Supreme Court of India
SHRI LAL MAHAL LTD.versusPROGETIO GRANO SPA
- Citation
- 2013 INSC 423
- Decided
- 3 July 2013
- Disposal
- Dismissed
- Bench
- RAJENDRA MAL LODHA
Holding
Enforcement of a foreign award under Section 48(2)(b) can be refused only if it is contrary to (i) fundamental policy of Indian law, (ii) the interests of India, or (iii) justice or morality; the expression "public policy of India" must be given a narrow meaning, and the present awards do not fall within these categories, so they are enforceable.
Summary
Shri Lal Mahal Ltd., the seller, sought to resist enforcement of two foreign appeal awards (Nos. 3782 and 3783) passed by the Board of Appeal of the Grain and Feed Trade Association, London, on the ground that the awards contravened the contract and were contrary to public policy of India. The Delhi High Court had upheld the awards and the sellers appealed. The Supreme Court examined the scope of Section 48(2)(b) of the Arbitration and Conciliation Act, 1996 and the meaning of "public policy of India" as interpreted in Renusagar, Saw Pipes and Phulchand Exports. It held that the expression must be given a narrow meaning and that enforcement can be refused only if it is against (i) fundamental policy of Indian law, (ii) the interests of India, or (iii) justice or morality. The sellers' objections did not fall within any of these categories, and procedural or evidential errors in the foreign arbitration do not constitute a ground for refusal. Consequently, the foreign awards are enforceable. The appeal was dismissed.
Issues considered
- Whether the foreign appeal awards are enforceable under Section 48(2)(b) of the Arbitration and Conciliation Act, 1996.
- How "public policy of India" under Section 48(2)(b) should be interpreted – narrow or wide meaning.
- Whether procedural defects or evidentiary errors in the foreign arbitration constitute a ground for refusal of enforcement.
- Whether an award that allegedly contravenes the terms of the underlying contract can be refused on public policy grounds.
- The applicability of the principles laid down in Renusagar, Saw Pipes and Phulchand Exports to the enforcement stage under Section 48.
Legislation cited
- Arbitration and Conciliation Act, 1996s. 24, s. 28, s. 34, s. 44, s. 48(2)(b)
- Foreign Awards (Recognition and Enforcement) Act, 1961s. 7(1)(b)(ii)
Subjects
ArbitrationForeign award enforcementPublic policySection 48Arbitration and Conciliation ActContract interpretationRenusagarSaw PipesPhulchand Exports
Judgment
(2013] 13 S.C.R. 599
f.
I
SHRI LAL MAHAL LTD.
v
PROGETIO GRANO SPA
(Civil Appeal No. 5085 of 2013)
JULY 3, 2013
B
[R.M. LODHA, MADAN B. LOKUR AND
KURIAN JOSEPH, JJ.]
• Arbitration and Conciliation Act, 1996 - s.48(2)(b) -
Foreign award - Enforcement of - Challenge to - Award c
passed by the Board of Appeal of the Grain and Feed Trade
Association, London in respect of a transaction relating to
20,000 MT(+/- 5%) of Durum wheat, Indian Origin in favour
of respondent-buyers - Appellant-sellers challenged the
award passed by Board of Appeal in the High Court of Justice D'
at London which found no ground or justification for setting
aside the award - Whether foreign award in question
enforceable u/s.48 - Held: If a ground supported by the
decisions of the foreign country concerned was not good
enough for setting aside the award by the court competent to E
do so, a fortiori, such ground can hardly be a good ground
for refusing enforcement of the award - Moreover, s. 48 of the
Act does not give an opportunity to have a 'second look' at
the foreign award in the award - enforcement stage - Scope
of inquiry uls. 48 does not permit review of the foreign award
F
on merits - Procedural defects in the course of foreign
arbitration do not lead necessarily to excuse an award from
enforcement on the ground of public policy - Even if it be
assumed that the Board of Appeal made some errors, such
errors would not bar the enforceability of the appeal awards
" passed by the Board of Appeal - While considering the G•
enforceability of foreign awards, the court does not exercise
appellate jurisdiction over the foreign award nor does it
enquire as to whether, while rendering foreign award, some
599 H
600 SUPREME COURT REPORTS [2013] 13 S.C.R.
-·Aerror has been committed- Under s.48(2)(b), enforcement of -
a foreign award can be refused only if such enforcement is
found to be contrary to (1) fundamental policy of Indian law;
or (2) the interests of India; or (3) justice or morality- On facts,
objections raised by appellant not falling in any of these
B categories and, therefore, the foreign awards cannot be held
to be contrary to public policy of India as contemplated u/
s.48(2)(/;>) - Awards in question can be enforced.
Appeal award nos. 3782 and 3783 both dated
21.09.1998 were passed by the Board of Appeal of the
C Grain and Feed Trade Association, London in respect of
a transaction relating to 20,000 MT (+/- 5%) of Durum
wheat, Indian Origin in favour of respondent-buyers. After
both the foreign awards attained finality, the respondent-
b uyers instituted suit in the Delhi High Court for
D enforcement of the same. The appellant-sellers raised
diverse objections to enforcement of the said two foreign
·awards. The High Court overruled the objections raised
by the sellers and held that the said foreign awards were
enforceable under Part II of the Arbitration and
E Conciliation Act, 1996.
The appellant contended before this Court that the
awards by the Board of Appeal cannot be enforced on the
touchstone that they are contrary to public policy of India,
F as both the Arbitral Tribunal, GAFTA and the Board of
Appeal went beyond the terms of the contract between
the sellers and the buyers. It was contended that despite
the contract being FOB contract between the parties
which specifically sets out that the certificate of quality
obtained at the load port from the buyers' nominated
G certifying agency, i.e., S.G.S. would be final and the
certifying agency in fact issued such a certificate, the
Arbitral Tribunal, GAFTA as well as the Board of Appeal
relied upon evidence procured unilaterally by the buyers l
from other certifying agencies beyond the terms of the
H
SHRI LAL MAHAL LTD. v. PROGETTO GRANO SPA 601
contract which was based on quality specifications of a A
forward contract which the buyers had signed with OAIC
Algiers. The appellant contended that the Board of
Appeal dealt with the questions not referred to it and
which were never in dispute and, therefore, award cannot
be enforced because it is contrary to Section 48(1 )(c) of B
the 1996 Act as well.
The appellant contended that in light of the two
decisions of this Court in Saw Pipes and Phulchand
Exports, the Court can refuse to enforce a foreign award C
if it is contrary to the contract between the parties and/
or is patently illegal. It was argued on behalf of the
appellant, that the expression "public policy of India" in
Section 48(2)(b) of the 1996 Act is an expression of wider
import than the expression "public policy" in Section
7(1 )(b)(ii) of the Foreign Awards (Recognition and D
Enforcement) Act, 1961 and the expansive construction
given by this Court to the term "public policy of India" in
Saw Pipes must also apply to the use of the same term
"public policy of India" in Section 48(2)(b) of the 1996 Act.
