Skip to content


S.A. Vitol Vs. Bhatia International Limited - Court Judgment

LegalCrystal Citation
CourtMumbai High Court
Decided On
Case NumberNotice No. 618 of 2011 & Execution Application No. 240 of 2011 In Foreign Award Dated 17th January, 2011
Judge
AppellantS.A. Vitol
RespondentBhatia International Limited
Excerpt:
civil procedure code, 1908 - order 21 rule 22(b), section 44a - arbitration and conciliation act, 1996 - section 47, section 47(1)(b), section 48 -  foreign exchange management act, 1999 (fema) - section 8 – foreign award (recognition and  enforcement) act, 1961 - section 7 - enforcement of award - applicant has filed application under provisions of section 47 of the act, 1996 for enforcement of foreign award - respondent applied for refusal of enforcement of award under section 48 of the act, 1996 - guarantee for performance of contract – termination of contract - enforcement of award - contract was between claimant/respondent with applicant/award holder for supply of coal - it provided a buy-back clause which was exercised for delivery - upon crash in.....1. the applicant is the award holder. the applicant has sought execution of the award against the claimant who is the award debtor in the above arbitration. the name of the award debtor has been amended in the arbitration. the award debtor was one bhatia international ltd (bil). the award debtor shall be referred to as bil despite the amendment as it has been so referred to in the award. the applicant shall be referred to as vitol as it has been referred as such in the award. 2. vitol has sought to execute the award dated 17th january, 2011 as a foreign award. the execution application has been taken out on 17th march, 2011, two months after the date of the award. 3. vitol has taken out the above notice under the provisions of order 21 rule 22(b) of the cpc as the execution of the award.....
Judgment:

1. The Applicant is the Award Holder. The applicant has sought execution of the award against the claimant who is the Award Debtor in the above arbitration. The name of the award debtor has been amended in the arbitration. The award debtor was one Bhatia International Ltd (BIL). The award debtor shall be referred to as BIL despite the amendment as it has been so referred to in the award. The applicant shall be referred to as Vitol as it has been referred as such in the award.

2. Vitol has sought to execute the award dated 17th January, 2011 as a Foreign award. The execution application has been taken out on 17th March, 2011, two months after the date of the award.

3. Vitol has taken out the above notice under the provisions of Order 21 Rule 22(b) of the CPC as the execution of the award is filed under the provisions of Section 44A of the CPC; the award having been passed by the arbitral tribunal in reciprocating territory being London, UK.

4. Vitol has taken out this application under the provisions of Section 47 of the Arbitration and Conciliation Act, 1996 (the Act) for enforcement of the Foreign award (award) dated 17th January, 2011. BIL has applied for refusal of the enforcement of the award under Section 48 of the Act.

5. Vitol has filed a duly authenticated copy of the award as Exhibit-A to the Execution Application authenticated by the Notary Public City of London, England as a true copy of the original award. Vitol has also filed a certified copy of the arbitration agreement between the parties.

6. BIL would contend that the provisions contained in Section 47(1) (b) of the Act have not been complied since the certified copy of the entire arbitration agreement including what is called SCoTA is not annexed to the petition. Mr. Chinoy on behalf of the respondent drew the Court's attention to Clause 20 of the arbitration agreement between the parties under which not the agreement itself, which was termed a Master Confirmation, but individual confirmation was to be subject to the last published version of the SCoTA for matters not covered under the agreement between the parties. Hence he would contend that the Master Agreement was not subject to ScoTA, but individual deliveries / transactions required to be made by separate shipments under separate letters of credit (L/C) were to be so covered. He would argue that the parties went to arbitration under Clause 19 of the agreement between the parties dated 14th April, 2008 and that the question of SCoTA was never raised in the arbitration.

7. It may be mentioned that the requirement of Sub Clauses 9(a),(b) and (c ) of Section 47(1) of the Act is only for the convenience of the Court in seeing the Foreign award and the agreement under which the reference to the arbitral tribunal was made. That done, there is sufficient compliance with the provisions of the aforesaid section. In fact, once a certified copy of the award is filed and is accepted by both the parties as the award which has come to be passed between the parties, further evidence to prove the evidence as a Foreign award under Sub Section (c) would also not be required. Hence SCoTA need not be annexed to this petition.

8. Further BIL has contended that the execution application could not have been filed anywhere except in Indore, Madhya Pradesh where the registered office of the company is situate and where the arbitration agreement was executed. It is sought to be contended on behalf of BIL that the enforcement of the award would be required to be stamped in the case of Madhya Pradesh under the specific provisions contained in the Indian Stamp Act applicable to Madhya Pradesh and that if so done Court Fee of Rs. 4 million would be required to be paid. It is contended that the award is not stamped and no ad valorum court fee is paid in this petition and hence the award cannot be enforced.

