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Se Se Oil Vs. Gorakhram Gokalchand - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtMumbai High Court
Decided On
Case Number O.C.J. Suit No. 74 of 1955
Judge
Reported in(1962)64BOMLR113
AppellantSe Se Oil
RespondentGorakhram Gokalchand
DispositionPetition dismissed
Excerpt:
arbitration (protocol and convention) act (vi of 1937), section 7 -- word 'final' in section 7(1)(d) whether refers to award which is made rule of court--contract--when prevalent custom and usage in market may be deemed, to be incorporated into contracts made by traders in that market--whether applicability of indian law to contract made by indian citizen in india can be avoided by means of agreement between parties.;an award would be final within the meaning of section 7(1)(d) of the arbitration (protocol and convention) act, 1937, even if it is not made a rule of court.;east india trading co. v. badat & co. (1958) 61 bom. l.r. 333 referred to.;under section 7 of the arbitration (protocol and convention) act, 1937, the plaintiffs have to prove what is referred to in detail in.....desai, j. 1. this is an arbitration suit, filed in accordance with the provisions of the arbitration (protocol and convention) act, 1937, for filing of an award dated may 22, 1952, made by the board of appeal of the london oil and tallow trades association directing the respondents-defendants to pay 5,600 to the petitioners-plaintiffs and for a decree in terms of that award and interest and costs.2. apart from the further facts to which i will have to refer whilst dealing with the contentions made by the parties the only facts which need be noticed are as follows:-by a contract made in duplicate and dated october 21, 1950, the defendants agreed to sell and the plaintiffs agreed to purchase from the defendants 100 tons of indian crude ground-nut oil on the terms and conditions contained in.....
Judgment:

Desai, J.

1. This is an arbitration suit, filed in accordance with the provisions of the Arbitration (Protocol and Convention) Act, 1937, for filing of an award dated May 22, 1952, made by the Board of Appeal of the London Oil and Tallow Trades Association directing the respondents-defendants to pay 5,600 to the petitioners-plaintiffs and for a decree in terms of that award and interest and costs.

2. Apart from the further facts to which I will have to refer whilst dealing with the contentions made by the parties the only facts which need be noticed are as follows:-

By a contract made in duplicate and dated October 21, 1950, the defendants agreed to sell and the plaintiffs agreed to purchase from the defendants 100 tons of Indian Crude ground-nut oil on the terms and conditions contained in the contract. One of the terms in the contract was that 'all other terms find conditions as per L.O.T.T.A. contract'. The letters 'L.O.T.T.A.' admittedly refer to the London Oil and Tallow Trades Association mentioned above.

3. The defendants having failed to effect delivery the plaintiffs appointed their arbitrator in accordance with the provisions for arbitration in the association contract and the defendants also appointed their arbitrator. As the defendants' arbitrator was unwilling to act, the association in accordance with its arbitration rules appointed one P. 'W. Jupe as the arbitrator of the defendants. The arbitrators having failed to agree appointed one J. S. Triggs as umpire. The umpire made his award dated March 25, 1952, awarding & 2,600 to the plaintiffs. The defendants appealed against the award to the Board of Appeal of the Association. The Board of Appeal by their above award dated May 22, 1953, awarded to the plaintiffs the sum of 5,600 as damages for breach of contract.

4. The plaintiffs' case is that the award is enforceable as mentioned in Section 7(1) of the. Act. The defendants' case is that the award is not enforceable and in that connection the defendants have raised several contentions which may be summarised as follows:

(1) The contract between the parties was a forward contract prohibited under the provisions of the Vegetable Oils and Oil-cakes (Forward Contracts Prohibition) Order, 1944, hereinafter referred to as the Order of 1944 (as continued up to the date of the contract) and accordingly illegal and invalid. , The result according to the defendants is that the arbitration agreement as arising by reason of the provisions of the contract is itself invalid and accordingly the award is not enforceable.

(2) That the arbitration suit is barred by the law of limitation.

(3) That the defendants had not received due and proper notice of the arbitration proceedings and had no opportunity to present their case.

(4) In so far as the Board of Appeal increased the amount of damages from the sum of 2,600 as awarded by umpire J, S. Triggs to 5,600 the same was contrary to law governing the arbitration procedure and accordingly the award is entirely invalid.

(5) The award is not final according to the law of England and is, therefore, also not enforceable in India.

5. It is necessary to mention that these proceedings being by way of a petition, affidavits in support of the case of the plaintiff's and affidavits showing cause have been filed from time to time and the pleadings in this case are diffused' and not concise. Even so, it appears to me that the above are the only contentions which are raised on behalf of the defendants in this case.

6. It is convenient first to dispose of the contention that the contract between' the parties was a forward contract prohibited by the provisions of the Vegetable Oils and Oil-cakes (Forward Contracts Prohibition) Order, 1944, and the arbitration agreement as arising under that contract was always invalid and not enforceable.

7. The contract in suit is on record as exh. Q and the relevant terms in the con tract run as follows:-

Sellers:- Messrs. Gorakhram Gokalchand; Bombay.Buyers:- Messrs. Se. Se. Ol. Via Mazzini, 15, Milan,Description:- Indian Crude Groundnut Oil, basis 3% FFA,(maximum 5% FFA with proportionateallowance) in drums.Price:- Stg. 144/- per ton of 2240 Lbs. e. and f. GenoaShipment:- During December 1950 from any Indian Port.Payment:- By opening irrevocable confirmed letter ofcredit in favour of sellers for the full invoice value.Terms:- All other terms and conditions as per LondonL.O.T.T.A. contract.

