OMP 29/2003 Page 1 of 49 * IN THE HIGH COURT OF DELHI AT NEW DELHI + OMP 29/2003 JINDAL EXPORTS LTD. ..... Petitioner Through Mr. Ramesh Singh with Ms. Anne Mathew, Mr. Suman Jyoti Khaitan and Mr. Nitya Bagaria, Advocates versus FUERST DAY LAWSON LTD. ..... Respondent Through Ms. Ashwani Kumar, Senior Advocate, with Ms. Sangeeta Bharti, Ms. Nidhi Minocha, Mr. Rahul Malik, Advocates WITH + OMP 204/1998 & I.A. 4424/2006 JINDAL EXPORTS LTD. ..... Petitioner Through Mr. Ramesh Singh with Ms. Anne Mathew, Mr. Suman Jyoti Khaitan and Mr. Nitya Bagaria, Advocates versus FUERST DAY LAWSON LTD. ..... Respondent Through Ms. Ashwani Kumar, Senior Advocate, with Ms. Sangeeta Bharti, Ms. Nidhi Minocha, Mr. Rahul Malik, Advocates AND + EX. P. 168/1998 & EAs 114/2006, 410/2006, 163/2007 FUERST DAY LAWSON LTD...... Decree Holder Through Ms. Ashwani Kumar, Senior Advocate, with Ms. Sangeeta Bharti, Ms. Nidhi Minocha, Mr. Rahul Malik, Advocates versus JINDAL EXPORTS LTD. ..... Judgment debtor Through Mr. Ramesh Singh with Ms. Anne Mathew, Mr. Suman Jyoti Khaitan and Mr. Nitya Bagaria, Advocates OMP 29/2003 Page 2 of 49 AND + EX. P. 169/1998 & EAs 409/2006 & 162/2007 FUERST DAY LAWSON LTD...... Decree Holder Through Ms. Ashwani Kumar, Senior Advocate, with Ms. Sangeeta Bharti, Ms. Nidhi Minocha, Mr. Rahul Malik, Advocates versus JINDAL EXPORTS LTD. ..... Judgment debtor Through Mr. Ramesh Singh with Ms. Anne Mathew, Mr. Suman Jyoti Khaitan and Mr. Nitya Bagaria, Advocates Reserved on : November 27, 2009 % Date of Decision : December 11, 2009 CORAM: HON'BLE MR. JUSTICE MANMOHAN 1. Whether the Reporters of local papers may be allowed to see the judgment? Yes. 2. To be referred to the Reporter or not? Yes. 3. Whether the judgment should be reported in the Digest? Yes. J U D G M E N T MANMOHAN, J 1. While OMP No. 29/2003 has been filed challenging the enforceability of arbitration Award No. 1030 dated 30th August, 1996, the Execution Petition bearing No. 168/1998 has been filed for its enforcement. Similarly, while OMP No. 204/1998 has been filed challenging the enforceability of Award No. 1034 dated 16th October, 1996, Execution Petition No. 169/1998 has been filed for its enforcement. Since disputes between the same parties arise out of a OMP 29/2003 Page 3 of 49 common contract, all the four petitions are being disposed of by a common judgment. 2. The relevant facts in all the four petitions are that on 1st August, 1994 a contract was executed between M/s. Jindal Exports Ltd. (hereinafter referred to as “petitioner”) and Fuerst Day Lawson Ltd. (hereinafter referred to as “respondent”) for supply of 108 metric tons of Indian Menthol Crystals @ US$ 9.25 per kg. less 2% commission to the respondent. The shipment schedule indicated that supply was to be made in three stages as under :- i) January – June 1995 - 3 Full Container Loads at buyer‟s call. ii) July – December1995- 6 Full Container Loads at buyer‟s call. iii) January – June 1996 - 3 Full Container Loads at buyer‟s call. 3. The aforesaid contract as well as the relevant terms of the General Conditions of Purchase accompanying the said contract read as under :- ―Confirmation of Purchase Reference P64608 1st August, 1994 Jindal Exports Ltd., C54/2, Wazirpur Industrial Area, New Delhi-110052, India We (Buyers) have this day bought from you (Sellers) the following goods in accordance with the following Special Conditions and the General Conditions hereon and overleaf. SPECIAL CONDITIONS ARTICLE INDIAN MENTHOL CRYSTALS BP/USP DESCRIPTION: fair merchantable quality, Bold crystals of the ―Panda‖ brand. OMP 29/2003 Page 4 of 49 QUANTITY: 108,000 (One hundred and eight thousand) kilos nett. PACKING: in drums each containing 25 kilos nett to be sound and suitable for shipment PRICE: @US$9.25 ( Nine US Dollars Twenty Five Cents) per Kilo CIF EMP/NY less 2% commission to Fuerst Day Lawson Ltd. WEIGHTS: certified nett shipping weights. INSURANCE: against All Risks and War Risks as per Institute Commodity Trades Clauses (A) for at least 10% over the full CIF invoice amount. SHIPMENT: from origin 3 full container loads between January and June 1995 at buyers call, (continued on page 2) PAYMENT: in London by net cash for the full invoice amount on presentation of and in exchange for documents and drafts drawn at sight under irrevocable letter of credit. TERMS AND Documents – see page 2 CONDITONS: Each shipment position to be treated as a separate contract. If goods shipped in refrigerated containers price to be increased by US$0.27 per kilo with costs for buyers account. All other terms and conditions as per IGPA Contract No. 9 (Including contract