Case: Shri Lal Mahal Ltd Vs. Progetto Grano Spa

By a contract dated 12.05.1994 between Shiv Nath Rai Harnarain (India) Company, New Delhi (sellers) and Italgrani Spa, Naples, Italy (buyers) a transaction relating to 20,000 MT (+/- 5%) of Durum wheat, Indian Origin (for short,for a price at US$ 162 Per MT was concluded. Some of the salient terms of the contract are asWheat Indian Origine new cropTest Weight80 KG/HL.MINMoisture12 PCT.MAXVitrious80 PCT. MINProteine12 PCT. MINForeign Matter2 PCT MAXSprouted/Spotted1 PCT. MAXSoft Wheat1.5 PCT. MAXQuantity20,000 MT With 5%+/-Sellers Option in 1 single shipmentShipment1-30/June 1994Quantity final at loadingQuality, ConditionsAll final at time and place of loading As per first class Intl Company Cert.nominated by the buyers certificate and quality showed at the certificate will be the result of an average samples taken jointly at port of loading by the representatives of the sellers and the buyers.PriceUS Dlrs 162,00 Per M. Ton FOB stowed Kandla, Buyers to give 10 days preadvise of vessels arrivalPaymentAgainst 100 PCT L/Credit irrevocable and confirmed for 100 PCT payable at sight against Foll. Shipping docsOther conditionsAll other terms and conditions not in contradictions with the above to be as per G.A.F.T.A Rules, 64/125 and its successive Amendments (In force at time and place of shipment date) which the parties admit that they have knowledge and notice.The buyers opened a letter of credit (L/C) on 17.06.1994 in favour of the sellers. The sellers claim that all documents required under the L/C, including the S.G.S India Limited certificate, were submitted by them which were accepted by thebankers and payment was duly released to the sellers.5. The buyers nominated M.V. Haci Resit Kalkavan as the vessel for loading of the goods. There was delay in shipment but that is not material for the purposes of this appeal. The ship completed loading on 13.08.1994 and sailed for discharge port. The Bill of Lading was dated 08.08.1994.6. The sellers faxed a copy of SGS India certificate of weight, quality and packing to the buyers on 16.08.1994. The buyers passed a copy of that certificate to SGS, Geneva with the request to them to issue the necessary certificate under the sale contract which the buyers had entered with ‘Office Alegerien Interprofessional das(OAIC). After the goods had reached the destination, the buyers sent a fax to the sellers on 23.08.1994 advising that analysis carried out by S.G.S. Geneva showed the wheat loaded was soft common wheat and not durum wheat as required under the contract. The buyers considered the sellers to be in breach of the contract for shipping uncontractual goods and held sellers responsible for all losses/damages both direct and indirect arising out of and the consequence of such breach.7. The sellers on 31.08.1994 responded to the above communication and asserted that S.G.S. India was an inspection agency; the wheat supplied was inspected by S.G.S. India at the time of procurement and also before loading the vessel and the inspection agency had confirmed that the wheat supplied met typical characteristics of Indian durum wheat and complied with the specifications provided in the contract.8. The buyers claimed arbitration on 04.11.1994 which was registered as case no. 11715A. The Arbitral Tribunal, GAFTA proceeded to arbitrate the dispute. The Arbitral Tribunal, GAFTA in its award dated 04.12.1997 accepted thecase that in appointing S.G.S. Geneva, their aim was to safeguard the performance of both contracts by having one company to coordinate all operations regarding inspection, control and the issue of certificate relating to the cargo and rejected theassertion that having loaded the goods, and presented a certificate provided by an international superintendence company, they had fulfilled their contractual obligations. Thecontention that S.G.S. India were nominated by the buyers and they were agents for buyers was rejected. The Arbitral Tribunal, GAFTA, concluded that wheat described on the certificate of quality and condition presented by the sellers as durum wheat of Indian origin was, in fact, soft wheat. The certificate was held to be uncontractual and with regard to description, it was held that sellers were in breach of contract and the buyers were entitled to damages based on the difference between the contract price and the FOB value of the goods as delivered and buyers were also entitled to any further proven