9. The object of the Act is to consolidate and amend Indian Laws relating to domestic as well as international commercial arbitration and enforcement of foreign arbitral awards. It is held in the case of Fuerst Day Lawson Ltd. Vs. Jindal Exports Ltd., (2001) 6 Supreme Court Cases 356, that object of the Act is to minimize the supervisory role of the Court and to give speedy justice. It is held that that the provision of making the award the rule of Court required in the Arbitration Act, 1940 has been dispensed with in the 1996 Act and hence if such decree were to be passed and the Court has to examine the award for the parties, it would frustrate and defeat the object of the new Act. It is observed that in the 1996 Act the foreign award is already stamped as a decree and hence any party can apply for its enforcement under Section 47 to 49 of the Act. Under Section 47 the Court would only see evidence which the party applying for enforcement of a foreign award produces and upon seeing the conditions for Section 48, the award would be deemed to be a decree under Section 49. If the Court is satisfied that the foreign award is enforceable the Court must proceed to execute it as decree of a Court.

10. Consequently in the case of Naval Gent Maritime Ltd. Vs. Shivnath Rai Harnarain (I) Ltd, (2009) 163 DLT 391, it has been held that the foreign award requires neither any registration nor any stamping but can be enforced as a decree of the Court. It is observed in paragraph 18 of the judgment that in any case the issue of stamp duty cannot stand in the way of deciding whether award is enforceable or not and that whilst deciding the enforceability of the foreign award under Section 47 and 48, the Court cannot hold that the award is non enforceable because it is unregistered or unstamped.

In fact relying upon the case of Fuerst (Supra) the Supreme Court held that the award became binding between the parties if it was not assailed by the JD in the country where the award was passed (in this case in England) and hence became executable.

11. It is contended that this Court lacks jurisdiction to enforce the award. It is elementary that an award, as much as decree, is required to be executed in the Court in whose jurisdiction the properties sought to be attached and sold in execution are situate. The applicant has shown the properties sought to be executed in the above execution application. These are immovable as well as movable properties within the jurisdiction of this Court. There may be other properties of the award debtor. The applicant may require to take out separate execution applications for enforcement of the award where other properties sought to be attached and sold would be situate. Neither Vitol nor BIL have shown any properties in Madhya Pradesh which could be attached or which are sought to be attached and consequently that contention would have to be wholly rejected.

12. On merits, BIL has sought refusal of enforcement of the award essentially on the ground that the award is against the terms of the contract between the parties contained in Clause 25(1) of the Master agreement dated 14th April, 2008 and that the award is against the provisions of law in India being Section 8 of the Foreign Exchange Management Act, 1999 (FEMA) and as such would be contrary to public policy of India. These separate grounds of challenge have been set out to show that the award is :

(i) Contrary to substantive provisions of law.

(ii) Against the terms of the contract.

(iii) Against the fundamental policy of Indian Law.

(iv) In violation of statutory provisions.

(v) Not in public interest.

(vi) Adversely effecting administration of justice.

(vii) Against public policy of India.

(viii) As promoting unjustice.

BIL's case would, therefore, essentially be under Section 48(2)(b) of the Act though reference has also been made to Section 48(1)(b) and (c ) in the reply of BIL.

13. The main two aspects on merits of the request for refusal to enforce the award would, therefore, have to be considered.

(I) Violation of Section 25.1 of the Arbitration Agreement:

Clause 25.1 relates to amendments to the agreement between the parties. Under that clause amendments could be made to the agreement including the terms of the contract by mutual agreement of the parties but were to be binding only by written agreement signed by each of the parties or upon receipt of a duly authorised notice in writing to that effect to each party from the other.

Clause 25.1 runs thus:

“25.1 Amendments may be made to this agreement including the terms applicable to any transaction by mutual agreement of the parties, but shall only become binding by written agreement signed by each of the parties or upon receipt of duly authorized notice in writing to that effect to each party from the other”.

The clause has been considered amongst the SCoTA terms set out in the final award itself. The agreement between the parties was to buy and sell coal in four installments in the year 2009. If a consignment was not to be sold there was a certain charge called washout charge which was to be levied. BIL was to accept the delivery at a fixed price. Vitol had to supply the coal at that price. Certain guaranteed price was payable. In 2008 the market collapsed worldwide. BIL had not hedged its loss. BIL may not have been able to take delivery of the coal supplied in the four installments as agreed. There were negotiations between the parties. BIL would require a new contract at lower rates. Vitol wanted security of the fixed amounts payable. BIL agreed not to demand the washout charges being the amounts payable to it pending the negotiations.