amendments current at the date of this contract) in so far as they do not conflict with the terms and conditions above and hereover. In the event of conflict it is understood that the terms and conditions above and hereover shall prevail. xxxx xxxx xxxx xxxx OMP 29/2003 Page 5 of 49 GENERAL CONDITIONS OF PURCHASE xxxx xxxx xxxx xxxx 8. In default of fulfilment of this Contract by the Sellers, the Buyers at their discretion shall have the right either to cancel the contract or to purchase against the Sellers who shall on demand make good the loss, if any, on such purchase. If the Sellers shall be dissatisfied with the price of such purchase, the damages, if any, shall, failing amicable settlement, be determined by arbitration. The damages awarded against the Sellers shall be the difference between the Contract Price and the market price on the day of default together with any additional damages which the Buyers may directly or indirectly have suffered. Damages are to be computed on the mean contract quantity. If for any reason the Sellers fail to fulfil the Contract and are declared by the Buyers to be in default and default is either agreed between the parties or subsequently found by arbitrators to have occurred, the date of default shall, failing amicable settlement, be decided by arbitration or otherwise in accordance with clause 17. xxxx xxxx xxxx xxxx 17(1). This Contract shall be construed in accordance with and governed by the laws of England and Wales. Save where a contrary intention is expressed in the Special Conditions set out overleaf, any dispute or difference arising between the parties to this Contract as to the meaning of the Contract or any matter or thing arising out of or connected with this Contract shall, at Buyers‘ option and at any time after the dispute or difference has arisen, be determined either: 17(1) 1. By the High Court of Justice in England; or 17(1) 2. By reference to arbitration in accordance with Clause 17(2) hereof. 17 (2) If the Buyers opt for arbitration, such arbitration shall be commenced and conducted. 17(2) 1. In accordance with the Rules of Arbitration of any one of the following bodies: a) The Grain and Feed Trade Association; or b) The Federation of Oils, Seeds and Fats Associations Ltd.; c) The International General Produce Association Ltd.; d) The China International Economic and Trade OMP 29/2003 Page 6 of 49 Arbitration Commission, in Beijing or by its Shenzhen Sub-Commission in Shenzhen or by its Shanghai Sub- Commission in Shanghai at the Buyer‘s option in accordance with the Commission‘s arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon both parties; or at Buyers‘ option under the rules of arbitration of any other body or trade association of their choice. 17(2) 2. In accordance with English Law in London by two arbitrators experienced in the trade one to be nominated by each party or if they shall fail to agree by an umpire who shall also be experienced in the trade and who shall be appointed by the two arbitrators. The arbitrators and umpire shall have power to act upon such oral or documentary evidence or information, without regard to the strict rules of evidence, and to conduct the arbitration in such manner as they or he may think fit and further to proceed with the arbitration in the absence of either party unless the latter gives written notice to his arbitrator at the time of the latter‘s appointment of his desire to be present and give and or adduce evidence. 17(3). The Buyers shall be entitled to nominate any of the above options at any time after the dispute or difference has arisen, the Sellers hereby acknowledging that they are familiar with the Arbitration Rules of the Association thereby nominated and agree to be bound by the decision of such arbitrators or of any appeal therefrom.‖ 4. It is the petitioner‟s case that due to excessive heat and extremely low rainfall, mentha crop got badly damaged resulting in shortage of crude mentha oil required for manufacturing Menthol Crystals and consequently, suppliers of crude mentha oil backed out. Though initially the respondent extended the time for shipment, on 20th November, 1995 respondent wrote a letter to the petitioner stating that petitioner was in repudiatory breach of its shipment obligation. Respondent invoked the arbitration clause and claimed damages for default. OMP 29/2003 Page 7 of 49 5. Subsequently, on 14th December, 1995 respondent nominated its arbitrator under the International General Produce Association Rules (in short “IGPA Rules”) and requested petitioner to appoint its own arbitrator. 