Nafed, a canalizing agency for the GoI, and Alimenta had entered into a contract for supply of 5,000 tonne Indian groundnut during1979-80.
Putting to rest the 40-year issue over supply of groundnut to Swiss firm Alimenta in 1980, the Supreme Court has set aside the $4.68-million foreign arbitration award against National Agricultural Cooperative Marketing Federation of India (Nafed), terming it “unenforceable” as exports could not have taken place without the government’s nod.
A bench led by justice Arun Mishra set aside the Delhi High Court order that ruled to the contrary. The apex court bench held that the foreign arbitration award was “unenforceable” and Nafed could not have been held liable for breach of contract to pay damages as the award was against the public policy of India.
“…the award is ex facie illegal, and in contravention of fundamental law, no export without permission of the government was permissible and without the consent of the government quota could not have been forwarded to next season. The export without permission would have violated the law, thus, enforcement of such award would be violative of the public policy of India.”
The apex court held it was not open for the foreign firm to saddle the liability upon Nafed to pay damages as the contract became void. “… the award could not be said to be enforceable, given the provisions contained in Section 7(1)(b)(ii) of the Foreign Awards Act. As per the test laid down…,its enforcement would be against the fundamental policy of Indian law and the basic concept of justice. Thus, we hold that award is unenforceable, and the High Court erred in law in holding otherwise in a perfunctory manner,” the judgement stated.
Nafed, a canalizing agency for the GoI, and Alimenta had entered into a contract for supply of 5,000 tonne Indian groundnut during1979-80. For any export, the state agency required the express consent of the GoI and the transaction was also governed by covenants such as Force Majeure.
While only 1,900 tonne could be shipped due to crop damage in the Saurashtra region, the balance stock could not be supplied due to the government restricted export policy and quota ceiling. Alimenta treated the Nafed’s non-supply of commodity as a notice of default and initiated arbitration proceedings before the Federation of Oil, Seeds and Fats Associations (FOSFA), London, in February 1981. On Nafed’s plea, the Delhi HC had stayed the arbitration proceedings. After several rounds of litigations in different courts including the SC, FOSFA finally in November 1989 passed an arbitration award asking Nafed to pay $4,681,000 including damages and interest.
While Alimenta moved the HC for enforcement of the award, Nafed objected to it on the ground that it was opposed to the public policy, thus unenforceable. Agreeing with the Nafed’s stand, the SC said: “the Clause 14 of the FOSFA agreement made clear that during the contract shipment period in the event of the prohibition of export by an executive or legislative act by any of the government of origin, such restriction shall be deemed by both the parties to apply to the contract. Thus, if the shipment becomes impossible by reasons mentioned in the clause, the agreement shall be cancelled.”