TMI Blog2013 (7) TMI 643X X X X Extracts X X X X X X X X Extracts X X X X ..... - R. M. Lodha, Madan B. Lokur And Kurian Joseph,JJ. JUDGMENT R. M. Lodha, J. Leave granted. 2. The question for consideration in this appeal by special leave is whether appeal award no. 3782 and appeal award no. 3783 both dated 21.09.1998 passed by the Board of Appeal of the Grain and Feed Trade Association, London (for short, Board of Appeal ) in favour of the respondent are enforceable under Section 48 of the Arbitration and Conciliation Act, 1996 (for short, 1996 Act )? 3. By a contract dated 12.05.1994 between Shiv Nath Rai Harnarain (India) Company, New Delhi (sellers) and Italgrani Spa, Naples, Italy (buyers) a transaction relating to 20,000 MT (+/- 5%) of Durum wheat, Indian Origin (for short, goods ) for a price at US$ 162 Per MT was concluded. Some of the salient terms of the contract are as follows:- Commodity Durum Wheat Indian Origine new crop Test Weight 80 KG/HL.MIN Moisture 12 PCT.MAX Vitrious 80 PCT. MIN Broken 3 PCT. MAX Proteine 12 PCT. MIN Foreign Matter 2 PCT MAX Sprouted/Spotted 1 PCT. MAX Soft Wheat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indirect arising out of and the consequence of such breach. 7. The sellers on 31.08.1994 responded to the above communication and asserted that S.G.S. India was an inspection agency; the wheat supplied was inspected by S.G.S. India at the time of procurement and also before loading the vessel and the inspection agency had confirmed that the wheat supplied met typical characteristics of Indian durum wheat and complied with the specifications provided in the contract. 8. The buyers claimed arbitration on 04.11.1994 which was registered as case no. 11715A. The Arbitral Tribunal, GAFTA proceeded to arbitrate the dispute. The Arbitral Tribunal, GAFTA in its award dated 04.12.1997 accepted the buyers case that in appointing S.G.S. Geneva, their aim was to safeguard the performance of both contracts by having one company to coordinate all operations regarding inspection, control and the issue of certificate relating to the cargo and rejected the sellers assertion that having loaded the goods, and presented a certificate provided by an international superintendence company, they had fulfilled their contractual obligations. The sellers contention that S.G.S. India were nominated by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 1994 to the date of this Award. We do further award that Sellers claim for the return of US $ 42,000 fails. 9. It appears that following the commencement of arbitration proceedings, the sellers contested the jurisdiction of the Arbitral Tribunal, GAFTA. The sellers filed a petition in Delhi High Court for a declaration that there was no arbitration agreement between the parties. They also prayed for an order restraining the Arbitral Tribunal, GAFTA from proceeding with the arbitration initiated by the buyers. Although initially interim order was granted but the petition was finally dismissed by Delhi High Court. The special leave petition from that order was dismissed by this Court. In the meanwhile, the Arbitral Tribunal, GAFTA had passed an interim award on 16.10.1995 holding, inter-alia, that the arbitration claim was properly made and it had jurisdiction to decide both the preliminary and substantive issues. On 05.02.1997, buyers made a separate claim for arbitration for sellers alleged breach of the arbitration agreement in bringing legal proceedings in India concerning the first dispute before it had been determined under the GAFTA Rules. As regards this claim also, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total of O.P. Khaitan s four invoices nos. ATP/804 of 1995/6, ATP/206 of 1996/7, ATP/286 of 1996/7 and ATP/767 of 1996/7, or such lesser sum as shall be agreed by the parties or assessed by an appropriate officer or person in India, in either Indian rupees or sterling as being the reasonable fees, expenses, etc. incurred in considering and responding to the proceedings taken by Sellers in India. But we reserve to ourselves the right to assess these fees, expenses, etc. upon application of one or both of the parties, in the event that the parties are neither able to agree them, nor able to agree upon an appropriate officer or person in India to assess them. We further award that Sellers shall forthwith pay to Buyers the costs and expenses of the first tier arbitration no. 12159 in the amount of 2,190.00 (two thousand one hundred and ninety pounds) together with 85.00 (eighty five pounds), being the fee for appointment of an arbitrator on Sellers behalf. We further award that Sellers shall forthwith pay to Buyers the sum of 500 (five hundred pounds only) being the costs and expenses of Buyers Representative in preparing and presenting this case. 12. The sellers challenged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e High Court of Justice at London. Seeking enforcement of the awards of the Board of Appeal, it was submitted that there was nothing in the awards which could be said to be against the public policy of India. 17. Dealing with the submissions made on behalf of the parties, the High Court considered the objections of the sellers and recorded its conclusion as follows: 23. The above conclusion of the GAFTA Arbitral Tribunal is based on an appreciation of the evidence produced by the parties. The stark finding, confirmed by the reports of three independent analysts, two in Greece (one a private lab and another State lab) and the FMBRA in England, was that the consignment sent by the Defendant contained only 9% durum wheat. 90% was soft wheat. In the circumstances, the only conclusion possible was the one arrived at by the Arbitral Tribunal viz., the wheat, described on the Certificate of Quality and Condition presented by Sellers as Durum wheat of Indian origin, was soft wheat. This conclusion has been affirmed by the impugned Appeal Award No. 3782 by the Board of Appeal, GAFTA. It has been further affirmed by the rejection by the High Court of Justice at London of the Defendant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 48(2)(b) must receive narrow meaning than Section 34. Saw Pipes1 never meant to give wider meaning to the expression, public policy of India insofar as Section 48 was concerned. According to Mr. Jayant K. Mehta, Phulchand Exports(2011) 10 SCC 300 does not hold that all that is found in paragraph 74 in Saw Pipes1 is applicable to Section 48(2)(b). He argued that in any case both Saw Pipes1 and Phulchand Exports(2011) 10 SCC 300 are decisions by a two-Judge Bench of this Court whereas Renusagar[1994 Supp (1) SCC 644] is a decision of three-Judge Bench and if there is any inconsistency in the decisions of this Court in Saw Pipes1 and Phulchand Exports(2011) 10 SCC 300 on the one hand and Renusagar 1994 Supp (1) SCC 644 on the other, Renusagar3 must prevail as this is a decision by the larger Bench. 22. The three decisions of this Court in Renusagar 1994 Supp (1) SCC 644 , Saw Pipes(2003) 5 SCC 705 and Phulchand Exports (2011) 10 SCC 300 need a careful and close examination by us. We shall first deal with Renusagar 1994 Supp (1) SCC 644. It is not necessary to narrate in detail the facts in Renusagar 1994 Supp (1) SCC 644. Suffice it to say that Arbitral Tribunal, GAFTA in Pari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvolved. Explaining the concept of public policy vis- -vis the enforcement of foreign awards in Renusagar 1994 Supp (1) SCC 644 , this Court in paras 65 and 66 (pgs. 681-682) of the Report stated: 65. This would imply that the defence of public policy which is permissible under Section 7(1)(b)(ii) should be construed narrowly. In this context, it would also be of relevance to mention that under Article I(e) of the Geneva Convention Act of 1927, it is permissible to raise objection to the enforcement of arbitral award on the ground that the recognition or enforcement of the award is contrary to the public policy or to the principles of the law of the country in which it is sought to be relied upon. To the same effect is the provision in Section 7(1) of the Protocol Convention Act of 1937 which requires that the enforcement of the foreign award must not be contrary to the public policy or the law of India. Since the expression public policy covers the field not covered by the words 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. . . . . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rified that illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against public policy. Award could also be set aside if it was so unfair and unreasonable that it shocks the conscience of the court. 24. From the discussion made by this Court in Saw Pipes1 in paragraph 18* *18. Further, in Renusagar Power Co. Ltd. v. General Electric Co. this Court considered Section 7(1) of the Arbitration (Protocol and Convention) Act, 1937 which inter alia provided that a foreign award may not be enforced under the said Act, if the court dealing with the case is satisfied that the enforcement of the award will be contrary to the public policy. After elaborate discussion, the Court arrived at the conclusion that public policy comprehended in Section 7(1)(b)(ii) of the Foreign Awards (Recognition and Enforcement) Act, 1961 is the public policy of India and does not cover the public policy of any other country. For giving meaning to the term public policy , the Court observed thus: (SCC p. 682, para 66) . * (pgs. 721-722), paragraph 22** **22. The aforesaid submission of the learned Senior Counsel requires to be accepted. Fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do so. Similarly, if the award is patently against the statutory provisions of substantive law which is in force in India or is passed without giving an opportunity of hearing to the parties as provided under Section 24 or without giving any reason in a case where parties have not agreed that no reasons are to be recorded, it would be against the statutory provisions. In all such cases, the award is required to be set aside on the ground of patent illegality . * (pgs. 723-724) and paragraph 31*** Therefore, in our view, the phrase public policy of India used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature in both the Sections but, in our view, its application differs in degree insofar as these two Sections are concerned. The application of public policy of India doctrine for the purposes of Section 48(2)(b) is more limited than the application of the same expression in respect of the domestic arbitral award. 26. We are not persuaded to accept the submission of Mr. Rohinton F. Nariman that the expression public policy of India in Section 48(2)(b) is an expression of wider import than the public policy in Section 7(1)(b)(ii) of the Foreign Awards Act. We have no hesitation in holding that Renusagar3 must apply for the purposes of Section 48(2)(b) of the 1996 Act. Insofar as the proceeding for setting aside an award under Section 34 is concerned, the principles laid down in Saw Pipes1 would govern the scope of such proceedings. 27. We accordingly hold that enforcement of foreign award would be refused under Section 48(2)(b) only if such enforcement would be contrary to (i) fundamental policy of Indian law; or (2) the interests of India; or (3) justice or morality. The wider meaning given to the expression public policy of India occurring in Section 34(2)(b)(ii) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for testing the sample of the goods for their forward contract with OAIC Algiers. The said agency tested the goods on a completely different set of parameters as stipulated under the contract. Crepin did not even test the goods for their contents of vitreous and moisture. 31. Learned senior counsel for the appellant submitted that being an FOB contract the title of the goods and risk is passed on to the buyers the moment the goods were loaded on the ship. The goods were admittedly loaded on 08.08.1994 after which the risk fell on the buyers. In this regard reliance was placed on a decision of this Court in D.K. Lall[(2010) 4 SCC 256]. 32. Mr. Rohinton F. Nariman vehemently contended that once parties had agreed that certification by an inspecting agency would be final, it was not open to the Arbitral Tribunal, GAFTA as well as Board of Appeal, to go behind that certificate and disregard it even if the certificate was inaccurate (which was not the case). In this regard, reliance was placed on two judgments of the English courts, namely, Agroexport[; (1956) 1 Q.B. 319] and Alfred C. Toepfer.[ (1974) 1 Lloyds Law Reports 11]. He submitted that House of Lords in Gill Duffus[(1984 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the appellant, it was submitted that D.K. Lall (2010) 4 SCC 256 was only on issue of insurance liability and in that context the nature of FOB contract had been discussed. D.K. Lall (2010) 4 SCC 256 does not concern with the issue of sellers breach in selling uncontractual goods. 36. Mr. Jayant K. Mehta submitted that the findings of the Arbitral Tribunal, GAFTA, as upheld by the Board of Appeal, are that (a) the contract specified that the certification of quality is final at the time and place of loading; (b) as per the contract certification by S.G.S. India was to be conclusive based on sampling at the time and place of loading; (c) two distinct aspects were required to be considered whether S.G.S. India was the contractual party and, if yes, whether S.G.S. India certificate was in the contractual form. While it was found that S.G.S. India was the contractual agency, the sellers failed to establish that the S.G.S. India certificate was in contractual form. Buyers, on the other hand, did establish that the S.G.S. India certificate was not in contractual form, (d) S.G.S. India s certification was uncontractual as there were two fatal errors in the certification, firstly, it d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent thus, submitted that the Delhi High Court was justified in rejecting the objections of the appellant. 39. It is not necessary to advert to the findings recorded by the Arbitral Tribunal, GAFTA as what is sought to be enforced by the buyers is the two awards of the Board of Appeal. 40. The challenge to the enforceability of the foreign awards passed by the Board of Appeal is mainly laid by the sellers on the ground that the Board of Appeal has gone beyond the terms of the contract by ignoring the certificate of quality obtained at the load port from the buyers nominated certifying agency, i.e., SGS India which was final under the contract. The Board of Appeal, while dealing with the question whether the SGS India certificate was issued by the contractual party and in contractual form, noticed the clause in the contract in respect of quality and condition and it held that SGS India was an acceptable certifying party under the contract. As regards the other part of that clause that provided, certificate and quality showed in the certificate will be the result of an average samples taken jointly at port of loading by the representatives of the sellers and the buyers , t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Toepfer6 by Court of Appeal, and (iii) Gill Duffus (1984) 1 Lloyd s Law Reports 227 by House of Lords, were holding the field at the time of consideration of sellers appeal by the High Court of Justice at London. In Agroexport5 , it has been held that an award founded on evidence of analysis made other than in accordance with contract terms cannot stand and deserves to be set aside as evidence relied upon was inadmissible. The Court of Appeal in Toepfer(1974) 1 Lloyds Law Reports 11 has laid down that where seller and buyer have agreed that a certificate at loading as to the quality of goods shall be final and binding on them, the buyer will be precluded from recovering damages from the seller, even if, the person giving the certificate has been negligent in making it. Toepfer6 has been approved by the House of Lords in Gill Duffus7. The High Court of Justice at London can be assumed to have full knowledge of the legal position exposited in Agroexport (1956) 1 Q.B. 319 , Toepfer(1974) 1 Lloyds Law Reports 11 and Gill Duffus(1984) 1 Lloyd s Law Reports 227 yet it found no ground or justification for setting aside the award (no. 3782) passed by the Board of Appeal. If a groun ..... 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