Case: NATIONAL AGRICULTURAL COOPERATIVE MARKETING FEDERATION OF INDIA Vs. ALIMENTA S.A


Decision:
1[ds]Consequently, NAFED could not have been held liable to pay damagesIt 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 by reasons mentioned in the clause, the agreement shall be cancelled36. 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 from Saurashtra port at the buyers 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 permission37. 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 years38. 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 Governments 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 years contract were lawful and bindingIt is apparent that the Government of India issued a direction that was binding upon the NAFED. Without permission, it was not possible for the NAFED to carry out its obligation under the Contract and Addenda43. In the present case, parties have agreed, and in Clause 14 of the Agreement, it was contemplated that during the contract if there is any prohibition of the export or any other executive or legislative Act by or on behalf the Government of the Country of origin, the unfulfilled part of the contract shall be cancelled. Because of the refusal by the Government, it was not permissible to the NAFED to make a supply to the Alimenta S.A. Hence; the unfulfilled part was required to be cancelled. Thus, NAFED was justified in not making the supply as it would have violated the Export Control Order, and it was not permissible to carry forward the quantity of the previous year to the next year because of the Export Control Order without permission of the Government44. It is apparent that the contract came to an end in terms of Clause 14 of the Agreement. The contract became void in view of the provisions contained in Section 32 of the Indian Contract Act, 1881 (for short, Contract Act). The stipulation in Clause 14 releases both parties from the performance of the contract.48. 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 Governments 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 contract was capable of being performed in case the Government gave the requisite authorization. It is not an event that was not in contemplation at the time of entering into the agreement. Government permission was necessary. Section 56 is not attracted as the promisor and promisee both knew the reason in advance as in agreement such a contingency was provided itself in case of Governments executive order comes in the way, for cancellation of the contract. Thus, the contract became void on the happening of the contingency, as provided in section 32 of the Contract Act52. In the present case, the High Court observed that it was a case of self-induced frustration. The High Court ignored and overlooked that it was not a case of frustration under section 56 of the Contract Act, but there was a stipulation in Clause 14 of the Agreement, the effect of which was ignored and overlooked, and the said term was based upon the law as applicable in India and was based on export restrictions, it was within the realm of public policy. The NAFED was a canalising agency and could not have supplied without prior permission of Government, nor could it have lawfully carried forward last years 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 1961On the happening of such an event, it is so fundamental as to be regarded by law as striking at the root. As such, we are of the opinion that the contract was rendered void in terms of section 32 of the Contract Act57. It would have been unlawful for NAFED to affect the supply in view of the Governments 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 non-supply in quantity. Thus, they were bound by the agreement. The award pre¬supposes supply could have been made after the Governments 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 India58. It is also apparent that the Government rightly objected to the supply being made at the rate of the previous season in the next season, particularly when the prices escalated thrice. The addendum was entered into subsequently, unfairly, and the parties fully understood that the Government would not permit export at the rate on which supply was proposed, and NAFED was acting only as a canalising agent of the Government of India. Thus, for such an unfair contract, permission was rightly declined by the Government. In the previous year, the commodity could not be supplied due to force majeure. In no event, supply could have been made in December 1980 and January 1981 sans permission from the Government of India61. The question arises when the award can be said to be contrary to public policy. This Court considered the issue in several decisions. The expression public policy concerning the agreement relates to the public policy of the country where award is being enforced. Section 23 of the Contract Act, 1872 deals with what consideration and objects are lawful and what not. If the court regards it as immoral or opposed to public policy, in that event, the consideration or object of agreement is said to be unlawful, and any agreement of which the object or consideration is unlawful is voidIn the instant case, we are not on the issue of procedural irregularities while considering the aspect above concerning the public policy; we have to consider the case mainly given Clause 14 of the Agreement68. It is apparent from above¬mentioned decisions as to enforceability of foreign awards, 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. The matter is such which pertains to the fundamental policy of India and parties were aware of it, and contracted that in such an exigency as provided in clause 14, the Agreement shall be cancelled for the supply which could not be made. 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 necessary69. In our considered opinion, the award could not be said to be enforceable, given the provisions contained in Section 7(1)(b)(ii) of the Foreign Awards Act. As per the test laid down in Renusagar (supra), its enforcement would be against the fundamental policy of Indian Law and the basic concept of justice. Thus, we hold that award is unenforceable, and the High Court erred in law in holding otherwise in a perfunctory manner70. Though in view of the finding above, it is not necessary to go into other questions. It was argued that the Arbitrator was appointed in violation of the order passed by the High Court. The High Court on 20.3.1981 granted interim stay till 22.4.1981. A telex dated 20.3.1981 was sent informing that the High Court granted an interim stay. The FOSFA vide letter dated 6.4.1981 asked the NAFED to appoint its arbitrator by 20.4.1981. On 9.4.1981, NAFED informed FOSFA about the stay of the arbitration proceedings granted by the High Court. The interim order was extended on 22.4.1981 till further orders. On 23.4.1981, Mr. F.A.D. Ralfe, a nominee of the NAFED, was appointed as Arbitrator by FOSFA in the Arbitration Tribunal in violation of the order passed by the High Court72. Though this Court passed an interim order, ultimately, it dismissed the petition filed on behalf of the NAFED, and it was open to the appellant to raise the question at the relevant time when this court decided the matter in the year 1987. This court permitted the arbitration proceedings to continue. As such, we are of the opinion that though it would have been proper for the FOSFA to comply with the interim orders passed by this Court, the proceedings in which the temporary orders were given were dismissed way back in the year 1987. At that time, the question was required to be agitated. This Court permitted to continue proceedings in 1987. The said questions ought to have been raised at that stage; we cannot permit the appellant to raise them now. Hence, at this stage, we are not inclined to entertain and examine merits of the argument mentioned above74. It is not disputed that before the Arbitration Tribunal, the rule debars legal representation; hence the submission as to non¬ representation before the Tribunal, cannot be accepted. However, in appeal due to refusal to permit representation through a legal firm, the NAFED was not able to point out the prejudice caused to it. In the absence of proof of prejudice caused due to non¬representation by a Legal Representative and to show that it was disabled to put forth its views, we cannot set aside the award on the ground that it would have been proper to allow the assistance of a Legal Representative. Thus, we are not inclined to render the award unenforceable on the aforesaid ground78. The Arbitrator appeared at the appellate stage, though, as per the Indian Law and the ethical standards, the Arbitrator could not have appeared at the second stage to defend arbitration award passed by him, and should have kept aloof. However, no concrete material has been placed on record to substantiate the objection as to prevailing practice and law in U.K. at the relevant time. Hence, we are not inclined to decide the issue in this case. Suffice it to observe that Arbitrator is supposed to follow ethical standards, and, in our considered view, ought not to have defended arbitration award passed by him in the subsequent judicial proceedings79. The question was also raised concerning the Board of Appeal, enhancing the rate of interest from 10.5 % to 11.25 %. We hold that it was not open to the Board of Appeal to increase the interest in the absence of appeal. As we have held award to be unenforceable under section 7 of the Foreign Awards Act, other submission does not survive for decision.