loss directly and naturally resulting in the ordinary course of events from the breach. The Arbitral Tribunal, GAFTA passed the final award in the followingdo hereby award that Sellers shall pay Buyers forthwith the sum of US $ 1,023,750.00 (One million twenty three thousand seven hundred and fifty United States dollars) being the difference between the FOB contract price-US $ 162.00 per tonne less US $ 2.00 per tonne penalty for extending the shipment period, i.e. US $ 160.00 per tonne, and the FOB price of the Soft wheat shipped on m.v.i.e. US$ 111.25 per tonne amounting to US $ 48.75 per tonne on 21,000 tonnes, equating to US $ 1023.750 together with interest thereon at the rate of 7% (Seven percent) per annum from 24th August 1994 to the date of this Award.We do further award that Sellers shall pay Buyers forthwith the sum of US $ 303,007.60 (Three Hundred and three thousand and seven United States dollars and 60 cents.) being the loss incurred in replacing the wheat shipped on m.v.with Durum wheat shipped on M.V.nd M.V.together with interest thereon at 7% (Seven percent) per annum on:US$ 276,512.40 (the loss on M.V.) from 1st October, 1994 to the date of this Award.ANDUS$ 26,495.20 (the loss on M.V.from 5th December, 1994 to the date of this Award.We do further award that sellers shall pay Buyers forthwith the sum of US $ 138,590.28 (One hundred and thirty eight thousand five hundred and ninety United States dollars and 28 cents) being demurrage incurred on M.V.amounting to 19 days 10 minutes at US $ 7,000 per day/pro-rata equating to US $ 138.590.28 together with interest thereon at a rate of 7% (Seven percent) per annum from 30th September 1994 to the date of this Award.We do further award that Sellers claim for the return of US $ 42,000 fails.It appears that following the commencement of arbitration proceedings, the sellers contested the jurisdiction of the Arbitral Tribunal, GAFTA. The sellers filed a petition in Delhi High Court for a declaration that there was no arbitration agreement between the parties. They also prayed for an order restraining the Arbitral Tribunal, GAFTA from proceeding with the arbitration initiated by the buyers. Although initially interim order was granted but the petition was finally dismissed by Delhi High Court. The special leave petition from that order was dismissed by this Court. In the meanwhile, the Arbitral Tribunal, GAFTA had passed an interim award on 16.10.1995 holding, inter-alia, that the arbitration claim was properly made and it had jurisdiction to decide both the preliminary and substantive issues. On 05.02.1997, buyers made a separate claim for arbitration foralleged breach of the arbitration agreement in bringing legal proceedings in India concerning the first dispute before it had been determined under the GAFTA Rules. As regards this claim also, the Arbitral Tribunal, GAFTA was constituted and an award No. 12159 dated 04.12.1997 came to be passed by the Arbitral Tribunal, GAFTA.10. From the above two awards, namely, award no. 11715A and award no. 12159, the two appeals being appeal award no. 3782 and appeal award no. 3783 were filed by the sellers before the Board of Appeal. The Board of Appeal disposed of appeal award no. 3782 (arising out of award No. 11715A) on 21.09.1998 and passed the award in the followingdo hereby award that Sellers shall forthwith pay to Buyers the sum of US$ 1,023,750.00 (one million, twenty three thousand seven hundred and fifty United States Dollars) being the difference in value of US$ 48.75 per tonne between the goods supplied and goods of the contractual description calculated on 21,000 tonnes, together with interest thereon at 7% (Seven per centum) per annum from 24th August, 1994 to the date of this Award.We further award that Sellers shall forthwith pay to Buyers the sum of US $ 138,590.28 (one hundred and thirty eight thousand five hundred and ninety United States Dollars and twenty eight cents), being demurrage incurred at load, together with interest thereon at 7% (seven per centum) per annum from 30th September 1994 to the date of this Award.We further award thatclaim for consequential damages fails.We further award that Sellers shall forthwith pay to Buyers the sum of Rs.4,340.00 (four thousand three hundred and forty pounds sterling only), being the fees and expenses of Arbitration 11715A.We further award that Sellers shall forthwith pay to Buyers the sum of Rs.1,750 (one thousand seven hundred and