14. Hence the contract of BIL with Vitol for supply of coal was a contract in futuro. It provided a buy-back clause which was exercised for the delivery of the first quarter of 2009. When the amount accrued in favour of BIL it would be under the buy-back exercised by Vitol. Upon the crash in the International market Vitol apprehended that BIL would not be in a position to accept the deliveries of the goods in 2009 for the 2nd, 3rd and 4th quarters. Whilst the parties had without prejudice talks for fixing a new price, Vitol required a guarantee from BIL that it would pick up its goods. BIL agreed as consideration for such guarantee that the sums payable to it could be retained by Vitol as guarantee for the performance of the contract in the 2nd, 3rd and 4th quarters of 2009.

15. The negotiations failed. BIL sought to terminate the contract on the ground of non-payment of the washout charges otherwise payable by Vitol but not paid in view of the amount being held as security pending negotiations of a new contract at lower rates. Vitol took the termination as wrongful repudiation of the contract. BIL sought arbitration for the amounts due under the washout charges. Vitol filed the counter claim for damages for wrongful repudiation. Vitol accepted, admitted and offered to pay the washout charges which became due. Such payments would be under the contract already executed by the parties which would require the acceptance of the goods at the fixed rates by BIL and for which it would have to make payments.

16. The learned arbitral tribunal granted damages for wrongful repudiation to Vitol in respect of the shipment of the four installments of the year 2009. It also accepted the payments of the washout charges required to be made by Vitol. It has allowed those charges to BIL. Since the damages granted was larger than the washout charges payable, adjustment has been made and the final liability of BIL has been ascertained as payable under the arbitral award.

The parties were governed by English Law under Clause 19 of the agreement. The learned arbitral tribunal has applied that law. That is the law of equitable estoppel upon the request by BIL for securing the amount under the washout charges pending the negotiations for a new contract. The learned arbitral tribunal has considered the law which allows a party to orally or impliedly modify a contract. That would be upon the act of the parties. The act of BIL requesting to secure the amount was taken to be an act by which it was bound, not under the contract between the parties but under the principle of equitable estoppel under which BIL would be estopped from contending contrary to its request and representation that Vitol may keep the washout amounts as security and not pay to BIL on the due dates.

17. It is seen that, in fact, such act of the parties would constitute no amendment to the agreement at all. The amendment to the agreement was contemplated. The agreement was not amended. If it had to be amended it certainly had to be amended in writing. The new price under a new contract could not have been agreed by the parties orally. A new contract was envisaged in the clause relating to the amendment of the contract. A contemplated amendment is no amendment. Whilst in contemplation of the amendment the parties may perform such acts as are mutually agreed to show their bonafides which would ease the execution of the amendment to the contract. The parties would be bound by such acts. No party would be entitled to contend to the contrary. The parties would be estopped from contending to the contrary once they agreed to forbear in any manner.

In this case BIL agreed not to receive the washout charges on the due dates; it agreed to keep it as security for the payment to be made under the contract in installments when deliveries as agreed in the contract were made by Vitol and were to be accepted by BIL. This was pending the new rates under a new contract by way of amendment. The termination of the contract by BIL on the grounds that negotiations failed for nonpayment of those very charges was contended by Vitol to be wrongful repudiation and has been held as such by the arbitral tribunal. This is held upon the principle of equitable estoppel, a common law principle, that when the amounts were withheld and not paid upon the representation made by BIL only for its own sake in respect of the deliveries to be made and which BIL accepted because the first installment already due was allowed to be kept as security and the second installment became due, and which act itself showed the intention of BIL, BIL could then not terminate the contract on the ground of non-payment of that very amount. The entire reasoning of the learned arbitral tribunal is upon the act of the parties consequent upon the collapse of the international market due to the recession, notice of which had to be taken by the learned arbitral tribunal.

18. The contention on behalf of BIL that the act of the parties in not paying and accepting the washout charges, but keeping them instead as security resulted in an oral amendment of the contract is itself erroneous and wholly misconceived. Consequently the contention that the oral amendment of the contract was allowed when the parties had agreed to make any amendment to the contract only in writing is unacceptable. Even if non-payment and non-acceptance of the washout charges as were payable under the contract would tantamount to an amendment, under the English Law parties themselves acting against their contract cannot take advantage of their own act and hence would be equitably estopped. It was thus held. The learned arbitral tribunal has considered the said law in terms of the judgment in the case of the Kanchanjanga relied upon by the parties. In paragraph 80 of the award the learned arbitral tribunal has set out the basis of such an estoppels upon the premise that it would be inequitable to allow BIL to rely upon its legal rights under the contract after making the representation that it did as being the variation which under the contract was required to be in writing. The consequent finding of the learned arbitral tribunal that there was no breach of the agreement and hence the termination was bad and the consequent non-acceptance of the repudiation resulted in continuation of the contract which Vitol was entitled to follow as a matter of corollary.