8. For developing the above contention on behalf of the defendants reliance is placed on the provisions of the above Order of 1944 as also notification dated January 8, 1944, issued in exercise of the powers reserved under Clause 5 of the Order, The relevant provisions of the order run as follows:--

In this order: 2....

(ii) 'contract' means; a contract made, or to be performed in whole or in part, to British India relating to the sale or purchase of any article to which this Order applies;

(iii) 'forward contract' means a contract for the delivery at some future date of any article to which this Order applies;

3. No person shall, after the specified date for any article to which this Order applies enter into any forward contract in that article.

5. The Central Government may, by Notification...exclude any contract or class of contracts from the provisions of this Order.

9. Admittedly the Order of 1944 was by various legislative enactments continued in existence till the date of the contract in suit and even thereafter.

10. The relevant part of the notification dated January 8, 1944, provides that

forward contracts for specific qualities or types of any article to which the said Order applies, and for specific delivery at a specified price, delivery orders, railway receipts or bills of lading against which contracts are not transferable to third parties.

11. It has not been contended on behalf of the plaintiffs that the contract in suit is not a forward contract or the contract to which the provisions of the Order do not apply. It is, however, contended on behalf of the plaintiffs that the contract in suit is covered by exemption notification dated January 8, 1944. In dealing with that contention made on behalf of the plaintiffs Mr. Nariman for the defendants has rightly pointed out that it is now well established by reason of several decisions of this Court that for the provisions of the notification being found to be applicable to any contract 'the contract on the face of it-must contain a provision that the contract is not transferable to third parties'. '., .The legislature wanted to prevent contracts from being transferred to third parties and unless there was a specific provision in the contract itself, prohibiting the transfer, there would be nothing to prevent in law a purchaser from transferring the contract which he had entered into.' '... Therefore,... There must be on the face of it a provision that it was not transferable to third parties'.

12. What I have mentioned above is the substance of the judgment in the case of Messrs. Gorakhram Gokalchand a firm v. P.A. Narasimhalu Reddy (1956) O.C.J. Appeal No. 134 of 1954, decided by Chagla, C.J. and Tondolkar J., on March 9, 1956 (Unrep.). The test, therefore, for ascertaining whether the contract in suit is exempted from prohibition of Clause 3 of the Order is to find whether there is ex facie and/or direct provision in the contract in suit providing that the contract is not transferable to third parties.

13. It is clear that the words to the above effect are not contained in the contract,' Mr. Irani has, therefore, relied upon the provisions in the contract against the term as to payment viz. the necessity of opening of irrevocable confirmed letter of credit in favour of sellers for the full invoice value of the goods of contract': as also the clear provision in the contract that the purchasers are the plaintiffs and the defendants are the sellers. He has contended that the bill of lading which must be delivered by the sellers under this contract for negotiation of the letter of credit in respect of price would be deliverable to the bankers of the purchasers-plaintiffs. According to him the bill of lading must be in favour of the sellers. The result according to him is that the property in the goods would pass to the purchasers by the delivery of the bill of lading to the bankers. of the purchasers and thereupon the contract would be completely performed,! He contends that the delivery of the bill of lading is not prevented by the provisions of the notification. He contends that this being obviously a c.i.f. contract the sale would be completed by delivery of documents and accordingly: the result is that, there is provision in this contract that the bill of lading shall' not be transferable. The decision in the case of Messrs. Lalji Umershi & Co.' v. The Bombay Oilseeds Exchange Ltd. (1959) O.C.J. Suit No. 601 of 1952 decided by Shelat J., on February 25, 1959 (Unrep.) is cited by Mr. Irani in support of his above contentions. In that suit the plaintiffs were the members of the Bombay Oil Seeds Exchange Ltd. The contracts were made in accordance with and subject to the Rules and Regulations of that Exchange, The plaintiffs' case. was that having regard to rule 100 and other rules of that Association which came to be incorporated in the contracts in that suit it was clear that the contracts ex facie provided that the delivery orders and/or bills of lading to be tendered under those contracts were not to be transferable. The learned Judge repeated in that case the proposition of law resulting from the authorities that 'in order to come within the exemption provided for in the notification dated May 31, 1943, the contract must ex facie show that a delivery order or a railway receipt against it is not transferable to a third party.' He then referred to certain bye-laws of the Exchange the effect whereof was that 'the seller shall deliver to the buyer and the buyer shall take delivery from the seller.' There was thus clear provision for delivery being effected only to the seller. In considering the true effect of the contracts in that suit the learned Judge inter alia observed as follows:-

In any of the three events contemplated by these bye-laws, namely, (1) delivery of the goods at the buyer's godown, (2) delivery of goods by tendering delivery order or (3) delivery of goods by tendering the railway receipts or a bill of lading duly endorsed in favour of the buyer, property in the goods passes to the buyer on his paying 90 per cent, of the price against any of these documents tendered to him. The result to my mind is clear that on the happening of anyone of these events the contract would be fully performed. When therefore, a seller under these bye-laws tenders either a delivery order or a Railway Receipt, he delivers or is deemed to have delivered the goods Hinder his contract and when the buyer pays 90 per cent, of the price against such document, not only the property in the goods passes to the buyer but nothing then remains to be done so far as the contract is concerned. The tendering of a Railway Receipt or :.a delivery order is, therefore, not simply a mere mode of delivery as would be the case in other contracts and where there would be a likelihood of the purchaser transferring his contract to a third party, as happened in the three unreported judgments relied upon lay Mr. Laud, either by assigning the Railway Receipt or the delivery order to such third party in which case unless there is something ex facie on the contract to show that it is not transferable, the contract would fall under the prohibition. In my view, what the bye-laws in this case do is to treat the tendering of a Railway Receipt or a delivery order as the case may be as delivery of the goods themselves, a method of delivery agreed to by the parties as contemplated by section 33 of the Sale of Goods Act. I am fortified in this construction on the contracts by the very bye-law 65 relied upon by Mr. Laud. That bye-law must be read in conjunction with or in the light of bye-law 100 which expressly provides that it is to the buyer that the seller has to give delivery of the goods. That seems to be the normal method of delivery provided for by the bye-laws.

