Case Note & Summary
The case involves a dispute between National Agricultural Cooperative Marketing Federation of India (NAFED), a canalizing agency for the Government of India, and Alimenta S.A., a foreign buyer. The parties entered into a contract on 12.1.1980 for the supply of 5,000 metric tonnes of Indian HPS groundnut at USD 765 per metric tonne FOB, governed by FOSFA 20 Contract terms. Only 1,900 metric tonnes were shipped; the balance could not be shipped due to crop damage. An addendum on 18.8.1980 extended the shipment period to November-December 1980, and a second addendum on 8.10.1980 provided for double gunny bags at extra cost. However, NAFED lacked Government permission to carry forward exports from the 1979-80 season to 1980-81. The Ministry of Agriculture on 1.12.1980 directed NAFED not to ship leftover quantities. NAFED informed Alimenta S.A. of the prohibition. Alimenta S.A. treated this as default and initiated arbitration before FOSFA in London on 13.2.1981. NAFED filed OMP No.41 of 1981 in the Delhi High Court seeking to restrain arbitration, and the court granted a stay on 20.3.1981, extended on 22.4.1981. Despite the stay, FOSFA appointed an arbitrator on behalf of NAFED on 23.4.1981. The Delhi High Court on 11.12.1981 held that the first agreement contained an arbitration clause (by incorporation of FOSFA 20) but the second did not. Appeals and SLP followed; the Supreme Court on 30.4.1982 stayed arbitration but FOSFA continued. Ultimately, the Supreme Court on 9.1.1987 upheld the High Court's decision and relegated parties to arbitration for the first agreement. NAFED participated in the arbitration, filing written submissions. FOSFA passed an award on 15.11.1989 directing NAFED to pay USD 4,681,000 as damages with interest at 10.5% p.a. from 13.2.1981. NAFED appealed to the Board of Appeal, which on 14.9.1990 enhanced the interest rate to 11.25% p.a. Alimenta S.A. then sought enforcement of the award in India by filing Suit No.1885 of 1993 under Sections 5 and 6 of the Foreign Awards (Recognition and Enforcement) Act, 1961 (now under the Arbitration and Conciliation Act, 1996). The main objections were: (i) NAFED was unable to perform due to Government refusal, which constituted a prohibition under Clause 14; (ii) NAFED was not liable for breach; and (iii) enforcement would be against public policy as the award was passed in violation of court orders. The Supreme Court held that the Government's refusal was not a prohibition under Clause 14 because NAFED, as a canalizing agency, knew or ought to have known that it lacked permission to carry forward exports. The addenda were entered into without authority, and NAFED could not rely on its own lack of permission as a force majeure. The court also held that the violation of court orders by FOSFA did not render the award unenforceable as NAFED had participated in the arbitration after the stay was lifted. The award was held enforceable and not contrary to public policy. The appeal was dismissed.
Headnote
A) Arbitration Law - Enforcement of Foreign Award - Sections 47, 48 of the Arbitration and Conciliation Act, 1996 - Grounds for Refusal - The court examined whether the foreign award passed by FOSFA was enforceable in India. The objections raised by NAFED included that the Government's refusal to permit export constituted a prohibition under Clause 14, that NAFED was not liable for breach, and that enforcement would be against public policy. The court held that the Government's refusal was not a prohibition within the meaning of Clause 14 as the contract was for a specific season and NAFED had voluntarily entered into addenda without requisite permission. The award was held enforceable. (Paras 1-50) B) Contract Law - Force Majeure and Prohibition Clause - Clause 14 of FOSFA 20 Contract - Interpretation - The court considered whether the Government's refusal to allow carry-forward of exports constituted a 'prohibition' under Clause 14. It held that the clause applied only to executive or legislative acts that directly prohibit export, not to internal policy decisions of the Government that were known or ought to have been known to NAFED. Since NAFED was a canalizing agency and knew it lacked permission, it could not rely on the Government's refusal as a force majeure event. (Paras 3-10) C) Public Policy - Enforcement of Foreign Award - Section 48(2)(b) of the Arbitration and Conciliation Act, 1996 - The court held that enforcement of the award would not be contrary to the public policy of India. The mere fact that the award was passed in violation of court orders (stay granted by Delhi High Court and Supreme Court) did not render it unenforceable as the violation was by the arbitral tribunal, not by the award itself. The court also noted that NAFED had participated in the arbitration after the stay was lifted. (Paras 18-24) D) Arbitration Law - Appointment of Arbitrator - Violation of Court Orders - The court noted that FOSFA appointed an arbitrator on behalf of NAFED despite a stay order from the Delhi High Court. However, this did not vitiate the award as NAFED subsequently participated in the proceedings without objection. The court held that the right to appoint an arbitrator was waived. (Paras 15-18)
Issue of Consideration
Whether the foreign award dated 15.11.1989 (as modified by the Board of Appeal on 14.9.1990) is enforceable in India, particularly in light of objections that NAFED was unable to export due to Government refusal, that Clause 14 of the Agreement (Force Majeure and Prohibition) excused performance, and that enforcement would be against the public policy of India.
Final Decision
The Supreme Court dismissed the appeal, holding that the foreign award dated 15.11.1989 as modified by the Board of Appeal on 14.9.1990 is enforceable in India. The court held that the Government's refusal did not constitute a prohibition under Clause 14, NAFED was liable for breach, and enforcement is not against public policy.
Law Points
- Enforceability of foreign award
- Public policy of India
- Force majeure and prohibition clause
- Breach of contract
- Damages for non-performance
- Arbitration agreement incorporation by reference
- Government refusal as defence
- Canalizing agency obligations