6. Despite number of requests and letters from IGPA, petitioner did not appoint its arbitrator. Subsequently, on 24th January, 1996 IGPA appointed Mr. R. Backer as petitioner‟s nominee on the Arbitral Tribunal (in short “AT”). However, vide telefax message dated 25th January, 1996 petitioner objected to IGPA appointing an arbitrator on its behalf. The said message reads as under :- “Received your Fax dated 24th Jan regarding Fuerst day Lawson. We are really disappointed to note that in spite of our reply dated 18th Jan you have appointed arbitrator on our behalf without our consent and approval. We totally disagree and disapprove that, please take note that we will not be responsible in any manner for any decision taken by any arbitrator appointed without our consent. In case you will still want to proceed, please treat this Fax of ours as our resignation from the membership of IGPA from immediate effect. In the meantime this is simply for your information that we are closed for3 days starting from tomorrow the 26th Jan. (Our Republic Day Holiday) till 28th Jan. I will be travelling from 27th Jan. till 11th Feb. and will be back in office on 12th Feb.‖ 7. On the same date, i.e, 25th January, 1996, IGPA responded to petitioner‟s letter. IGPA‟s response reads as under :- “I acknowledge receipt of your fax of 25th January in respect of the above case. Please be advised that the Association is obliged to appoint an Arbitrator in accordance with Rule 1. OMP 29/2003 Page 8 of 49 This Rule gives you the opportunity to do so, but we have not received any notice of a nomination from you. I also draw your attention to Rule 3(b)(ii) of the Rules of Arbitration and Appeal concerning your reply submissions and documents which reads: ―If the party against whom a claim is made wishes to reply, such reply together with supporting documents shall be despatched in writing to the Association in triplicate and to the other party without delay but not later than 30 days from receipt of the claimants submissions. Failing receipt of such reply, the arbitrators shall proceed with the arbitration without delay.‖ I shall refer your fax to the Arbitrators.‖ 8. In pursuance to a query that arose for consideration before AT, IGPA on 3rd May, 1996 wrote to the petitioner asking for petitioner‟s view with regard to interpretation of Clause 8 of General Conditions of Contract (in short “GCC”). The said letter dated 3rd May, 1996 reads as under :- ―I have been asked by the Arbitrators to advise you that they intend to proceed to produce an award as soon as possible. There is a possible question regarding conflicting rules, and accordingly the arbitrators call on both parties to make submissions within 15 days of the date of this communication regarding the interpretation of Clause 8 in Buyer‘s ―house‖ terms vis-à-vis corresponding regulations regarding default in the Association‘s terms and conditions. Upon receipt of these submissions they shall be passed on to the other party involved, whereupon said party shall have 15 days to respond. Once these 15 days have passed, arbitrators will proceed to consider this matter.‖ 9. Though respondent filed its submission with regard to interpretation of Clause 8, petitioner did not file any response. On 30th August, 1996, the first impugned Award bearing No. 1030 was passed against petitioner for US$ 408060 along with UK£ 2020 as costs. The OMP 29/2003 Page 9 of 49 relevant portion of the first Award dated 30th August, 1996 reads as under :- WE FIND AND HOLD THAT :- A. The contract calls for shipment of 6 full container loads between July and December 1995 at buyers call; B. Whilst Sellers shipped 2 container loads within the period, and these were accepted by Buyers in part fulfillment, Sellers expressed their intention not to ship further quantities within the contracted period, and failed do so; C. Sellers intention to ship goods towards the end of 1996 cannot be considered to fall within the terms of the contract and was not accepted by Buyers; D. The contract contains the express agreement that any disputes arising out of the Contract are to be settled by Arbitration according to the Rules of the International Produce Association; E. Disputes between Sellers and Buyers concerning other contracts can have no bearing on the fulfillment of this contract nor be considered by arbitrators in this dispute; F. Buyers‘ interpretation of Clause 8 allows them to buy in against Sellers, or rely on market difference as determined by arbitrators. Sellers have not disputed this interpretation. WE FURTHER FIND AND HOLD THAT :- - Sellers are in default in respect of 4 full container loads, and - The default date is 20th November 1995. WE DO HEREBY AWARD THAT Sellers shall pay to Buyers within 14 days of the date of this AWARD the sum of US$ 408,060.00….