The effect of these bye-laws, therefore, is that as soon as a Railway Receipt or a delivery order is delivered to the buyer and the buyer pays 90 per cent, of the price against such document, delivery of the goods is complete, the goods are deemed to have been accepted by the buyer and no more remains to be done under the contract except the settlement of any dispute regarding refraction, weight, or quality etc. for which 10% of the price is allowed to be retained with the buyer. The contract then is fully worked out. If after a buyer accepts a Railway Receipt or a delivery order and after he pays the price of the goods against such documents, he were to transfer that Railway Receipt, the contract as between him and his seller is not transferred as that contract is already performed and fully worked out...In my view the bye-laws which are part of the contracts and the terms of the contracts show that the contracts are not transferable and therefore the contention raised on behalf of the plaintiffs that these contracts are invalid fails.

14. It appears to me that the findings and observations as above are applicable only to the facts of the case decided by the learned Judge. Under the contract in suit the delivery of documents is symbolic delivery of the goods, with the outstanding right in the buyer to reject the goods in the event of the goods being not of the contract quality. The rights and obligations of the parties are not worked out completely by mere delivery of the documents to the bankers of the purchasers. Again after the contract was made it was open to the purchasers to transfer all the rights under the contract in favour of any third party who was willing to open the requisite letter of credit as mentioned in the contract in favour of the defendants themselves. It is further clear that after tender of the documents, to the bankers of the purchasers, which must in this case include the bill of lading, there is nothing agreed between the parties to prevent the same from being transferable pending the complete working out of rights and obligations of the parties in the matter of sale of the goods in the suit. It would be permissible for the buyers to sell off their contractual rights to third parties from the date of the contract upto and until physical delivery of the contract goods. It is the ordinary right of the buyers and their agents as holders to endorse and transfer a bill of lading in respect of the goods of the contract to any third party for whatever reasons that may come into existence. It is further important to notice that in oases where payment of price is effected by negotiation of a letter of credit, through bankers, against delivery of documents the bill of lading tendered would very often be only in favour of the '' consignor or order.'' The consignor would duly endorse the bill of lading in blank against the negotiation of the letter of credit and thereafter each person coming in possession of such bill of lading would not be prevented from endorsing the same further to any third parties. The bankers in exercise of their lien may endorse it in such a way as to enforce their lien. The purchasers (plaintiffs) may also towards the completion of their obligations to their purchaser of (all the outstanding rights under the contract) endorse the bill of lading in favour of such third purchaser. All bills of lading (as issued by sellers) as is well known are transferable in law. I have, therefore, not been able to appreciate arguments advanced on behalf of the plaintiffs by Mr. Irani that the above provisions in the contract provided ex facie the contract that the bill of lading against the contract in suit is agreed to be not transferable to third parties.

15. It is clear that the defendants were throughout in Bombay. That the ship merit of goods was to be made from Bombay. That the letter of credit in favour of the defendants was to be opened in Bombay. That the relevant documents for negotiation of the letter of credit were to be delivered to the plaintiffs' bankers in Bombay. The contract in suit accordingly was a forward contract or a contract for delivery at future date to be performed in any event in part in India. The contract ex facie did not provide that the bill of lading against the contract was not to be transferable to third parties. The contract accordingly was and is not covered by the exemption notification dated January 8, 1944. In the result the contract was and is one prohibited under the provisions of the Vegetable Oils and Oil-cakes (Forward Contracts Prohibition) Order, 1944.

16. The above Order was made under the provisions of Sub-rule (2) of Rule 81 of the Defence of India Rules and has been continued under the Provisions of the Essential Supplies (Temporary Powers) Ordinance and Act and continued from time to time. Making of the contract in contravention of the Order was an offence at all material times. The contract accordingly as made in this suit by the parties was not only unlawful but illegal and in the result the contract was invalid and not enforceable.

17. If the above finding is correct the question is as to whether the arbitration agreement which came into existence between the parties by reason of the terms of London Oil and Tallow Trades Association contract having been incorporated into the contract in suit had any outstanding existence and was enforceable. In this connection it may at once be stated that the only source of agreement of arbitration between the parties that has been relied upon on behalf of the plaintiffs is the contract in suit as incorporating the terms of the association contract. The contract in suit being illegal and invalid obviously the arbitration agreement cannot have any outstanding existence and must be held to be not binding between the parties.

18. Relying on clause ]3 and other clauses of the Association contract which is on record as exh. B as also the provisions of Section 7 of the Act Mr. Irani has contended that the arbitration, agreement, cannot be held to be invalid and that such a finding can only be made by Courts in England and that the law applicable to the arbitration agreement was the law of England. The relevant. part of cl, 13 in, the Association contract runs as follows:-

For the purpose of all proceedings whether at law or by arbitration this contract shall be deemed to be in all respects an English contract, and all disputes and questions thereunder shall be decided in accordance with the law of England. The arbitrators appointed in England and/or the English Courts as the case may be, shall have exclusive' jurisdiction over all such disputes and questions.

Sub-section (a) of Section 7(1) of the Act provides as follows:--

7.(1) 'In order that a foreign award may be enforceable under this Act it must have -

(a) been made- in pursuance of an. agreement for arbitration which was valid under the law by which it was governed,

(b)...

(c)...

(d)...

(e)...

and the enforcement thereof must not be contrary to the public policy or the law of India.

In Sub-section (3) of Section 7 there is provision to the effect that if a party seeking to resist the enforcement of a foreign award proves that there, is any ground other than the grounds as mentioned in Sub-sections (a), (5) and (c) of Sub-section (1) entitling him to contest the validity of the award, the Court may refuse' to enforce the award.

19. In connection with the arguments advanced by parties on this question it is first necessary to notice that neither of the parties was at any time in England. The seller (defendants) had to perform all their obligations under the contract by shipment of the goods and delivery of documents at Bombay. The physical delivery of the goods was to be made at Geneo in Italy. The plaintiffs were at all material times in Italy. The contract was made in duplicate and the defendants signed it in Bombay and the plaintiffs in Italy. Even so reliance is placed on the above provisions in Clause 13 of the association contract as if the provisions in that clause are not inconsistent with the provisions in the con tract in suit. It is difficult to appreciate as to how the obligations which the defendants had to perform as sellers in India and in Bombay were to be governed by the law of England. It is also difficult to understand as to how the plaintiffs who were in Italy and had to perform their contract in Italy and by furnishing a letter of credit, to the defendants in Bombay were to be governed by the law of England. It is not the case of either side that the contract was made in England. It, therefore, strikes me that the above provisions in 1. 13 never became applicable to the contract in suit. The parties had never intended that the rights and obligations in respect of this contract should be governed by the law of England. In any event it appears to me that an Indian citizen making a contract whilst in India (and in this case Bombay) would not be able and cannot be permitted by means of a contract to avoid the applicability of the Indian law to the contract made by him in India and/or to be performed in part or whole in India. In spite of the provisions of Clause 13 it is clear that the provision of the Vegetable Oils and Oil-cakes (Forward Contracts Prohibition) Order, 1944, was for all purposes applicable to the contract in suit.

20. The provisions of Sub-section (1)(a) of Section 7 provide for an agreement for arbitration being valid under the law by which it was governed. It is true that as regards the procedure to be applicable for arbitration held in London or England, the law of arbitration that will govern the procedure will be English. [t is however true that as regards an arbitration agreement coming into existence in India the question of validity of that agreement must be decided by the proper law viz., law of India. The agreement for arbitration in this case has come into existence as I have already mentioned above by reason of the contract In suit and has no separate independent existence. In so far as the validity of the contract in suit and/or agreement for arbitration which came into existence as a result of contract in suit is concerned the only law that governed the same must in my view be the law that is applicable to the contract in suit, I have already held above that the Forward Contracts Prohibition Order referred to by me was applicable to the contract in suit. Having regard to the provisions in Sub-section (1)(a) of Section 7 it was absolutely necessary for the plaintiffs In this case to prove that the agreement for arbitration on which the plaintiffs rely was valid under the law of India.

21. In this connection Mr. Irani relied upon the decision in Norske Atlas Insurance Company, Limited v. London General Insurance Company, Limited (1927)43 T.L.R. 541. That was a suit in England to enforce an award made in Norway. The award had resulted from an arbitration agreement arising under a Reinsurance contract made between the plaintiffs and the defendants. Reinsurnace contract related to marine insurance and having regard to certain statutory provisions in England regarding stamping of the contract and other provisions prescribed for a marine insurance contract the contract was invalid according to the law of England. The contract was however valid according to the law of Norway. The arbitration agreement provided that the arbitration was to take effect in Norway. According to law of Norway, there was no difficulty About the arbitration agreement and the award was made. The Court negatived the contentions made on behalf of the defendants that the award should not be enforced because according to the law of England the contract was not valid. The relevant observations made in that connection were as follows .(p. 542) :-

As to the validity of the award, the law applicable depended ultimately on the question what was the law which the parties intended to apply....In this case the contract was signed both in Norway and in London, so no guidance could be obtained from the place of signature. But from the provision that arbitration should take place in Christiania he thought that the proper inference was that the parties intended the law of Norway to be the law governing the contract. Evidence had been given that the contract was valid by the law of Norway and the defendants had not suggested that any impropriety had occurred in the conduct of the arbitration. The award, therefore, was a Norwegian award and was perfectly good and the plaintiffs were entitled to recover the sum awarded.

I do not see how the above observations help Mr. Irani. The finding that was made related to the validity of the award and did not relate to the contract being invalid according to the English law. No finding was made in the 'above observations regarding the validity of the arbitration agreement between the parties. A finding was made that the parties intended that as regards the contract also the law of Norway must govern the parties. The contract was made, executed and signed in Norway and in London. Having regard to these circumstances a fill ding was made that the award was not invalid. In discussing the instant question I am in fact not concerned with the validity of the award as such. What I am deciding is the matter which is mentioned In Sub-section (1)(o) of Section 1, i.e. whether the agreement for arbitration was valid under the law by which it was governed. The law applicable to the arbitration agreement in this case is the law of the contract in this suit. To this contract in any event the provisions of the above Forward Contract Prohibition Order are applicable. I, therefore, negative the contentions raised by Mr. Irani by relying upon Clause 13 of the Association contract as also the decision in Norske Atlas Insurance Company Limited v. London General Insurance Company, -Limited.

22. Mr. Irani also relied upon sub-rule (1) as contained in Dicey's Conflict of Laws, 7th ed. page 1060. That sub-rule runs as follows:-

The material validity, interpretation and effect of a submission agreement are governed by the proper law of the agreement.

Having regard to the findings which I have made, the above sub-rule does not help the contentions made on behalf of the plaintiffs. Mr. Irani also relied upon the decision of the Calcutta High Court in the case of Mury Exportation v. Khaitan & Sons : AIR1956Cal644 , where tit was held that having regard to the arbitration agreement in that case it was open to the arbitrators to decide the question of limitation and the question cannot be raised in support of the contention that the award was invalid. I do not see how the observations in that decision help the plaintiffs' case.

23. Mr. Irani has argued that the question as to the legality and/or validity of an arbitration agreement or award and misconduct of arbitrators is a question .to be decided by Courts of the country in which an arbitration and an award takes place. He has further argued that the question before this Court relates to enforcement of the award and the questions of legality of the arbitration agreement as argued in these proceedings are irrelevant. According to him, therefore, the question about deciding whether the Forward Contracts Prohibition Order, 1944, applies to the arbitration agreement in suit does not arise for decision. Now, it is true that an application for setting aside of an award made in United Kingdom must be made by a notice of motion taken out in the appropriate Court of United Kingdom. It is also true that under Clause 13 of the contract in suit the parties agreed that the questions as arising between the parties should be decided by English Courts according to the law of England. It appears to me that the contentions raised by Mr. Irani are not tenable for the following reasons. The plaintiffs have waived the right to proceed in appropriate Courts in England by asking for the relief of enforcement of the award in this suit in this Court. Under the scheme of Section 7 the plaintiffs have to prove in this Court that the award is enforceable under the Act and in that connection the plaintiffs have to prove what is referred to in detail in Sub-sections (a), (b), (c), (d) and (e) of Section 1(1) of the Act. It would accordingly be for the plaintiffs to prow before me that 'the agreement of arbitration in this case is valid' and which could 'lawfully be referred to arbitration under the law of India' and 'in the manner agreed upon by the parties' and that it is also 'in conformity with the law governing the law of arbitration proceedings' and 'final'. The plaintiffs would have further to prove that the award is in respect of the matter which could 'lawfully be referred to arbitration under the law of India' and that 'the enforcement of the award is not contrary to the public policy or the law of India.' It is obvious that when the plaintiffs come to prove these several matters the defendants must have the right to contest the contentions made in that connection by the plaintiffs. The issues which arise on these matters would have to be necessarily tried and disposed of by this Court. Again under the provisions of Sub-section (2) of Section 7 it would be open to the defendants to prove that the defendants had 'not received due notice of the arbitration proceedings', that the notice of the arbitration proceedings was not 'in sufficient time to enable' them 'to present their case' or that 'the award did not deal with all the questions referred to arbitrators for decision' or 'that the arbitrators had exceeded their jurisdiction and made awards on matters beyond the scope of arbitration agreement.' Furthermore under Sub-section (3) of Section 7 for reasons which are not referred to in any parts of Section 7, the defendants are entitled to prove in this Court that for other reasons they are entitled to contest the validity of the award and jurisdiction is conferred on Court on being satisfied of such reasons to refuse to enforce the award. These being the provisions which are applicable to the facts of this case the agreement as contained in Clause 13 that these issues must he tried by Courts in England is contrary to the scheme of Section 7. The agreement in Clause 13 can in no event be available to the plaintiffs in this case who have taken proceedings under the provisions of the Arbitration (Protocol and Convention) Act, 1937, for enforcement of the award in this Court, This is not again an application for setting aside of an award which must he made by a notice of motion in appropriate Court in .England. Contentions as raised on behalf of the defendants are all such as are permissible under the scheme of Section 7 and the arguments of Mr. Irani are accordingly not tenable.

24. The next contention raised on behalf of the defendants is that they were not given due notice of the arbitration proceedings. The notice if any given was not in sufficient time to enable them to present their case and they were accordingly not duly represented in the arbitration proceedings. The further contention is that the appeal committee has decided the questions arising before it in excess of the scope of the arbitration proceedings before it. In developing this contention on behalf of the defendants reliance is placed mainly on the fact that the appeal committee increased the quantity of damages as awarded by the umpire Triggs from 2..600 to 5,600 without there being any counter appeal or cross-objections filed before the appeal committee on behalf of the plaintiffs. The contention is that at all material times under the rules of arbitration agreed to between the parties a counter appeal or cross-objections were barred by limitation, prescribed under the rules. The granting of the further amount by way of damages as if in appeal filed by the plaintiffs was in contravention of rules of arbitration because cross-objections or counter appeal was contemplated under the rules. In any event it is contended that no notice of the claim alleged to have been made by way of counter appeal or cross-objections for excess damages was ever tendered to the defendants and they were never aware of such a claim. As regards the practice referred to in oral evidence of witness Hawkins and Bollam being respectively the Secretary of the Association and the arbitrator and agent of the plaintiffs that there was a practice in the Association to permit the respondents to an appeal to raise oral submissions by way of counter appeal and/or cross-objections, the contention of the defendants is that such practice is contrary to the prescribed agreed rules of arbitration as also entirely unreasonable and contrary to the rules of natural justice and such practice is not binding on the defendants.

25. In connection with these arguments made on behalf of the defendants it should at once be stated that there is clear proof on record that the defendants had appointed one Eoberts as their arbitrator upon notice of arbitration and the appointment of their arbitrator by the plaintiffs. The defendants' arbitrator having refused to act the Association had appointed one P. W. Jupe as arbitrator of the defendants. Though there is no clear evidence, from the evidence on record it can be clearly inferred that the defendants had given all due instructions in respect of their case to their arbitrator Jupe. The two arbitrators having differed appointed Trigge as umpire and that the two arbitrators had represented the case of the plaintiffs and the defendants respectively before the umpire who made his award for 2,600 in favour of the plaintiffs. The defendants themselves filed, an appeal against the decision of the umpire and that appeal is Appeal No. 329. By notice dated April 24, 1952, the defendants were informed that the appeal committee would hear the appeal on May 22,1952, at 2 P.M. and that the defendants had liberty to attend personally or to submit to the board the statement of their case in reply or be represented by an agent duly appointed in writing. By their letter dated April 30, 1952. the defendants acknowledged having received the notice dated April 24, 1952. The defendants also confirmed that they would in appeal be represented by P. W. Jupe who had acted as their arbitrator in the case. Admittedly Jupr was present at the hearing of the appeal held on May 22, 1.952, as representing the defendants. As to what transpired at that meeting there is very meagre evidence. Hawkins has stated that he was present at the hearing. The defendants were represented by Jupe and the plaintiffs were represented by Bollam.

The date of default was questioned and Mr.. Bollam on, behalf of the buyers stated that if the Board decided that the default was at the later date the amount of damages should be increased., .

The Board of appeal considered the case and made an award increasing the damages...'.

It is perfectly normal for the respondents on an appeal to ask for the award to be varied by the increase or decrease .of the damages and for the Board to do so.

The usual practice in this Association is for the statement of claim and Defence to be made orally on appeal and this course was taken at the appeal to which I have referred.

26. The evidence of Bollam is that he was present at the hearing of the appeal. He repeats that Jupe was present for the 'defendants.

The umpire had taken the date of default as for December shipment. The buyers had agreed an extension to January-February shipment and they claimed that the default date should be altered accordingly. I put this point before the Board of Appeal and pointed out this would increase damages by 30 a ton. The Board of Appeal considered the case and made an award.

I agree with the evidence of Mr. Hawkins as to the practice of the Boards of Appeal as to variation .of damages. These Boards have the right to raise or lower the amount of damages at the request of either party.

I have been in the trade nearly 49 years. I have had experience as arbitrator, umpire and sitting on Boards of Appeal, .mainly in the last ten years.

At the hearing of the appeal Mr. Jupe raised the question of force majeure or frustration, relying on general internal affairs in India. The Board of Appeal took note of his argument and of my reply.

27. That is the whole of the relevant evidence in connection with the contentions as above made on behalf of the defendants and the reply thereto on behalf of the plaintiffs.

28. It is clear that it is not the plaintiffs' case that a counter appeal or cross-objections in writing was made at any time. The whole of the plaintiffs' case is that under the practice prevalent before the Board of Appeal of the Association, the plaintiffs as respondents to the appeal of the defendants were entitled to claim damages in excess of the damages awarded to the plaintiffs by umpire Triggs. Bollam as representing the plaintiffs accordingly raised the question of extra damages which were ultimately awarded to the plaintiffs by the award in question.

29. Before referring to the question of law argued in connection with practice as above in an Association it must be noticed that there is no evidence that the defendants who were in India had knowledge of the practice. The defendants had never received any notice that the plaintiffs were making a claim for damages in excess of the amount awarded by the. umpire. The evidence of Paolieri the chairman of the plaintiffs' firm is as follows::-.an award was made in our favour by the Umpire; and the plaintiff accepted the said Award of the Umpire. Although I was dissatisfied with the Award of the Umpire, the plaintiffs, did not appeal against the same because the plaintiffs entered into arbitration with a view to close up the affair.

The defendants had not instructed Jupe in connection with a claim for excess damages that might be made on behalf of the plaintiffs. The only notice that the defendants had was that their appeal was fixed for hearing on May 22, 1952. They had in connection with advancing their case in appeal authorised Jupe to act on their behalf. As a matter of fact accordingly a finding must be made in favour of the defendants to the effect that the defendants had no notice of any kind of a proceeding by way of appeal or cross-objections on behalf of the plaintiffs against the defendants for award of damages in excess of the amount awarded by the umpire. The defendants; accordingly had no notice at air to present their case in respect of such a claim which was in fact for the first time made before the Appeal Committee at the hearing held on May 22, 1952. The defendants had no agent representing the defendants before the appeal Committee to show cause against such a claim made on behalf of the plaintiffs.

30. Now, it-is well established that, a prevalent custom and usage in a particular market may be deemed-to be incorporated into contracts made by the traders in .that market. Such customs and usages however to be of binding force must not be inconsistent with the terms of a written contract and/or written rules binding between the parties. If an authority was needed for the above proposition the same is in the case of London Export Corporation Ltd. v. Jubilee (Joffee Boasting Co., Ltd. [1958] 2 All E.R. 411 In that case before the appeal committee of arbitrators of an Association hearing was afforded to umpire after the parties concerned left the meeting of arbitration before the appeal committee. It was proved as a matter of fact that there existed usage and custom in the Association that an umpire always remained present with the appeal committee after the parties in arbitration left the meeting of the appeal committee. Umpire was heard in respect of the decision in arbitration in the absence of parties. It was contended as is done on behalf of the plaintiffs before me that the practice and usage of the Association was binding on all the parties. Lord Justice Jenkins in connection with the above argument referred to diverse previous authorities and the conclusion arrived at by him at page 420 of the reporters us as follows:-.It appear to me, when all (the authorities) have been looked at, that the relevant principle or law cannot be stated with any greater precision than this: That an alleged custom can be incorporated into a contract only if there is nothing in the express or necessarily implied terms of the contract to prevent such inclusion and, further, that a custom Will only be imported into a contract where it can be so imported consistently with the tenor of the document as a whole.

It is also well established that a custom and usage to be incorporated into the contract between the parties must be reasonable. Having regard to the above being the true position it is necessary first to see the relevant rules of arbitration which admittedly were binding on the parties. The relevant parts of rules 1, 4, 5 and 8 run as follows:-

1. Any dispute arising out of this contract shall be referred to arbitration in London; each party appointing one arbitrator, and such arbitrators shall have the power to appoint an umpire, whose decision in case of disagreement is to be final in the absence of an appeal...

4. In case either party shall be dissatisfied with the award a right to appeal shall lie to the Committee of appeal provided it be claimed by notice given to the Secretary of the Association not later than 12 O'clock noon on the fourteenth day after the date of the award (Sundays and public holidays during that period not to count) and provided also that the appellant, with the notice, pays to the Association the sums following by way of deposit and on account of the costs and expenses of the appeal,... Where there is a double appeal the Association takes double its usual quota of fees;... Where an award is not varied and there has been an appeal from both sides, each side to pay half the fees....

5. The appeal shall be determined by a Board of Appeal consisting of four members of the Committee of Appeal of the Association in accordance with the Regulations of Association for the time being of the London Oil and Tallow Trades Association and the Rules of the Council for the time being in force....

8. The Board of appeal shall confirm the award appealed from unless not less than three of the members of the Board of Appeal decide to vary such Award. The Board of Appeal may award the payment of the costs and expenses... The award of the Board of appeal, whether confirming! or varying the original award, shall be signed..., and when so signed shall be deemed to be the award of the Board of Appeal...and shall be final and conclusive in all cases.

Now, it is clear that on a true construction of rule. 4 an appeal of any of the parties' to arbitration would be barred by limitation after expiry of 14 days as prescribed therein. It would therefore be necessary to be proved on behalf of the plaintiffs if the award is to be held valid, that they had filed a counter appeal or cross objections within the period of 14 days prescribed by rule 4. That there can be 'double appeal' is clear from the provisions in rule 4 for payment of fees and expenses when there was double appeal filed. The practice proved by oral evidence of Hawkins and Bollam, that counter appeal and cross objections for damages in excess of the amount awarded by an umpire could be orally raised at the hearing has the effect of permitting a counter appeal subsequent to the 14 days period of limitation prescribed by rule 4, and is obviously contrary to and inconsistent with the written provisions as contained in rule 4 and the scheme of rules of arbitration. This practice must also be held to be unreasonable. The practice accordingly is not capable of being incorporated into the contract in this case. In this connection it is necessary to bear in mind that the provision for appeal in an arbitration is an extraordinary scheme and arises only by reason of agreed rules of arbitration. There can be no jurisdiction in the appeal committee having regard to the provisions of rule 4 to award damages in excess of the amount awarded by umpire unless and until there was an appeal filed in that connection. There is no provision in these rules of arbitration for affording an opportunity to the respondents in appeal in arbitration to make an oral appeal at the hearing before the appeal committee for awarding damages in excess of the amount awarded by an umpire. It is clear to me that for that purpose specific appeal must be filed within the time prescribed by the rules.

31. In this connection stress has been laid on behalf of the defendants on the provisions in rule 8 that the Board must confirm the award of arbitrators unless three members agree to variation of the award. It is clear to me that the defendants who were in India could not have been and were not aware of the alleged practice for increasing damages at the instance of the respondents in appeal on an oral application for that purpose made at the hearing of an appeal. The practice alleged and proved by oral evidence is contrary to the written rules of arbitration agreed to between the parties. The practice is contrary to the intention of the parties in agreeing to go to the arbitration of the association. The practice is accordingly not binding on the defendants

32. The oral appeal, if any, made on behalf of the plaintiffs in this case at the hearing was barred by reason of the provisions of rule 4. The defendants had no due notice of the claim made for excess damages on behalf of the plaintiffs and were not duly represented in that connection before the Appeal Committee. Having regard to that position the defendants' case falls directly within the provisions of Section 7(2) of the Act.

33. In this connection reliance is also placed on behalf of the defendants on the provisions in Section 7(1)(c) which run as follows:-

7(1) In order that a foreign award may be enforceable under this Act it must have-...

(c) been made in conformity with the law governing the arbitration procedure,...

34. This provision is the result of Clause (2) of the Protocol on Arbitration Clauses as contained in the First Schedule to the Act and also sub-cl. (e) of Article 1 of the Convention of the Execution of Foreign Arbitral Awards as contained in the second schedule to the Act. Clause 2 of the Protocol on Arbitration Clauses runs as follows:-

(2) The arbitral procedure, including the constitution of the Arbitral Tribunal, shall be governed by the will of the parties and by the law of the country in whose territory the arbitration takes place.

Article 1(c) of the Convention of the Execution of Foreign Arbitral Awards runs as follows:-

(c) That the award has been made by the Arbitral Tribunal provided for in the submission to arbitration or constituted in the manner agreed upon by the parties and in conformity with the law governing the arbitration procedure;

34. It is contended on behalf of the defendants that the phrase 'the law ass contained in Sub-section (c)' includes the rules of procedure agreed to between the parties. It is accordingly rightly contended that when the Appeal Committee made its award in respect of a time barred appeal or cross-objections made orally by the plaintiffs before them the law and procedure as contained in rule 4 of arbitration were violated. It is also clear and well established that according to law prevalent in England all awards tainted with misconduct of an arbitrator are liable to be set aside. It is also clear that in England all quasi judicial tribunals must conform to the rules of natural justice and violation of rules of natural justice results into legal misconduct of an arbitrator. The law of England accordingly is that wherever there is violation of rules of natural justice the resulting decision is not in conformity with the law governing the procedure. As I have already made a finding in this case that there was no due notice of the claim of the plaintiffs for excess damages given to the defendants, there was clear violation of rules of natural justice in this case. The award made by the Appeal Committee was accordingly not made in conformity with the law governing the arbitration procedure.

35. In connection with the above contentions Mr. Irani contended that the award of appeal committee was in conformity with the arbitration procedure because upon the appeal being filed the arbitration committee came to be substituted in the place of the first arbitrators. According to him the effect of filing of the appeal was that the freshly appointed arbitrators, the appellate committee, entered upon a new reference. Upon a notice of such appeal being served both sides were entitled to make their fresh claims as in a new arbitration proceeding and the appeal committee was entitled at the hearing to consider the whole of the claim made by either side and make award. Mr. Irani further contended that the power 'to vary' an award as vested in the appeal committee under the arbitration rules includes '' the power to vary damages either way'. It appears to me that the whole of this contention is entirely without any foundation and contrary to the clear language of the rules of arbitration binding the parties. The award of the umpire is directed to be confirmed by an Appeal Committee unless three members of the Appeal Committee agree to vary the award and double appeal is permissible under the rules. An appellant having filed an appeal may refuse to proceed with an appeal in which case also nothing would be left to be done by an Appeal Committee except to confirm the award of the umpire. It is not necessary to further discuss in detail the arguments advanced by Mr. Irani as they appear to me to he entirely without any substance.

36. On behalf of the defendants it was further contended that the award is not final. Reliance was placed in that connection on Section 26 of the English Arbitration Act which provides that

An award on an arbitration agreement may, by leave of the High Court or a judge thereof, be enforced in the same manner as a judgment or order to the same effect, and where leave is so given, judgment may be entered in terms of the award.

The contention is that unless and until an award is made a rule of Court and is enforceable as judgment it is not final. In this connection reliance is placed also on Section 44A of the Code of Civil Procedure which inter alia provides that in no case a decree as mentioned in the section will include an arbitration award, even if such award is enforceable as a decree or judgment. I must say that, there are certain observations in the case of East India Trading Co. v. Badat & Co. (1958) 6) Bom. L.R. 333 which lends support to the contention that an award is not final until it is made a rule of Court. The point as arising here had not arisen before the Appeal Court in that case for decision. It appears to me from the scheme of Section 7 which I have already discussed above that an award would be final within the meaning of Sub-section (d) of Section 7(1) of the Act, even if it is not made a rule of Court. What is made enforceable under the provisions of the Act is the award and not the decree making award a rule of Court. I assume' that the jaws of all the countries being parties to the Protocol and Convention provide that an award to be made a rule of Court must be final as an award. The award by itself is an instrument which must filially dispose of the matters agreed to be decided by arbitration and must be executable. Under Sub-clauses (a), (b), (o), (d) and (e) of Section 7(1) diverse matters including in connection with the validity of arbitration agreement, the constitution of the Tribunal of arbitration and the conformity of the award with the law governing- the arbitration procedure are liable to the discussed in Court, Under sub-el. (b) of Section 7(2) the Court is also empowered to see whether due notice of arbitration-proceedings was given to the parties contesting the enforceability of the award. Having regard to the wide scope of the enquiry which the Court is authorised to hold under the above provisions it appears to me that the word 'final.''' as used in sub-cl. (d) of Section 7(1) was not meant to refer to an award which is made a rule of Court. The award which is made a rule of Court would according to the laws of the particular country in which it was made always be executable as a decree. Tinder Section 44A of the Code of Civil Procedure even so it is provided that such- awards having been made rules of Court will not be decrees for execution. It appears to me that it was never intended to provide that only awards which have been made rules of Court should be enforceable under the provisions of Section 7(1) of the Act. The award In this case is final as to the rights of parties and disputes referred to arbitration. Admittedly the time for setting aside of the award in this case by proceeding's in English Court expired long before the filing of this suit. The award, therefore, must be held to be final.

37. On behalf of the defendants a contention is made that this suit is barred by the law of limitation. The contention is that Article 178 of Schedule I to the Limitation Act is applicable to this suit. Mr. Nariman for the defendants has informed me that he does not give up the contention but it was decided in the case of Francesco Corsi v. Gorakhram (1958) 61 Bom. L.R. 1195, that Article 178 is not applicable to a case like this. He is not in a position to agitate this matter before me. My finding, however, following that decision must be that the suit is not barred by the law of limitation.

38. Mr. Irani contends that the defendants raised the contention regarding the illegality of arbitration agreement at a very late stage. Evidence on commission had been recorded much before the defendants took that contention. He also contends that the plaintiffs being foreigners could not be and were not aware of prohibition as contained in the Order of 1944. All costs have been incurred by the plaintiffs because the defendants had after making the contract in suit failed to effect delivery. The defendants had not raised contentions as now made either before the arbitrators or the umpire or the Appeal Committee, The plaintiffs had made the transaction in suit only as a commercial transaction and has incurred extremely large amount of costs. This according to him is a case in which the plaintiffs should not be made to pay costs inspite of the suit having been dismissed. Mr. Nariman contends that a large time was devoted to contentions which did not relate to the Prohibition Order of 1.944 and the costs must follow the event.

39. Having regard to the circumstances as pointed out by Mr. Irani in my view the proper order in this case is that each party will bear and pay its own costs.

40. The (Petition) suit is dismissed. Each party will bear and pay its own costs.


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