E
Dismissing the appeal, the Court
HELD:1.1. From the discussion made by this Court
in Saw Pipes, it can be safely observed that while
accepting the narrow meaning given to the expression
"public policy" in Renusagar in the matters of F
enforcement of foreign award, there was departure from
the said meaning for the purposes of the jurisdiction of
the Court in setting aside the award under Section 34.
What has been stated by this Court in Renusagar with
reference to Section 7(1 )(b)(ii) of the Foreign Awards Act G
must equally apply to the ambit and scope of Section
48(2)(b) of the 1996 Act. In Renusagar it has been
expressly exposited that the expression "public policy"
in Section 7(1)(b)(ii) of the Foreign Awards Act refers to
the public policy of India. The -expression "public policy" H
602 SUPREME COURT REPORTS [2013] 13 S.C.R.
A used in Section 7(1)(b)(ii) was held to mean "public policy
of India". A distinction in the rule of public policy between
a matter governed by the domestic law and a matter
involving conflict of laws has been noticed in Renusagar.
For all this there is no reason. why Renusagar should not
8 apply as regards the scope of inquiry under Section
48(2)(b). For the purposes of Section 48(2)(b), the
expression "public policy of India" must be given narrow
meaning and the enforcement of foreign award would be
refused on the ground that it is contrary to public policy
c of India if it is covered by one of the three categories
enumerated in Renusagar. Although the same expression
'public policy of India' is used both in Section 34(2)(b)(ii)
and Section 48(2)(b) and the concept of 'public policy in
India' is same in nature in both the Sections but, its
0 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. [Paras 24, 25]
E [620-F; 621-A; 622-A-E; 623-A-B]
1.2. The submission on behalf of the appellant 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, cannot be
F accepted. Renusagar 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 Pipes would govern the
scope of such proceedings. [Para 26] [623-C-D]
G 1.3. 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"
H occurring i.n Section 34(2)(b)(ii) in Saw Pipes is not
SHRI LAL MAHAL LTD. v. PROGETTO GRANO SPA 603
-+ applicable where objection is raised to the enforcement A
of the foreign award under Section 48(2)(b). (Para 27]
(623-E-F]
Oil and Natural Gas Corporation Limited v. Saw Pipes
Limited (2003) 5 SCC 705: 2003 (3) SCR 691; Phulchand
B
Exports Limited v. 0. 00. Patriot; (2011) 10 SCC 300: 2011
(15) SCR 1129 Renusagar Power Co. Limited v. General
Electric Company 1994 Supp (1) SCC 644: 1993 (3) Suppl.
''I'
SCR 22 - referred to.
-- 2.1. In the instant case, the challenge to the c
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 D
-~ 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 E
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
F
the sellers and the buyers", the Board of Appeal recorded
its finding that the sampling procedure was not in
conformitll with the reguirements of the Contract, which
reguired the result to be of an average sam12le taken at
. -..,,, eort of loading, not the weighted average of 12re-shigment
and shigment samelesj and accordinglll the certificate is G
uncontractual and its results are not final. [Para 40] (628-
E-G; 629-E]
2.2. Having held that SGS India was the contrac.tual
agency, the Board of Appeal further held that the sellers H
604 SUPREME COURT REPORTS [2013) 13 S.C.R.
A ·failed to establish that the SGS India certificate was in
contractual form. Two fundamental flaws in the
certification by SGS India were noted by the Board of
Appeal, one, SGS India's certification did not follow the
contractual specified mode of sampling and the other, the
B analysis done by SGS India was doubtful. The Board of
Appeal then sifted the documentary evidence let in by the
parties and finally concluded that wheat loaded on the
vessel Haci Resit Kalkavan was soft wheat and the
sellers were in breach of the description condition of the
c contract. [Para 41] [629-G-H; 630-A-B]
2.3. The sellers had challenged the award (no. 3782)
passed by the Board of Appeal in the High Court of
--
Justice at London. The three decisions; (i) Agroexport by
Queen's Bench Division, (ii) Toepfer by Court of Appeal,
D and (iii) Gil/ & Duffus by House of Lords, were holding the 4-.-- .
field at the time of consideration of sellers' appeal by the
High Court of Justice at London. In Agroexport , it has
been held that an award founded on evidence of analysis
made other than in accordance with contract terms
E cannot stand and deserves to be set aside as evidence
relied upon was inadmissible. The Court of Appeal in
Toepfer has laid down that where seller and buyer have
agreed that a certificate at loading as to the quality of
goods sf:lall be final and binding on them, the buyer will
F be precluded from recovering damages from the seller,
even if, the person giving the certificate has been
negligent in making it. Toepfer has been approved by the
House of Lords in Gill & Duffus. The High Court of Justice
at London can be assumed to have full knowledge of the
G legal position exposited in Agroexport , Toepfer and Gill
& Duffus yet it found no ground or justification for setting
aside the award (no. 3782) passed by the Board of
Appeal. If a ground supported by the decisions of that
country was not good enough for setting aside the award
H by the court competent to do so, a fortiori, such ground
SHRI LAL MAHAL LTD. v. PROGETIO GRANO SPA 605
-1· can hardly be a good ground for refusing enforcement A
of the award. (Para 42] [630-C-G]
2.4. Moreover, Section 48 of the 1996 Act does not
give an opportunity to have a 'second look' at the foreign
award in the award - enforcement stage. The scope of
B
inquiry under Section 48 does not permit review of the
foreign award on merits. Procedural defects (like taking
into consideration inadmissible evidence or ignoring/
rejecting the evidence which may be of binding nature)
in the course of foreign arbitration do not lead necessarily
to excuse an award from enforcement on the ground of c
public policy. (Para 43] (631-B-C]
2.5. Even if it be assumed that the Board of Appeal
erred in relying upon the report obtained by buyers from
Crepin which was inconsistent with the terms on which D
-~ the parties had contracted in the contract dated
12.05.1994 and wrongly rejected the report of the
contractual agency, such errors would not bar the
enforceability of the appeal awards passed by the Board
of Appeal. [Para 44] (631-C-D] E
2.6. While considering the enforceability of foreign
awards, the court does not exercise appellate jurisdiction
)-- over the foreign award nor does it enquire as to whether,
while rendering foreign award, some error has been
• committed. Under Section 48(2)(b) the enforcement of a F
foreign award can be refused only if such enforcement
is found to be contrary to (1) fundamental policy of Indian
law; or (2) the interests of India; or (3) justice or morality.