19. Foreign law as a question of fact and has to be proved as such. Vitol has filed the affidavit of its Barrister in England to show the principles of English law relating to equitable estoppel. Indeed the principle of estoppel is a part of common law being the law of justice, equity and good conscience under judicial precedents followed in India as well.

20. Mr. Singh also argued that the negotiations were without prejudice and yet the arbitral tribunal has held BIL accountable and bound by its act. Negotiations which did not entail an act of a party in performance of those negotiations may avail that party if negotiations fail. Despite without prejudice negotiations the act of the parties would bind the parties. It would show the acceptance by performance itself of whatever be the agreement between the parties orally or even impliedly made. Those acts would be with prejudice. Holding that BIL was bound by its own acts by way of equitable estoppel had therefore, nothing to do with “prejudice” which could have resulted in a new contract between the parties if the negotiations had succeeded and a written agreement was entered into by the parties.

21. Mr. Singh contended that the contract cannot be interpreted or construed to require either party to act inconsistent with it or to do any act prohibited by any law applicable to the parties under Clause 21 of the agreement between the parties. This agreement would only take care of the first part of the clause. The acts inconsistent with the laws under clause 21 are circumscribed by the aspects mentioned therein which does not include foreign exchange. The relevant part of clause 21 runs thus:

“Notwithstanding anything to the contrary contained herein, nothing in this Contract is intended, and nothing herein shall be so interpreted or construed, to induce or require either party hereto to act in any manner (including any failure to take any action in relation to a transaction) which is inconsistent with, penalised by or prohibited under any laws, regulations, or other official government, United Nations or European Union requirements applicable to such party, relating to foreign trade controls, export controls, embargoes or international boycotts of any type”

Consequently the agreement between the parties or the enforcement of such agreement by the arbitral tribunal cannot require either of the parties to do any act prohibited under the law relating to foreign trade controls, export controls embargoes or international boycotts. The award which would require any of these would fall foul of the contract between the parties. An award which grants any amount to or against any party under the law and which would have to be paid in foreign exchange by one of the parties would not be included within the mischief of clause 21 of the contract.

22. There is, therefore, nothing that the learned Arbitral Tribunal has decided against any of the terms of the contract between the parties. Once that aspect has been determined as per the law governing the parties, this Court, in enforcement of the award which has been passed, cannot interfere with it.

23. (II) Violation of Section 8 of the FEMA:

Vitol was to pay the washout charges. BIL was to receive it. The amounts would accrue due to BIL on specified due dates in the contract. BIL had to pay fixed prices for the deliveries to be made in 2009. BIL kept the amount under the washout charges with Vitol as security. The amounts were not paid on due dates. They were indeed payable and admitted to be payable by Vitol. BIL has not sought to refuse to accept the amount. BIL would realise the amount so soon as the parties entered into a new contract or as demanded by it upon notice. The amounts have been granted by the learned arbitral tribunal as admitted amounts payable to BIL.

24. It is in these circumstances that the violation, if any, of FEMA for recovery of Foreign Exchange (FE) under Section 8 of the Act would have to be seen. Section 8 runs thus:

8. Realisation and repatriation of foreign exchange. – Save as otherwise provided in this act, where any amount of foreign exchange is due or has accrued to any person resident in India, such person shall take all reasonable steps to realise and repatriate to India such foreign exchange within such period and in such manner as may be specified by the Reserve Bank.

25. This Section has replaced Section 16 of the Foreign Exchange Regulation Act, 1973 (FERA) which came to be repealed upon the enactment of FEMA and which runs thus.

26. Mr. Singh on behalf of the BIL referred to the notification of RBI dated 3rd May, 2000 issued under Section 8 of the FEMA, akin to Section 16 of the FERA, which sets out in Section 3 thereof the duty of the persons to realise FE due thus:

3. Duty of persons to realise foreign exchange due:

A person resident in India to whom any amount of foreign exchange is due or has accrued shall, save as otherwise provided under the provisions of the Act, or the rules and regulations made thereunder, or with the general or special permission of the Reserve Bank, take all reasonable steps to realise and repatriate to India such foreign exchange, and shall in no case do or refrain from doing anything, or take or refrain from taking any action, which has the effect of securing.

