy as such unenforceable.
There was non-compliance with the provisions contained in section
A
B
C
D
E
F
G
H
800
SUPREME COURT REPORTS
[2020] 7 S.C.R.
7(1)(a), (b), and (c) of the Foreign Awards Act. No notice under section
101 of the Multi State Cooperative Societies Act was given. The execution
was also barred by limitation. It ought to have been filed within 30 days
because of Article 119 of Schedule I of the Limitation Act, 1963, and the
period of three years was not available to seek its enforcement. The
learned Single Judge of the High Court decided the matter against the
appellant - NAFED and decided the same finally after 20 months of
delay on 28.1.2000 after hearing the matter and held the award to be
enforceable. A review was sought, which was dismissed on 5.5.2000.
After that, NAFED filed an appeal bearing F.A.O. (O.S) No.205 of
2000 before the Division Bench of the Delhi High Court. The High Court
entertained it on 28.2.2001 and stayed the execution. The interim order
and the order of appointment was questioned before this Court. This
Court modified the interim order of the High Court dated 28.2.2001 and
disposed of both the petitions of Alimenta S.A. on 5.4.2002 while passing
certain interim orders.
27. On 9.9.2002, Alimenta S.A. filed an execution petition No.204
of 2002 seeking execution of the decree on 28.1.2000 passed in Suit
No.1885 of 1993 in the High Court. The appeal was ultimately held to be
not maintainable. It was dismissed on 6.9.2010 on the ground of nonmaintainability. The NAFED questioned the decision in the appeal. On
24.11.2010, NAFED filed the present appeal (bearing Civil Appeal No.667
of 2012) for adjudication on merits. There are subsequent developments
that are the subject matter of other appeals.
28. Shri Shyam Diwan and Shri Rana Mukherjee, learned senior
counsel argued that enforcement of the award is barred by section
7(1)(a)(ii) of the Foreign Awards Act. The award is against the public
policy of India on numerous grounds and thus is unenforceable under
section 7(1)(b) of the Foreign Awards Act. The award/ decree does not
deal with the restriction imposed by the Government of India as to the
export of the commodity. Award flouts the basic norms of justice. The
enforcement of such an award would result in the unjust enrichment of
Alimenta S.A. at the cost of the very survival of the appellant organisation.
The enforcement procedure is barred by limitation. The same was not
brought within 30 days in terms of Article 119, Schedule I of the Limitation
Act, 1963. The learned Single Judge could not have converted the award
into a decree. The learned Single Judge awarded interest at the rate of
18 percent per annum; besides, in case there is exchange deviation by
A
B
C
D
E
F
G
H
801
way of loss, NAFED would be required to make good such loss. NAFED
was not given due opportunity to present its case by the Arbitral Tribunal.
Arbitrator-nominee of Alimenta S.A. represented case on behalf of
Alimenta S.A. before the Board of Appeal, award was unfair, and
enhancement of interest in the absence of appeal was also illegal. The
decision is contrary to the public policy of India as laid down in various
decisions.
29. Per contra, Mr. C.A. Sundaram, learned senior counsel
appearing on behalf of the respondent argued the scope of interference
in the enforcement of the foreign award is limited. The award is not
against public policy. The due opportunity was given to the NAFED to
present its case in the arbitration proceedings. The question of imposition
of ban by the Government was gone into by the Arbitral Tribunal, and
conclusion was recorded that it was a self-imposed restriction by
NAFED. There was no such ban on the export by the Government of
India. Because of the findings recorded by the Arbitral Tribunal,it would
not be open to this Court to go into its correctness. It was open to the
Board of Appeal to award the interest in the absence of an appeal by the
Alimenta S.A. Learned Single Judge had the jurisdiction to award the
interest while passing decree. There is no bar for the Arbitrator to appear
in the appeal on behalf of the respondent.
30. We first deal with the main submission raised concerning
whether NAFED was unable to carry out contractual obligation in view
of Government's refusal to export, as such the contract became void
and unenforceable in view of Clause 14 of FOSFA agreement.
Consequently, NAFED could not have been held liable to pay damages.
31. The argument has to be appreciated in the background of the
fact that NAFED was a canalizing agency for the Government of India
for the year 1978-1981. For the export to be carried forward from the
previous years, NAFED required express permission and consent from
the Government of India. The first agreement was executed on 12.1.1980
for the supply of the commodity for the season 1979-80. A total of 5,000
metric tonnes were to be exported. However, undisputedly only 1900
metric tonnes could be shipped. Addendum was executed on 18.8.1980
to supply a balance of 3100 metric tonnes in November-December, 1980.
Subsequently, on 6.10.1980, another addendum was executed, and it
was agreed that the commodity would be shipped during the 1980-81
season. The NAFED had permission from the Government of India to
A
B
C
D
E
F
G
H
802
SUPREME COURT REPORTS
[2020] 7 S.C.R.
enter into export for three years, i.e., between the period 1977-80 but
had no permission under the Export Control Order to carry forward the
export for the season 1979-80 to the year 1980-81. NAFED claimed
that it was unaware of the said fact that it did not have the requisite
authority to enter into the addendum dated 6.10.1980. Be that as it may.
The fact remains that the Government of India's permission was required
to carry forward the export for the season 1979-80 to the year 1980-81
under the Export Control Order, which was not given. When it was
again sought for, it was specifically refused by the Government of India
on various grounds.
32. Clause 14 of the FOSFA, 20 Contract dated 12.1.1980, entered
between the parties is significant in this regard. The relevant Clauses
14, 18, and 20 are extracted hereunder:
"EXTRACTS OF RELEVANT CLAUSES OF FOSFA 20
CONTRACT
DATED
12-01-1980
BETWEEN
PETITIONER AND RESPONDENT
14. PROHIBITION: In the event, during the shipment period
of prohibition of export of any other executive or legislative act by
or on behalf of the Government of the country of origin or of the
territory where the port/s or shipment named herein is/are situate,
or of blockade or hostilities, restricting export, whether partially
or otherwise, any such restriction shall be deemed by both parties
to apply to this contract and to the extent of such total or partial
restriction to prevent fulfilment whether by shipment or by any
other means whatsoever and to that extent this contract of any
unfulfilled portion thereof shall be extended by 30 days.
In the event of shipment during the extended period still proving
impossible by reason of any of the causes in this Clause, the
contract or any unfulfilled part thereof shall be cancelled. Sellers
invoking that Clause shall advice Buyers with due dispatch. If
required, Sellers must produce proof to justify their claim for
extension or cancellation under the clause.
18. DOMICILE: This contact shall be deemed to have been
made in England, and the construction, validity, and performance
thereof shall be governed in all respect by English Law. Any dispute
arising out of or in connection therewith shall be submitted to
arbitration in accordance with the Rules of the Federation. The
A
B
C
D
E
F
G
H
803
serving of proceedings upon any party by sending same to their
last known address together with leaving a copy of such
proceedings at the officers of the Federation shall be deemed
good service, rule of law or equity to the contrary notwithstanding.
20. ARBITATION: Any dispute arising out of this contract,
including any question of law arising in connection therewith, shall
be referred to arbitration in London (or elsewhere if so agreed) in
accordance with the Rules of Arbitration and Appeal of the
Federation of Oil, Seeds and Fats Associations Limited, in force
at the date of this contract and of which both parties hereto shall
be deemed to be cognizant.
Neither party hereto, nor any persons claiming under either of
them shall bring any action or other legal proceedings against the
other of them in respect of any such dispute until such dispute
shall first have been heard and determined by the arbitrators,
umpire or Board of Appeal (as the case may be) in accordance
with the Rules of Arbitration and Appeal of the Federation and it
was hereby expressly agreed and declared that the obtaining of
an Award from the arbitrators, umpire or Board of Appeal (as the
case may be), shall be a condition precedent to the right of either
party hereto or any person claiming under either of them to bring
any action or other legal proceedings against the other of them in
respect of any such dispute."
(emphasis supplied)
It is apparent from Clause 14 of the Agreement that during the
contract shipment period in the event of the prohibition of export by an
executive or legislative act by any of the Government of origin, such
restriction shall be deemed by both the parties to apply to the contract.
Thus, if the shipment becomes impossible byreasons mentioned in the
clause, the agreement shall be cancelled.
33. The Government of India, Ministry of Agriculture and Irrigation
wrote a letter on December 1, 1980, to the Managing Director of the
NAFED in which it pointed out that it was undesirable to make the
supply in the current season at the rate of previous years contract and
apart from that no exporter could undertake to export any commodity
with such a wide variation in prices. It was also pointed out that the
export contract of last year is not supposed to be carried forward
A
B
C
D
E
F
G
H
804
SUPREME COURT REPORTS
[2020] 7 S.C.R.
automatically to next year. The export of the commodity was restricted
under a quota system. NAFED could not agree on its own to move
forward last year's commitment to the current year without prior approval
of the Government. Therefore, NAFED was asked not to consider taking
up the previous year's contract for implementation in the current crop
season and inform it to the Government. Para 2 of the letter is extracted
hereunder:
"2. I am told that NAFED could not fulfil some of the contracts
for exports last year due to drought in the country. It has been
further reported to me that some move is being made to export
HPS groundnuts during the current season against the contracts
entered into last year. This will be a most undesirable thing to do
considering that the prices today are almost three time than the
prices prevalent last year. No exporter can undertake to export
any commodity with such a wide variation in prices. Moreover
the export contracts for last year are not supposed to be carried
forward automatically to the next year. Further the export of HPS
groundnuts is restricted and under a quota system, NAFED cannot
on its own carry forward last year's commitments to the current
year without getting the prior approval of the Govt. You may,
therefore confirm that NAFED is not considering taking up last
year's contracts for implementing in the current crop season."
34. After that, NAFED requested the Government of India again
to release quota in the current season to fulfil commitment under the
contract for previous year. On 6.12.1980 and 9.12.1980, letters were
written to the Ministry of Commerce. The NAFED wrote a letter on
9.1.1981 to the Government. The Government vide letter dated 27.1.1981
in reply to the letter dated 9.1.1981 reiterated that it was not desirable to
permit last year's commitment in the current year. The letter dated
27.1.1981 is extracted hereunder:
"No.26021/180-T
Government of India
Ministry of Agriculture
(Department of Agriculture & Cooperation)
(Trade Division)
Krishi Bhawan, New Delhi
A
B
C
D
E
F
G
H
805
Dated the 27th Jan. 1981
To,
Shri S.K. Iyer,
Executive Director (Foreign Trade),
Sapna Building,
54, East of Kailash,
N.A.F.E.D.,
P.B. No.3580.
Subject:- Export of HPS Groundnut - Last years pending contracts
- reg.
Sir,
I am to invite a reference to your letter No.HO/CSC/EXP/HPS/
POI/80-81/1334 dated 9th Jan., 1981 on the above subject and to
say that the question of allowing the last year's contracts of HPS
Groundnuts during current season has been again examined
carefully. In view of the restricted export policy of this item and
quota ceiling etc. it has not been considered desirable to permit
the last year's commitments in the current year.
Yours faithfully,
Sd/-
(P.C. Ramrakhian)
Director (Trade)"
(emphasis supplied)
35. The refusal by the Government came in the way of the NAFED
to affect the supply by exporting the commodity to Alimenta S.A. This
was covered within clause 14 of the Agreement mentioned above. The
prohibition was on account of the Government's refusal.
36. It is apparent from the provisions of the contract dated
12.1.1980 that the quantity of 5,000 metric tonnes, to be increased up to
8,000 metric tonnes, depending upon the availability of stocks. Clause 8
of the Agreement dated 12.1.1980 provided that shipment was to be
A
B
C
D
E
F
G
H
806
SUPREME COURT REPORTS
[2020] 7 S.C.R.
from Saurashtra port at the buyer's option during February/March/April
1980. The other terms and conditions were as per FOSFA, 20 contract
terms. Addenda dated 18.8.1980 and 6.10.1980 were executed to the
agreement/ contract dated 12.1.1980. The NAFED had no authority to
enter into export for the previous years without prior permission of the
Government of India, and it executed both the addenda without such
permission.
37. The Minutes of Meeting of Business Committee of NAFED,
dated 21.11.1980 at Agenda Item No.4, notes that there were
unseasonable rains in the Saurashtra region and due to cyclone, etc. the
groundnut crop was severely damaged, and there was less production.
There was less than 50% recovery. There was an escalation of prices
as compared to 1978-79 in 1979-80. It appears that NAFED intended to
perform the contract in the oblivion of the fact that being a canalizing
agent, it could not have carried out the supply in the next subsequent
years.
38. The NAFED in the circumstances after receipt of the letter
dated 1.12.1980 of the Department of Agriculture informed the Alimenta
S.A. not to nominate the vessel for shipment for the goods due to the
Government's prohibition for the supply of the goods. The NAFED wrote
a letter again on 9.1.1981 and pointed out to the Government that they
were unable to export on account of Government order. The Government
was asked to apprise it of the final decision regarding the export of
commodities to the respondent. Letter dated 27.1.1981 reiterating
prohibition came to be issued in the aforesaid circumstances. It was
taken to be a refusal to supply on the part of the NAFED by the Alimenta
S.A., and they asked the NAFED to appoint its Arbitrator. Alimenta
S.A. appointed Mr. A.G. Scott as its nominee Arbitrator. Another telex
dated 13.2.1981 was sent by the NAFED informing that it would not be
possible to supply the commodity because of Government action of
banning such export. Later on, confirmation was sought from the
Government by the NAFED. The Ministry of Commerce, Government
of India, informed NAFED on 9.1.1984 that the directions issued by the
Ministry of Agriculture refusing fulfilment of previous year's contract
were lawful and binding.