The objections raised by the appellant do not fall in any
i~ of these categories and, therefore, the foreign awards G
cannot be held to be contrary to public policy of India as
contemplated under Section 48(2)(b). The contention of
the appellant that the Board of Appeal dealt with the
questions not referred to it and which were never in
dispute ~nd, therefore, these awards cannot be enforced H
606 SUPREME COURT REPORTS [2013) 13 S.C.R.
A being contrary to Section 48(1 )(c) is devoid of any
·>-- '
substance and is noted to be rejected. [Para 45, 46) [631-
E-H; 632-A]
Contship Container Lines Limited v. D.K. Lall and Others;
(2010) 4 sec 256: 2010 (3) SCR 460 - referred to.
B
Agroexport Enterprise D'etat Pour Le Commerce
Exterieur v. N. V. Goorden Import CY. U.S.A; (1956) 1 Q.B.
319; Alfred C. Toepfer v. Continental Grain Co (1974) 1 ~
Lloyds Law Reports 11; and Gill & Duffus S.A. v. Berger &
c Co. Inc. (1984) 1 Lloyd's Law Reports 227 - referred to.
Case Law Reference:
2003 (3) SCR 691 referred to Para 20
2011 (15) SCR 1129 referred to Para 20
D -~.
1993 (3) Suppl. SCR 22 referred to Para 22
2010 (3) SCR 460 referred to Para 31
(1956) 1 Q.B. 319 referred to Para 32
E (1974) 1 LLR 11 referred to Para 32
(1984) 1 LLR 227 referred to Para 32
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
5085 of 2013.
4i
F .•
From the Judgment & Order dated 09.02.2012 in the High
Court of Delhi at New Delhi in CS No. 2594 of 2000.
R.F. Nariman, Nidhesh Gupta, Rachna Golcha, Sanjay Jain,
Nakul Dewan, Vishrut Raj, Rajesh Gupta, Sandeep Singh for
G
the Appellant. r'
Jayant K. Mehta, Bharti Badesra, Tanya Khare (for O.P.
Khaitan & Co.) for the Respondent.
The Judgment of the Court was delivered by
H R.M. LODHA, J. 1. Leave granted.
SHRI LAL MAHAL LTD. v. PROGETIO GRANO SPA 607
[R.M. LODHA, J.]
' -+ 2. The question for consideration in this appeal by special A
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 B
(for short,· "1996 Act")?
3. By a contract dated 12.05.1994 between Shiv Nath Rai
x Harnarain (India) Company, New Delhi (sellers) and ltalgrani
Spa, Naples, Italy (buyers) a transaction relating to 20,000 MT
(+/- 5%) of Durum wheat, Indian Origin (for short, "goods") for C
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 D
Test Weight 80 KG/HL.MIN
Moisture 12 PCT.MAX
Vitrious 80 PCT. MIN E
Broken 3 PCT. MAX
Proteine 12 PCT. MIN
Foreign Matter 2 PCT MAX. F
Sprouted/Spotted 1 PCT. MAX
Soft Wheat 1.5 PCT. MAX
"Quantity 20,000 MT With 5%+/- Sellers G
Option in 1 single shipment
Shipment 1-30/June 1994
Quantity final at loading
Quality, Conditions All final at time and place of H
608 SUPREME COURT REPORTS [2013] 13 S.C.R.
A loading
As per first class Intl Company
Cert. "S.G.S.", nominated by the
buyers certificate and quality
showed at the certificate will be the
B result of an average samples taken
jointly at port of loading by the
representatives of the sellers and
the buyers.
~
Price US Dlrs 162,00 Per M. Ton FOB
c stowed Kandla, Buyers to give 10
days preadvise of vessels arrival
Payment Against 100 PCT L/Credit
irrevocable and confirmed for 100
D PCT payable at sight against Foll.
Shipping docs -~.
Other conditions All other terms and conditions not
in contradictions with the above to
E be as per G.A.F.T.A Rules, 64/125
and its successive Amendments (In
force at time and place of shipment
date) which the parties admit that
they have knowledge and notice."
F 4. The buyers opened a letter of credit (L/C) on 17.06.1994
in favour of the sellers. The sellers claim that all documents
required under the L/C, including the S.G.S India Limited
certificate, were submitted by them which were accepted by the
buyers' bankers and payment was duly released to the sellers.
G y•
5. The buyers nominated M.V. Haci Resit Kalkavan as the
vessel for loading of the goods. There was delay in shipment
but that is not material for the purposes of this appeal. The ship
completed loading on 13.08.1994 and sailed for discharge
port. The Bill of Lading was dated 08.08.1994.
H
SHRI LAL MAHAL LTD. v. PROGETTO GRANO SPA 609
[R.M. LODHA, J.]
. -i 6. The sellers faxed a copy of SGS India certificate of A
weight, quality and packing to the buyers on 16.08.1994. The
buyers passed a copy of that certificate to SGS, Geneva with
the request to them to issue the necessary certificate under the
sale contract which the buyers had entered with 'Office
Alegerien lnterprofessional das cereals' (OAIC). After the goods B
had reached the destination, the buyers sent a fax to the sellers
on 23.08.1994 advising that analysis carried out by S.G.S.
Geneva showed the wheat loaded was soft common wheat and
not durum wheat as required under the contract. The buyers
considered the sellers to be in breach of the contract for c
shipping uncontractual goods and held sellers responsible for
all losses/damages both direct and indirect arising out of and
the consequence of such breach.
7. The sellers on 31.08.1994 responded to the above
- communication and asserted that S.G.S. India was an D
~---+
inspection agency; the wh·eat 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. E
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' F
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
G
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 the buyers and they were agents for buyers was
rejected. The Arbitral Tribunal, GAFTA, concluded that wheat
H
610 SUPREME COURT REPORTS [2013] 13 S.C.R.
~·
A described on the certificate of quality and condition presented
by the sellers as durum wheat of Indian origin was, in fact, soft
wheat. The certificate was held to be uncontractual and with
regard to description, it was held that sellers were in breach of
contract and the buyers were entitled to damages based on the
B difference between the contract price and the FOB value of the
goods as delivered and buyers were also entitled to any further
proven loss directly and naturally resulting in the ordinary course
of events from the breach. The Arbitral Tribunal, GAFTA passed .'I
the final award in the following terms:
c "We do hereby award that Sellers shall pay Buyers forthwith
the sum of US $ 1,023, 750.00 (One million twenty three
thousand seven hundred and fifty United States dollars)
being the difference between the FOB contract price-US
$ 162.00 per tonne less US $ 2.00 per tonne penalty for
D extending the shipment period, i.e. US$ 160.00 per tonne, f-- •
and the FOB price of the Soft wheat shipped on m.v. "HACI
RESIT KALKAVAN" i.e. US$ 111.25 per tonne amounting
to US$ 48.75 per tonne on 21,000 tonnes, equating to US
$ 1023. 750 together with interest thereon at the rate of 7%
E (Seven percent) per annum from 24th August 1994 to the
date of this Award.
We do further award that Sellers shall pay Buyers forthwith
the sum of US $ 303,007.60 (Three Hundred and three
~
F thousand and seven United States dollars and 60 cents.)
being the loss incurred in replacing the wheat shipped on
m.v. "HACI RESIT KALKAVAN" with Durum wheat shipped
on M.V. "EUROBULKER 1" and M.V. "SEA DIAMOND H"
together with interest thereon at 7% (Seven percent) per
annum on: Y·
G
US$ 276,512.40 (the loss on M.V. "EUROBULKER 1")
from 1st October, 1994 to the date of this Award:
AND
H
SHRI LAL MAHAL LTD. v. PROGETTO GRANO SPA 611
[R.M. LODHA, J.]
-f· US$ 26,495.20 (the loss on M.V. "SEA DIAMOND H") from A
5th December, 1994 to the date of this Award.
We do further award that sellers shall pay Buyers forthwith
the sum of US $ 138,590.28 (One hundred and thirty eight
thousand five hundred and ninety United States dollars and
B
28 cents) being demurrage incurred on M.V. "HACI RESIT
KALKAVAN" amounting to 19 days 10 minutes at US $
7 ,000 per day/pro-rata equating to US $ 138:590.28
)!/ together with interest thereon at a rate of 7% (Seven
percent) per annum from 30th September 1994 to the date
of this Award.
c
We do further award that Sellers claim for the return of US
$ 42,000 fails."
9. It appears ttiat following the commencement of D
;~ 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
E
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,
f GAFTA had passed an interim award on 16.10.1995 holding,
.. inter-alia, that the arbitration claim was properly made and it F
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 G
Rules. As regards this claim also, the Arbitral Tribunal, GAFTA
was constituted and an award No. 12159 dated 04.12.1997
came to be passed by the Arbitral Tribunal, GAFTA.
10. From the above two awards, namely, award no. H
612 SUPREME COURT REPORTS (2013] 13 S.C.R.
A 11715A and award no. 12159, the two appeals being appeal _,.__
award no. 3782 and appeal award no. 3783 were filed by the
sellers before the Board of Appeal. The Board of Appeal
disposed of appeal award no. 3782 (arising out of award No.
11715A) on 21.09.1998 and passed the award in the following
B terms:
"We do hereby award that Sellers shall forthwith pay to
Buyers the sum of US$ 1,023,750.00 (one million, twenty
three thousand seven hundred and fifty United States
Dollars) being the difference in value of US$ 48.75 per
c tonne between the goods supplied and goods of the
contractual description calculated on 21,000 tonnes,
together with interest thereon at 7% (Seven per centum)
per annum from 24th August, 1994 to the date of this ,.
Award.
D
We further award that Sellers shall forthwith pay to Buyers
the sum of US$ 138,590.28 (one hundred and thirty eight
thousand five hundred and ninety United States Dollars and
twenty eight cents). being demurrage incurred at load,
E together with interest thereon at 7% (seven per centum)
per annum from 30th September 1994 to the date of this
Award.
We further award that Buyers' claim for consequential
damages fails.
F
We further award that Sellers shall forthwith pay to Buyers
the sum of £ 4,340.00 (four thousand three hundred and
forty pounds sterling only), being the fees and expenses
of Arbitration 11715A.
G r-.
We further award that Sellers shall forthwith pay to Buyers
the sum of£ 1,750 (one thousand seven hundred and fifty
pounds only), being the costs and expenses of Buyers'
Representative in preparing and presenting this case."
H 11. Appeal award no. 378:3 (arising out of award no.
SHRI LAL MAHAL LTD. v. PROGETTO GRANO SPA 613
[R.M. LODHA, J.)
12159) was disposed of also on the same day by the following A
award:
"We do hereby award that sellers shall forthwith pay to
Buyers as part of their damages the sum of £ 1, 762.90
(one thousand seven hundred and sixty two pounds and B
ninety pence). being the reasonable charges and
disbursements of Middleton Potts incurred in considering
and responding to the proceedings taken by Sellers in
)( India.
We further award that Sellers shall pay to Buyers as the C
balance of their damages the sum of £ 15,924.00 (fifteen
thousand nine hundred and twenty four pounds), being the
total of O.P. Khaitan's four invoices nos. ATP/804of1995/
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 D
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 E
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 F
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. G
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." H
614 SUPREME COURT REPORTS [2013] 13 S.C.R.
A 12. The sellers challenged the appeal award no. 3782 in
~
the High Court of Justice at London. The appeal was dismissed
on 21.12.1998. The sellers did not challenge the award passed
by the Board of Appeal in appeal award no. 3783. Both
awards, thus, have attained finality.
B
13. It was then that buyers instituted a suit in the Delhi High
Court for enforcement of the awards both dated 21.09.1998
passed by the Board of Appeal in appeal award no. 3782 and
appeal award no. 3783. The sellers raised diverse objections
to the enforcement of the above awards.
c
14. The appellant, Shri Lal Mahal Limited, is successor in
interest of the sellers while the respondent Progetto Grano SPA
is the successor in interest of buyers. When the proceedings
were pending before the Delhi High Court, the substitution in
D the proceedings took place. This is how the parties are now
described in the appeal. For the sake of convenience, we shall
continue to refer the appellant as 'sellers' and the respondent
_.\....__ .
as 'buyers'.
15. Inter alia, the submission of the sellers before the High
E
Court was that the appeal awards passed by the Board of
Appeal which are sought to be enforced are contrary to th.e
public policy of India inasmuch as they are contrary to the
express provisions of the contract entered into between the
parties. The sellers submitted before the Delhi High Court that J..
F the Board of Appeal erred in accepting th~ test report by S.G.S ..
Geneva whereas under the contract, it was the test report of
S.G.S.lndia that was material. The goods in question were
inspected at the port of discharge in the absence of the sellers.
In terms of the contract between the parties, the inspection
G certificate was given by S.G.S. India which was nominated by
the buyers themselves. There was no requirement for any
inspection at the point of discharge of the consignment.
Responsibility of the sellers ceased after the said obligation
was fulfilled.
H
SHRI LAL MAHAL LTD . .v. PROGETTO GRANO SPA 615
[R.M. LODHA, J.]
·-+ 16. On the other hand, it was submitted on behalf of the A
buyers before Delhi High Court that the plea raised before the
Board of Appeal on the certificate issued by the S.G.S. Geneva
was a matter of appreciation of evidence and determination of
question of fact which is beyond the scope of the proceedings
under Section 48 of the 1996 Act. The buyers submitted that B
the sellers cannot be permitted to reopen questions of fact as
already decided by the Board of Appeal which were affirmed
by the High Court of Justice at London. Seeking enforcement
of the awards of the Board of Appeal, it was submitted that
there was nothing in the awards which could be said to be c
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:
D
.A "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, E
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
F
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's petition
G
challenging the Appeal Award No. 3782. The above
conclusion cannot be held to be contrary to the terms of
the contract or to the public policy of India. Further, this
Court is not expected in enforcement proceedings, re-
determine questions of fact. The grounds enumerated in
H
616 SUPREME COURT REPORTS [2013] 13 S.C.R.
A Section 48 of the Act are meant to be construed narrowly
and does not permit a review of the foreign award on
merits."
18. Then in paragraph 25 of the impugned judgment, the
B High Court observed that there was no serious defence in
opposition to the enforcement of two foreign awards. The High
Court overruled the objections raised by the sellers to the
enforcement of foreign awards and held that they were
enforceable under Part II of the 1996 Act.
c 19. We have heard Mr. Rohinton F. Nariman, learned
senior counsel for the appellant (sellers) and Mr. Jayant K.
Mehta, learned counsel for the respondent (buyers) at quite
some length.
o 20. Having regard to clause (b) of sub-section (2) of
Section 48 of the 1996 Act, we shall immediately examine what ~, •
is the scope of enquiry before the court in which foreign award,
as defined in Section 44, is sought to be enforced. This has
become necessary as on behalf of the appellant it was
E vehemently contended that in light of the two decisions of this
Court in Saw Pipes 1 and Phu/chand Exports, 2 the Court can
refuse to enforce a foreign award if it is contrary to the contract
between the parties and/or is patently illegal. It was argued by
Mr. Rohinton F. Nariman, learned senior counsel for the
F appellant, that the expression "public policy of India" in Section
48{2)(b) is an expression of wider import than the expression
"pul:ilic policy" in Section 7(1 )(b)(ii) of the Foreign Awards
(Recognition and Enforcement) Act, 1961. The expansive
construction given by this Court to the term "public policy of
India" in Saw Pipes 1 must also apply to the use of the same
G term "public policy of India" in Section 48{2){b).
1. Oil and Natural Gas Corporation Limited. v. Saw Pipes Limited; (2003) 5
sec 705.
H 2. Phulchand Exports Limited v. 0. 00. Patriot (2011) 10 SCC 300.
SHRI LAL MAHAL LTD. v. PROGETTO GRANO SPA 617
[R.M. LODHA, J.]
21. Mr. Jayant K. Mehta, learned counsel for the A
respondent, on the other hand, placed heavy reliance upon the
decision of this Court in Renusagar and submitted that what
has been stated by this Court while interpreting Section
7(1 )(b)(ii) of the Foreign Awards Act in that case is equally
aP.plicable to Section 48(2)(b) of the 1996 Act and the B
. expression "public policy of India" in Section 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 Exports2 does not hold that c
all that is found in paragraph 74 in Saw Pipes 1 is applicable to
Section 48(2)(b). He argued that in any case both Saw Pipes 1
and Phulchand Exports 2 are decisions by a two-Judge Bench
of this Court whereas Renusagar is a decision of three-Judge
Bench and if there is any inconsistency in the decisions of this 0
Court in Saw Pipes1 and Phulchand Exports2 on 'the one hand
and Renusagafl on the other, Renusagafl must prevail as this
is a decision by the larger Bench.
22. The three decisions of this Court in Renusagar, Saw
Pipes1 and Phulchand Exports2 need a careful and close E
examination by us. We shall first deal with Renusagar. It is not
necessary to narrate in detail the facts in Renusagar . Suffice
it to say that Arbitral Tribunal, GAFTA in Paris passed an award
in favour of General Electric Company (GEC) against
Renusagar. GEC sought to enforce the award passed in its F
favour by filing an arbitration petition under Section 5 of the
Foreign Awards Act in the Bombay High Court. Renusagar
contested the proceedings for enforcement of the award filed
by GEC in the Bombay High Court on diverse grounds. Inter
alia, one of the objections raised by Renusagar was that the G
enforcement of the award was contrary to the public policy of
India. The Single Judge of the Bombay High Court overruled
the objections of Renusagar. It was held that the award wa,s
3. Renusagar Power Co. Limited. v. General Electric Company; 1994 Supp
(1) sec 644. H
618 SUPREME COURT REPORTS [2013] 13 S.C.R.
A enforceable and on that basis a decree in terms of the award
was drawn. Renusagar filed an intra~court appeal but that was
dismissed as not maintainable. It was from these orders that
the matter reached this Court. On behalf of the parties, multifold
arguments were made. A three-Judge Bench of this Court
B noticed diverse provisions, including Section 7(1 )(b)(ii) of the
Foreign Awards Act which provided that a foreign award may
not be enforced if the court dealing with the case was satisfied
that the enforcement of the award would be contrary to public
policy. Of the many questions framed for determination, the two
c questions under consideration were; one, "Does Section
7(1 )(b)(ii) of the Foreign Awards Act preclude enforcement of
the award of the Arbitral Tribunal, GAFTA for the reason that
the said award is contrary to the public policy of the State of
New York?" and the other "what is meant by public policy in
0 Section 7(1)(b)(ii) of the Foreign Awards Act?''. This Court held
that the words "public policy" used in Section 7(1 )(b)(ii) of the
Foreign Awards Act meant public policy of India. The argument
that the recognition and enforcement of the award of the Arbitral
Tribunal, GAFTA can be questioned on the ground that it is
E contrary to the public policy of the State of New York was
negated. A clear and fine distinction was drawn by this Court
while applying the rule of public policy between a matter
governed by domestic laws and a matter involving conflict of
laws. It has been held in unambiguous terms that the application
of the doctrine of "public policy" in the field of conflict of laws is
F more limited than that in the domestic law and the courts are
slower to invoke pubfic policy in cases involving a foreign
element than when purely municipal legal issues are involved.
Explaining the concept of "public policy" vis-a-vis the
enforcement of foreign awards in Renusagar , this Court in
G 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 l(e) of the Geneva
H
SHRI LAL MAHAL LTD. v. PROGETTO GRANO SPA 619
[R.M. LODHA, J.]
Convention Act of 1927, it is permissible to raise objection A
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 & 8
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
C
required.
66 ......... This would mean that "public policy" in Section
7(1)(b)(it) has been used in a narrower sense and in order o
to attract the bar of public policy the enforcement of the
award must invoke something more than the violation of
the law of India. Since the Foreign Awards Act is
concerned with recognition and enforcement of foreign
awards which are governed by the principles of private E
international law, the expression "public policy" in Section
7(1 )(b)(i1) of the Foreign Awards Act must necessarily be
construed in the sense the doctrine of public policy is
applied in the field of private international law. Applying the
said criteria it must be held that the enforcement of a
F
foreign award would be refused on the ground that it is
contrary to public policy if such enforcement would be
contrary to (1) fundamental policy of Indian law; or (i1) the
interests of India; or (iit) justice or morality.
(Emphasis supplied by us) G
23. In Saw Pipes1, the ambit and scope of the court's
jurisdiction under Section 34 of the 1996 Act was under
consideration. The issue was whether the court would have
jurisdiction under Section 34 to set aside an award passed by
the Arbitral Tribunal, GAFTA which was patently illegal or in H
620 SUPREME COURT REPORTS [2013] 13 S.C.R.
A contravention of the provisions of the 1996 Act or any other
substantive law governing the parties or was against the terms
of the contract. This Court considered the meaning that could
be assigned to the phrase "public policy of India" occurring in
Section 34(2)(b)(ii). Alive to the subtle distinction in the concept
8 of 'enforcement of the award' and 'jurisdiction of the court in
setting aside the award' and the decision of this Court in
Renusagar3, this Court held in Saw Pipes1 that the term "public
policy of India" in Section 34 was required to be interpreted in
the context of the jurisdiction of the court where the validity of
the award is challenged before it becomes final and executable
C in contradistinction to the enforcement of an award after it
becomes final. Having that distinction in view, with regard to
Section 34 this Court said that the expression "public policy of
India" was required to be given a wider meaning. Accordingly,
for the purposes of Section 34, this Court added a new
D category- patent illegality- for setting aside the award. While ,..__,
adding this category for setting aside the award on the ground
of patent illegality, the Court clarified 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
E 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 Pipes 1
in paragraph 1a· (pgs. 721-722), paragraph 22·· (pgs. 723-
F *18. Further, in Renusagar Power Co. Ltd. v. General Electric Co. this Court
considerded 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 comprehended
in Section 7(1)(b)(ii) of the Foreign Award (Recognition and Enforcement)
G Act, 1961 is the "public policy of India" and does not cover the public policy
of any other counrty. For giving meaning to the term •public policy", the Court
observed thus: (SCC p. 682, para) 66 .......
**22. The aforesaid submission of the learned Senior Counsel requires to be
accepted. From the judgments discussed above, it can be held that the
term "public policy of India" is required to be interpreted in the context of
H
SHRI LAL MAHAL LTD. v. PROGETTO GRANO SPA 621
[R.M. LODHA, J.]
724) and paragraph 31··· (pgs. 727-728) of the Report, it can A
the jurisdiction of the court where the validity of award is challenged before
it becomes final and excutable. The concept of enforcement of the award
after it becomes final is different and the jurisdiction of the court at that
stage could be limited. Similar is the position with regard to the execution
B
of a decree. It is settled law as well as it is provided under the Code of
Civil Procedure that once the decree has attained finality, in an execution
proceeding, it may be challenged only on limited grounds such as the
decree being without jurisdiction or a nullity. But in a case where the
)( judgment and decree is challenged before the appellate court or the court
exercising revisional jurisdiction, the jurisdiction of such court would be
wider. Therefore, in a case where the validity of award is challenged, there c
is no necessity of giving a narrower meaning to the term "public policy of
India". On the contrary, wider meaning is required to be given so that the
"patently illegal award" passed by the Arbitral Tribunal could be set aside.
If narrow meaning as contended by the learned Senior Counsel Mr. Dave
is given, some of the provisions of the Arbitration Act would become
nugatory.Take for illustration a case wherein there is a specific provision
in the contract that for delayed payment of the amount due and payable, no D
interest would be payable, still however, if the arbitrator has passed an
award granting interest, it would be against the terms of the contract and
thereby against the provision of Section 28(3) of the Act which specifically
provides that "Arbitral Tribunal shall decide in accordance with the terms
of the contract". Further, where there is a specific usage of the trade that if
the payment is made beyond a period of one month, then the party would
be required to pay the said amount with interest at the rate of 15 per cent.
E
Despite the evidence being produced on record for such usage, if the
arbitrator refuses to grant such interest on the ground of equity, such award
would also be in violation of sub-sections (2) and (3) of Section 28. Section
28(2) specifically provides that the arbitrator shall decide ex aequo et bono
(according to what is just and good) only if the parties have expressly
authorised him to do so. Similarly, if the award is patently against the F
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".
***31. Therefore, in our view, the phrase "public policy of India" used in Section
G
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 H
622 SUPREME COURT REPORTS [2013] 13 S.C.R.
A be safely observed that while accepting the narrow meaning
given to the expression "public policy" in Renusagar3 in the
matters of enforcement of foreign award, there was departure
from the said meaning for the purposes of the jurisdiction of
the Court in setting aside the award under Section 34.
'
B
25. In our view, what has been stated by this Court in
Renusagar3 with reference to Section 7(1 )(b)(ii) of the Foreign
A'l.(ards Act must equally apply to the ambit and scope of )(
Section 48(2)(b) of the 1996 Act. In Renusagar3 it has been
expressly exposited that the expression "public policy" in
c Section 7(1 )(b)(ii) of the Foreign Awards Act refers to the
public policy of India. The expression "public policy" used in
Section 7(1)(b)(ii) was held to mean "public policy of India". A
distinction in the rule of public policy between a matter governed
by the domestic law and a matter involving conflict of laws has
D been noticed in Renusagar3. For all this there is no reason why ~·~
Renusagar3 should not apply as regards the scope of inquiry
under Section 48(2)(b). Following Renusagar3, we think that for
the purposes of Section 48(2)(b), the expression "public policy
of India" must be given narrow meaning and the enforcement
E of foreign award would be refused on the ground that it is
contrary to public policy of India if it is covered by one of the
interest. Such award/judgmenUdecision is likely to adversely affect the
A
administration of justice. Hence, in our view in addition to narrower meaning
F given to the term "public policy" in Renusagar case it is required to be held
that the award could be set aside if it is patently illegal. The result would
be - award could. be set aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interests of India; or
(c) justice or morality, or
G
(d) in addition, if it is patently illegal
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 the public policy. Award could
also be set aside if it is so unfair and unreasonable that it shocks the
conscience of the court. Such award is opposed to public policy and is
required to be adjudged void.
H
SHRI LAL MAHAL LTD. v. PROGETIO GRANO SPA 623
[R.M. LODHA, J.]
three categories e:r::..tmerated in Renusagar3. Although the A
same expression 'public policy of India' is used both in Section
34(2(b)(ii) and Section 48(2)(b) and the concept of 'public policy
in India' is same in nature in both the Sections but, in our view,
its application differs in degree insofar as these two Sections
are concerned. The application of 'public policy of India' doctrine B
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" C
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 D
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 E
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 Saw Pipes1 is not
applicable where objection is raised to the enforcement of the
F
foreign award under Section 48(2)(b).
28. It is true that in Phulchand Exports 2 , a two-Judge
Bench of this Court speaking through one of us (R.M. Lodha,
J.) accepted the submission made on behalf of the appellant ·
therein that the meaning given to the expression "public policy G
of India" in Section 34 in Saw Pipes 1 must be applied to the
same expression occurring in Section 48(2)(b) of the 1996 Act.
However, in what we have discussed above it must be held that
the statement in paragraph 16 of the Report that the expression
H
624 SUPREME COURT REPORTS [2013] 13 S.C.R.
A "public policy of India used in Section 48(2)(b) has to be given
a wider meaning and the award could be set aside, if it is
patently illegal" does not lay down correct law and is overruled.
29. Having regard to the above legal position relating to
B the scope of "public policy of India" under clause (b) of sub-
section (2) of Section 48, we shall now proceed to consider
the submissions of the parties.
30. Mr. Rohinton F. Nariman, learned senior counsel for the
appellant, argued that the appeal awards by the Board of
C Appeal cannot be enforced on the touchstone that they are
contrary to public policy of India. It is so as both the Arbitral
Tribunal, GAFTA and the Board of Appeal have gone beyond
the terms of the contract between the sellers and the buyers.
Despite the contract being FOB contract between the parties
D which specifically sets out that the certificate of quality obtained
at the load port from the buyers' nominated certifying agency,
i.e., S.G.S. would be final and the certifying agency in fact
issued such a certificate, the Arbitral Tribunal, GAFTA as well
as the Board of Appeal relied upon evidence procured
E unilaterally by the buyers from other certifying agencies beyond
the terms of the contract which was based on quality
specifications of a forward contract which the buyers had
signed with OAIC Algiers. In this regard, learned senior counsel
referred to the certificate issued by S.G.S. India which
F confirmed that weight, quality and packing of the goods met the
contractual specifications both in terms of description and
quality. The Merchandise was found to be sound, loyal,
merchantable, free from living insects, defects, diseases and
contamination of any nature. However, the buyers appointed
Crepin Analysis and Controls, Rouen for testing the sample of
G 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.
H 31. Learned senior counsel for the appellant submitted that
SHRI LAL MAHAL LTD. v. PROGETTO GRANO SPA 625
[R.M. LODHA, J.]
-+ being an FOB contract the title of the goods and risk is passed A
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 O.K. La/14.
B
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,
:x: 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 c
judgments of the English courts, namely, Agroexport5 and
Alfred C. Toepfer. 6 . He submitted that House of Lords in Gill
& Duffus has affirmed the decision in Alfred C. Toepfer. It was,
thus, submitted that the Arbitral Tribunal, GAFTA and the Board
.. D
~J.
of Appeal having disregarded the finality of the certificate
issued by S.G.S. rndia, the awards were plainly contrary to
contract and, therefore, not enforceable in India. It was submitted
on behalf of the appellant that it was not an issue in dispute
and not the buyers' case before the Arbitral Tribunal, GAFTA
and/or the Board of Appeal that the procedure adopted by SGS E
India was not in conformity with the contract. It was, therefore,
not open to the Board of Appeal to render a finding which went
beyond the scope of the buyers' very case. Accordingly, it was
).
argued that the Board of Appeal dealt with the questions not
referred to it and which were never in dispute and, therefore, F
award cannot be enforced because it is contrary to Section
48(1)(c) of the 1996 Act as well.
. .......,, 4. Contship Container Lines Limited v. D.K. Lall and Others; (2010) 4 SCC
256. G
5. Agroexport Enterprise D'etat Pour Le Commerce Exterieur v. N. V. Goorden
Import CY. U.S.A; (1956) 1 Q.B. 319.
6. Alfred C. Toepfer v. Continental Grain Co (1974) 1 Lloyds Law Reports
11.
7. Gill & Duffus S.A. v. Berger & Co.Inc. (1984) 1 Lloyd's Law Reports 227.
H
626 SUPREME COURT REPORTS [2013] 13 S.C.R.
A 33. Learned senior counsel for the appellant highlighted that
the real problem in the present case was not that S.G.S. India
did not properly certify the goods and/or that they did not meet
the contractual specifications provided for under the contract
between the buyers and sellers but because the buyers were
B unable to use it for their forward contract with OAIC Algeria. This
is further fortified from the fact that the buyers entered into a
further contract with the sellers on 09.09.1994 for a much larger
quantity of the goods with the very same specifications. He, ttius,
submitted that the judgment of the High Court should be set
c aside and the appeal awards must be held to be not
enforceable in India.
34. Mr. Jayant K. Mehta, learned counsel for the
respondent, on the other hand, supported the impugned
judgment and submitted that the High Court was justified in
D dismissing the objections of the appellant as no ground was
established or proved by the appellant on which enforcement
of the foreign awards could be refused under Section 48 of the
1996 Act.
E 35. Learned counsel submitted that the FOB contract has
no relevance to the liability of a seller to sell the contractual
goods or to the quality of the goods sold. It is only relevant for
determination of risk and liability during transportation of the
goods which is not the issue in the present case. With reference
F to D.K. La/14 relied upon by the learned senior counsel for the
appellant, it was submitted that D.K. La/14 was only on issue of
insurance liability and in that context the nature of FOB contract
had been discussed. D.K. La/14 does not concern with the issue
of sellers' breach in selling uncontractual goods.
G 36. Mr. Jayant K. Mehta submitted that the findings of the 't.-- ·
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
H sampling at the time and place of loading; (c) two distinct.
SHRI LAL MAHAL LTD. v. PROGETIO GRANO SPA 627
[R.M. LODHA, J.]
aspects were required to be considered whether S.G.S. India A
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 B
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 did not follow the contractual specified
mode of sampling in that the contract required the result to be
of an average sample taken at the port of loading, not the c
weighted average of pre-shipment and shipment, secondly, the
analysis done by S.G.S. India was doubtful; (e) as the buyers
held the sellers to be in breach on the grounds of defective
sampling and certification by S.G.S. India, the buyers requested
the sellers to attend at discharge for joint sampling which was D
not accepted by the sellers and (f) the method used for
determining soft wheat used by S.G.S. India obviously
produced very· different results to the methods used by Crepin
and other laboratories. On the balance of probabilities, the
Arbitral Tribunal, GAFTA found and the Board of Appeal agreed
that the wheat described in the certificate of quality and E
condition was soft wheat and, therefore, buyers were entitled
to damages.
37. Learned counsel submitted that the findings recorded
by the Arbitral Tribunal, GAFTA and the Board of Appeal were F
in the realm of interpretation of the contract and appreciation
of the evidence which cannot be reopened by arguing that the
foreign award is contrary to the contract and, therefore, its
enforcement would offend public policy of India. About the
decisions of the English courts in Agroexport5 and Alfred C. G
Toepfer, learned counsel submitted that decisions of English
courts cannot form part ofpublic policy of India. This Court does
not exercise appellate jurisdiction over the foreign awards and
cannot be called upon to enquire as to whether foreign awards
are contrary to the principles of English law. Learned counsel H
628 SUPREME COURT REPORTS [2013) 13 S.C.R
A submitted that in any case the judgments of the English courts _,..
in Agroexporf' and Alfred C. Toepfer do not apply to the fact
situation of the present case. Learned counsel also submitted
that the decision of House of Lords ih Gill & Ouffus7 has no
application to the present case.
B
38. Learned counsel for the respondent argued that once
the sampling by S.G.S. India has been found to be
uncontractual, that certificate cannot bind the buyers and,
therefore, no error or illegality was committed by the Arbitral )(
Tribunal, GAFTA, or the Board of Appeal to look into the
c certificate issued by Crepin. Learned counsel for the '\
respondent 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
D by the Arbitral Tribunal, GAFTA as what is sought to be .,_
enforced by the buyers is the two awards of the Board of
Appeal.
,.i._
-
40. The challenge to the enforceability of the foreign
awards passed by the Board of Appeal is mainly laid by the
E
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 J
contract. The Board of Appeal, while dealing with the question
F
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
G 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", the Board of
Appeal recorded its finding as follows:
H "The SGS India certificate shows that an inspection took
SHRI LAL MAHAL LTD. v. PROGETTO GRANO SPA 629
[R.M. LODHA, J.]
._,,__ A
place at the suppliers godowns inland, and representative
samples taken. Sealed samples were inspected lotwise
and the cargo meeting the contractual specifications was
allowed to be bagged for dispatch to Kandla.
Continuous supeNision of loading into the vessel was also B
carried out at the port. The samples drawn periodically
were reduced and composite samples were sealed; one
sealed sample of each lot was handed over to the supplier,
)( one sealed sample of each lot was analysed by SGS and
the remaining samples were retained by SGS for a period
l ..• of three months unless and until instructions to the contrary
c
were given.
The analysis section of the certificate states that "The
above samples have been analysed and the weighted
average Pre-shipment and Shipment results are as under: D
_... -A
We find that this Qrocedure was not in conformitv with the
reguirements of the Contract, which reguired the result to
be Of an average samQle taken at QOrt of loading, not the
weighted average of Qre-shiQment and shiQment samQles.
E
Accordingly the certificate is uncontractual and its results
are not final.
In conseguence the Board is obliged to evaluate all the
evidence Qresented, including the evidence of the
uncontractual SGS India certificate to decide whether or F
not the goods were of the contractual descriQtion, i.e.
Durum wheat Indian origin."
~
(Emphasis supplied by us)
~ G
41. Thus, having held that SGS India was the contractual
agency, the Board of Appeal further held that the sellers failed
to establish that the SGS India certificate was in contractual
form. Two fundamental flaws in the certification by SGS India
were noted by the Board of Appeal, one, SGS India's
certification did not follow the contractual specified mode of H
630 SUPREME COURT REPORTS [2013) 13 S.C.R.
A sampling and the other, the analysis done by SGS India was
doubtful. The Board of Appeal then sifted the documentary
evidence let in by the parties and finally concluded that wheat
loaded on the vessel Haci Resit Kalkavan was soft wheat" and
the sellers were in breach of the description condition of the
B contract.
42. It is pertinent to state that the sellers had challenged
the award (no. 3782) passed by the Board of Appeal in the High
Court of Justice at London. The three decisions; (i) Agroexport5 )(
by Queen's Bench Division, (ii) Toepfer6 by Court of Appeal,
c and (iii) Gill & Duffus? 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
D to be set aside as evidence relied upon was inadmissible. The A- ...
Court of Appeal in Toepfer6 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,
E even if, the person giving the certificate has been negligent in
making it. Toepfer6 has been approved by the House of Lords
in Gill & Duffus?. The High Court of Justice at London can be
assumed to have full knowledge of the legal position exposited
in Agroexport5 , Toepfer6 and Gill & Duffus? yet it found no
J
F ground or justification for setting aside the award (no. 3782)
passed by the Board of Appeal. If a ground supported by the
decisions of that country was not good enough for setting aside
the award by the court competent to do so, a fortiori, such
ground can hardly be a good ground for refusing enforcement
G of the award. Accordingly, we are not persuaded to accept the r·
submission of Mr. Rohinton F. Nariman that Delhi High Court
ought to have refused to enforce the foreign awards as the
Board of Appeal has wrongly rejected the certificate of quality
obtained from the buyers' nominated certifying agency and
H taken into consideration inadmissible evidence in the nature of
SHRI LAL MAHAL LTD. v. PROGETTO GRANO SPA 631
[R.M. LODHA, J.]
~ certificates obtained by the buyers' for the purposes of A
forwarding contract.
43. Moreover, Section 48 of the 1996 Act does not give
an opportunity to have a 'second look' at the foreign award in
the award - enforcement stage. The scope of inquiry under B
Section 48 does not permit review of the foreign award on
merits. Procedural defects (like taking into consideration
inadmissible evidence or ignoring/rejecting the evidence which
)( may be of binding nature) in the course of foreign arbitration
do not lead necessarily to excuse an award from enforcement
on the ground of public policy.
c
44. In what we have discussed above, even if it be
assumed that the Board of Appeal erred in relying upon the
report obtained by buyers from Crepin which was inconsistent
with the terms on which the parties had contracted in the D
"' l contract dated 12.05.1994 and wrongly rejected the report of
the contractual agency, in our view, such errors would not bar
the enforceability of the appeal awards passed by the Board
of Appeal.
E
45. While considering the enforceability of foreign awards,
the court does not exercise appellate jurisdiction over the
foreign award nor does it enquire as to whether, while rendering
foreign award, some error has been committed. Under Section
48(2)(b) the enforcement of a foreign award can be refused only
if such enforcement is found to be contrary to (1) fundamental
F
policy of Indian law; or (2) the interests of India; or (3) justice
or morality. The objections raised by the appellant do not fall
in any of these categories and, therefore, the foreign awards
cannot be held to be contrary to public policy of India as
' contemplated under Section 48(2)(b).
46. The contention of the learned senior counsel for the
G
appellant that the Board of Appeal dealt with the questions not
referred to it and which were never in dispute and, therefore,
H
632 SUPREME COURT REPORTS [2013] 13 S.C.R.
A these awards cannot be enforced being contrary to Section
48(1)(c) is devoid of any substance and is noted to be rejected.
47. In the circumstances, we hold that appeal has no merit.
It is dismissed with no order as to costs.
B Bibhuti Bhushan Bose Appeal dismissed.
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