‖ 10. Subsequently, on 16th October, 1996 second impugned Award bearing No. 1034 was passed against petitioner for US$ 478050 along with UK£ 2120 as costs. OMP 29/2003 Page 10 of 49 11. It is pertinent to mention that while petitioner boycotted the arbitral proceedings which culminated in Award No. 1030, petitioner had filed its written submissions in second arbitral proceedings which culminated in Award No. 1034. 12. In October, 1998, even when the present execution proceedings were pending in this Court, petitioner filed an appeal before IGPA‟s Board of Appeal challenging both the impugned Awards. However, on 14th November, 1998, the said Board of Appeal refused to hear the petitioner‟s appeal on the ground of delay. Against the said order, petitioner preferred an appeal. The High Court of Justice at London dismissed petitioner‟s said appeal in limine. 13. Thereafter, proceedings initiated by petitioner and respondent in this Court culminated in Supreme Court‟s judgment titled as Fuerst Day Lawson Ltd. Vs. Jindal Exports Ltd. reported in (2001) 6 SCC 356. The relevant paras of the said judgment read as under :- ―31. Prior to the enforcement of the Act, the law of arbitration in this country was substantially contained in three enactments, namely, (1) the Arbitration Act, 1940, (2) the Arbitration (Protocol and Convention) Act, 1937, and (3) the Foreign Awards (Recognition and Enforcement) Act, 1961. A party holding a foreign award was required to take recourse to these enactments. The Preamble of the Act makes it abundantly clear that it aims at consolidating and amending Indian laws relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards. The object of the Act is to minimize supervisory role of the court and to give speedy justice. In this view, the stage of approaching the court for making the award a rule of court as required in the Arbitration Act, 1940 is dispensed with in the present Act. If the argument of the respondent is accepted, one of the objects of the Act will be OMP 29/2003 Page 11 of 49 frustrated and defeated. Under the old Act, after making award and prior to execution, there was a procedure for filing and making an award a rule of court i.e. a decree. Since the object of the Act is to provide speedy and alternative solution to the dispute, the same procedure cannot be insisted upon under the new Act when it is advisedly eliminated. If separate proceedings are to be taken, one for deciding the enforceability of a foreign award and the other thereafter for execution, it would only contribute to protracting the litigation and adding to the sufferings of a litigant in terms of money, time and energy. Avoiding such difficulties is one of the objects of the Act as can be gathered from the scheme of the Act and particularly looking to the provisions contained in Sections 46 to 49 in relation to enforcement of a foreign award. In para 40 of Thyssen judgment already extracted above, it is stated that as a matter of fact, there is not much difference between the provisions of the 1961 Act and the Act in the matter of enforcement of foreign award. The only difference as found is that while under the Foreign Awards Act a decree follows, under the new Act the foreign award is already stamped as the decree. Thus, in our view, a party holding a foreign award can apply for enforcement of it but the court before taking further effective steps for the execution of the award has to proceed in accordance with Sections 47 to 49. In one proceeding there may be different stages. In the first stage the court may have to decide about the enforceability of the award having regard to the requirement of the said provisions. Once the court decides that the foreign award is enforceable, it can proceed to take further effective steps for execution of the same. There arises no question of making foreign award a rule of court/decree again. If the object and purpose can be served in the same proceedings, in our view, there is no need to take two separate proceedings resulting in multiplicity of litigation. It is also clear from the objectives contained in para 4 of the Statement of Objects and Reasons, Sections 47 to 49 and the scheme of the Act that every final arbitral award is to be enforced as if it were a decree of the court. The submission that the execution petition could not be permitted to convert as an application under Section 47 is technical and is of no consequence in the view we have taken. In our opinion, for enforcement of a foreign award there is no need to take separate proceedings, one for deciding the enforceability of the award to make it a rule of the court or decree and the other to take up execution thereafter. In one proceeding, as already stated above, the court enforcing a foreign award can deal with the entire matter. Even otherwise, this procedure does not prejudice a party in the light of what is stated in para 40 of Thyssen judgment. 