(a) that the receipt by him of the whole or part of that foreign exchange is delayed; or

(b) that the foreign exchange ceases in whole or in part to be receivable by him.

27. Mr. Singh would contend that set off was not permitted under the notification in any manner; even retention, deferment or waiver of any amount payable would not be permitted. However, the permission of the RBI is contemplated. This would require reasonable steps to be taken and consequently it had to be repatriated within reasonable time. The permission may given be ex post facto also. The delay, therefore, could not be unreasonable; only the ceasing to receive the FE would be permanent. This is analogues to Section 16 of FERA which runs thus:

“16. Duty of persons entitled to receive foreign exchange, etc. –

(1) No person who has a right to receive any foreign exchange or to receive from a person resident outside India a payment in rupees shall, except with the general or special permission of the Reserve Bank (RBI), do or refrain from doing anything, or take or refrain from taking any action, which has the effect of securing –

(a) that the receipt by him of the whole or part of that foreign exchange or payment is delayed, or

(b) that the foreign exchange or payment ceases in whole or in part to be receivable by him.

(2) Where a person has failed to comply with the requirements of sub-section (1) in relation to any foreign exchange or payment in rupees, the Reserve bank may give to him such directions as appear to be expedient for the purpose of securing the receipt of the foreign exchange or payment, as the case may be.”

28. Whereas Section 16 of FERA was enacted in negative terms of what an Indian person should not do, without RBI permission, Section 8 of FEMA is in positive terms of what he / she / it should do.

29. The purpose and object of the FEMA which repealed FERA was to consolidate and amend the law relating to foreign exchange (FE) to facilitate external trade and payments and to promote orderly development and maintenance of FE market in India. The Act, therefore, is enacted to facilitate trade between India and other countries. It also requires provisions for maintenance of FE in India. One of the provisions is the realization and repatriation of FE by an Indian person trading with another person abroad. Hence when FE becomes due he / she / it is required to take reasonable steps to realise it and to repatriate it to India.

30. The contract between BIL and Vitol SA which provided for fixed payments called washout charges to be made to BIL, would be FE which would become due to BIL and upon it being paid had to be repatriated to India. The contract also provided for BIL to make payment for fixed deliveries at specified dates. This would be the amount for FE payable by an Indian person to the counterparty abroad. When the international market collapsed in 2008 and the prices of the goods to be traded, being coal, came down, BIL would not have been in a position to honour its commitments and to buy the specified quantities of coal at specified prices determined before the market crashed. BIL, therefore, required to enter into a new contract at lower price to bring down its losses. Consequently the parties negotiated rescheduling the deliveries and payments. The rescheduling can only be upon consideration. In consideration for such rescheduling BIL had to secure the payments. For the security to be offered by BIL, BIL accepted not to claim the washout charges which would have otherwise fallen due. Together with the right to receive the amounts which became due was obligation and responsibility of the BIL to make payments of the amounts already specified at higher rates since it had not hedged its losses. The security given by the BIL is, therefore, for good consideration. The amount that would become due to BIL had a direct connection with the amount that was payable by BIL under the contract. By securing Vitol BIL had not to make immediate payment and its losses were averted and so was the FE which would otherwise be used in discharging its payment obligations. There was, therefore, a temporary security given by BIL and corresponding temporary respite which enured in favour of BIL pending the negotiations between the parties. BIL, therefore, is seen to have given up the right to receive FE for a temporary period in order to avoid a larger liability of payment of installments and consequently a larger FE outgo. This was between the period 27th January, 2009 to 17th March, 2009.

31. BIL agreed to keep the amount payable to it in abeyance on 27th January, 2009. The amount then payable would fall due on 5th February, 2009. The second amount would fall due on 5th March, 2009. The contract came to be terminated in March, 2009 itself by BIL and the two installments then due and payable were claimed which has never been denied by Vitol. Mr. Chinoy, therefore, justifiably contended that the nature of retention of the amount and the consequential delay of the due date of the accrual of payment was, therefore, of about 7 weeks.

32. It is contended on behalf of the BIL that this retention, albeit temporary, would elude the nation FE to that extent and for that period. Consequently it would be in violation of Section 8 of FEMA. It is contended that whenever the FE accrues due it had to be repatriated to India and the deferment / retainment / the set off of that amount cannot be permitted.

