Case: Transocean Shipping Agency P.Ltd Vs. Black Sea Shipping

3. This is an appeal from a judgment and decree of the High Court dated 9th of October, 1996 in Arbitration Petition No. 22 of 1996 whereby the High Court has allowed the petition and passed a decree, under the provisions of the Foreign Awards (Recognition and Enforcement) Act, 1961, in terms of the foreign award dated 3rd of October, 1995, given by the second respondent arbitrator at Odessa, Ukraine.In 1983 the 1stSea Shipping Co. was a division of M/s Sovfracht a wholly owned company of the then Government of the USSR. Under an agreement dated 26.8.83 the 1st respondent appointed, inter alia, theTransocean Shipping Agency (P) Ltd. as their shipping agents for the 1st respondents business of shipping and carriage of goods to and from various Indian ports. The engagement of the appellants by the 1st respondent was done under various agreements, the last of which was dated 26.8.1983. Under Clause 5.30 of the agreement of 26.8.1983 all payments between the owners i.e. the 1st respondent and the agents were to be effected in accordance with the terms of a payment aggrement existing between the USSR and India otherwise than in free convertible currency. All remittances from the appellants to the 1st respondent were, therefore, to be made in accordance with thepayment agreement between the USSR and India.Clause 7 of the agreement of 26.8.1983 contains an arbitration clauses requiring the disputes, if not settled amicably, to be referred to the Maritime Arbitration Commission of the USSR with the Chamber of Commerce and Industry in Moscow for arbitration in accordance with the Rules and Procedure of this Commission.In or around December, 1991, dissolution of the USSR took place. Several Socialist Republics which had formed a part of the USSR became independent Sovereign States. The State of Ukraine also thus became an independent Sovereign State. The 1st respondent company became a company owned by the State of Ukraine. In January, 1992 the Reserve Bank of India issued a directive that henceforth all trade andtransactions with the State of Ukraine and the other Soviet countries would be effected only in freely convertible currencies. All disbursements in respect of Ukrainian vessels and collection of rates will be in convertible rupees in dollar terms only. At this time a sum of approximately Rs. 28.11 crores was lying with the appellants to the credit of the 1st respondent in the form ofrupees. Because of the directive issued by the Reserve Bank of India, this amount could not be used by the appellants to meet disbursements in respect of the vessels of the 1st respondent. The 1st respondent, therefore, decided to utilise thisrupee amount for purchasing different items and commodities like tea, containers, garments etc. in India after obtaining the requisite permission from the Reserve Bank of India. In this manner, a sum of Rs. 21.7 crores was utilised by the 1st respondent and was disbursed by the appellants on the instructions of the 1st respondent after obtaining the requisite Reserve Bank of Indias permission.On 18th of May, 1992 a fresh agency agreement was executed between the appellants and the 1st respondent. The 1st respondent appointed the appellants as their agents in respect of their ships coming to and going from, Indian ports on the terms and conditions stipulated therein. Under Clause 5.2 of the agreement dealing with freight, it was provided that the freight amounts accepted by the shipper or receivers as well as other amounts relevant to freight were to be remitted to the owners in accordance with the attached Financial Addendum to the agreement. Clause 5.21 required all payments to be effected in free convertible currency, unless otherwise stipulated. The first addendum relating to financial obligations provided in Clause 5 that any balance due to the owners should be paid by the agents in accordance with Clause 5.2 on owners instructions. Clause 7 of this agreement contained an arbitration clause. It provided as follows7.1: All disputes between owners and Agents which may arise in connection with the fulfilment of their Agreement are to be settled amicably, but if impossible then to be referred to Arbitration of country where the owners are registered.In January, 1995 the appellants had with them a sum of Rs. 6,41,66,410.60 asbalance amount of freight payable by them to the 1st respondent. The 1st respondent directed the appellants to pay this amount to M/s Akshay Exports, Calcutta in connection with a purchase contract for coffee entered into between the 1st respondent and M/s Akshay Exports. Permission of the Reserve Bank of India was sought for this payment. As the permission was declined, the appellants could not pay this amount to M/s Akshay Export. Thereafter disputes arose between the appellants and the 1st respondent. The 1st respondent claimed substantial amounts from the appellants pertaining to various payments made by them in India as shipping agents of the appellants.The 1st respondent invoked the arbitration clause in the agreement of 18th of May, 1992 in respect of their claim for Rs. 6,41,66,410.60. On 11th August, 1995 by Government Order issued by the Ministry of Transport of Ukraine, Department of Merchant Marine and River Transport, the second respondent was appointed as sole arbitrator in the matter of disputes between the State owned 1st respondent and their agents in Indiathe appellants, as well as another agent in Madras, to settle the issues by arbitration. The date of arbitration was fixed in respect of the appellants as 3rd of October, 1995 at Odessa. The second respondent thereafter sent a letter to the appellants dated 28th August, 1995 informing them of her appointment as sole arbitrator and directing the 1st respondent to file the statement of claim on or before 11th of September, 1995 and directing the appellants to file their objections/reply on or before 26th of September, 1995. She also notified the parties that a meeting would be held by her in her office at Odessa on 3rd of October, 1995. The appellants wrote a letter objecting to the appointment of the arbitrator and raised various contentions therein. They, however, did not file any objections or reply to the statement of claim filed by the first respondent claiming a sum of Rs. 6,41,66,410.60; nor did they appear before the arbitrator. As a result the arbitrator made and published her award dated 3rd of October, 1995 awarding the sum of Rs. 6,41,66,410/to the 1st respondent together with interest and costs. The 1st respondent has thereafter filed petition No. 22 of 1996 in the High Court for enforcement of the foreign award. Under the impugned judgment a decree has been passed in terms of the award under the Foreign Awards (Recognition and Enforcement) Act, 1961.

Court's reasoning:
We do not propose to permit the appellants now to produce/prove the relevant law of Ukraine when they have failed to do so before the High Court, and their contention has been consequently rejected by the High Court. The practice of filing fresh documents or evidence for the first time before this Court when the High Court had rejected the claim in the absence of such material, must be deprecated. The appellants were in a position to produce the relevant material before the High court. They failed and neglected to do so. They must take the consequence. The respondents have, in this connection, also pointed out that any objections to the competence of the arbitrator, or any defect in arbitration procedure could have been agitated by the appellants in Ukraine before the prescribed authorities. They have, however, not taken any steps in accordance with the law of Ukraine to challenge the arbitration or the award. Hence the award has now become final and binding. The respondents have filed an affidavit stating that the award has become final and binding as per Ukrainian law. The appellants has not controverted this by showing the relevant law. A mere assertion by the appellants that the award is defective or not in accordance with the law of Ukraine cannot be treated as establishing this contention. On the contrary, the presumption would be in favour of the validity of the award.The last objection which is taken by the appellants is to the second respondent being appointed as arbitrator on the ground that she was a high ranking officer of the first respondent. According to the appellants an award which is given by her cannot be enforced in India because it would be against public policy. There is, however, no violation of any public policy in the present case. The parties had agreed to be governed by the law of Ukraine as far as the arbitration proceedings were concerned. If the award given by the second respondent is valid under the law of Ukraine, then there is no violation of any public in enforcing it here. Often parties appoint an officer of one of the parties to the arbitration agreement, as a sole arbitrator. Sometimes the agreement in terms so provides. This does not ipso facto make the arbitration or the award contrary to any public policy, especially if the officer had not personally handled disputed transactions and isHigh Court has, therefore, correctly passed a decree in terms of the award.