32. Part II of the Act relates to enforcement of certain foreign awards. Chapter 1 of this Part deals with New York OMP 29/2003 Page 12 of 49 Convention awards. Section 46 of the Act speaks as to when a foreign award is binding. Section 47 states as to what evidence the party applying for the enforcement of a foreign award should produce before the court. Section 48 states as to the conditions for enforcement of foreign awards. As per Section 49, if the court is satisfied that a foreign award is enforceable under this Chapter, the award shall be deemed to be a decree of that court and that court has to proceed further to execute the foreign award as a decree of that court. If the argument advanced on behalf of the respondent is accepted, the very purpose of the Act in regard to speedy and effective execution of foreign award will be defeated. Thus none of the contentions urged on behalf of the respondent merit acceptance so as to uphold the impugned judgment and order. We have no hesitation or impediment in concluding that the impugned judgment and order cannot be sustained.‖ (emphasis supplied) 14. Mr. Ramesh Singh, learned counsel for petitioner submitted that the impugned Awards were not a „foreign award‟ within the meaning of Sections 44 and 47 of Act, 1996 and Article II of the New York Convention. Sections 44 and 47 of Act, 1996 and Article II(1) of the New York Convention read as under :- ―44. Definition. -In this Chapter, unless the context otherwise requires, ―foreign award‖ means an arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, made on or after the 11th day of October, 1960- (a) in pursuance of an agreement in writing for arbitration to which the Convention set forth in the First Schedule applies, and (b) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the said Convention applies. xxxx xxxx xxxx xxxx OMP 29/2003 Page 13 of 49 47. Evidence. –(1) The party applying for the enforcement of a foreign award shall, at the time of the application, produces before the court- (a) the original award or a copy thereof, duly authenticated in the manner required by the law of the country in which it was made; (b) the original agreement for arbitration or a duly certified copy thereof, and (c) such evidence as may be necessary to prove that the award is a foreign award. xxxx xxxx xxxx xxxx THE FIRST SCHEDULE (SEE SECTION 44) CONVENTION ON THE RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS ARTICLE II 1. Each Contracting State shall recognise an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of defined legal relationship, whether contractual or not, concerning a subject- matter capable of settlement by arbitration. (emphasis supplied) 15. According to Mr. Ramesh Singh, the foreign award had not only to be an arbitral award in pursuance to an arbitration agreement but also that agreement should have fulfilled the condition precedent mentioned in the First Schedule in Article II, namely, (i) agreement should have been in writing, (ii) under such agreement, reference of differences/disputes to arbitration should have been agreed to, (iii) there should have been an undertaking under such an agreement to dispose of differences/disputes through arbitration and (iv) such undertaking should have been given by all the parties to the agreement. OMP 29/2003 Page 14 of 49 16. Mr. Singh submitted that Clause 17 of the Agreement to arbitrate did not fulfill the requirements mentioned in (ii), (iii) and (iv) hereinabove inasmuch as under the said Clause, buyer was free to opt for court proceedings and not to invoke arbitration at all. He submitted that a bare reading of Clause 17 made it evident that it was not the intention of parties that arbitration was to be the sole remedy. According to Mr. Singh, the purported arbitration clause lacked mutuality and was unilateral. He submitted that at the highest, Clause 17 was an agreement to enter into a future arbitration agreement and, therefore, the same was not enforceable. In support of his submission, Mr. Singh relied upon following judgments :- i) Wellington Associates Ltd. v. Kirit Mehta reported in (2000) 4 SCC 272 wherein Supreme Court has held as under :- 7. On the above