33. It is argued on behalf of Vitol that Section 8 of FEMA is not absolute. It only requires reasonable steps to be taken to realize and repatriate the amount of FE due to India. It essentially seeks to prohibit or contain a voluntary non-repatriation by any Indian person. It would, therefore, apply when a person secrets or diverts the FE payable to him / her / it by his / her / its own wrong. It would, therefore, not apply to any order of the Court or any award that is passed by way of adjustment or otherwise. It is also argued that reasonable steps required to be taken would be complied if after a temporary period, consequent upon the negotiations, either that amount was paid or a corresponding benefit was obtained by BIL as the person resident in India. Consequently if this arrangement was not entered into pending the negotiations, though the amount under the washout charges on the due dates between 27th January, 2009 and 17th February, 2009 would be payable to BIL, BIL would also be immediately required to make its own payment and consequently a far larger FE outgo would have immediately arisen upon the first quarterly installment of the delivery of the coal becoming due in the first quarter of 2009.

34. Hence the contention of Mr. Singh on behalf of BIL that the oral agreement between the parties resulted in BIL not receiving or accepting the amounts which accrued due to BIL as a company resident in India and consequently in BIL itself incurring violation of the realisation and repatriation of foreign exchange to that extent to India cannot be accepted.

35. There was no agreement between the parties to relinquish the rights of the BIL.

36. Indeed BIL took the step of recovering the amount upon calling off the negotiations. That would, tantamount to BIL taking reasonable steps to realise those amounts which it was expected to repatriate to India. Vitol always accepted and admitted its liability to pay those sums and the learned arbitral tribunal has directed Vitol to do so. Hence the amounts which accrued due to BIL would be realised and repatriated to India.

37. It is only because the notice of termination of the contract tantamounts to the wrongful repudiation of the contract that BIL became liable for damages which has accordingly been awarded against it. It is only since the damages awarded are higher than the charges payable to BIL that an adjustment has been made.

38. Mr. Singh on behalf of BIL drew the Court's attention to the case of E. Merck India Ltd., Vs. Director of Enforcement, 1987, Vol.39, Texman – Corporate Magazine, Pg.47. In that case E.Merck had incurred certain expenses in German DMs. The Indian person and the foreign company made a claim and counter claim. FE of some amount was adjusted against that claim of the foreign company. It was held that the adjustment tantamounted to making payment against FERA as FE which should have been received in India was not received but utilised to settle claim later by setting off one debt against another. The full payment was not received. It resulted in an adjustment. Yet the payment was made. It was held that the charge against the Indian person under Section 16(i) (b) of FERA was established.

The adjustment which was made in that case was permanent. It was made once and for all. It was made several years after the amount became due. It was not a temporary measure. It did not reduce the liability of the Indian person for payment in FE. The case, therefore, does not go as far as the case of BIL. BIL would have been put in a far more precarious position and, it is contended, would have incurred the wrath of RBI. It would have had to make payments of far larger amounts for the coal than it would receive after the international market prices had fallen. The case of E-Merck (Supra) is, therefore, distinguishable.

39. Mr. Singh contended on behalf of the BIL that the adjustment of the amount would tantamount to breach of Section 8 because what accrued due could not be realised and repatriated to India by BIL because of the award. He would, therefore, argue that the award itself went against the specific mandate under Section 8 to realise and repatriate the sums which accrued due to the company resident in India by it.

40. The test of this contention would be to separate the two liabilities without adjustment. The liability of BIL would be higher to pay the damages granted for wrongful repudiation of the contract as claimed in the counter claim of Vitol. Those damages would require to be paid by BIL as a company resident in India to incur the liability in foreign exchange under the agreement entered into by it which was subject to foreign arbitration and under which the damages came to be payable outside India. That itself would not constitute any violation of Section 8. If the adjustment of the amount payable to BIL was made, the liability would be lessened to that extent. The adjustment, therefore, would constitute the amount as not having accrued due to it and consequently it cannot be realised and repatriated to India. Only the lesser amount of damages was payable by it.

41. A reference to the aforesaid notification and Section 16 which prevailed before FEMA came in force would also be a pointer in this respect. Under that Section BIL which had the right to receive the washout charges in foreign exchange cannot delay the payment or act such as to have the payment ceased to be receivable by it, a provision which has been repealed and later incorporated in the notification dated 3rd May 2000. If that was done, under Section 16(2) of FERA the Reserve Bank of India (RBI) would have that amount secured for being received in foreign exchange. Consequently even under the earlier provision, since repealed, amends can be made. There was no criminal liability for violation of Section 16(1) upon entitlement to receive the foreign exchange. It was to be only secured for receipt. Under the prevailing Section 8 of FEMA the requirement of taking reasonable steps to realise and repatriate the amount which accrues due to a person resident in India would show the amends made for such receipt of foreign exchange. BIL has taken all reasonable steps to realise the amount of the washout charges. It has claimed the same before the arbitral tribunal. It has succeeded in its claim. The arbitral tribunal has granted it the amount. That is by way of adjustment towards the higher amount of damages so that lesser foreign exchange would be payable by BIL to Vitol then it would otherwise be upon its repudiatory breach.

