NATIONAL AGRICULTURAL COOPERATIVE MARKETING FEDERATION OF INDIA versus ALIMENTA S.A. on 22 April 2020

NATIONAL AGRICULTURAL COOPERATIVEMARKETING FEDERATION OF INDIA

v.

ALIMENTA S.A.

(Civil Appeal No.667 of 2012)

APRIL 22, 2020

[ARUN MISHRA, M. R. SHAH AND B. R. GAVAI, JJ.]

Foreign Awards (Recognition and Enforcement) Act, 1961:s.7 – Agreement between NAFED and Alimenta S.A. for export ofgroundnut (commodity) for the season 1979-80 – Agreementcontained arbitration clause – Terms and conditions were as perFOSFA 20 contract, a standard form of contract – NAFED was acanalizing agency for the Government of India for export ofcommodity – Clause 14 in the agreement was that in case ofprohibition of export by executive order or by law, the agreementwould be treated as cancelled – NAFED could not export the entirequantity due to damage caused to crop by cyclone – Governmentdid not grant permission to NAFED to carry forward previous year’scommitment to subsequent year – Because of refusal by Government,it was not possible for NAFED to supply commodity to AlimentaS.A. – Unfulfilled part was required to be cancelled – Arbitration –Foreign award ordering NAFED to pay damages – Enforcementchallenged – Held: It is provided in s.7(1)(b)(ii) that if the courtdealing with the case is satisfied that the enforcement of the awardwill be contrary to public policy, the foreign award may not beenforced – The impugned award is ex facie illegal, and incontravention of fundamental law, against the public policy asenvisaged in s.7 of the Act of 1961 – No export without permissionof the Government was permissible and without the consent of theGovernment, quota could not have been forwarded to next season– On the happening of contingency agreed to by the parties in Clause14 of the FOSFA Agreement, the contract was renderedunenforceable under s.32 of the Contract Act – As such the NAFEDcannot be held liable to pay damages under foreign award.

Contract Act, 1872 – s.32 – Applicability of – Held: s.32 ofthe Contract Act applies in case the agreement itself provides for

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Acontingencies upon happening of which contract cannot be carriedout and provide the consequences – In this case, s.32 of the ContractAct is attracted and not the provisions of s.56 – It was an agreementto do an act impossible in itself without permission, and that isdeclared void by s.32 – Foreign Awards (Recognition andEnforcement) Act, 1961.B

Allowing the appeal, the Court

HELD: 1.1 Section 32 of the Contract Act provides forenforcement of contingent contracts. Section 56 of the ContractAct deals with the agreement to do an impossible act or to doCacts afterward become impossible or unlawful. It also providesfor liability of the promisor to do something which he knew ormight have known with reasonable diligence an act which isimpossible or unlawful; as such, the promisor must makecompensation for the non-performance of the promise.[Paras 45, 46][812-C, G-H]D

Davis Contractor Ltd v. Fareham Urban District Council(1956) 2 All ER 145; Tsakiroglou & Co. Ltd. v. Noblee& Thorl GmbH, [1961] 2 All ER 179; Ocean TrampTankers Corporation v. V/O Sovfracht, [1964] 1 All ER161; National Carriers Ltd. v. Panalpina (Northern) Ltd,E[1981] 1 All ER 161; Pioneer Shipping Ltd. & Ors. v.BTP Tioxide Ltd.; The Nema, (1981) 2 All ER 1030;Paal Wilson & Co. A/S v. Partenreederei HannahBlumenthal; The Hannah Blumenthal, [1983] 1 All ER34; Delhi Development Authority v. Kenneth BuildersF& Developers Private Limited and Ors., (2016) 13 SCC561 – referred to.

1.2 Section 32 of the Contract Act applies in case theagreement itself provides for contingencies upon happening ofwhich contract cannot be carried out and provide theGconsequences. To this case, provisions of Section 32 of theContract Act is attracted and not section 56. In case an actbecomes impossible at a future date, and that exigency is notprovided in the agreement on the happening of which exigency,impossible or unlawful, the promisor had no control which hecould not have prevented, the contract becomes void as providedHin section 56. However, section 56 also provides liability for a cause where the promisor has agreed to do something which heknew or with reasonable diligence might have known and whichthe promisee did not know to be impossible or unlawful. Such apromisor must make compensation to such promise and is liableto pay damages. The latter part of section 56 is applicable whenpromisee did not know the act to be impossible or unlawful andthat it was not known to the promisor; the action was impossibleor unlawful or with reasonable diligence might have known.[Para 47][813-A-C]

1.3 In the present case, because of the clear stipulation inClause 14 of the Agreement, it is apparent that the parties haveagreed for a contingent contract. They knew very well that theGovernment’s executive, or legislative actions might come inthe way as provided in Clause 14 of the Agreement. Thus, in thiscase, section 32 of the Contract Act is attracted and not theprovisions of section 56. It was an agreement to do an actimpossible in itself without permission, and that is declared to bevoid by section 32. The NAFED was a canalising agency and couldnot have supplied without prior permission of Government, norcould it have lawfully carried forward last year’s supply to nextyear that too limited quota and to supply Government permissionwas necessary to make it. Enforcement of such an award inviolation of export policy and the Government order would beagainst the public policy as envisaged in section 7 of the Act of1961. [Paras 48, 52][813-D-E; 821-A-B]

Satyabrata Ghose v. Mugneeram Bangur & Co., AIR1954 SC 44 : [1954] SCR 310; Naihati Jute Mills Ltd.v. Khyaliram Jagannath, AIR 1968 SC 522 :[1968] 1 SCR 821; Boothalinga Agencies v. V.T.C.Poriaswami Nadar, AIR 1969 SC 110 : [1969] 1 SCR65; Smt. Sushila Devi and Ors. v. Hari Singh and Ors.(1971) 2 SCC 288 : [1971] Suppl. SCR 671– referred to.

Narayana Chandrasekhara Shenoy and Bros. by soleProprietor Narayana Shanbog v. R. PalaniappaMudaliar, AIR 1952 Mad. 670; Ram Kumar v. P.C. Roy& Co. (India) Ltd., AIR 1952 Cal. 335 (338); KunjilalManohar Das v. Durga Prasad Debi Prosad, AIR 1920Cal. 1021 – referred to.

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792SUPREME COURT REPORTS

A2. It would have been unlawful for NAFED to affect thesupply in view of the Government’s refusal to accord thepermission, and both the parties knew it very well and agreedthat the contract would be cancelled in such an exigency for non-supply in quantity. Thus, they were bound by the agreement. Theaward pre-supposes supply could have been made after theBGovernment’s refusal. If supply had been made, it would havebeen unlawful. Thus, the parties agreed for its cancellation assuch an award is against the basic law and public policy as appliedin India. [Para 57][825-A-B]

3.1 It is provided in Section 7(1)(b)(ii) that if the court dealingCwith the case is satisfied that the enforcement of the award willbe contrary to public policy, the foreign award may not be enforced.The foreign award may also not be executed in the case as persection 7(1)(a)(i) if the parties to the agreement under the lawapplicable are under some incapacity or agreement is not validDunder the law. Similar exigency is provided in section 7(1)(a)(ii)if proper notice of appointment of Arbitrator is not given or theparty was unable to present its case. Section 7(1)(a)(iii) providesthat if the award deals with the questions not referred or containsdecisions on matters beyond the scope of the agreement rendersaward unenforceable. Section 7(1)(a)(iv) makes an award notEcapable of enforcement in case the composition of the ArbitrationTribunal or procedure is not in accordance with the agreement ofthe parties. [Para 60][826-G-H; 827-A-B]

Renusagar Power Co. Ltd. v. General Electric Co.,(1994) 1 Suppl. SCC 644 : [1993] 3 Suppl. SCR 22 –Frelied on.

Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd.,(2003) 5 SCC 705 : [2003] 3 SCR 691; Shri Lal MahalLimited v. Progetto Grano Spa, (2014) 2 SCC 433 :[2013] 13 SCR 599; Associate Builders v. DelhiDevelopment Authority, (2015) 3 SCC 49 : [2014] 13GSCR 895; Ssanyong Engineering & Construction Co.Ltd. v. National Highways Authority of India (NHAI),(2019) 8 SCALE 41; Central Inland Water TransportCorporation Ltd. & Anr. v. Brojo Nath Ganguly & Anr.(1986) 3 SCC 156 : [1986] 2 SCR 278 - referred to.

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3.2 Clause 14 of FOSFA Agreement and as per the lawapplicable in India, no export could have taken place without thepermission of the Government, and the NAFED was unable tosupply, as it did not have any permission in the season 1980-81to effect the supply, it required the permission of the Government.It became void under section 32 of the Contract Act on happeningof contingency. Thus, it was not open because of the clear termsof the Arbitration Agreement to saddle the liability upon theNAFED to pay damages as the contract became void. There wasno permission to export commodity of the previous year in thenext season, and then the Government declined permission toNAFED to supply. Thus, it would be against the fundamental publicpolicy of India to enforce such an award, any supply made thenwould contravene the public policy of India relating to export forwhich permission of the Government of India was necessary. Theaward could not be said to be enforceable, given the provisionscontained in Section 7(1)(b)(ii) of the Foreign Awards Act. Thus,award is unenforceable, and the High Court erred in law in holdingotherwise in a perfunctory manner. As such the NAFED couldnot have been held liable to pay damages under foreign award.[Paras 68, 69, 80][842-F-H; 843-A-C; 850-G]

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Manohar Lal (Dead) by LRs. v. Ugrasen (Dead) by LRs.& Ors.,(2010) 11 SCC 557 : [2010] 7 SCR 346; C.L.Subramaniam v. Collector of Customs, Cochin (1972)3 SCC 542 : [1972] 3 SCR 485; Board of Trustees ofthe Port of Bombay v. Dilipkumar RaghavendranathNadkarni and Ors. (1983) 1 SCC 124 : [1983] 1 SCR828; The State of Punjab & Anr. v. Shamlal Murari &Anr., (1976) 1 SCC 719 : [1976] 2 SCR 82; Kailash v.Nankhu & Ors., (2005) 4 SCC 480 : [2005] 3 SCR289 – referred to.

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Case Law Reference

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From the Judgment and Order dated 28.01.2000 of the High Courtof Delhi at New Delhi in Suit No. 1885 of 1993.

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EShyam Divan, C.A. Sundram, Sr. Advs., Aaditya Vijay Kumar,Ms. Liza Baruah, Sunil Mathews, Ms. Akshita Katoch, UdayaadityaBanerjee, Chitranshul A. Sinha, Anurag Tiwari, Ms. Sabah Iqbal Siddiqui,Ms. Aditya Chadha, Shailendra Swarup, Ms. Bindu Saxena, Ms. AparajitaSwarup, Dhruv Chand Saxena, Ms. Rohini Musa, Abhishek Gupta, ZafarInyat, Ms. Gunjan Mathur, Advs. for the appearing parties.F

The Judgment of the Court was delivered by ARUN MISHRA, J.

1. The question involved in the present appeal is the enforceabilityof the foreign award. The main objections for its enforceability are (i)Gwhether NAFED was unable to comply with the contractual obligationto export groundnut due to the Government’s refusal?; (ii) whetherNAFED could have been held liable in breach of contract to pay damagesparticularly in view of Clause 14 of the Agreement?; and (iii) whetherenforcement of the award is against the public policy of India?

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2. The NAFED and the Alimenta S.A. entered into a contract forthe supply of 5,000 metric tonnes of Indian HPS groundnut (for short,“commodity”). Clause 11 of the contract provided that terms and conditionswould be as per FOSFA, 20 Contract, a standard form of contract whichpertains to the CIF contract. The contract entered into was not a Freeon Board (FOB) contract.

3. NAFED was a canalizing agency for the Government of Indiafor the exports of the commodity. For any export, which is to be carriedforward to next year from the previous year, NAFED required the expresspermission and consent of the Government of India, being a canalizingagency. The said agreement was entered into by NAFED with theAlimenta S.A. at the rate of USD 765 per metric tonnes (Free on Board).The contract was for the season 1979-80. With the contracted quantityof 5000 metric tonnes, only 1900 metric tonnes could be shipped. Theremaining quantity could not be shipped due to damage caused to cropby cyclone etc. in the Saurashtra region. The agreement dated 12.1.1980was the first agreement. The transaction was governed by covenantssuch as Force Majeure and Prohibition contained in Clause 14 of theAgreement, whereby in case of prohibition of export by executive orderor by law, the agreement would be treated as cancelled.

4. On 3.4.1980, NAFED executed a second Agreement with theAlimenta S.A. to export 4,000 metric tonnes of the commodity at therate of USD 770 per metric tonnes. The shipment period for both thecontracts was August-September, 1980. The second Agreement dated3.4.1980 is not the subject matter of dispute in the appeal.

5. In August 1980, NAFED shipped only 1900 metric tonnes ofcommodity in receipt to the first Agreement. The balance stocks of 3100metric tonnes of commodity could not be shipped as scheduled, due tothe Government restrictions.

6. In the year 1980-81, there was crop failure in the United Statesof America due to which price of commodity rose high in the course ofthe season. Yet another addendum was executed to First Agreement on18.8.1980, whereby the period of shipment of the commodity was changedto November-December, 1980 for balance 3100 metric tonnes underthe disputed first Agreement.

7. On 8.10.1980, second Addendum to first Agreement came tobe executed between the parties for supply of 3100 metric tonnes of the AB

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Acommodity. It was agreed that the commodity would be shipped duringthe 1980-81 season packed in new double gunny bags with the buyerspaying the extra cost of USD 15 per metric tonnes.

8. It is pertinent to mention that NAFED had the permission ofthe Government of India to enter into exports for three years betweenB1977-80 but had no permission under the Export Control Order to carryforward the exports for the season 1979-80 to the year 1980-81. At thetime of execution of the Addendum, NAFED claimed it was unaware ofthe said situation of not having requisite authority to enter into theAddendum.

C9. On 21.11.1980, the NAFED intended to perform the firstAddendum in the oblivion of the fact that it had no permission under theExport Control Order to carry forward the export for the season1979-80 to the next year 1980-81. Being a Canalizing agency for theGovernment of India, NAFED couldn’t carry forward the supply for thesubsequent year. NAFED approached the Government of India to grantDpermission.

10. The Ministry of Agriculture, Government of India, vide letterdated 1.12.1980 directed NAFED not to ship any leftover quantitiesfrom previous years. It was made clear that the export of commoditieswas restricted under a quota system and that NAFED could not carryEforward the previous years’ commitment to the subsequent year. Thecommitment entered into by NAFED was objected to. Apart from that,the price of the commodity had escalated thrice than the prevailing pricewithin one year. Inter alia, for the aforesaid reasons, the Governmentof India asked NAFED not to implement the previous year contract. ItFwas for a particular season.

11. On 6.12.1980 and 9.12.1980, NAFED again requested theGovernment of India to allow the release of quota in the current seasonto fulfil its commitments under the contracts. The Government did notgrant permission. The NAFED informed Alimenta S.A. not to nominateGthe vessel for shipment of the crop due to the Government of India’sprohibition to supply the contracted quantity.

12. The Alimenta S.A. on 29.12.1980 treated the telex messagedated 20.12.1980 sent by NAFED as a notice of default made to makethe supply. The Government of India finally rejected NAFED’s requestto allow export against previous year’s contract vide communicationH

dated 27.01.1981 because of the restricted export policy and quota ceiling.Alimenta S.A. on 5.2.1981 granted the last opportunity to NAFED togive the final offer, otherwise, the dispute would be referred to arbitration,and their nominee would be Mr. A.G. Scott. Accordingly, NAFED wasasked to appoint its arbitrator.

13. On 13.2.1981,NAFED informed Alimenta S.A. that the exportof the contracted quantity was not possible because of the Governmentof India’s executive action banning such exports.

14. Ultimately, Alimenta S.A. filed arbitration proceedings beforethe Federation of Oil, Seeds and Fats Associations Ltd. (FOSFA), Londonon 13.2.1981. NAFED was asked to appoint an Arbitrator within 21days. Alimenta S.A. vide telex dated 18.2.1981 requested to provide theoriginals of the Government notices banning the export and the dates onwhich they were confirmed. NAFED sent to Alimenta S.A. by its telexvide letter dated 23.2.1981 the Government of India’s order prohibitingexport and also requested to provide it a copy of the FOSFA ArbitrationRules,which was provided by Alimenta S.A. to NAFED on 24.2.1981.The NAFED requested for extension of time for appointing Arbitratoron 5.03.1981, which was extended on 10.3.1981.

15. NAFED filed petition bearing OMP No.41 of 1981 on 19.3.1981against Alimenta S.A. and their Arbitrators before the High Court ofDelhi. Prayer was made restraining Alimenta S.A. and FOSFA fromcontinuing the arbitration proceedings inter alia on the ground thatagreement did not contain any specific provision for arbitration. On20.3.1981, the High Court stayed the arbitration proceedings till 22.4.1981.NAFED intimated the order of stay by its telex dated 23.3.1981 toAlimenta S.A.

16. In utter disregard of the order of interim stay granted on20.3.1981 by the High Court, the FOSFA by its telex requested NAFEDto appoint Arbitrator on its behalf by 20.4.1981, failing which FOSFAwould appoint an arbitrator on behalf for NAFED.

17. On 9.4.1981, NAFED by telex message through their counselinformed FOSFA that it had no jurisdiction to proceed with the arbitrationin view of the order of stay by the High Court and any action taken byAlimenta S.A. or by Mr. Scott of FOSFA would be illegal and void. On22.4.1981, the matter came up before the High Court of Delhi. Thecounsel on behalf of the Alimenta S.A. was granted four weeks to file a A

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Areply; the case was adjourned to 27.7.1981. The interim order of staywas accordingly extended till 21.7.1981.

18. However, in disregard of the order passed by the High Court,FOSFA appointed Mr. F.A.D. Ralfe as an Arbitrator on behalf of theNAFED on 23.4.1981. Thus, the NAFED urged that it was deprived ofBthe right to appoint its nominee Arbitrator. The NAFED vide its letterdated 1.5.1981 informed FOSFA that despite the order of stay by theHigh Court, contumacious steps were taken to appoint the Arbitrator onits behalf and it was further stated that the counsel appearing for AlimentaS.A., stated in the Court that Alimenta S.A. would not proceed furtherin the arbitration. Ultimately, NAFED filed proceedings in the nature ofCcontempt on 30.10.1981 on the ground that appointment of Arbitrator onbehalf of the NAFED violated the orders passed by the High Courtdated 20.3.1981 and 22.4.1981.

19. The Delhi High Court decided the said OMP No.41 of 1981wherein it held that First Agreement would be governed by arbitrationDagreement incorporated in FOSFA 20 Contract while there was noarbitration agreement between the parties in so far as the SecondAgreement was concerned. On 22.3.1982, Alimenta S.A. filed FAO(OS) No.24 of 1982 against the order dated 11.12.1981, the same waslater withdrawn. Alimenta S.A. filed a special leave petition before thisEcourt on 1.4.1982, which was numbered as Civil Appeal No.1755 asagainst the order dated 11.12.1981 of the High Court. This court passedthe order on 30.4.1982, restraining Alimenta S.A. and FOSFA to proceedfurther in the arbitration. On 4.5.1982, FOSFA sent a telex that thiscourt had no power to act in the matter nor to stay the arbitration andcontinued with the proceedings in violation of the order passed by thisFCourt.

20. NAFED on 9.1.1984 sought a clarification from theGovernment of India as to whether the direction given by the Ministry ofAgriculture not to make the supply was lawful and binding. Ministry ofCommerce, Government of India, stated that directions issued by theGMinistry of Agriculture refusing fulfilment of previous years contractwas a lawful direction and, as such, was binding on NAFED.

21. Ultimately, this court vide judgment and order dated 9.1.1987upheld the decision of the High Court dated 11.12.1981. Concerning theFirst Agreement, the parties were relegated to pending arbitration, whileH

for the Second Agreement, as there was no arbitration clause, the partieswere relegated to the civil proceedings.

22. On 10.1.1989, NAFED filed its written submission before theFOSFA, pointing out that it was not allowed to appoint its arbitratordespite specific order of restraint by the High Court andit was not allowedto be represented through its counsel. Alimenta S.A. also filed additionalwritten submissions on 19.6.1989 before FOSFA. Ultimately, FOSFApassed an award on 15.11.1989 by which NAFED was directed to paya sum of USD 4,681,000 being the difference between the contractprice of USD 765 per metric tonnes plus USD 15 per metric tonnes fordouble bags and the settlement price of USD 2275 per metric tonnesplus USD 15 per metric tonnes for double bags as damages. The amountwas ordered to be paid with interest at the rate of 10.5% per annumfrom 13.2.1981 till the date of the award.

23. Being aggrieved by the award, NAFED filed an appeal beforethe Board of Appeal on 16.1.1990, however, on 13.5.1990 and 30.5.1990multiple requests were made by M/s. Clyde and Co. (solicitor firm) torepresent NAFED before the Board of Appeal, considering there werespecial circumstances and Indian law was required to be explained. TheBoard of Appeals rejected the request by NAFED to be representedthrough its Solicitors on 14.5.1990.

24. Ultimately, the Board of Appeal on 14.9.1990 while decidingthe appeal compounded NAFED’s issues by enhancing the award,whereas Alimenta S.A. filed no appeal. NAFED was directed to payinterest components at the rate of 11.25% instead of 10.5% p.a. Theinterest was enhanced in the absence of an appeal by Alimenta S.A.The Arbitrator nominee of Alimenta S.A., who passed the award,represented the case on behalf of the Alimenta S.A. before the Boardof Appeal.

25. The Alimenta S.A. filed a petition as Suit No.1885 of 1993under sections 5 and 6 of the Foreign Awards (Recognition andEnforcement) Act, 1961 (for short, “the Foreign Awards Act”) seekingenforcement of the initial as well as appellate award passed by the FOSFAand Board of Appeal.

26. NAFED filed objections to the enforceability of the award, onthe ground that it was opposed to the public policy as such unenforceable.There was non-compliance with the provisions contained in section AB

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A7(1)(a), (b), and (c) of the Foreign Awards Act. No notice under section101 of the Multi State Cooperative Societies Act was given. The executionwas also barred by limitation. It ought to have been filed within 30 daysbecause of Article 119 of Schedule I of the Limitation Act, 1963, and theperiod of three years was not available to seek its enforcement. Thelearned Single Judge of the High Court decided the matter against theBappellant - NAFED and decided the same finally after 20 months ofdelay on 28.1.2000 after hearing the matter and held the award to beenforceable. A review was sought, which was dismissed on 5.5.2000.After that, NAFED filed an appeal bearing F.A.O. (O.S) No.205 of2000 before the Division Bench of the Delhi High Court. The High CourtCentertained it on 28.2.2001 and stayed the execution. The interim orderand the order of appointment was questioned before this Court. ThisCourt modified the interim order of the High Court dated 28.2.2001 anddisposed of both the petitions of Alimenta S.A. on 5.4.2002 while passingcertain interim orders.

D27. On 9.9.2002, Alimenta S.A. filed an execution petition No.204of 2002 seeking execution of the decree on 28.1.2000 passed in SuitNo.1885 of 1993 in the High Court. The appeal was ultimately held to benot maintainable. It was dismissed on 6.9.2010 on the ground of non-maintainability. The NAFED questioned the decision in the appeal. On24.11.2010, NAFED filed the present appeal (bearing Civil Appeal No.667Eof 2012) for adjudication on merits. There are subsequent developmentsthat are the subject matter of other appeals.

28. Shri Shyam Diwan and Shri Rana Mukherjee, learned seniorcounsel argued that enforcement of the award is barred by section7(1)(a)(ii) of the Foreign Awards Act. The award is against the publicFpolicy of India on numerous grounds and thus is unenforceable undersection 7(1)(b) of the Foreign Awards Act. The award/ decree does notdeal with the restriction imposed by the Government of India as to theexport of the commodity. Award flouts the basic norms of justice. Theenforcement of such an award would result in the unjust enrichment ofGAlimenta S.A. at the cost of the very survival of the appellant organisation.The enforcement procedure is barred by limitation. The same was notbrought within 30 days in terms of Article 119, Schedule I of the LimitationAct, 1963. The learned Single Judge could not have converted the awardinto a decree. The learned Single Judge awarded interest at the rate of18 percent per annum; besides, in case there is exchange deviation byH

way of loss, NAFED would be required to make good such loss. NAFEDwas not given due opportunity to present its case by the Arbitral Tribunal.Arbitrator-nominee of Alimenta S.A. represented case on behalf ofAlimenta S.A. before the Board of Appeal, award was unfair, andenhancement of interest in the absence of appeal was also illegal. Thedecision is contrary to the public policy of India as laid down in variousdecisions.

29. Per contra, Mr. C.A. Sundaram, learned senior counselappearing on behalf of the respondent argued the scope of interferencein the enforcement of the foreign award is limited. The award is notagainst public policy. The due opportunity was given to the NAFED topresent its case in the arbitration proceedings. The question of impositionof ban by the Government was gone into by the Arbitral Tribunal, andconclusion was recorded that it was a self-imposed restriction byNAFED. There was no such ban on the export by the Government ofIndia. Because of the findings recorded by the Arbitral Tribunal,it wouldnot be open to this Court to go into its correctness. It was open to theBoard of Appeal to award the interest in the absence of an appeal by theAlimenta S.A. Learned Single Judge had the jurisdiction to award theinterest while passing decree. There is no bar for the Arbitrator to appearin the appeal on behalf of the respondent.

30. We first deal with the main submission raised concerningwhether NAFED was unable to carry out contractual obligation in viewof Government’s refusal to export, as such the contract became voidand unenforceable in view of Clause 14 of FOSFA agreement.Consequently, NAFED could not have been held liable to pay damages.

31. The argument has to be appreciated in the background of thefact that NAFED was a canalizing agency for the Government of Indiafor the year 1978-1981. For the export to be carried forward from theprevious years, NAFED required express permission and consent fromthe Government of India. The first agreement was executed on 12.1.1980for the supply of the commodity for the season 1979-80. A total of 5,000metric tonnes were to be exported. However, undisputedly only 1900metric tonnes could be shipped. Addendum was executed on 18.8.1980to supply a balance of 3100 metric tonnes in November-December, 1980.Subsequently, on 6.10.1980, another addendum was executed, and itwas agreed that the commodity would be shipped during the 1980-81season. The NAFED had permission from the Government of India to AB

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Aenter into export for three years, i.e., between the period 1977-80 buthad no permission under the Export Control Order to carry forward theexport for the season 1979-80 to the year 1980-81. NAFED claimedthat it was unaware of the said fact that it did not have the requisiteauthority to enter into the addendum dated 6.10.1980. Be that as it may.The fact remains that the Government of India’s permission was requiredBto carry forward the export for the season 1979-80 to the year 1980-81under the Export Control Order, which was not given. When it wasagain sought for, it was specifically refused by the Government of Indiaon various grounds.

32. Clause 14 of the FOSFA, 20 Contract dated 12.1.1980, enteredCbetween the parties is significant in this regard. The relevant Clauses14, 18, and 20 are extracted hereunder:

“EXTRACTS OF RELEVANT CLAUSES OF FOSFA 20CONTRACT DATED 12-01-1980 BETWEENPETITIONER AND RESPONDENT

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14. PROHIBITION: In the event, during the shipment periodof prohibition of export of any other executive or legislative act byor on behalf of the Government of the country of origin or of theterritory where the port/s or shipment named herein is/are situate,or of blockade or hostilities, restricting export, whether partiallyEor otherwise, any such restriction shall be deemed by both partiesto apply to this contract and to the extent of such total or partialrestriction to prevent fulfilment whether by shipment or by anyother means whatsoever and to that extent this contract of anyunfulfilled portion thereof shall be extended by 30 days.

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In the event of shipment during the extended period still provingimpossible by reason of any of the causes in this Clause, thecontract or any unfulfilled part thereof shall be cancelled. Sellersinvoking that Clause shall advice Buyers with due dispatch. Ifrequired, Sellers must produce proof to justify their claim forextension or cancellation under the clause.G

18. DOMICILE: This contact shall be deemed to have beenmade in England, and the construction, validity, and performancethereof shall be governed in all respect by English Law. Any disputearising out of or in connection therewith shall be submitted toarbitration in accordance with the Rules of the Federation. TheH

serving of proceedings upon any party by sending same to theirlast known address together with leaving a copy of suchproceedings at the officers of the Federation shall be deemedgood service, rule of law or equity to the contrary notwithstanding.

20. ARBITATION: Any dispute arising out of this contract,including any question of law arising in connection therewith, shallbe referred to arbitration in London (or elsewhere if so agreed) inaccordance with the Rules of Arbitration and Appeal of theFederation of Oil, Seeds and Fats Associations Limited, in forceat the date of this contract and of which both parties hereto shallbe deemed to be cognizant.

Neither party hereto, nor any persons claiming under either ofthem shall bring any action or other legal proceedings against theother of them in respect of any such dispute until such disputeshall first have been heard and determined by the arbitrators,umpire or Board of Appeal (as the case may be) in accordancewith the Rules of Arbitration and Appeal of the Federation and itwas hereby expressly agreed and declared that the obtaining ofan Award from the arbitrators, umpire or Board of Appeal (as thecase may be), shall be a condition precedent to the right of eitherparty hereto or any person claiming under either of them to bringany action or other legal proceedings against the other of them inrespect of any such dispute.”

It is apparent from Clause 14 of the Agreement that during thecontract shipment period in the event of the prohibition of export by anexecutive or legislative act by any of the Government of origin, suchrestriction shall be deemed by both the parties to apply to the contract.Thus, if the shipment becomes impossible byreasons mentioned in theclause, the agreement shall be cancelled.

33. The Government of India, Ministry of Agriculture and Irrigationwrote a letter on December 1, 1980, to the Managing Director of theNAFED in which it pointed out that it was undesirable to make thesupply in the current season at the rate of previous years contract andapart from that no exporter could undertake to export any commoditywith such a wide variation in prices. It was also pointed out that theexport contract of last year is not supposed to be carried forward AB

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Aautomatically to next year. The export of the commodity was restrictedunder a quota system. NAFED could not agree on its own to moveforward last year’s commitment to the current year without prior approvalof the Government. Therefore, NAFED was asked not to consider takingup the previous year’s contract for implementation in the current cropseason and inform it to the Government. Para 2 of the letter is extractedBhereunder:

“2. I am told that NAFED could not fulfil some of the contractsfor exports last year due to drought in the country. It has beenfurther reported to me that some move is being made to exportHPS groundnuts during the current season against the contractsCentered into last year. This will be a most undesirable thing to doconsidering that the prices today are almost three time than theprices prevalent last year. No exporter can undertake to exportany commodity with such a wide variation in prices. Moreoverthe export contracts for last year are not supposed to be carriedDforward automatically to the next year. Further the export of HPSgroundnuts is restricted and under a quota system, NAFED cannoton its own carry forward last year’s commitments to the currentyear without getting the prior approval of the Govt. You may,therefore confirm that NAFED is not considering taking up lastyear’s contracts for implementing in the current crop season.”E

34. After that, NAFED requested the Government of India againto release quota in the current season to fulfil commitment under thecontract for previous year. On 6.12.1980 and 9.12.1980, letters werewritten to the Ministry of Commerce. The NAFED wrote a letter on9.1.1981 to the Government. The Government vide letter dated 27.1.1981Fin reply to the letter dated 9.1.1981 reiterated that it was not desirable topermit last year’s commitment in the current year. The letter dated27.1.1981 is extracted hereunder:

“No.26021/180-TGovernment of IndiaMinistry of Agriculture(Department of Agriculture & Cooperation)(Trade Division)

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Krishi Bhawan, New Delhi

To,

Dated the 27[th] Jan. 1981A

Shri S.K. Iyer,Executive Director (Foreign Trade),Sapna Building,54, East of Kailash,N.A.F.E.D.,P.B. No.3580.

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Subject:- Export of HPS Groundnut – Last years pending contracts– reg.

Sir,

I am to invite a reference to your letter No.HO/CSC/EXP/HPS/POI/80-81/1334 dated 9[th] Jan., 1981 on the above subject and tosay that the question of allowing the last year’s contracts of HPSGroundnuts during current season has been again examinedcarefully. In view of the restricted export policy of this item andquota ceiling etc. it has not been considered desirable to permitthe last year’s commitments in the current year.

Yours faithfully,

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Sd/-(P.C. Ramrakhian)Director (Trade)”

35. The refusal by the Government came in the way of the NAFEDto affect the supply by exporting the commodity to Alimenta S.A. Thiswas covered within clause 14 of the Agreement mentioned above. Theprohibition was on account of the Government’s refusal.

36. It is apparent from the provisions of the contract dated12.1.1980 that the quantity of 5,000 metric tonnes, to be increased up to8,000 metric tonnes, depending upon the availability of stocks. Clause 8of the Agreement dated 12.1.1980 provided that shipment was to be F

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Afrom Saurashtra port at the buyer’s option during February/March/April1980. The other terms and conditions were as per FOSFA, 20 contractterms. Addenda dated 18.8.1980 and 6.10.1980 were executed to theagreement/ contract dated 12.1.1980. The NAFED had no authority toenter into export for the previous years without prior permission of theGovernment of India, and it executed both the addenda without suchBpermission.

37. The Minutes of Meeting of Business Committee of NAFED,dated 21.11.1980 at Agenda Item No.4, notes that there wereunseasonable rains in the Saurashtra region and due to cyclone, etc. theCgroundnut crop was severely damaged, and there was less production.There was less than 50% recovery. There was an escalation of pricesas compared to 1978-79 in 1979-80. It appears that NAFED intended toperform the contract in the oblivion of the fact that being a canalizingagent, it could not have carried out the supply in the next subsequentyears.D

38. The NAFED in the circumstances after receipt of the letterdated 1.12.1980 of the Department of Agriculture informed the AlimentaS.A. not to nominate the vessel for shipment for the goods due to theGovernment’s prohibition for the supply of the goods. The NAFED wroteEa letter again on 9.1.1981 and pointed out to the Government that theywere unable to export on account of Government order. The Governmentwas asked to apprise it of the final decision regarding the export ofcommodities to the respondent. Letter dated 27.1.1981 reiteratingprohibition came to be issued in the aforesaid circumstances. It wastaken to be a refusal to supply on the part of the NAFED by the AlimentaFS.A., and they asked the NAFED to appoint its Arbitrator. AlimentaS.A. appointed Mr. A.G. Scott as its nominee Arbitrator. Another telexdated 13.2.1981 was sent by the NAFED informing that it would not bepossible to supply the commodity because of Government action ofbanning such export. Later on, confirmation was sought from theGGovernment by the NAFED. The Ministry of Commerce, Governmentof India, informed NAFED on 9.1.1984 that the directions issued by theMinistry of Agriculture refusing fulfilment of previous year’s contractwere lawful and binding. The letter of the Government dated 9.1.1984 isextracted hereunder:

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“VINOD RAIDEPUTY SECRETARY

January 8, 1984

To,

Managing Director,The National Agricultural CooperativeMarketing Federation of India Limited,Sapna Building 54, East of Kailash,New Delhi – 110024

Subject: Execution of HPS Groundnuts Season 1980-81, Non-fulfilment of Contract entered into During 1979-80 Crop Seasonunder 1979-80.

Dear Sir,

Please refer to your letter No. HO/OSC/HPS/POL/PO-81/1337 dated the 9[th] January, 1984, on the above subject.

2. The Ministry of Commerce allocated to NAFED, as the samecanalizing agency for HPS Groundnuts, 50,000 tonnes for exportduring the crop season 1980-81. Kindly refer to the letter fromJoint Secretary Usha Vohra dated 21[st] October, 1980, to ShriShrivastava. This quota was for the new contracts to be enteredinto that season at the prevailing market prices. NAFED werenot entitled to use any part of the quota to fulfil the previous yearscontracts. Furthermore, I must advice you, as you certainly know,that you could not have utilized any unused part of the quota forthe previous year to fulfil old contracts.

3. Ministry of Agriculture notified you that permission for you tofulfil the previous year’s contracts was refused. This was a lawfuldirections which you were bound to obey. However, even withoutthis express direction you could not have fulfilled these contracts.You would have needed from Ministry of Commerce an additionalexport quota covering the quantities required.You applied foradditional quota generally and this application was refused in viewof the prevailing market conditions both internally and externally.

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AMost certainly no additional quota would have been granted toenable you to fulfil old contracts at the previous season’s prices.

Yours faithfully

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(VINOD RAI)

Deputy Secretary to the Government of India”

It is apparent that the Government of India issued a direction thatwas binding upon the NAFED. Without permission, it was not possibleCfor the NAFED to carry out its obligation under the Contract and Addenda.

39. It was argued that in common law, frustration does not rescindthe contract ab initio, it brings the contract to an end forthwith, withoutmore and automatically, in the sense that it releases both the partiesfrom any performance of the contract while leaving undisturbed anyDlegal rights already accrued or payments already made in accordancewith its term. It was further argued that the law later developed throughsubsequent decisions wherein it was laid down that advance paymentsmade were recoverable by a party. The decision in Davis ContractorLtd v. Fareham Urban District Council (1956) 2 All ER 145 by LordRadcliffe is relied upon wherein the test applied for the frustration of theEcontract is whether there is a radical change in the obligation. It observed:

“… Frustration occurs whenever the law recognises that withoutdefault of either party a contractual obligation has becomeincapable of being performed because the circumstances in whichperformance is called for would render it a thing radicallyFdifferentfrom that which was undertaken by the contract… theremust be as well such a change in the significance of the obligationthat the thing undertaken would, if performed, be a different thingfrom that contracted for.”

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40. It was also argued that the House of Lords expressly upheldfrustration in the later cases in Tsakiroglou & Co. Ltd. v. Noblee &Thorl GmbH, [1961] 2 All ER 179; Ocean Tramp Tankers Corporationv. V/O Sovfracht, [1964] 1 All ER 161; National Carriers Ltd. v.Panalpina (Northern) Ltd, [1981] 1 All ER 161; Pioneer ShippingHLtd. & Ors. v. BTP Tioxide Ltd.; The Nema, (1981) 2 All ER 1030; Paal Wilson & Co. A/S v. Partenreederei Hannah Blumenthal; TheHannah Blumenthal, [1983] 1 All ER 34.

41. Reliance has also been placed on National Carriers Ltd. v.Panalpina (Northern) Ltd. [1981] 1 All ER 161 wherein Lord Simonobserved:

“Frustration of a contract takes place when there supervenes anevent (without default of either party and for which the contractmakes no sufficient provision) which so significantly changes thenature (not merely the expense or onerousness) of the outstandingcontractual rights and/ or the obligations from what the partiescould reasonably have contemplated at the time of itsexecution that it would be unjust to hold them to the literalsense of its stipulations in the new circumstances;in such acase the law declares the parties to be discharged from furtherperformance.”

42. Learned senior counsel argued that as there was frustration,the contract determined automatically; it could not be continued byaffirmation. The appellant has also placed reliance on the decision inDelhi Development Authority vs. Kenneth Builders & DevelopersPrivateLimited and Ors., (2016) 13 SCC 561 wherein the court heldthat the contract of Kenneth Builders with the DDA stood frustratedand made impractical to perform because of the prohibition imposed onany construction activity being undertaken on the project land. The Courtobserved :

“30. The interpretation of Section 56 of the Contract Act cameup for consideration in Satyabrata Ghose v. Mugneeram Bangur& Co., AIR 1954 SC 44. It was held by this Court that the word“impossible” used in Section 56 of the Contract Act has not beenused in the sense of physical or literal impossibility. It ought to beinterpreted as impracticable and useless from the point of view ofthe object and purpose that the parties had in view when theyentered into the contract. This impracticability or uselessness couldarise due to some intervening or supervening circumstance whichthe parties had not contemplated. However, if the interveningcircumstance was contemplated by the parties, then the contractwould stand despite the occurrence of such circumstance. In such A

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an event, “there can be no case of frustration because the basisof the contract being to demand performance despite the happeningof a particular event, it cannot disappear when that eventhappens”. This is what this Court had to say: (AIR pp. 46-49,paras 9-10 & 17)

“9. The first paragraph of the section lays down the law in thesame way as in England. It speaks of something which isimpossible inherently or by its very nature, and no one canobviously be directed to perform such an act. The secondparagraph enunciates the law relating to discharge of contractby reason of supervening impossibility or illegality of the actagreed to be done. The wording of this paragraph is quitegeneral, and though the illustrations attached to it are not at allhappy, they cannot derogate from the general words used inthe enactment.

This much is clear that the word “impossible” has notbeen used here in the sense of physical or literal impossibility.The performance of an act may not be literally impossible butit may be impracticable and useless from the point of view ofthe object and purpose which the parties had in view; and if anuntoward event or change of circumstances totally upsets thevery foundation upon which the parties rested their bargain, itcan very well be said that the promisor finds it impossible to dothe act which he promised to do.

10. Although various theories have been propounded bythe Judges and jurists in England regarding the juridical basisof the doctrine of frustration, yet the essential idea upon whichthe doctrine is based is that of impossibility of performance ofthe contract; in fact impossibility and frustration are often usedas interchangeable expressions. The changed circumstances,it is said, make the performance of the contract impossible andthe parties are absolved from the further performance of it asthey did not promise to perform an impossibility.

The parties shall be excused, as Lord Loreburn says:(F.A. Tamplin Steamship Co. Ltd. v. Anglo-MexicanPetroleum Products Co. Ltd. (1916) 2 AC 397 (HL) ACp. 406)

‘… If substantially the whole contract becomesimpossible of performance or in other words impracticableby some cause for which neither was responsible.’

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17. It must be pointed out here that if the parties docontemplate the possibility of an intervening circumstance whichmight affect the performance of the contract, but expresslystipulate that the contract would stand despite suchcircumstance, there can be no case of frustration because thebasis of the contract being to demand performance despite thehappening of a particular event, it cannot disappear when thatevent happens. As Lord Atkinson said in Matthey v. Curling,(1922) 2 AC 180 (HL): (AC p. 234)

‘… a person who expressly contracts absolutely to do athing not naturally impossible is not excused for non-performance because of being prevented by the act of God orthe King’s enemies … or vis major.’

This being the legal position, a contention in the extremeform that the doctrine of frustration as recognised in Englishlaw does not come at all within the purview of Section 56 ofthe Contract Act cannot be accepted.”

36. On a conspectus of the facts and the law placed before us,we are satisfied that certain circumstances had intervened, makingit impracticable for Kenneth Builders to commence theconstruction activity on the project land. Since arriving at someclarity on the issue had taken a couple of years and that claritywas eventually and unambiguously provided by the report of CEC,it could certainly be said that the contract between DDA andKenneth Builders was impossible of performance within themeaning of that word in Section 56 of the Contract Act. Therefore,we reject the contention of DDA that the contract between DDAand Kenneth Builders was not frustrated.”

43. In the present case, parties have agreed, and in Clause 14 ofthe Agreement, it was contemplated that during the contract if there isany prohibition of the export or any other executive or legislative Act byor on behalf the Government of the Country of origin, the unfulfilled partof the contract shall be cancelled. Because of the refusal by the A

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AGovernment, it was not permissible to the NAFED to make a supply tothe Alimenta S.A. Hence; the unfulfilled part was required to be cancelled.Thus, NAFED was justified in not making the supply as it would haveviolated the Export Control Order, and it was not permissible to carryforward the quantity of the previous year to the next year because ofthe Export Control Order without permission of the Government.B

44. It is apparent that the contract came to an end in terms ofClause 14 of the Agreement. The contract became void in view of theprovisions contained in Section 32 of the Indian Contract Act, 1881 (forshort, “Contract Act”). The stipulation in Clause 14 releases both partiesfrom the performance of the contract.C45. Section 32 of the Contract Act provides for enforcement ofcontingent contracts. Section 32, along with illustrations, is reproducedhereunder:

“32. Enforcement of contracts contingent on an eventDhappening.—Contingent contracts to do or not to do anything ifan uncertain future event happens, cannot be enforced by lawunless and until that event has happened.”

If the event becomes impossible, such contracts become void.

Illustrations

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(a) A makes a contract with B to buy B’s horse if A survives C.This contract cannot be enforced by law unless and until C dies inA’s lifetime.

(b) A makes a contract with B to sell a horse to B at a specifiedprice, if C, to whom the horse has been offered, refuses to buyFhim. The contract cannot be enforced by law unless and until Crefuses to buy the horse.”

(c) A contracts to pay B a sum of money when B marries C. Cdies without being married to B. The contract becomes void.”

G46. Section 56 of the Contract Act deals with the agreement to doan impossible act or to do acts afterward become impossible or unlawful.It also provides for liability of the promisor to do something which heknew or might have known with reasonable diligence an act which isimpossible or unlawful; as such, the promisor must make compensationfor the non-performance of the promise.H

47. Section 32 of the Contract Act applies in case the agreementitself provides for contingencies upon happening of which contract cannotbe carried out and provide the consequences. To this case, provisions ofSection 32 of the Contract Act is attracted and not section 56. In casean act becomes impossible at a future date, and that exigency is notprovided in the agreement on the happening of which exigency, impossibleor unlawful, the promisor had no control which he could not haveprevented, the contract becomes void as provided in section 56. However,section 56 also provides liability for a cause where the promisor hasagreed to do something which he knew or with reasonable diligencemight have known and which the promisee did not know to be impossibleor unlawful. Such a promisor must make compensation to such promiseand is liable to pay damages. The latter part of section 56 is applicablewhen promisee did not know the act to be impossible or unlawful andthat it was not known to the promisor; the action was impossible orunlawful or with reasonable diligence might have known.

48. In the present case, because of the clear stipulation in Clause14 of the Agreement, it is apparent that the parties have agreed for acontingent contract. They knew very well that the Government’sexecutive, or legislative actions might come in the way as provided inClause 14 of the Agreement. Thus, in this case, section 32 of the ContractAct is attracted and not the provisions of section 56. It was an agreementto do an act impossible in itself without permission, and that is declaredto be void by section 32. The contract was capable of being performedin case the Government gave the requisite authorization. It is not anevent that was not in contemplation at the time of entering into theagreement. Government permission was necessary. Section 56 is notattracted as the promisor and promisee both knew the reason in advanceas in agreement such a contingency was provided itself in case ofGovernment’s executive order comes in the way, for cancellation of thecontract. Thus, the contract became void on the happening of thecontingency, as provided in section 32 of the Contract Act.

49. This Court in Satyabrata Ghose v. Mugneeram Bangur &Co., AIR 1954 SC 44, considered the applicability of sections 32 and 56while considering the doctrine of frustration of contract. Impossibilityand frustration are used as interchangeable expressions. The principleof frustration is an aspect of the discharge of a contract. In India, theonly doctrine the courts have to go by is that of intervening impossibilityor illegality as laid down in section 56, and the English decisions in this A

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Aregard may have persuasive value but are not binding. This Court alsoconsidered if the contract contained impliedly or expressly a stipulation,according to which it would stand discharged on happening of particularcircumstances. The dissolution of the agreement would take place underthe terms of the contract itself. Such cases would be outside the purviewof section 56 of the Contract Act altogether. They would be dealt withBunder section 32 of the Contract Act, which deals with contingentcontracts. This Court held:

“9. The first paragraph of the section lays down the law in thesame way as in England. It speaks of something which is impossibleinherently or by its very nature, and no one can obviously be directedto perform such an act. The second paragraph enunciates thelaw relating to the discharge of contract by reason of superveningimpossibility or illegality of the act agreed to be done. The wordingof this paragraph is quite general, and though the illustrationsattached to it are not at all happy, they cannot derogate from thegeneral words used in the enactment.

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This much is clear that the word “impossible” has not beenused here in the sense of physical or literal impossibility. Theperformance of an act may not be literally impossible, but it maybe impracticable and useless from the point of view of the objectand purpose which the parties had in view; and if an untowardEevent or change of circumstances totally upsets the very foundationupon which the parties rested their bargain, it can very well besaid that the promisor finds it impossible to do the act which hepromised to do.”

10. Although various theories have been propounded by the JudgesFand jurists in England regarding the juridical basis of the doctrineof frustration, yet the essential idea upon which the doctrine isbased is that of impossibility of performance of the contract; infact, impossibility and frustration are often used as interchangeableexpressions. The changed circumstances, it is said, make theperformance of the contract impossible and the parties are absolvedGfrom the further performance of it as they did not promise toperform an impossibility.

The parties shall be excused, as Lord Loreburn says, see –Tamplin Steamship Co. Ltd. v. Anglo Mexican Petroleum ProductsCo. Ltd., 1916-2 AO 297 at p 403 (A).

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“If substantially the whole contract becomes impossibleof performance or in other words impracticable by some causefor which neither was responsible.”

In - Joseph Constantine Steamship Line Limited v. ImperialSmelting Corporation Ltd.’, 1942-AO 154 at p 168 (B) ViscountMaugham observed that the “doctrine of frustration is only a special case of the dischargeof contract by an impossibility of performance arising after thecontract was made.”

Lord Porter agreed with this view and rested the doctrine on thesame basis.

The question was considered and discussed by a DivisionBench of the Nagpur High Court in Kesari Chand v. Governor-General-in-CouncilILR (1949) Nag 718 (C), and it was heldthat the doctrine of frustration comes into play when a contractbecomes impossible of performance after it is made, on accountof circumstances beyond the control of the parties. The doctrineis a special case of impossibility and, as such, comes under Section56 of the Indian Contract Act. We are in entire agreement withthis view which is fortified by a recent pronouncement of thisCourt in Ganga Saran v. Ram Charan, AIR 1952 SO 9 at p 11(D) where Fazl Ali, J., in speaking about frustration observed inhis judgment as follows:

“It seems necessary for us to emphasise that so far asthe courts in this country are concerned, they must look primarilyto the law as embodied in Sections 32 and 56 of the IndianContract Act, 1872.”

We hold, therefore, that the doctrine of frustration is really anaspect or part of the law of discharge of contract by reason ofsupervening impossibility or illegality of the act agreed to be doneand hence comes within the purview of Section 56 of the IndianContract Act. It would be incorrect to say that Section 56 of theContract Act applies only to cases of physical impossibility andthat where this section is not applicable, recourse can be had tothe principles of English law on the subject of frustration. It mustbe held also, that to the extent that the Indian Contract Act dealswith a particular subject, it is exhaustive upon the same and it is AB

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not permissible to import the principles of English law dehorsthese statutory provisions. The decisions of the English Courtspossess only a persuasive value and may be helpful in showinghow the Courts in England have decided cases undercircumstances similar to those which have come before our courts.

15. These differences in the way of formulating legal theoriesreally do not concern us so long as we have a statutory provisionin the Indian Contract Act. In deciding cases in India the onlydoctrine that we have to go by is that of supervening impossibilityor illegality as laid down in Section 56 of the Contract Act, takingthe word “impossible” in its practical and not literal sense. It mustbe borne in mind, however, that Section 56 lays down a rule ofpositive law and does not leave the matter to be determinedaccording to the intention of the parties.

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16. In the latest decision of the House of Lords referred to above,the Lord Chancellor puts the whole doctrine upon the principle ofconstruction. But the question of construction may manifest itselfin two totally different ways. In one class of cases the questionmay simply be, as to what the parties themselves had actuallyintended; and whether or not there was a condition in the contractitself, express or implied, which operated, according to theagreement of the parties themselves, to release them from theirobligations; this would be a question of construction pure and simpleand the ordinary rules of construction would have to be applied tofind out what the real intention of the parties was.

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According to the Indian Contract Act, a promise may beFexpress or implied Vide Section 9. In cases, therefore, where thecourt gathers as a matter of construction that the contract itselfcontained impliedly or expressly a term, according to which itwould stand discharged on the happening of certain circumstances,the dissolution of the contract would take place under the termsof the contract itself and such cases would be outside the purviewGof Section 56 altogether. Although in English law these cases aretreated as cases of frustration, in India they would be dealt withunder Section 32 of the Indian Contract Act which deals withcontingent contracts or similar other provisions contained in theAct. In the large majority of cases however the doctrine offrustration is applied not on the ground that the parties themselves H

agreed to an implied term which operated to release them fromthe performance of the contract. The relief is given by the courton the ground of subsequent impossibility when it finds that thewhole purpose or basis of a contract was frustrated by the intrusionor occurrence of an unexpected event or change of circumstanceswhich was beyond what was contemplated by the parties at thetime when they entered into the agreement. Here there is noquestion of finding out an implied term agreed to by the partiesembodying a provision for discharge, because the parties did notthink about the matter at all nor could possibly have any intentionregarding it.

When such an event or change of circumstance occurswhich is so fundamental as to be regarded by law as striking atthe root of the contract as a whole, it is the court which canpronounce the contract to be frustrated and at an end. The courtundoubtedly has to examine the contract and the circumstancesunder which it was made. The belief, knowledge and intention ofthe parties are evidence, but evidence only on which the courthas to form its own conclusion whether the changed circumstancesdestroyed altogether the basis of the adventure and its underlyingobject – Vide Morgan v. Manser, 1947-2 All ER 666 (L). Thismay be called a rule of construction by English Judges but it iscertainly not a principle of giving effect to the intention of theparties which underlies all rules of construction. This is really arule of positive law and as such comes within the purview ofSection 56 of the Indian Contract Act.”

50. The Court followed the decision in Satyabrata Ghose (supra)in Naihati Jute Mills Ltd. v. Khyaliram Jagannath, AIR 1968 SC 522,it held that if the contract contains implied or expressly a term accordingto which it would stand discharged on the happening of certaincontingencies, dissolution of the contract would take place under theterms of the contract itself and such cases would be outside the purviewof section 56 of the Contract Act. Such cases have to be dealt withunder section 32 of the Contract Act. The Court opined:

“7. Such a difficulty has, however, not to be faced by the courts inthis country. In Ganga Saran v. Ram Charan, 1952 SCR 36 =(AIR 1952 SC 9) this Court emphasized that so far as the courtsin this country are concerned they must look primarily to the law AB

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SUPREME COURT REPORTS

Aas embodied in Section 32 and 56 of the Contract Act. InSatyabrata Ghose v. Mugneeram,1954 SCR 310 = (AIR 1954SC 44) also, Mukherjee, J. (as he then was) stated that Section56 laid down a rule of positive law and did not leave the matter tobe determined according to the intention of the parties. Since underthe Contract Act a promise may be expressed or implied, in casesBwhere the court gathers as a matter of construction that the contractitself contains impliedly or expressly a term according to which itwould stand discharged on the happening of certain circumstancesthe dissolution of the contract would take place under the termsof the contract itself and such cases would be outside the purviewCof Section 56. Although in English law such cases would be treatedas cases of frustration, in India they would be dealt with underSection 32. In a majority of cases, however, the doctrine offrustration is applied not on the ground that the parties themselvesagreed to an implied term which operated to release them fromperformance of the contract. The Court can grant relief on theDground of subsequent impossibility when it finds that the wholepurpose or the basis of the contract was frustrated by the intrusionor occurrence of an unexpected event or change of circumstanceswhich was not contemplated by the parties at the date of thecontract. There would in such a case be no question of finding outEan implied term agreed to by the parties embodying a provisionfor discharge because the parties did not think about the matter atall nor could possibly have any intention regarding it. When suchan event or change of circumstances which is so fundamental asto be regarded by law as striking at the root of the contract as awhole occurs, it is the court which can pronounce the contract toFbe frustrated and at an end. This is really a positive rule enactedin Section 56 which governs such situations.”

51. In Boothalinga Agencies v. V.T.C. Poriaswami Nadar, AIR1969 SC 110 again the doctrine of frustration of contract came up forconsideration. It was held that the provisions of section 56 of the ContractGAct could not apply to self-induced frustration. The relevant portion isextracted hereunder:

“10. The doctrine of frustration of contract is really an aspect, orpart of the law of discharge of contract by reason of superveningimpossibility or illegality of the act agreed to be done and hence H

comes within the purview of Section 56 of the Indian ContractAct. It should be noticed that Section 56 lays down a rule ofpositive law and does not leave the matter to be determinedaccording to the intention of the parties.

13. In English law, therefore, the question of frustration of contracthas been treated by courts as a question of construction dependingupon the true intention of the parties. In contrast, the statutoryprovisions contained in Section 56 of the Indian Contract Act laydown a positive rule of law and English authorities cannot thereforebe of direct assistance, though they have persuasive value inshowing how English courts have approached and decided casesunder similar circumstances.

14. Counsel on behalf of the respondent, however, contended thatthe contract was not impossible of performance, and the appellantcannot take recourse to the provisions of Section 56 of the IndianContract Act. It was contended that under clause 1 of the ImportTrade Control Order No. 2-ITC/48, dated March 6, 1948 it wasopen to the appellant to apply for a written permission of thelicensing authority to sell the chicory. It is not shown by the appellantthat he applied for such permission and the licensing authority hadrefused such permission. It was therefore maintained on behalfof the respondent that the contract was not impossible ofperformance. We do not think there is any substance in thisargument. It is true that the licensing authority could have givenwritten permission for disposal of the chicory under clause 1 ofOrder No.2-ITC/48, dated March 6, 1948 but the condition imposedin Ex. B-9 in the present case is a special condition imposed underclause (v) of paragraph (a) of Order No.2-ITC/48, dated March6, 1948 and there was no option given under this clause for thelicensing authority to modify the condition of licence that “thegoods will be utilised only for consumption as raw material oraccessories in the licence holder’s factory and that no portionthereof will be sold to any party”. It was further argued on behalfof the respondent that, in any event, the appellant could havepurchased chicory from the open market and supplied it to therespondent in terms of the contract. There is no substance in thisargument also. Under the contract the quality of chicory to besold was chicory of specific description— “Egberts Chicory, A

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Apacked in 495 wooden cases, each case containing 2 tins of 56 lb.nett”. The delivery of the chicory was to be given by “S.S. Alwaki”in December, 1955. It is manifest that the contract, Ex. A-1 wasfor sale of certain specific goods as described therein and it wasnot open to the appellant to supply chicory of any other description.Reference was made on behalf of the respondent to the decisionBin Maritime National Fish Limited v. Ocean Trawlers, Limited1935 AC 524. In that case, the respondents chartered to theappellants a steam trawler fitted with an otter trawl. Both partiesknew at the time of the contract that it was illegal to use an ottertrawl without a licence from the Canadian government. SomeCmonths later the appellants applied for licences for five trawlerswhich they were operating, including the respondents’ trawler.They were informed that only three licences would be granted,and were requested to state for which of the three trawlers theydesired to have licences. They named three trawlers other thanthe respondents’, and then claimed that they were no longer boundDby the charter-party as its object had been frustrated. It was heldby the Judicial Committee that the failure of the contract was theresult of the appellants’ own election, and that there was thereforeno frustration of the contract. We think the principle of this caseapplies to the Indian law and the provisions of Section 56 of theEIndian Contract Act cannot apply to a case of “self-inducedfrustration”. In other words, the doctrine of frustration of contractcannot apply where the event which is alleged to have frustratedthe contract arises from the act or election of a party. But for thereasons already given, we hold that this principle cannot be appliedto the present case for there was no choice or election left to theFappellant to supply chicory other than under the terms of thecontract. On the other hand, there was a positive prohibitionimposed by the licence upon the appellant not to sell the importedchicory to any other party but he was permitted to utilise it onlyfor consumption as raw material in his own factory. We, areGaccordingly of the opinion that Counsel for the respondent hasbeen unable to make good his argument on this aspect of thecase.”

52. In the present case, the High Court observed that it was acase of self-induced frustration. The High Court ignored and overlookedHthat 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 ofwhich was ignored and overlooked, and the said term was based uponthe law as applicable in India and wasbased on export restrictions, itwas within the realm of public policy. The NAFED was a canalisingagency and could not have supplied without prior permission ofGovernment, nor could it have lawfully carried forward last year’s supplyto next year that too limited quota and to supply Government permissionwas necessary to make it. Enforcement of such an award in violation ofexport policy and the Government order would be against the publicpolicy as envisaged in section 7 of the Act of 1961.

53. In Ram Kumar v. P.C. Roy & Co. (India) Ltd.,AIR 1952Cal. 335 (338), parties were aware of the restrictions imposed by theGovernment on the supply of wagons but expected normal conditions bythe date of performance. Wagon restrictions continued till the date ofperformance, and there was a failure to supply. The Court held that thecontract became void, being impossible of performance, and parties wererelieved of their liabilities. In the present case also, parties knew that theGovernment may or may not grant permission and entered into thecontract with the said stipulation. Thus, due to the Government not givingconsent, it became incapable of performance, and therefore, NAFEDcould not have been fastened with the liability to pay the enforceablecontract damages. In Ram Kumar (supra) High Court held:

“20. Frustration depends on what has actually happened & itseffect on the possibility of performing the contract. Where oneparty claims that there has been frustration & the other partycontests it, the Court has got to decide the issue ‘ex post facto’ onthe actual circumstances of the case.

“The data for decision are, on the one hand, the terms andconstruction of the contract, read ‘n the light of the then-existingcircumstances, and on the other hand the events which haveoccurred. It is the court which has to decide what is the trueposition between the parties.”

‘Denny Mott’s’ case, 1944 A. C. 265. Lord Sumner observed inthe ‘Hirji Mulji’ case (1926) A. C. 497 that the legal effect of thefrustration of the contract does not depend on the intention of theparties or their opinions or even knowledge as to the events whichbrought about the frustration but upon its occurrence in suchcircumstances as to show it to be inconsistent with the further AB

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Aprosecution of the adventure. In my view, this principle is applicablein this case.

23. The main object of the contract was the transhipment of thegoods from Bihar to Bengal by Railway & in my opinion, havingregard to the events that have happened the basis of the contractBhas been overthrown. In the absence of express intention of theparties, I have to determine what is just & reasonable in view ofthe non-availability of wagons for transport & the difficultiescreated by the restrictions or emergency orders. It may be nowaccepted as settled law that when people enter into a contractwhich is dependant for its performance on the continued availabilityCof a specific thing & that availability comes to an end by reasonof circumstances beyond the control of the parties; the contract isdissolved. According to Lord Wright, the expression ‘frustrationof the contract’ is an elliptical expression. The fuller & moreaccurate expression is ‘frustration of the adventure or of theDcommercial or practical purpose of the contract.’ In my view, thecommercial or practical purpose of this contract was defeated oroverthrown by the refusal on the part of the Govt. to issue permit& by the non-availability of the transport facilities & the restrictions& embargoes put by the Govt. & ultimately by requisition of thestock of the plff. The real object of the contract as contemplatedEby the parties was the purchase or employment of the goods for aparticular purpose & therefore, the doctrine of frustration can beimported & if necessary, the requisite terms can be implied.”

54. In Kunjilal Manohar Das v. Durga Prasad Debi Prosad,AIR 1920 Cal. 1021 (1024), parties with full knowledge of the restrictionsFimposed by the Government entered into an agreement to send the goodsby rail. They were aware of Government restrictions. However, thetime when the performance of the contract arrived, the restrictions hadnot been removed. It was impossible for the seller to make delivery. Inthe circumstances, the Court held, that the contract became void andGthe seller was excused from performance thereof, and the buyer washeld not entitled to recover any compensation from the seller, thus:

“….The principle simply is this, that when you are having regardto the intention of parties at the time of entering into the contract,the lawyer is apt to make a mistake if he assumes that the intentionHof the contracting parties is to bring about a state of circumstances

such that the legal remedy of damages will require to be resortedto, lawyers assuming that it will pervert the intention of commercialmen in cases of this sort. That being so, and applying the principlethat this contract was not a contract made indifferently for thesale of goods or for the payment of damages, but a contract forthe delivery of goods, it seems to me that performance is,impossible, that the contract having been made upon the assumptionthat the normal state of things would have come into existence byMarch or April of this year, the intention of the contract would beperverted, if I was to hold that the sellers are to insure the buyersagainst this chance of the control of Government going on. Forthese reasons, I answer the questions which have been put to mein this way: Firstly:—Did, in the circumstances hereinbeforementioned, such a contract become void and were the sellersexcused from the performance thereof? My answer is, “yes,” thecontract became void before breach. Secondly: — Are the buyersentitled to recover any compensation from the sellers? I answerthat “no,” either in respect of goods which were lying ready at theup-country station which the railway company refused to acceptfor despatch or in respect of goods which were not so delivered.I answer “no” to both parts of the second question because theperformance having become impossible, no tender could have hadany effect upon the railway company.

It is important in this case to add that this decision proceedsentirely upon the facts as given to me by agreement, not only thefacts as regards the contract and the position of railway trafficbut also the facts stated as regards the assumptions and intentionsof the parties. When the latter class of facts is not the same, it isvery probable that different considerations altogether will prevail.”

55. In Smt. Sushila Devi and Ors. v. Hari Singhand Ors., (1971)2 SCC 288, this Court, while considering section 56, observed that theimpossibility contemplated is not confined to something which is nothumanly possible. If the performance of the contract becameimpracticable, which the parties had in view, then it must be held that theperformance of the agreement had become impossible. The Court opined:

“11. In our opinion, on this point, the conclusion of the appellatecourt is not sustainable. But in fact, as found by the trial court aswell as by the appellate court, it was impossible for the plaintiffs ABC

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Ato even get into Pakistan. Both the trial court as well as theappellate court have found that because of the prevailingcircumstances, it was impossible for the plaintiffs to either takepossession of the properties intended to be leased or even to collectrent from the cultivators. For that situation, the plaintiffs were notresponsible in any manner. As observed by this Court in SatyabrataBGhose v. MugneeramBangur and Co., (1954) SCR 310, thedoctrines of frustration is really an aspect or part of the law ofdischarge of contract by reason of supervening impossibility orillegality of the act agreed to be done and hence comes within thepurview of Section 56 of the Indian Contract Act. The view thatCSection 56 applies only to cases of physical impossibility and thatwhere this section is not applicable recourse can be had to theprinciples of English law on the subject of frustration is not correct.Section 56 of the Indian Contract Act lays down a rule of positivelaw and does not leave the matter to be determined according tothe intention of the parties. The impossibility contemplated byDSection 56 of the Contract Act is not confined to something whichis not humanly possible. If the performance of a contract becomesimpracticable or useless, having regard to the object and purposethe parties had in view, then it must be held that the performanceof the contract has become impossible. But the supervening eventsEshould take away the basis of the contract, and it should be ofsuch a character that it strikes at the root of the contract.”

In this case, ‘expected event’ was a refusal by the Governmentas agreed to under Clause 14 of the Agreement. On the happening ofsuch an event, it is so fundamental as to be regarded by law as strikingFat the root. As such, we are of the opinion that the contract was renderedvoid in terms of section 32 of the Contract Act.

56. In Narayana Chandrasekhara Shenoy and Bros. by soleProprietor Narayana Shanbog v. R. PalaniappaMudaliar, AIR 1952Mad. 670, a question arose whether the defendant was required to supplyGjaggery by rail, which became impossible by the issuance of aGovernment notification controlling the movement of jaggery by rail.The plaintiff refused to bear the additional expenditure entailed by thechange in the mode of transport. The Court held that even assuming thatthe contract had not become impossible of performance, the defendantdid not commit a breach of the contract. In the instant case, exportHbecame impossible due to Government’s refusal.

57. It would have been unlawful for NAFED to affect the supplyin view of the Government’s refusal to accord the permission, and boththe parties knew it very well and agreed that the contract would becancelled in such an exigency for non-supply in quantity. Thus, theywere bound by the agreement. The award pre-supposes supply couldhave been made after the Government’s refusal. If supply had beenmade, it would have been unlawful. Thus, the parties agreed for itscancellation as such an award is against the basic law and public policyas applied in India.

58. It is also apparent that the Government rightly objected to thesupply being made at the rate of the previous season in the next season,particularly when the prices escalated thrice. The addendum was enteredinto subsequently, unfairly, and the parties fully understood that theGovernment would not permit export at the rate on which supply wasproposed, and NAFED was acting only as a canalising agent of theGovernment of India. Thus, for such an unfair contract, permission wasrightly declined by the Government. In the previous year, the commoditycould not be supplied due to force majeure. In no event, supply couldhave been made in December 1980 and January 1981 sans permissionfrom the Government of India.

59. Next question arises whether the ground of prohibition to supplyimposed by the Government was sufficient to render the awardunenforceable in terms of the provisions contained in Section 7 of theForeign Awards Act. Section 7 is extracted hereunder:

7. Conditions for enforcement of foreign awards - —-(1) A foreign award may not be enforced under this Act (a) if the party against whom it is sought to enforce the award——proves to the court dealing with the case that

(i) the parties to the agreement were, under the law applicableto them, under some incapacity, or the said agreement is notvalid under the law to which the parties have subjected it, orfailing any indication thereon, under the law of the countrywhere the award was made; or

(ii) that party was not given proper notice of the appointmentof the arbitrator or of the arbitration proceedings or wasotherwise unable to present his case; or AB

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A(iii) the award deals with questions not referred or containsdecisions on matters beyond the scope of the agreement:

Provided that if the decisions on matters submitted to arbitrationcan be separated from those not submitted, that part of theaward which contains decisions on matters submitted toBarbitration may be enforced; or

(iv) the composition of the arbitral authority or the arbitralprocedure was not in accordance with the agreement of theparties or, failing such agreement, was not in accordance withthe law of the country where the arbitration took place; or C

(v) the award has not yet become binding on the parties orhas been set aside or suspended by a competent authority ofthe country in which, or under the law of which, that awardwas made; or ——(b) if the court dealing with the case is satisfied that D

-(i) the subjectmatter of the difference is not capable ofsettlement by arbitration under the law of India; or

(ii) the enforcement of the award will be contrary to publicpolicy.

E(2) If the court before which a foreign award is sought to berelied upon is satisfied that an application for the setting aside orsuspension of the award has been made to a competent authorityreferred to in sub-clause (v) of clause (a) of sub-section (1), thecourt may, if it deems proper, adjourn the decision on theenforcement of the award and may also, on the application of theFparty claiming enforcement of the award, order the other party tofurnish suitable security.”

60. It is provided in Section 7(1)(b)(ii) that if the court dealingGwith the case is satisfied that the enforcement of the award will becontrary to public policy, the foreign award may not be enforced. Theforeign award may also not be executed in the case as per section7(1)(a)(i) if the parties to the agreement under the law applicable areunder some incapacity or agreement is not valid under the law. Similarexigency is provided in section 7(1)(a)(ii) if proper notice of appointmentH

of Arbitrator is not given or the party was unable to present its case.Section 7(1)(a)(iii) provides that if the award deals with the questionsnot referred or contains decisions on matters beyond the scope of theagreement renders award unenforceable. Section 7(1)(a)(iv) makes anaward not capable of enforcement in case the composition of theArbitration Tribunal or procedure is not in accordance with the agreementof the parties.

61. The question arises when the award can be said to be contrarytopublic policy. This Court considered the issue in several decisions. Theexpression “public policy” concerning the agreement relates to the publicpolicy of the country where award is being enforced. Section 23 of theContract Act, 1872 deals with what consideration and objects are lawfuland what not. If the court regards it as immoral or opposed to publicpolicy, in that event, the consideration or object of agreement is said tobe unlawful, and any agreement of which the object or consideration isunlawful is void.

62. In Central Inland Water Transport Corporation Ltd. &Anr. v. Brojo Nath Ganguly & Anr. 1986 (3) SCC 156, the court observedthat the Contract Act does not define the expression of public policy oropposed to public policy. The principles governing public policy arecapable of expansionor modification.

63. In Renusagar Power Co. Ltd. v. General Electric Co., 1994Supp. (1) SCC 644, meaning of the expression “public policy” undersection 7(1)(b) (ii) of the Foreign Awards Act came up for considerationand distinction drawn while applying the rule of public policy betweenthe matter involving domestic law, and that involving conflict of lawswas explained. The court considered that because of absence of aworkable definition of ‘international public policy’ in Article V(2)(b) ofNew York Convention it is difficult to construe the expression “publicpolicy” in Section 7(1)(b)(ii) and opined that the doctrine of public policyunder the said provision would mean as the courts in India apply it. ThisCourt held that enforcement of the foreign award would be refused onthe ground that it was contrary to public policy if such enforcementwould be contrary to (1) fundamental policy of Indian Law, (2) the interestof India, and (3) justice or morality. The relevant portion is extractedhereunder:

“63. In view of the absence of a workable definition of “internationalpublic policy,” we find it difficult to construe the expression “public AB

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policy” in Article V(2)(b) of the New York Convention to meaninternational public policy. In our opinion, the said expression mustbe construed to mean the doctrine of public policy as applied bythe courts in which the foreign award is sought to be enforced.Consequently, the expression ‘public policy’ in Section 7(1)(b)(ii)of the Foreign Awards Act means the doctrine of public policy asapplied by the courts in India. This raises the question whetherthe narrower concept of public policy as applicable in the field ofpublic international law should be applied or the wider concept ofpublic policy as applicable in the field of municipal law.

65. This would imply that the defence of public policy which ispermissible under Section 7(1)(b)(ii) should be construed narrowly.In this context, it would also be of relevance to mention that underArticle I(e) of the Geneva Convention Act of 1927, it is permissibleto raise objection to the enforcement of arbitral award on theground that the recognition or enforcement of the award is contraryto the public policy or to the principles of the law of the country inwhich it is sought to be relied upon. To the same effect is theprovision in Section 7(1) of the Protocol & Convention Act of1837 which requires that the enforcement of the foreign awardmust not be contrary to the public policy or the law of India. Sincethe expression “public policy” covers the field not covered by thewords “and the law of India,” which follow the said expression,contravention of law alone will not attract the bar of public policy,and something more than contravention of law is required.

66. Article V(2)(b) of the New York Convention of 1958 andSection 7(1)(b)(ii) of the Foreign Awards Act do not postulaterefusal of recognition and enforcement of a foreign award on theground that it is contrary to the law of the country of enforcementand the ground of challenge is confined to the recognition andenforcement being contrary to the public policy of the country inwhich the award is set to be enforced. There is nothing to indicatethat the expression “public policy” in Article V(2)(b) of the NewYork Convention and Section 7(1)(b)(ii) of the Foreign AwardsAct is not used in the same sense in which it was used in ArticleI(c) of the Geneva Convention of 1927 and Section 7(1) of theProtocol and Convention Act of 1937. This would mean that“public policy” in Section 7(1)(b)(ii) has been used in a narrower

sense and in order to attract the bar of public policy theenforcement of the award must invoke something more than theviolation of the law of India. Since the Foreign Awards Act isconcerned with recognition and enforcement of foreign awardswhich are governed by the principles of private international law,the expression “public policy” in Section 7(1)(b)(ii) of the ForeignAwards Act must necessarily be construed in the sense thedoctrine of public policy is applied in the field of private internationallaw. Applying the said criteria it must be held that the enforcementof a foreign award would be refused on the ground that it iscontrary to public policy if such enforcement would be contraryto (i) fundamental policy of Indian law; or (ii) the interests ofIndia; or (iii) justice or morality.

67. Having examined the scope of public policy under Section7(1)(b)(ii) of the Foreign Awards Act, we will now proceed toconsider the various grounds on the basis of which the said provisionis invoked by Renusagar to bar the enforcement for the award ofthe Arbitral Tribunal. As indicated earlier, Renusagar has invokedthe said provision on the ground that enforcement of the awardwould be contrary to the public policy for the reason that suchenforcement—

(a) would involve contravention of the provisions of FERA; (b) would amount to penalising Renusagar for not disregardingthe interim orders passed by the Delhi High Court in the writpetition filed by Renusagar;

(c) would enable recovery of compound interest on interest; (d) would result in payment of damages on damages; (e) would result in unjust enrichment by General Electric; We will examine the submissions of learned counsel under eachhead separately.”

64. In Oil and Natural Gas Corporation Ltd. v. Saw PipesLtd.,(2003) 5 SCC 705,this Courtopined that the phrase “Public Policyof India” in the Arbitration and Conciliation Act, 1996 under Section 34(2)(b)(ii), with respect to domestic awards, should be given a widermeaning. The court observed:

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“15. The result is — if the award is contrary to the substantiveprovisions of law or the provisions of the Act or against the termsof the contract, it would be patently illegal, which could beinterfered under Section 34. However, such failure of procedureshould be patent affecting the rights of the parties.

What meaning could be assigned to the phrase “Public Policyof India”?

16. The next clause which requires interpretation is clause (ii) ofsub-section (2)(b) of Section 34, which among other thingsprovides that the court may set aside the arbitral award if it conflictswith the “public policy of India.” The phrase “public policy ofIndia” is not defined under the Act. Hence, the said term is requiredto be given meaning in context and also considering the purposeof section and scheme of the Act. It has been repeatedly statedby various authorities that the expression “public policy” does notadmit of precise definition and may vary from generation togeneration and from time to time. Hence, the concept “publicpolicy” is considered to be vague, susceptible to narrow or widermeaning depending upon the context in which it is used. Lackingprecedent, the court has to give its meaning in the light andprinciples underlying the Arbitration Act, Contract Act, andconstitutional provisions.

30. It is true that under the Act, there is no provision similar toSections 23 and 28 of the Arbitration Act, 1940, which specificallyprovided that the arbitrator shall pass award within reasonabletime as fixed by the court. It is also true that on occasions, arbitrationproceedings are delayed for one or other reason, but it is for theparties to take appropriate action of selecting proper arbitrator(s)who could dispose of the matter within reasonable time fixed bythem. It is for them to indicate the time-limit for disposal of thearbitral proceedings. It is for them to decide whether they shouldcontinue with the arbitrator(s) who cannot dispose of the matterwithin reasonable time. However, non-providing of time-limit fordeciding the dispute by the arbitrators could have no bearing oninterpretation of Section 34. Further, for achieving the object ofspeedier disposal of dispute, justice in accordance with law cannotbe sacrificed. In our view, giving limited jurisdiction to the courtfor having finality to the award and resolving the dispute by speedier method would be much more frustrated by permitting patentlyillegal award to operate. Patently illegal award is required to beset at naught, otherwise it would promote injustice.

31. Therefore, in our view, the phrase “public policy of India”used in Section 34 in context is required to be given a widermeaning. It can be stated that the concept of public policy connotessome matter which concerns public good and the public interest.What is for public good or in public interest or what would beinjurious or harmful to the public good or public interest has variedfrom time to time. However, the award which is, on the face of it,patently in violation of statutory provisions cannot be said to be inpublic interest. Such award/judgment/decision is likely to adverselyaffect the administration of justice. Hence, in our view in additionto narrower meaning given to the term “public policy” inRenusagar case,1994 Supp (1) SCC 644, it is required to be heldthat the award could be set aside if it is patently illegal. The resultwould be — award could be set aside if it is contrary to:

(a) fundamental policy of Indian law; or (b) the interest of India; or

(c) justice or morality, or

(d) in addition, if it is patently illegal.

Illegality must go to the root of the matter and if the illegality is oftrivial nature it cannot be held that award is against the publicpolicy. Award could also be set aside if it is so unfair andunreasonable that it shocks the conscience of the court. Suchaward is opposed to public policy and is required to be adjudgedvoid.”

Additional tests were laid down. The expression ‘patently illegal’was also held to be covered in public policy with respect to domesticawards. Illegality goes to the root of the matter, or if the award shocksthe conscience of the court, it would be patently illegal. The intention ofthe party should be gathered from the agreement. It was observed thatsevere procedural defects in the arbitration proceedings might provideenough ground for refusal to uphold the award. In the instant case, weare not on the issue of procedural irregularities while considering theaspect above concerning the public policy; we have to consider the casemainly given Clause 14 of the Agreement.

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A65. In Shri Lal Mahal Limited v. Progetto Grano Spa, (2014) 2SCC 433, the ratio of Renusagar (supra) was applied, and it was heldthat expression and concept of public policy of India are in its applicationis narrower in the enforcement of foreign award than in respect of theenforcement of domestic arbitral awards. Something more thancontravention of the law is required for refusal of enforcement of aBforeign award on the ground that it is contrary to the public policy ofIndia.This court further opined that the expression “public policy of India”in section 48(2)(b) has the same import as that of expression “publicpolicy” in section 7(1)(b)(ii) of the ForeignAwards Act. It further opinedthat errors of fact by Board of Appeal obtained by the appellant,relyingCon the report which was inconsistent with the terms of the contractwould not bar enforceability of a foreign award on the ground of beingcontrary to the public policy of India andthe court cannot look into themerits of the award at the stage of enforcement of the foreign awards,and observed:

D “27. In our view, what has been stated by this Court inRenusagar, 1994 Supp (1) SCC 644, with reference to Section7(1)(b)(ii) of the Foreign Awards Act must apply equally to theambit and scope of Section 48(2)(b) of the 1996 Act. InRenusagar,it has been expressly exposited that the expression“public policy” in Section 7(1)(b)(ii) of the Foreign Awards ActErefers to the public policy of India. The expression “public policy”used in Section 7(1)(b)(ii) was held to mean “public policy ofIndia.” A distinction in the rule of public policy between a mattergoverned by the domestic law and a case involving conflict oflaws has been noticed in Renusagar. For all this, there is no reason Fwhy Renusagar should not apply as regards the scope of inquiryunder Section 48(2)(b). Following Renusagar, we think that forthe purposes of Section 48(2)(b), the expression “public policy ofIndia” must be given a narrow meaning and the enforcement offoreign award would be refused on the ground that it is contrary to the public policy of India if it is covered by one of the threeGcategories enumerated in Renusagar. Although the sameexpression “public policy of India” is used both in Section34(2)(b)(ii) and Section 48(2)(b) and the concept of “public policyin India” is same in nature in both the sections but, in our view, itsapplication differs in degree insofar as these two sections areHconcerned. The application of the “public policy of India” doctrine for the purposes of Section 48(2)(b) is more limited than theapplication of the same expression in respect of the domesticarbitral award.

29. We accordingly hold that enforcement of foreign award wouldbe refused under Section 48(2)(b) only if such enforcement wouldbe contrary to (1) fundamental policy of Indian law; or (2) theinterests of India; or (3) justice or morality. The wider meaninggiven to the expression “public policy of India” occurring in Section34(2)(b)(ii) in Saw Pipes is not applicable where objection is raisedto the enforcement of the foreign award under Section 48(2)(b).

47. While considering the enforceability of foreign awards, thecourt does not exercise appellate jurisdiction over the foreign awardnor does it enquire as to whether, while rendering foreign award,some error has been committed. Under Section 48(2)(b) theenforcement of a foreign award can be refused only if suchenforcement is found to be contrary to: (1) fundamental policy ofIndian law; or (2) the interests of India; or (3) justice or morality.The objections raised by the appellant do not fall in any of thesecategories and, therefore, the foreign awards cannot be held tobe contrary to public policy of India as contemplated under Section48(2)(b).”

66. In Associate Builders v. Delhi Development Authority,(2015)3 SCC 49, the Court relied on the decision in Renusagar (supra) forinterpreting the expression “public policy.” The court held that the conceptof the fundamental policy of Indian Law to mean (1) compliance ofthestatutes and judicial precedence, (2) need for judicial approach, (3)natural justice compliance, and (4) standards of reasonableness. Theconcept of justice and morality beside that of patent illegality onconsideration of the various decisions, the court observed:

“18. In Renusagar Power Co. Ltd. v. General Electric Co.,1994 Supp (1) SCC 644, the Supreme Court construed Section7(1)(b)(ii) of the Foreign Awards (Recognition and Enforcement)Act, 1961:

“7. Conditions for enforcement of foreign awards.—(1)A foreign award may not be enforced under this Act—

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(b) if the Court dealing with the case is satisfied that—

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(ii) the enforcement of the award will be contrary to the publicpolicy.”

In construing the expression “public policy” in the context of aforeign award, the Court held that an award contrary to

(i) The fundamental policy of Indian law,

(ii) The interest of India,

(iii) Justice or morality, would be set aside on the ground that it would be contrary to thepublic policy of India. It went on further to hold that a contraventionof the provisions of the Foreign Exchange Regulation Act wouldbe contrary to the public policy of India in that the statute is enactedfor the national economic interest to ensure that the nation doesnot lose foreign exchange which is essential for the economicsurvival of the nation (see SCC p. 685, para 75). Equally,disregarding orders passed by the superior courts in India couldalso be a contravention of the fundamental policy of Indian law,but the recovery of compound interest on interest, being contraryto statute only, would not contravene any fundamental policy ofIndian law (see SCC pp. 689 & 693, paras 85 & 95).

27. Coming to each of the heads contained in Saw Pipes[(2003)5 SCC 705] judgment, ,we will first deal with the head “fundamentalpolicy of Indian law.” It has already been seen from Renusagar[1994 Supp (1) SCC 644] judgment that violation of the ForeignExchange Act and disregarding orders of superior courts in Indiawould be regarded as being contrary to the fundamental policy ofIndian law. To this, it could be added that the binding effect of thejudgment of a superior court being disregarded would be equallyviolative of the fundamental policy of Indian law.

36. The third ground of public policy is, if an award is againstjustice or morality. These are two different concepts in law. Anaward can be said to be against justice only when it shocks theconscience of the court. An illustration of this can be given. Aclaimant is content with restricting his claim, let us say to Rs 30

lakhs in a statement of claim before the arbitrator and at no pointdoes he seek to claim anything more. The arbitral award ultimatelyawards him Rs 45 lakhs without any acceptable reason orjustification. Obviously, this would shock the conscience of thecourt and the arbitral award would be liable to be set aside on theground that it is contrary to “justice.”

40. We now come to the fourth head of public policy, namely,patent illegality. It must be remembered that under the Explanationto Section 34(2)(b), an award is said to be in conflict with thepublic policy of India if the making of the award was induced oraffected by fraud or corruption. This ground is perhaps the earliestground on which courts in England set aside awards under Englishlaw. Added to this ground (in 1802) is the ground that an arbitralaward would be set aside if there were an error of law by thearbitrator. This is explained by Denning, L.J. in R. v.Northumberland Compensation Appeal Tribunal, ex p Shaw,(1952) 1 All ER 122: (All ER p. 130 D-E: KB p. 351)

“Leaving now the statutory tribunals, I turn to the awardsof the arbitrators. The Court of King’s Bench never interferedby certiorari with the award of an arbitrator, because it was aprivate tribunal and not subject to the prerogative writs. If theaward was not made a rule of court, the only course availableto an aggrieved party was to resist an action on the award orto file a bill in equity. If the award was made a rule of court, amotion could be made to the court to set it aside for misconductof the arbitrator on the ground that it was procured by corruptionor other undue means (see Statutes 9 and 10 Will. III, C. 15).At one time an award could not be upset on the ground oferror of law by the arbitrator because that could not be said tobe misconduct or undue means, but ultimately it was held inKent v. Elstob,(1802) 3 East 18, that an award could be setaside for error of law on the face of it. This was regretted byWilliams, J., in Hodgkinson v. Fernie, (1857) 3 CB (NS) 189, but is now well established.”

67. In Ssanyong Engineering & Construction Co. Ltd. vs.National Highways Authority of India (NHAI), (2019) 8 SCALE 41,the Court concerning the public policy held:

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“23. What is clear, therefore, is that the expression “public policyof India,” whether contained in Section 34 or in Section 48, wouldnow mean the “fundamental policy of Indian law” as explained inparagraphs 18 and 27 of Associate Builders (supra), i.e., thefundamental policy of Indian law would be relegated to the“Renusagar” understanding of this expression. This wouldnecessarily mean that the Western Geco (supra) expansion hasbeen done away with. In short, Western Geco (supra), as explainedin paragraphs 28 and 29 of Associate Builders (supra), would nolonger obtain, as under the guise of interfering with an award onthe ground that the arbitrator has not adopted a judicial approach,the Court’s intervention would be on the merits of the award,which cannot be permitted post amendment. However, insofar asprinciples of natural justice are concerned, as contained in Sections18 and 34(2)(a)(iii) of the 1996 Act, these continue to be groundsof challenge of an award, as is contained in paragraph 30 ofAssociate Builders (supra).

26. Insofar as domestic awards made in India are concerned, anadditional ground is now available Under Sub-section (2A), addedby the Amendment Act, 2015, to Section 34. Here, there must bepatent illegality appearing on the face of the award, which refersto such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law. In short,what is not subsumed within “the fundamental policy of Indianlaw,” namely, the contravention of a statute not linked to publicpolicy or public interest, cannot be brought in by the backdoorwhen it comes to setting aside an award on the ground of patentillegality.

30. What is important to note is that a decision which is perverse,as understood in paragraphs 31 and 32 of Associate Builders(supra), while no longer being a ground for challenge under “publicpolicy of India,” would certainly amount to a patent illegalityappearing on the face of the award. Thus, a finding based on noevidence at all or an award which ignores vital evidence in arrivingat its decision would be perverse and liable to be set aside on theground of patent illegality. Additionally, a finding based ondocuments taken behind the back of the parties by the arbitratorwould also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, andtherefore, would also have to be characterised as perverse.

31. Given the fact that the amended Act will now apply, and thatthe “patent illegality” ground for setting aside arbitral awards ininternational commercial arbitrations will not apply,it is necessaryto advert to the grounds contained in Section 34(2)(a)(iii) and (iv)as applicable to the facts of the present case.

33. In Renusagar (supra), this Court dealt with a challenge to aforeign award Under Section 7 of the Foreign Awards (Recognitionand Enforcement) Act, 1961 [“Foreign Awards Act”]. The ForeignAwards Act has since been repealed by the 1996 Act. However,considering that Section 7 of the Foreign Awards Act containedgrounds which were borrowed from Article V of the Conventionon the Recognition and Enforcement of Foreign Arbitral Awards,1958 [“New York Convention”], which is almost in the same termsas Sections 34 and 48 of the 1996 Act, the said judgment is ofgreat importance in understanding the parameters of judicial reviewwhen it comes to either foreign awards or international commercialarbitrations being held in India,the grounds for challenge/refusalof enforcement Under Sections 34 and 48, respectively, being thesame. After referring to the New York Convention, this Courtdelineated the scope of enquiry of grounds Under Sections 34/48(equivalent to the grounds Under Section 7 of the Foreign AwardsAct, which was considered by the Court), and held:

34. Under the Geneva Convention of 1927, in order to obtainrecognition or enforcement of a foreign arbitral award, therequirements of Clauses (a) to (e) of Article I had to be fulfilledand in Article II, it was prescribed that even if the conditionslaid down in Article I were fulfilled recognition, andenforcement of the award would be refused if the Court wassatisfied in respect of matters mentioned in Clauses (a), (b)and (c). The principles which apply to recognition andenforcement of foreign awards are in substance, similar tothose adopted by the English courts at common law. (See Dicey& Morris, The Conflict of Laws, 11th Edn., Vol. I, p. 578). Itwas, however, felt that the Geneva Convention suffered fromcertain defects which hampered the speedy settlement ofdisputes through arbitration. The New York Convention seeks AB

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to remedy the said defects by providing for a much more simpleand effective method of obtaining recognition and enforcementof foreign awards. Under the New York Convention the partyagainst whom the award is sought to be enforced can object torecognition and enforcement of the foreign award on groundsset out in Sub-clauses (a) to (e) of Clause (1) of Article V andthe court can, on its own motion, refuse recognition andenforcement of a foreign award for two additional reasons setout in Sub-clauses (a) and (b) of Clause (2) of Article V Noneof the grounds set out in Sub-clauses (a) to (e) of Clause (1)and Sub-clauses (a) and (b) of Clause (2) of Article V postulatesa challenge to the award on merits.

35. Albert Jan van den Berg in his treatise The New YorkArbitration Convention of 1958: Towards a Uniform JudicialInterpretation, has expressed the view:

It is a generally accepted interpretation of the Conventionthat the court before which the enforcement of the foreignaward is sought may not review the merits of the award.The main reason is that the exhaustive list of grounds forrefusal of enforcement enumerated in Article V does notinclude a mistake in fact or law by the arbitrator.Furthermore, under the Convention, the task of theenforcement judge is a limited one. The control exercisedby him is limited to verifying whether an objection of aRespondent on the basis of the grounds for refusal of ArticleV(1) is justified and whether the enforcement of the awardwould violate the public policy of the law of his country.This limitation must be seen in the light of the principle ofinternational commercial arbitration that a national courtshould not interfere with the substance of the arbitration.”(p. 269)

36. Similarly Alan Redfern and Martin Hunter have said:

The New York Convention does not permit any review on themerits of an award to which the Convention applies and, in thisrespect, therefore, differs from the provisions of some systemsof national law governing the challenge of an award, where anappeal to the courts on points of law may be permitted.”

(Redfern & Hunter, Law and Practice of InternationalCommercial Arbitration, 2nd Edn., p. 461.)

37. In our opinion, therefore, in proceedings for enforcement of aforeign award under the Foreign Awards Act, 1961, the scope ofenquiry before the court in which award is sought to be enforcedis limited to grounds mentioned in Section 7 of the Act and doesnot enable a party to the said proceedings to impeach the awardon merits.

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65. This would imply that the defence of public policy which ispermissible Under Section 7(1)(b)(ii) should be construednarrowly. In this context, it would also be of relevance to mentionthat Under Article I(e) of the Geneva Convention Act of 1927, itis permissible to raise objection to the enforcement of arbitralaward on the ground that the recognition or enforcement of theaward is contrary to the public policy or to the principles of thelaw of the country in which it is sought to be relied upon. To thesame effect is the provision in Section 7(1) of the Protocol &Convention Act of 1837(sic 1937) which requires that theenforcement of the foreign award must not be contrary to thepublic policy or the law of India. Since the expression “publicpolicy” covers the field not covered by the words “and the law ofIndia” which follow the said expression, contravention of law alonewill not attract the bar of public policy and something more thancontravention of law is required.

66. Article V(2)(b) of the New York Convention of 1958 andSection 7(1)(b)(ii) of the Foreign Awards Act do not postulaterefusal of recognition and enforcement of a foreign award on theground that it is contrary to the law of the country of enforcementand the ground of challenge is confined to the recognition andenforcement being contrary to the public policy of the country inwhich the award is set to be enforced. There is nothing to indicatethat the expression “public policy” in Article V(2) (b) of the NewYork Convention and Section 7(1)(b)(ii) of the Foreign AwardsAct is not used in the same sense in which it was used in ArticleI(c) of the Geneva Convention of 1927 and Section 7(1) of theProtocol and Convention Act of 1937. This would mean that “publicpolicy” in Section 7(1)(b)(ii) has been used in a narrower sense AB

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and in order to attract the bar of public policy the enforcement ofthe award must invoke something more than the violation of thelaw of India.Since the Foreign Awards Act is concerned withrecognition and enforcement of foreign awards which are governedby the principles of private international law, the expression “publicpolicy” in Section 7(1)(b)(ii) of the Foreign Awards Act mustnecessarily be construed in the sense the doctrine of public policyis applied in the field of private international law. Applying thesaid criteria, it must be held that the enforcement of a foreignaward would be refused on the ground that it is contrary to publicpolicy if such enforcement would be contrary to (i) fundamentalpolicy of Indian law; or (ii) the interests of India; or (iii) justice ormorality.

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This judgment was cited with approval in Redfern and Hunter onInternational Arbitration by Nigel Blackaby, Constantine Partasides,Alan Redfern, and Martin Hunter (Oxford University Press, FifthEd., 2009) [“Redfern and Hunter”] as follows:

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11.56. First, the New York Convention does not permit any reviewon the merits of an award to which the Convention applies. [Thisstatement, which was made in an earlier edition of this book, hassince been cited with approval by the Supreme Court of India inRenusagar Power Co. Ltd. v. General Electric Co. The courtadded that in its opinion ‘the scope of enquiry before the court inwhich the award is sought to be enforced is limited [to the groundsmentioned in the Act] and does not enable a party to the saidproceedings to impeach the Award on merits’]. Nor does the ModelLaw.

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The same theme is echoed in standard textbooks on internationalarbitration. Thus, in International Commercial Arbitration by GaryB. Born (Wolters Kluwer, Second Ed., 2014) [“Gary Born”], thelearned author deals with this aspect of the matter as follows:

G[12] No Judicial Review of Merits of Foreign or Non-DomesticAwards in Recognition Actions It is an almost sacrosanct principle of international arbitration thatcourts will not review the substance of arbitrators’ decisionscontained in foreign or non-domestic arbitral awards in recognitionproceedings. Virtually every authority acknowledges this Rule and H

virtually nobody suggests that this principle should be abandoned.When national courts do review the merits of awards, they labourto categorize their action as an application of public policy, excessof authority, or some other Article V exception, rather thanpurporting to justify a review of the merits.

[a] No Judicial Review of Awards Under New York and Inter-American Conventions Neither the New York Convention nor the Inter-AmericanConvention contains any exception permitting non-enforcementof an award simply because the arbitrators got their decision onthe substance of the parties’ dispute wrong, or even badly wrong.This is reasonably clear from the language of the Convention,which makes no reference to the possibility of a review of themerits in Article V’s exhaustive list of the exclusive grounds fordenying recognition of foreign and non-domestic awards. Thereis also no hint in the New York Convention’s drafting history ofany authority to reconsider the merits of an arbitral award inrecognition proceedings.

Likewise, the prohibition against review of the merits of thearbitrator’s decision is one of the most fundamental pillars ofnational court authority interpreting the Convention. This prohibitionhas repeatedly and uniformly been affirmed by national courts, inboth common law and civil law jurisdictions. Simply put:“the courtmay not refuse to enforce an arbitral award solely on the groundthat the arbitrator may have made a mistake of law or fact”[KarahaBodas Co. LLC v. Perusahaan PertambanganMinyak DanGas Bumi Negara, 364 F.3d 274, 287-88 (5th Cir. 2004)]. Thus, inthe words of the Luxembourg Supreme Court [Judgment of 24November 1993, XXI Y.B. Comm. Arb. 617, 623 (LuxembourgCourSuperieure de Justice) (1996)]:

The New York Convention does not provide for any control onthe manner in which the arbitrators decide on the merits, with asthe only reservation, the respect of international public policy. Evenif blatant, a mistake of fact or law, if made by the arbitral tribunal,is not a ground for refusal of enforcement of the tribunal’s award.

Or, as a Brazilian recognition decision under the Convention held[Judgment of 19 August 2009, Atecs Mannesmann GmbH v.

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ARodrimar S/A Transportes Equipamentos Industriais e ArmazesGerais, XXXV Y.B. Comm. Arb. 330, 331 (Brazilian Tribunal deJustica) (2010)]:

These questions pertain to the merits of the arbitral award that,according to precedents from the Federal Supreme Court and ofBthis Superior Court of Justice, cannot be reviewed by this Courtsince recognition and enforcement of a foreign award is limited toan analysis of the formal requirements of the award.

Commentators have uniformly adopted the same view of theConvention [See, for e.g., K.-H. Bockstiegel, S. Kroll & P.CNacimiento, Arbitration in Germany 452 (2007)].(at pp. 3707-3710)Likewise, the UNCITRAL Secretariat Guide on the Conventionon the Recognition and Enforcement of Foreign Arbitral Awards(New York, 1958) (2016 Ed.) [“UNCITRAL Guide on the NewYork Convention”] also states:

D9. The grounds for refusal Under Article V do not include anerroneous decision in law or in fact by the arbitral tribunal. Acourt seized with an application for recognition and enforcementunder the Convention may not review the merits of the arbitraltribunal’s decision. This principle is unanimously confirmed in theEcase law and commentary on the New York Convention.”

68. It is apparent from above-mentioned decisions as toenforceability of foreign awards, Clause 14 of FOSFA Agreement andas per the law applicable in India, no export could have taken placeFwithout the permission of the Government, and the NAFED was unableto supply, as it did not have any permission in the season 1980-81 toeffect the supply,it required the permission of the Government. The matteris such which pertains to the fundamental policy of India and partieswere aware of it, and contracted that in such an exigency as provided inclause 14, the Agreement shall be cancelled for the supply which couldGnot be made. It became void under section 32 of the Contract Act onhappening of contingency. Thus, it was not open because of the clearterms of the Arbitration Agreement to saddle the liability upon the NAFEDto pay damages as the contract became void. There was no permissionto export commodity of the previous year in the next season, and thenHthe Government declined permission to NAFED to supply. Thus, it would be against the fundamental public policy of India to enforce such anaward, any supply made then would contravene the public policy ofIndia relating to export for which permission of the Government of Indiawas necessary.

69. In our considered opinion, the award could not be said to beenforceable, given the provisions contained in Section 7(1)(b)(ii) of theForeign Awards Act. As per the test laid down in Renusagar (supra), itsenforcement would be against the fundamental policy of Indian Lawand the basic concept of justice. Thus, we hold that award isunenforceable, and the High Court erred in law in holding otherwise in aperfunctory manner.

70. Though in view of the finding above, it is not necessary to gointo other questions. It was argued that the Arbitrator was appointed inviolation of the order passed by the High Court. The High Court on20.3.1981 granted interim stay till 22.4.1981. A telex dated 20.3.1981was sent informing that the High Court granted an interim stay. TheFOSFA vide letter dated 6.4.1981 asked the NAFED to appoint itsarbitrator by 20.4.1981. On 9.4.1981, NAFED informed FOSFA aboutthe stay of the arbitration proceedings granted by the High Court. Theinterim 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 Arbitratorby FOSFA in the Arbitration Tribunal in violation of the order passed bythe High Court.

71. It was also urged that after that, this Court stayed proceedingson 30.4.1982, it was responded by Alimenta S.A. on 4.5.1982 to NAFEDthat this Court did not have authority to stay the arbitration proceedings.It was also argued that on 1.5.1981, NAFED objected to the appointmentof Mr. F.A.D.Ralphe for their representation in the arbitration. On30.10.1981, NAFED filed a writ petition against the Alimenta S.A. andArbitrator to prevent the arbitration proceedings. It was further arguedthat the appellant was deprived of appointing arbitrators; the same wasagainst the public policy. As per Rule 1(a) of FOSFA Rules, each partyhad the right to nominate its Arbitrators. As per Rule 1(d), the partyclaiming arbitration can only apply to FOSFA for the appointment of anarbitrator on behalf of the other party. As there was restraint order, theappointment of Arbitrator by FOSFA under Rule 1(d)of the Rules wasillegal. A party claiming arbitration could only apply for the appointmentof Arbitrator on behalf of another party. Learned senior counsel further A

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Aurged that the action taken was in contravention of natural justice and isa nullity violating the interim order of the court as opined in ManoharLal (Dead) by Lrs. v. Ugrasen (Dead) by Lrs. &Ors., (2010) 11 SCC557. In Manohar Lal(supra), the court held thus:

“24. In Mulraj v. Murti Raghunathji Maharaj,AIR 1967 SCB1386, this Court considered the effect of action taken subsequentto passing of an interim order in its disobedience and held that anyaction taken in disobedience of the order passed by the Courtwould be illegal. Subsequent action would be a nullity.

25. In Surjit Singh v. Harbans Singh, (1995) 6 SCC 50, thisCCourt while dealing with the similar issue held as under: (SCC p.52, para 4)

“4. … In defiance of the restraint order, the alienation/assignment was made. If we were to let it go as such, it woulddefeat the ends of justice and the prevalent public policy. WhenDthe court intends a particular state of affairs to exist while it isin seisin of a lis, that state of affairs is not only required to bemaintained, but it is presumed to exist till the court ordersotherwise. The court, in these circumstances has the duty, asalso the right, to treat the alienation/assignment as having nottaken place at all for its purposes.”

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26. In All Bengal Excise Licensees’ Assn. v. Raghabendra Singh,(2007) 11 SCC 374, this Court held as under: (SCC p. 387,para 28)

“28. … a party to the litigation cannot be allowed to take anFunfair advantage by committing breach of an interim orderand escape the consequences thereof. … the wrong perpetratedby the respondent contemnors in utter disregard of the orderof the High Court should not be permitted to hold good.”

27. In DDA v. Skipper Construction Co. (P) Ltd.,(1996) 4 SCC622, this Court after making reference to many of the earlierGjudgments held: (SCC p. 636, para 18)

“18. … ‘… on principle that those who defy a prohibition oughtnot to be able to claim that the fruits of their defiance are good,and not tainted by the illegality that produced them.’[*]”

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28. In Gurunath Manohar Pavaskar v. Nagesh SiddappaNavalgund, (2007) 13 SCC 565, this Court while dealing with thesimilar issues held that even a court in exercise of its inherentjurisdiction under Section 151 of the Code of Civil Procedure,1908, in the event of coming to the conclusion that a breach of anorder of restraint had taken place, may bring back the parties tothe same position as if the order of injunction has not been violated.

29. In view of the above, it is evident that any order passed byany authority in spite of the knowledge of the interim order of thecourt is of no consequence as it remains a nullity.”

Thus, it was argued that the appointment of the arbitrator toconstitute the Arbitral Tribunal violated the order of the Indian Court andit was against the public policy. Consequently, the respondent, AlimentaS.A., could not approach the Indian Court to enforce such an awardpassed by the Arbitral Tribunal.

72. Though this Court passed an interim order, ultimately, itdismissed the petition filed on behalf of the NAFED, and it was open tothe appellant to raise the question at the relevant time when this courtdecided the matter in the year 1987. This court permitted the arbitrationproceedings to continue.As such, we are of the opinion that though itwould have been proper for the FOSFA to comply with the interim orderspassed by this Court, the proceedings in which the temporary orderswere given were dismissed way back in the year 1987. At that time, thequestion was required to be agitated. This Court permitted to continueproceedings in 1987. The said questions ought to have been raised atthat stage; we cannot permit the appellant to raise them now. Hence,atthis stage, we are not inclined to entertain and examine merits of theargument mentioned above.

73. Learned senior counsel appearing on behalf of the appellantalso argued that NAFED was not allowed to have any legal representationbefore the arbitral tribunal or in the Board of Appeal. Rule 3 of theFOSFA Rules bars the parties from having legal representation beforethe Arbitral Tribunal. However, Rule 6 empowers the Board of Appealto allow legal representation to the partiesin case of particularcircumstances. The NAFED through its solicitor M/s. Clyde andCompany submitted letters on 16.1.1990 and 13.5.1990 to permit legalrepresentation. However, the same was denied by the Board of Appeals.As such learned counsel argued that due opportunity of defending to AB

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ANAFED was not afforded. For this purpose, reliance was placed onC.L. Subramaniam v. Collector of Customs, Cochin (1972) 3 SCC542 wherein the court observed:

“6. Removal from service is a major penalty. Procedure forimposing major penalties is prescribed in Rule 15 of the CentralBCivil Services (Classification, Control and Appeal) Rules, 1957, arule framed under Article 309 of the Constitution. Sub-rule (5) ofthat rule provides:

“The Disciplinary Authority may nominate any person topresent the case in support of the charges before the authorityinquiring into the charges (hereinafter referred to as the InquiringAuthority. The government servant may present his case withthe assistance of any government servant approved by theDisciplinary Authority, but may not engage a legal practitionerfor the purpose unless the person nominated by the DisciplinaryAuthority as aforesaid is a legal practitioner or unless theDisciplinary Authority, having regard to the circumstances ofthe case, so permits.”

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23. It is needless to say that Rule 15 is a mandatory rule. Thatrule regulates the guarantee given to Government servants underArticle 311. Government servants, by and large, have no legalEtraining. At any rate, it is nobody’s case that the appellant hadlegal training. Moreover, when a man is charged with the breachof a rule entailing serious consequences, he is not likely to be in aposition to present his case as best as it should be. The accusationagainst the appellant threatened his very livelihood. Any adverseFverdict against him was bound to be disastrous to him, as it hasproved to be. In such a situation, he cannot be expected to actcalmly and with deliberation. That is why Rule 15(5) has providedfor representation of a Government servant charged withdereliction of duty or with contravention of the rule by anotherGovernment servant or in appropriate cases by a legal practitioner.

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24. For the reasons mentioned above, we think that there hadbeen a contravention of Rule 15(5). We are also of the opinionthat the appellant had not been afforded a reasonable opportunityto defend himself. Hence the impugned order is liable to be struckdown, and it is hereby struck down.The facts of this case are not H

such as to justify any fresh enquiry against the appellant. Hencewe direct that no fresh enquiry shall be held against the appellant,and he be restored to the position to which he would have beenentitled to but for the impugned order. The appeal is accordinglyallowed. The appellant is entitled to his costs from the respondentsboth in this Court as well as in the High Court.”

The decision of Board of Trustees of the Port of Bombay v.Dilipkumar Raghavendranath Nadkarni and Ors. (1983) 1 SCC 124has been relied on, wherein it was held:

“9. We concern ourselves in this case with a narrow questionwhether where in such a disciplinary enquiry by a domestic tribunal,the employer appoints Presenting-cum-Prosecuting Officer torepresent the employer by persons who are legally trained, thedelinquent employee, if he seeks permission to appear and defendhimself by a legal practitioner, a denial of such a request wouldvitiate the enquiry on the ground that the delinquent employee hadnot been afforded a reasonable opportunity to defend himself,”thereby vitiating one of the essential principles of natural justice.

74. It is not disputed that before the Arbitration Tribunal, the ruledebars legal representation; hence the submission as to non-representationbefore the Tribunal, cannot be accepted.However, in appeal due to refusalto permit representation through a legal firm, the NAFED was not ableto point out the prejudice caused to it.In the absence of proof of prejudicecaused due to non-representation by a Legal Representative and to showthat it was disabled to put forth its views,we cannot set aside the awardon the ground that it would have been proper to allow the assistance ofa Legal Representative. Thus,we are not inclined to render the awardunenforceable on the aforesaid ground.

75. Learned senior counsel appearing on behalf of NAFED alsoargued that Mr. A.G Scott, the Arbitrator nominated by the respondent,delivered the award and, after that, appeared as a counsel for AlimentaS.A. before the Board of Appeal. Thus, his participation in the appealwas bad in law. He could not have defended his award and subvert thebasic norms of fairness. The action was against the concept of justiceand rules of procedure, as observed in The State of Punjab & Anr. v.Shamlal Murari & Anr., (1976) 1 SCC 719, wherein this Court foundthus:

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“8. It is obvious that even taking a stern view, every minor detailin Rule 3 cannot carry a compulsory or imperative import. Afterall, what is required for the Judges to dispose of the appeal is thememorandum of appeal plus the judgment and the paper-book.Three copies would certainly be a great advantage, but what isthe core of the matter is not the number but the presence, and theoveremphasis laid by the court on three copies is, we think,mistaken. Perhaps, the rule requires three copies, and failure tocomply therewith may be an irregularity. Had no copy beenfurnished of any one of the three items, the result might havebeen different. In the present case, copies of all the threedocuments prescribed, have been furnished but not three copiesof each. This omission or default is only a breach that can becharacterised as an irregularity to be corrected by condonationon application by the party fulfilling the condition within a timeallowed by the court. We must always remember that processuallaw is not to be a tyrant but a servant, not an obstruction but anaid to justice. It has been wisely observed that proceduralprescriptions are the handmaid and not the mistress, a lubricant,not a resistant in the administration of justice. Where the non-compliance, tho’ procedural, will thwart fair hearing or prejudicedoing of justice to parties, the rule is mandatory. But, grammarapart, if the breach can be corrected without injury to a justdisposal of the case, we should not enthrone a regulatoryrequirement into a dominant desideratum. After all, courts are todo justice, not to wreck this end product on technicalities. Viewedin this perspective, even what is regarded as mandatorytraditionally may, perhaps, have to be moderated into wholesomedirections to be complied with in time or in extended time. Be thatas it may, and ignoring for a moment the exploration of the trueoffice of procedural conditions, we have no doubt that what is ofthe essence of Rule 3 is not that three copies should be furnished,but that copies of all the three important documents referred to inthat suit shall be produced. We further feel that the court should,if it thinks it necessitous, exercise its discretion and grant furthertime for formal compliance with the rule if the copies fall short ofthe requisite number. In this view and to the extent indicated, weoverrule the decision in Bikram Dass’s case, AIR 1975 Punj&Har 1 (FB).”

76. Learned counsel also relied on Kailash v. Nankhu & Ors.,(2005) 4 SCC 480, in which the court observed:

“28. All the rules of procedure are the handmaid of justice. Thelanguage employed by the draftsman of processual law may beliberal or stringent, but the fact remains that the object ofprescribing procedure is to advance the cause of justice. In anadversarial system, no party should ordinarily be denied theopportunity of participating in the process of justice dispensation.Unless compelled by express and specific language of the statute,the provisions of CPC or any other procedural enactment oughtnot to be construed in a manner which would leave the courthelpless to meet extraordinary situations in the ends of justice.The observations made by Krishna Iyer, J. in Sushil Kumar Senv. State of Bihar, (1975) 1 SCC 774 are pertinent: (SCC p. 777,paras 5-6)

“The mortality of justice at the hands of law troubles ajudge’s conscience and points an angry interrogation at thelaw reformer.

The processual law so dominates in certain systems asto overpower substantive rights and substantial justice. Thehumanist rule that procedure should be the handmaid, not themistress, of legal justice compels consideration of vesting aresiduary power in judges to act ex debito justitiae where thetragic sequel otherwise would be wholly inequitable. … Justiceis the goal of jurisprudence — processual, as much assubstantive.”

29. In State of Punjab v. Shamlal Murari, (1976) 1 SCC 719, theCourt approved in no unmistakable terms the approach ofmoderating into wholesome directions what is regarded asmandatory on the principle that: (SCC p. 720)

“Processual law is not to be a tyrant but a servant, not anobstruction but an aid to justice. Procedural prescriptions are thehandmaid and not the mistress, a lubricant, not a resistant in theadministration of justice.”

In Ghanshyam Dass v. Dominion of India, (1984) 3 SCC 46, theCourt reiterated the need for interpreting a part of the adjectivelaw dealing with procedure alone in such a manner as to subserveand advance the cause of justice rather than to defeat it as all thelaws of procedure are based on this principle.”

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A77. On behalf of the respondent, letter dated 17.11.2011 issued byFOSFAwas relied on stating that even though the FOSFA rules are silenton the issue of the first tier Arbitrator acting as a representative of theparty in the second tier, i.e., at the appellate stage, the practice prevalentat the relevant time in the UK allowed the same. The FOSFA mentionedin the letter that many parties in cases before FOSFA elected to makeBsuch an appointment with the agreement of the individual arbitratorconcerned, and this practice was prevalent.

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78. The Arbitrator appeared at the appellate stage, though, as perthe Indian Law and the ethical standards, the Arbitrator could not haveappeared at the second stage to defend arbitration award passed byChim, and should have kept aloof. However, no concrete material hasbeen placed on record to substantiate the objection as to prevailingpractice and law in U.K. at the relevant time. Hence, we are not inclinedto decide the issue in this case. Suffice it to observe that Arbitrator issupposed to followethical standards, and, in our considered view, oughtnot to have defended arbitrationa ward passed by him in the subsequentDjudicial proceedings.

79. The question was also raised concerning the Board of Appeal,enhancing the rate of interest from 10.5 % to 11.25 %. We hold that itwas not open to the Board of Appeal to increase the interest in theabsence of appeal. As we have held award to be unenforceable underEsection 7 of the Foreign Awards Act, other submission does not survivefor decision.

80. Resultantly, the award is ex facie illegal, and in contraventionof fundamental law, no export without permission of the Governmentwas permissible and without the consent of the Government quota couldnot have been forwarded to next season. The export without permissionFwould have violated the law, thus, enforcement of such award would beviolative of the public policy of India. On the happening of contingencyagreed to by the parties in Clause 14 of the FOSFA Agreement thecontract was rendered unenforceable under section 32 of the ContractAct. As such the NAFED could not have been held liable to pay damagesGunder foreign award.

81. The appeal filed by the NAFED is thus allowed, and theimpugned judgment and order passed by the High Court is set aside.Award is held to be unenforceable. No costs.

HDevika Gujral