fifty pounds only), being the costs and expenses ofRepresentative in preparing and presenting this case.Appeal award no. 3783 (arising out of award no. 12159) was disposed of also on the same day by the followingdo hereby award that sellers shall forthwith pay to Buyers as part of their damages the sum of Rs.1,762.90 (one thousand seven hundred and sixty two pounds and ninety pence), being the reasonable charges and disbursements of Middleton Potts incurred in considering and responding to the proceedings taken by Sellers in India.We further award that Sellers shall pay to Buyers as the balance of their damages the sum of Rs.15,924.00 (fifteen thousand nine hundred and twenty four pounds), being the total of O.P.four invoices nos. ATP/804 of 1995/6, ATP/206 of 1996/7, ATP/286 of 1996/7 and ATP/767 of 1996/7, or such lesser sum as shall be agreed by the parties or assessed by an appropriate officer or person in India, in either Indian rupees or sterling as being the reasonable fees, expenses, etc. incurred in considering and responding to the proceedings taken by Sellers in India. But we reserve to ourselves the right to assess these fees, expenses, etc. upon application of one or both of the parties, in the event that the parties are neither able to agree them, nor able to agree upon an appropriate officer or person in India to assess them.We further award that Sellers shall forthwith pay to Buyers the costs and expenses of the first tier arbitration no. 12159 in the amount of Rs.2,190.00 (two thousand one hundred and ninety pounds) together with Rs.85.00 (eighty five pounds), being the fee for appointment of an arbitrator onbehalf. We further award that Sellers shall forthwith pay to Buyers the sum of Rs.500 (five hundred pounds only) being the costs and expenses ofe in preparing and presenting this case.The sellers challenged the appeal award no. 3782 in the High Court of Justice at London. The appeal was dismissed on 21.12.1998. The sellers did not challenge the award passed by the Board of Appeal in appeal award no. 3783. Both awards, thus, have attained finality.13. It was then that buyers instituted a suit in the Delhi High Court for enforcement of the awards both dated 21.09.1998 passed by the Board of Appeal in appeal award no. 3782 and appeal award no. 3783. The sellers raised diverse objections to the enforcement of the above awards.14. The appellant, Shri Lal Mahal Limited, is successor in interest of the sellers while the respondent Progetto Grano SPA is the successor in interest of buyers. When the proceedings were pending before the Delhi High Court, the substitution in the proceedings took place. This is how the parties are now described in the appeal. For the sake of convenience, we shall continue to refer the appellant asInter alia, the submission of the sellers before the High Court was that the appeal awards passed by the Board of Appeal which are sought to be enforced are contrary to the public policy of India inasmuch as they are contrary to the express provisions of the contract entered into between the parties. The sellers submitted before the Delhi High Court that the Board of Appeal erred in accepting the test report by S.G.S. Geneva whereas under the contract, it was the test report of S.G.S.India that was material. The goods in question were inspected at the port of discharge in the absence of the sellers. In terms of the contract between the parties, the inspection certificate was given by S.G.S. India which was nominated by the buyers themselves. There was no requirement for any inspection at the point of discharge of the consignment. Responsibility of the sellers ceased after the said obligation was fulfilled.16. On the other hand, it was submitted on behalf of the buyers before Delhi High Court that the plea raised before the Board of Appeal on the certificate issued by the S.G.S. Geneva was a matter of appreciation of evidence and determination of question of fact which is beyond the scope of the proceedings under Section 48 of the 1996 Act. The buyers submitted that the sellers cannot be permitted to reopen questions of fact as already decided by the Board of Appeal which were affirmed by the High Court of Justice at London. Seeking enforcement of the awards of the Board of Appeal, it was submitted that there was nothing in the awards which could be said to be against the public policy of India.17. Dealing with the submissions made on behalf of the parties, the High Court considered the objections of the sellers and recorded its conclusion asThe above conclusion of the GAFTA Arbitral Tribunal is based on an appreciation of the evidence produced by the parties. The stark finding, confirmed by the reports of three independent analysts, two in Greece (one a private lab and another State lab) and the FMBRA in England, was that the consignment sent by the Defendant contained only 9% durum wheat. 90% was soft wheat. In the circumstances, the only conclusion possible was the one arrived at by the Arbitral Tribunal viz.,wheat, described on the Certificate of Quality and Condition presented by Sellers as Durum wheat of Indian origin, was softThis conclusion has been affirmed by the impugned Appeal Award No. 3782 by the Board of Appeal, GAFTA. It has been further affirmed by the rejection by the High Court of Justice at London of thepetition challenging the Appeal Award No. 3782. The above conclusion cannot be held to be contrary to the terms of the contract or to the public policy of India. Further, this Court is not expected in enforcement proceedings, re-determine questions of fact. The grounds enumerated in Section 48 of the Act are meant to be construed narrowly and does not permit a review of the foreign award on merits.Then in paragraph 25 of the impugned judgment, the High Court observed that there was no serious defence in opposition to the enforcement of two foreign awards. The High Court overruled the objections raised by the sellers to the enforcement of foreign awards and held that they were enforceable under Part II of the 1996 Act.

Court's reasoning:
25. In our view, what has been stated by this Court in Renusagar3 with reference to Section 7(1)(b)(ii) of the Foreign Awards Act must equally apply to the ambit and scope of Section 48(2)(b) of the 1996 Act. In Renusagar3 it has been expressly exposited that the expressionin Section 7(1)(b)(ii) of the Foreign Awards Act refers to the public policy of India. The expressioned in Section 7(1)(b)(ii) was held to meanA distinction in the rule of public policy between a matter governed by the domestic law and a matter involving conflict of laws has been noticed in Renusagar3. For all this there is no reason why Renusagar3 should not apply as regards the scope of inquiry under Section 48(2)(b). Following Renusagar3, we think that for the purposes of Section 48(2)(b), the expressionmust be given narrow meaning and the enforcement of foreign award would be refused on the ground that it is contrary to public policy of India if it is covered by one of the three categories enumerated in Renusagar3. Although the same expression ‘public policy ofis used both in Section 34(2(b)(ii) and Section 48(2)(b) and the concept of ‘public policy inis same in nature in both the Sections but, in our view, its application differs in degree insofar as these two Sections are concerned. The application of ‘public policy ofdoctrine for the purposes of Section 48(2)(b) is more limited than the application of the same expression in respect of the domestic arbitral award.26. We are not persuaded to accept the submission of Mr. Rohinton F. Nariman that the expressionin Section 48(2)(b) is an expression of wider import than thein Section 7(1)(b)(ii) of the Foreign Awards Act. We have no hesitation in holding that Renusagar3 must apply for the purposes of Section 48(2)(b) of the 1996 Act. Insofar as the proceeding for setting aside an award under Section 34 is concerned, the principles laid down in Saw Pipes1 would govern the scope of such proceedings.27. We accordingly hold that enforcement of foreign award would be refused under Section 48(2)(b) only if such enforcement would be contrary to (i) fundamental policy of Indian law; or (2) the interests of India; or (3) justice or morality. The wider meaning given to the expressionoccurring in Section 34(2)(b)(ii) in Saw Pipes1 is not applicable where objection is raised to the enforcement of the foreign award under Section 48(2)(b).28. It is true that in Phulchand Exports2 , a two-Judge Bench of this Court speaking through one of us (R.M. Lodha, J.) accepted the submission made on behalf of the appellant therein that the meaning given to the expressionin Section 34 in Saw Pipes1 must be applied to the same expression occurring in Section 48(2)(b) of the 1996 Act. However, in what we have discussed above it must be held that the statement in paragraph 16 of the Report that the expressionpolicy of India used in Section 48(2)(b) has to be given a wider meaning and the award could be set aside, if it is patentlydoes not lay down correct law and is overruled.Thus, having held that SGS India was the contractual agency, theal further held that the sellers failed to establish that the SGS India certificate was in contractual form. Two fundamental flaws in the certification by SGS India were noted by thel, one, SGScertification did not follow the contractual specified mode of sampling and the other, the analysis done by SGS India was doubtful. Theal then sifted the documentary evidence let in by the parties and finally concluded that wheat loaded on the vessel Haci Resit Kalkavan was soft wheat and the sellers were in breach of the description condition of the contract.42. It is pertinent to state that the sellers had challenged the award (no. 3782) passed by theof Appeal inthe High Court of Justice at London. The three decisions; (i) Agroexport5 byBench Division, (ii) Toepfer6 by Court of Appeal, and (iii) Gill & Duffus7 by House of Lords, were holding the field at the time of consideration ofappeal by the High Court of Justice at London. In Agroexport5 , it has been held that an award founded on evidence of analysis made other than in accordance with contract terms cannot stand and deserves to be set aside as evidence relied upon was inadmissible. The Courtof Appeal inToepfer6 has laid down that where seller and buyer have agreed that a certificate at loading as to the quality of goods shall be final and binding on them, the buyer will be precluded from recovering damages from the seller, even if, the person giving the certificate has been negligent in making it. Toepfer6 has been approved by the House of Lords in Gill & Duffus7. The High Court of Justice at London can be assumed to have full knowledge of the legal position exposited in Agroexport5 , Toepfer6 and Gill & Duffus7 yet it found no ground or justification for setting aside the award (no. 3782) passed by thel. If a ground supported by the decisions of that country was not good enough for setting aside the award by the court competent to do so, a fortiori, such ground can hardly be a good ground for refusing enforcement of the award. Accordingly, we are not persuaded to accept the submission of Mr. Rohinton F. Nariman that Delhi High Court ought to have refused to enforce the foreign awards as theal has wrongly rejected the certificate of quality obtained from thenominated certifying agency and taken into consideration inadmissible evidence in the nature of certificates obtained by thefor the purposes of forwarding contract.43. Moreover, Section 48 of the 1996 Act does not give an opportunity to have a ‘secondat the foreign award in the award - enforcement stage. The scope of inquiry under Section 48 does not permit review of the foreign award on merits. Procedural defects (like taking into consideration inadmissible evidence or ignoring/rejecting the evidence which may be of binding nature) in the course of foreign arbitration do not lead necessarily to excuse an award from enforcement on the ground of public policy.44. In what we have discussed above, even if it be assumed that theal erred in relying upon the report obtained by buyers from Crepin which was inconsistent with the terms on which the parties had contracted in the contract dated 12.05.1994 and wrongly rejected the report of the contractual agency, in our view, such errors would not bar the enforceability of the appeal awards passed by the5. While considering the enforceability of foreign awards, the court does not exercise appellate jurisdiction over the foreign award nor does it enquire as to whether, while rendering foreign award, some error has been committed. Under Section 48(2)(b) the enforcement of a foreign award can be refused only if such enforcement is found to be contrary to (1) fundamental policy of Indian law; or (2) the interests of India; or (3) justice or morality. The objections raised by the appellant do not fall in any of these categories and, therefore, the foreign awards cannot be held to be contrary to public policy of India as contemplated under Section 48(2)(b).46. The contention of the learned senior counsel for the appellant that theal dealt with the questions not referred to it and which were never in dispute and, therefore, these awards cannot be enforced being contrary to Section 48(1)(c) is devoid of any substance and is noted to be rejected.