42. It would, therefore, be material to see the precedents under Section 16 itself. The case of Texmaco Ltd. and Anr. Vs. Deputy Director, Enforcement Directorate, 1997 Company Cases Vol. 88 Pg.228, was a contract under private international law between India and Malaysia. Certain machinery was to be supplied by a Indian company in Malaysia. The machinery had to be erected. The Indian company was entitled to receive the amount CIF for the supply of the machinery as also erection charges. The machinery was found to be defective. The Malaysian concern called upon the Indian Company to withdraw its claim on account of erection charges and raised a counter claim. The Indian company wrote off its claim on account of erection charges and the Malaysian concern restricted its claim only for defective material. The RBI called upon the Indian party to show the circumstances under which part amount was written off. A Show Cause Notice was issued. An adjudication order was passed by the Dy. Director, Enforcement Directorate. It was contended by the Indian company that it applied for permission of the RBI to give up its claim against the Malaysian firm later. It was held that in the absence of the word “previous” before the word “permission”, ex post facto permission could have been granted by the RBI. Relying upon the case of LIC of India Vs. Escorts Ltd. (1986) 1 SCC 264 Section 29 (1) of FERA came to be interpreted. It was held that a permission under FERA may be sought at any time, even subsequent to the acts sought to be restricted.

It was held that the commission of the acts envisaged under Section 16 do not contemplate offences under those sub clauses. The offence would be completed, if the acts were done without the permission of the RBI and unless there was a positive decision on the part of the RBI to grant or refuse the permission the offence was not complete.

Consequently the offence under Section 8 of FEMA r/w the notification dated 3rd May, 2000 of the RBI would go the same way.

43. Mr. Chinoy has relied upon the judgment in the case of Director of Enforcement Vs. MCTM Corporation Pvt. Ltd. and Ors. (1996) 2 Supreme Court Cases 471 to show that the same analogy was applied under Section 10 of the FERA, 1947 which was analogous to Section 16 of the FERA, 1973 so that the person, who had the right to receive FE could not refrain from doing or taking any action which would have effect of delaying or ceasing the receipt of such FE. It is held that the default would be complete on the failure to get FE receivable in India repatriated within the reasonable time after the right to receive the same accrues. It is observed that the reasonable time would depend upon the circumstances of each case and cannot depend upon any general formula. It is observed that if the delay in repatriation was not unreasonable there would be no contravention of Section 10 (1) (a) of FERA.

In this case the delay in receiving the amount due is of 7 weeks with a corresponding consideration of payment of lesser amount if the negotiations fructified and the amended contract or new contract was executed.

There would, therefore, be no contravention of Section 8 of FEMA.

44. Later in the case of SRM Exploration Pvt. Ltd., Vs. N and S and N Consultants S R O, MANU/DE/2056/2012, considering the provisions of FERA as well as FEMA, the Supreme Court has held that Section 3 of FEMA prohibits dealing with or contravening FE without the general or special permission of RBI. However, the transactions cannot be declared void if they are in contravention thereof. The Court has considered Section 47 (3) of FERA which prohibited entering into any contract or agreement directly or indirectly for evading or avoiding FERA. However, FEMA has done away with such a provision. Consequently such contracts cannot be declared void.

45. Hence the award in this case would not be in contravention of FEMA. There are no directions passed which are contrary to FEMA in the award. The merits of the case are alone considered which cannot be gone into by this Court to interfere with the award.

46. Mr. Chinoy justifiably contended that the breach of Section 8 by BIL which it itself contends it has made it, could have been so only by its own act and not under any order of the Court or arbitral tribunal or any adjudicating authority. Indeed if the amount is payable upon an order of the Court the party requiring to pay the amount would not violate the legislative provision. The direction to pay would be dependent upon the contract between the parties. A person resident in India would require to pay foreign exchange in a contract and may be called upon to do so by an arbitral tribunal. All such payments do not fall foul of FEMA though that person may claim that it had accrued due to him/her/it.

47. It is also argued on behalf of BIL that the award if enforced would be against public policy of India and consequently would fall within the mischief of the law laid down in the case of Oil and Natural Gas Corporation Vs. Saw Pipes Ltd. AIR 2003 SC 2629.

48. My attention has been drawn to the judgment in the case of Renusagar Power Co. Ltd. Vs. General Electric Co., 1994 Supp (1) Supreme Court Cases 644, in which the object of FERA qua the concept of public policy for enforcement of a foreign award under Section 7 (1) (b) (ii) of the Foreign Awards Act had to be considered. In paragraph 68 the preamble to FERA has been considered. It was taken to be the law for regulating payments, dealings in FE and transactions directly affecting FE in the interest of economic development of the country. It is held that such a legislation is intended to protect the economy of the nation and the general welfare of its inhabitants by various measures of FE control.

In paragraph 69 of the judgment the principles of Private International Law set out in Dicey and Morris, The Conflict of Laws, 11th Edn., Vo.II, 1466, under Section 212 have been considered for the contractual obligation which may be invalidated or discharged by the exchange control legislation, under certain circumstances, but provided for its use only for protecting the economy of the foreign state and not as instrument of oppression or discrimination. The illustration given in the succeeding paragraphs of that judgment are of wholly different contracts.

In paragraph 75 drawing from the case of LIC (supra) at page 314, it has been observed that FERA was enacted for “national economic interest” and to ensure that FE was not lost because it would be essential for the economic survival of the nation.

Hence the Court examined whether violation of the principles of FE would be contrary to the public policy of India. The Court laid down the triple parameters of what would constitute a contract against public policy thus:

(i) fundamental policy of Indian law ; or

(ii) the interests of India; or

(iii) justice or morality.

49. In the case of Shri Lal Mahal Ltd. Vs. Progetto Grano Spa, (2014) 2 Supreme Court Cases 433 in paragraph 24 following the case of Renusagar Power Co. Ltd. Vs. General Electric Co., 1994 Supp (1) SCC 644 it was held that the defence of public policy taken up under Section 7(1) (b) (ii) of the Foreign Awards Act should be construed narrowly. It is observed that the concept of public policy must be construed as applied in the field of private international law and consequently to be against public policy it should be contrary to:

(i) fundamental policy of Indian law ; or

(ii) the interests of India; or

(iii) justice or morality.

50. In paragraph 25 of the judgment the Supreme Court analysed and distinguished the case of ONGC Ltd., Vs. Saw Pipes, (2003) 5 SCC 705 for determining the Courts jurisdiction under Section 34 of the 1996 Act. The phrase “Public Policy of India” in the decision in the case of Renusagar (Supra) was analysed. The Court distinguished between the validity of the domestic award to be construed in a petition to challenge it under Section 34 of the Act in distinction with the enforcement of the foreign award under Section 48 of the Act. It held that the expression “Public Policy of India” would assume a wider meaning to include patent illegality, being the illegality which goes to the root of the matter in case of domestic awards.

The Court accepted in paragraph 26 of the judgment the narrow meaning of “Public Policy” as given in the Renusagar (Supra) in matters of enforcement of foreign awards. It showed the departure from such meaning for the purposes of jurisdiction of the Court in setting aside domestic awards under Section 34 of the Act since it observed that the application and interpretation of these words defers in the decree under Section 34(2) (b) (ii) and Section 48(2) (b) of the Act.

The Court, therefore, held in paragraph 27 of the judgment that what was held in Renusagar (Supra) with reference to Section 7 of the Foreign Awards Act must equally apply to the ambit and scope of Section 48 (2) (b) of the 1996 Act. It observed that there was a distinction made in that rule of public policy in matters governed by domestic law and matters involving conflict of laws and hence what was held to be public policy the case of Renusagar (Supra) should apply with regard to the scope of enquiry under Section 48 (2) (b) for enforcement of foreign awards and consequently the expression “Public Policy of India” must be given a narrow meaning for that purpose. Hence it held that the enforcement of foreign awards could be refused only if it falls within the aforesaid three criteria laid down in Renusagar (Supra).

Consequently the judgment concluded in paragraph 29 that the enforcement of foreign award could be refused only if it fell within the aforesaid three parameters and the wider meaning given in Saw Pipes (Supra) which applied to domestic arbitrations would not apply for foreign awards.

Thus the Court even dissented from and overruled its earlier view in the case of Phulchand Exports Ltd. V. O. O. O. Patriot, (2011) 10 SCC 300 : (2012) 1 SCC (Civ) 131.

51. Consequently on both the aforesaid vital grounds the award dated 17th January, 2011 is seen to be enforceable and must be enforced by the Court.

52. Notice taken out under Order 21 Rule 22 is, therefore, made absolute. The execution application shall proceed.

53. Notice as well as execution application are disposed off accordingly.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //