1. Societa Anonmina Lucchese Qlli E. Vini Lucca, a corporation formed under the laws of Italy, and having its registered office at Lucca (Italy), entered into two contracts dated 11-11-1950 with Gorakharam Gokalchand (respondent) for supply of a large quantity of Crude groundnut oil, to be sold and supplied by the defendant (respondent) from India to the plaintiff (appellant) concern in Italy, at varying prices for shipments in December 1950 and January 1951 By virtue of both the contracts, the sales were to be subject to the rules of the London Oil and Tallow Trades Association. Under one condition, in case of default of fulfilment by either party, the damages payable by the defaulting party must be settled by arbitration It is not in dispute that this would be governed by Rule 6 of the Rules of the; London Oil and Tallow Trades Association, and that the arbitral procedure had, therefore, to be adopted in London by, and under the rules governing that Association. It is further indisputable that the defendant (respondent) failed to deliver the goods, under both the contracts. The plaintiff (appellant) then referred the dispute between the parties to the arbitration in London to be conducted under the rules of the London Oil and Tallow Trades Association Ex. P. 24 sets forth the relevant rules of Arbitration of that association, but we might briefly note that the actual procedure to be adopted by the arbitrators is not specified in those rules; obviously the procedure would be governed by the principles of Arbitration under English law
2. Each party had to nominate one arbitrator, and the plaintiff appellant accordingly nominated one Mr. G. G. Drew, and gave notice in writing of this reference to arbitration to the defendant respondent. The defendant defaulted or neglected to nominate an arbitrator within the time permitted, and the appellant applied to the secretary of the London Association on 8-5-1951, re questing him to appoint an arbitrator on behalf of the defendant. The Association, at a meeting on 11-6-1951, appointed Mr. S. H Fleming When Mr. Fleming intimated the defendant of this, and requested the defendant to give him instructions and to supply him with copies of the contract and correspondence, the defendant wrote to Mr. Fleming, and also furnished him with copies of the correspondence. The two arbitrators purported to act together, and gave an award on 15-10-1951 by which the plaintiff was given damages to the tune of 5450 (C.S. 328 of 1953) and 5575 (C.S. 325 of 1952). The suits were filed, on the Original Side of this court, to enforce the award under the Arbitration (Protocol and Convention) Act, VI of 1937. The learned Judge, who tried the suits (Ganapatia Pillai, J.) held that the suits had to be dismissed, on the grounds stated, but that there would be no order as to costs The plaintiff has appealed
3. There were three broad grounds upon which the suits were resisted by the deft, after an amendment of the written statement, which was allowed by the learned Judge in January 1959. First, that the contracts themselves were illegal and void under Indian law, because they were 'forward contracts' entered into between the parties in violation of the Vegetable Oils and Oilcakes (Forward Contracts Prohibition) Order, 1944. The submission to arbitration was in pursuance of an integral term of the contracts, and the contracts being illegal, the arbitration was tainted by the same infirmity. The resultant award were a nullity, which could not be enforced under the Arbitration (Protocol and Convention) Act VI of 1937 Apart from this, the further ground of attack is that they were not in conformity with the law governing the arbitration procedure. The defendant was not given notice of the arbitration proceedings by the arbitrators, in adequate time to enable him to present his case This ground has finally emerged in the form that the arbitrators cannot be said to have acted together at all, or to have followed the basic requirements of the principles of natural justice in purporting to act together and in making the award. Finally, the suits were barred by limitation, as they were not instituted within the time permitted by Article 178 of the Indian Limitation Act
4. After a discussion of these relevant aspects of the defence to these suits, the learned Judge held that the contracts themselves were void and illegal ab initio being 'forward contracts' prohibited by law They did not fall within the exemption clause relied upon by the plaintiff-appellant. Since It is clear that the contract was to be performed in India, the law of this country would apply, and the plaintiff could not be heard to urge that the rules of an English Contract should govern the matter, because of a specific understanding to that effect between the parties. In any event:, when a contract is illegal under the Indian law, the courts here will not enforce any award on the basis of an arbitration which is part of the contracts; the arbitration itself will be equally void in law The learned Judge further held that the suits were barred by limitation. But. upon the vital aspect of the arbitral procedure actually adopted in this case and the absence of notice to the defendant-respondent, he held against the defendant In result, as we specified earlier the suits were dismissed
5. Alter proceeding into all aspects of these appeals, we find that they can be adequately and totally disposed of upon one of the threes grounds urged in defence to the suits. However, for the sake of completeness , we shall deal briefly with the other grounds also, to the extent that we deem it necessary,
6. In Halsbury's Laws of England (Simonds Edn) Volume 2 page 53 paragraph 116, will be found set forth the conditions upon which a foreign award could be enforced in England. Inter alia, two vital conditions are that, Firstly, the award must have been in respect of a matter which may be lawfully referred to arbitration under English law, and the enforcement of the award must not be contrary to public policy or the law of England secondly, the party against whom it is sought to enforce the award, must have been given notice of the arbitration proceedings in sufficient time to present his case. When we turn to Section 7 of Act VI of 1937. we find that it reflects these terms in its text Section 7(1) runs 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 of arbitration which was valid under the law by which it was governed, (b) been made by the tribunal provided for in the agreement or constituted in manner agreed upon by the parties, (c) been made in conformity with the law governing the arbitration procedure, (d) become final in the country in which it was made, (e) been in respect of a matter which may lawfully be referred to arbitration under the law of India and the enforcement thereof must not be contrary to the public policy or the law of India'
Section 7(2) enacts:
'A foreign award shall not be enforceable under this Act if the court dealing with the case is satisfied that - (a) the award has been annulled in the country in which it was made, or (b) the party against whom it is sought to enforce the award was not given notice of the arbitration proceedings in sufficient time to enable him to present his case, or was under some legal incapacity and was not properly represented, or (a) ........(omitted)'
7-8. It is not in dispute that the contract)! in the present case were 'forward contracts' specifically hit at by the Vegetable Oils and Oilcake* (Forward Contracts Prohibition) Order 1944, within the mischief of the prohibition embodied in cl. (3) of that law. In other words, unless any clause of exemption is relied upon by the plaintiff-appellant, and he succeeds in establishing its applicability, these contracts are illegal, according to the law of India. We shall have occasion, a little later, to deal with the question whether it is the law of India or the law of the country of the buyer-firm (Italy) or the English law which will govern these contracts, upon general principles. But it is perfectly obvious that if Act VI of 1937 is to apply, and the suite were filed for enforcing the awards under this Act, S, 7(1)(e), earlier extracted, will bar the suits. The clause of exemption relied upon by the plaintiff-appellant, issued by the Central Government under clause (5) of the Vegetable Oils and Oilcakes (Forward Contracts Prohibition) Order 1944 runs as follows:
'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 bill of lading against which contracts are not transferable to third parties'.
Very briefly put, the argument was that the present contracts, or the bills of lading relevant thereto, were not transferable, either at the terminus of the seller (India), or at the terminus of the buyer (Lucca Italy). It is this argument which the learned Judge has repelled, after an examination of the relevant authorities, with the result that he holds the suits to be not maintainable
9. This question of prohibited 'forward contracts', prohibited as a matter of public policy, and the alleged exemption, claimed by virtue of a clause which excepts non-transferable contracts, has previously come up for consideration before courts in this country. Before dealing with this matter, we might tersely state that the learned Judge (Ganapatia Pillai J.) observed that it was common ground before him that the Prohibition Order of 1944 was continued by subsequent ordinances and enactments, and was in force both on the date when the contracts in these cases were entered into, and when they had to be performed. The notification containing the exemption with regard to non-transferable contracts, was issued by the Government of India simultaneously with the promulgation of the Order itself. There is some little difficulty in this matter of the continuance of the Order of 1944 by subsequent Ordinances and enactments.
In M. Ahmed Koya v. E. Murugesa Mudaliar Son and Co., AIR 1958 Ker 195 a Bench of that court has held that Section 5 of the Central Ordinance XVIII of 1948 did not keep in force the Order of 1944, so far as oilcakes were concerned But we are not proceeding into this question, since it did not appear to us to be essential, and we are assuming that the observation of the learned Judge is correct. Now, in Suwalal Jain v. Clive Mills Co. Ltd.. : AIR1960Cal90 a Bench of that court had occasion to consider the applicability of the exemption clause with regard to non-transferable contracts, in respect of 'forward contracts' otherwise prohibited, and the Court pointed out that the contract can be said to be non-transferable, if the rights as also the liabilities under the contract, as also the documents of title relating thereto, are not transferable. In Hanumanthiah v. Thimmaiah, : AIR1954Mad87 Rafamarmar C. J. stressed, following an earlier decision of Chandrasekhara Aiyar J. that a contract to sell goods is assignable by a seller, and equally a contract to buy goods is assignable by the buyer, as a matter both of general principles of law and of trade practice
10. The entire question came up more specifically for consideration in Satyanarayanamurthi v. Sitaramayya, (1950) 1 MLJ 557 and Sitaramasami v. Bhagavathi Oil Co. : (1951)1MLJ147 , In both these cases, the learned Judges held that, unless there was a specific recital on the face of the contract itself, to the effect that it was not transferable, the contract would come within the mischief contemplated by the Order prohibiting forward contracts In Hussain Kasam Dada v. Vijayanagaram Commercial Association, : AIR1954Mad528 Govtnda Menor and Basheer Ahmed Sayeed JJ referred to these earlier cases, and pointed out that unless it was shown that one of the terms of the contract was that at delivery order or a railway receipt or a bill of lading relating to it, was not transferable, the contract*, which did not contain any stipulation as regards such documents, could not fall within the exclusion clause of the notification In V Daya and Co. v. Ramakrishno Rice and Oil Mills, AIR 1956 Mad 110 Ramaswami J had occasion to construe a particular forward contract, and he held that, as an essential term of the contract was that goods were to be delivered in the godown of the company, this effectively prevented the transfer, and rendered that contract one within the exemption clause. The learned Judge (Ganapathia Pillai J.) had doubted the correctness of this decision. However this might be, the point urged by the learned counsel for the appellant is not a denial of the ground that, ordinarily speaking, the contracts in the present matter would he barred under Indian law, and hence unenforceable under Act VI of 1937. but that the entire plea took his client by surprise; It was introduced into this litigation by virtue of a very belated amendment of the written statement. There was no opportunity for him, thereafter, to adduce evidence to prove that, under the Italian law, neither the bill of lading, nor any other document pertaining to the contracts, nor the contracts themselves, could be assigned by plaintiff to third parties in Italy. It is not claimed that opportunity was sought to adduce such evidence, and that it was denied. But it to claimed that, conceivably, the true state of affairs might be that these contracts were wholly non-transferable either at the terminus of the seller or at the terminus of the buyer. The matter ought not to have been determined merely as a question of law, without reference to further material in the shape of evidence.
11. We are not very much impressed by this argument, for the simple reason that the suits were disposed of several months after the amendment of the written statement, and the record does no! contain any hint or whisper to the effect that the plaintiff firm desired to adduce evidence to prove that the contracts, and the relevant documents of title, were non-transferable even at the terminus of the buyer (Italy). Ordinarily, according to commerical practice, it is difficult to see why the buyer (plaintiff) could not transfer the bills of lading, or even the contract itself to some third party in Italy. It has been seriously argued that the liability of the contracts will not affect the present suits, because the parties must be governed either by the Italian law on this aspect, or the English law, to which the submitted in the matter of arbitration. We have already stressed that] Section 7(lXe) of Act VI of 1937 is imperative, and; that would be conclusive on this aspect. But, even apart from that, we doubt the soundness of the proposition so advanced.
Learned counsel for the appellant points to passage in Dicey's Conflict of Laws (7th Edn.) pages 1060-61, to the effect that the formal and material validity of a foreign arbitration award must be governed by the law of the country where the arbitration is held in the present case, the contracts not being prohibited under English law. which applies to the awards, the awards are thereby enforceable. It is again pointed out, on the strength of a passage in Russel on Arbitration, 16th Edn. page 33, that where a contract is made between the parties resident in different countries, or is made in one country to be performed in another, the validity and effect of an arbitration clause in the contract must be determined by the 'proper law' of the contract as a whole. The question is the law which was intended by the parties to govern the contracts, and this may well be Kalian or English law, in the present instance. But it is very clear, as a principle of both of law and practice, and of private international law, that a court will not enforce a contract which ft illegal by its own lex fori. This is stated by Chitty on Contracts, 22nd Edn. page 1699 to be 'an elementary principle of law' 'This principle applies with equal force to contracts governed by Municipal and foreign law'. In Cheshire's Private International law, 6th Edn. page 225, this doctrine of the proper law has been expounded in the most lucid and emphatic terms (In the context of a citation of one English agreement void for want of consideration, but which is, sought to be saved by the insertion of a clause providing that the agreement would be subject to Scots law) as follows:
'This attempt to save the contract by evoking the more favourable doctrine of Scots law, that a gratuitous promise is binding if the promiser clearly intends to bind himself and expresses his intention in plain terms, must obviously fall. It is an abortive attempt to exclude indirectly, what cannot be excluded by its direct rejection.'
We might also refer to Se Se Oil v. Gorakhram, 64 Bom LR 113 as authority for the view that an Indian citizen making a contract in India, cannot avoid the applicability of the Indian law to the contract, whether partly to be performed in India or wholly so. It is thus clear that, if the contract is illegal, the awards will not be enforceable either under Act VI of 1937 or under general principles of law, applicable to the enforceability of the contracts themselves, or of foreign awards made an a consequence of any terms in such contracts
12. However, we desire to make it clear that we are not disposing of the appeals, finally, upon this ground. This is for the reason that the amendment to the written statement, both with regard to the illegality of the contracts and. the ground of limitation, came into existence very belatedly in these suits. The plaintiff appellant certainly should have sought to adduce evidence on these matters, had it been his intention to urge that the contracts were non-transferable, according to the laws of Italy. In conceivable cases, it may be that the contracts themselves are silent on this aspect, but that there is other evidence to establish that the contracts and the documents of title appertaining thereto, were not transferable. In Khardah Co., Ltd. v. Raymon and Co., their Lordships pointed out that when a contract has been reduced to writing, the Court must ordinarily look to the writing alone for ascertaining the terms between the parties; but it did not follow from this that it was only what was expressly set out, and in so many words, that could constitute a term of the contract. The term could be implied, and, in construing a contract, it would be legitimate to take into account surrounding circumstances. Therefore, on the question whether there was an agreement between the parties that the contract was to be non-transferable, the absence of a specific clause forbidding transfer was not conclusive.
In the light of these dicta, it has certainly to be held that the observations in : (1951)1MLJ147 and : AIR1954Mad528 to the effect that the contract should ex facie contain a prohibition as to transfer would need reconsideration, and might no longer be the correct exposition of law. Even apart from the question of the plaintiff-appellant adducing further evidence, the surrounding circumstances that is, the entire correspondence and other documents, might have to be canvassed in order to see if the non-transferable character of the contracts could be deduced therefrom. As, in our view, there is a much clearer and stronger ground upon which the suits have to fail, we are content to leave the matter at that.
13. We have no doubt whatever that, the con tract being opposed to the law in this country - If that is the Justified inference - and the clause with regard to reference to arbitration being an integral part of the contract, the entire subsequent proceedings of arbitration and award would also be tainted by the same infirmity. This is abundantly established by a catena of decisions to which our attention has been drawn. The relevant cases are M/s. Dhanrajmal Gobindram v. M/s. Shamji Kalidas and Co., : 3SCR1029 and Waverly Jute Mills v. Raymon and Co, : 3SCR209 . Reference can also be made to the decision of a single Judge of the Calcutta High Court in S. B Jute Mills v. Fulchand Kanhaiyalal Co., : AIR1963Cal140 , where the position at law is summed up towards the end of the Judgment (page 147). A dispute as to the legality of the contract has to be decided by the Court, and authorities cited by the learned counsel for plaintiff appellant to the effect that the question of misconduct by the arbitrators cannot be gone into by the Court in which a foreign award is sought to be enforced, have really no application here; further, we are governed by the specific terms of the statute, namely, Section 7 of Act VI of 1937.
14. But, as we stated earlier, there is a clear and conclusive ground upon which the suits have to fall, apart from the alleged illegality of the contracts. This is the simple one that the arbitrators to England did not really come together and act in this matter at all, nor give an award after affording the defendant respondent an opportunity, even in the barest sense, of making his representations to the Joint arbitrators. On this aspect, the learned Judge has no doubt held against the defendant respondent, but the principles of law applicable, and the facts themselves, are so clear as to render this beyond the pale of controversy altogether. We shall first briefly refer to the relevant principles said, then proceed to the actual facts of the record.
15. As will be clear from a passage in Russell on Arbitration 18th Edn. page 136, such Joint arbitrators must not merely act Judicially, but should not consider themselves as the agents or advocates of the party who appoints them When once nominated, they ought to perform the duty of deciding impartially between the parties. In ' very similar case on the facts, C. S. No 255 of 1981, where actually the facts were far stronger in support of the inference that there was some conformity to arbitral procedure, the learned Judge of this Court who tried the suit (Rajagopala Aiyangar, J.) held that the parties were not apprised by the arbitrators, in that capacity, but that the arbitrators merely proceeded to obtain instructions virtually as agents of concerned parties, and that the award was vitiated by this misconduct.
In Halsbury's Laws of England, 3rd Edn. Vol. 2, page 34, it is made abundantly clear that the arbitrators must act together, must appoint times and places of meeting, and give due notice thereof to the parties. Where a reference is to more than one arbitrator, they should all concur in appointing such times and places, and in doing all other acts in the course of the reference. There can be no doubt whatever that the arbitrators must function together, give notice to parties and opportunities for representation after they have commenced to function together, and that, if they fail to do so, the arbitral procedure is void, as not conforming to principles of natural justice. Nothing can be done, as a matter of arbitration, to the detriment of a party, ex parte, however much he might have bound himself previously. For a clear instance of this principle, see Andrews v Mitchell, 1905 AC 78. Even where a party had notice, but failed to attend before the arbitrator, the award was set aside where reasonable excuse for nonappearance was shown: See Gladwin v. Chilcote. (1841) 01 RR 825. In the present matter, the facts are so heavily in favour of the defendant-respondent on this vital aspect, that ft is adequate to set them forth here quite briefly.
16. We may take it, from the exhibited correspondence, that Messrs Drew and Fleming were Joint arbitrators, and that they could claim, with any degree of plausibility, to have so acted or even to have purported so to act, only after the letter of 11-6-1961 from the London Oil and Tallows Trades Association. In hi* evidence on commission (page 42 of the appellants' documents) Mr. Drew, in cross-examination is specific about this. He then says that he contacted Mr. Fleming by writing to him on 19th June and giving him relevant data. It is important to note that Mr Fleming, appointed on behalf of the defendant-respondent, received a letter from the defendant-respondent dated 30-6-1951, Ex P.25, explaining the circumstances under which the contracts were not fulfilled. In the concluding portion of the letter, the defendant states 'you may therefore go into the matter in the light of the above explanation.' There can be no question of acquiescence or waiver here. Mr Fleming was a joint arbitrator along with Mr. Drew bound to act judicially, and not merely as an agent of one party, and no extent or degree of acceptance of certain facts by the defendant-respondent in some letter, would absolve the joint arbitrators from their plain duty to intimate the parties of their proceeding, and to hear representations. The evidence of Mr. Drew (pages 42 43) makes it clear beyond doubt that the joint arbitrators never acted together and that, in sum and substance, they never arbitrated at all, in any manner known to law The following questions and answers are eloquent:
'Q. Did you at any time communicate with the respondents in connection with this arbitration
Q. Did you receive any communication from them?
Q. Did you see the letter of instruction which Mr. Fleming received from the respondents?
A. I cannot say that I saw it but I have no doubt that Mr. Fleming would have put forward whatever points were contained in that letter
Q. But he would not have shown you the actual letter?
A. I cannot say that he did.'
Later. Mr. Drew admits that, with regard to the vital matter of the difference in rates upon which the quantum of damages had necessarily to be based, himself and Mr. Fleming acted from their personal knowledge of the conditions of the market The decision in Bhican Chand v G and M Fogt : AIR1927Cal227 is relied on by the learned counsel for the plaintiff, for the view in such matters, the arbitrators need not hear oral evidence, but could well act on their special experience and knowledge. But the point is, even on the matte; of quantum, the defendant-respondent has never been heard. He has never been given an opportunity to show that the quantum should not exceed a particular figure, or that it should justly amount to such-and-such damages and no more. In brief, there has been no conformity to any known arbitral procedure, either under English law or under the principles of arbitration, in India The awards are vitiated by the vital defect that they are strictly speaking, ex parte, in themselves, they contain no hint whatever of the basis on which the very considerable damages awarded were arrived at We should also recollect that the contracts themselves contained intrinsic terms as to the manner of ascertainment of damages, in case of breach by either party
17. We do not think it is necessary to reiterate this matter further. Mr Drew and Mr Fleming might have had telephone conversations, and both of them might have received letters from the respective parties prior to their joint arbitration, and also copies of correspondence. But they are not the agents of the parties, and they are bound to come together and to act judicially as arbitrators, conforming to principles of natural justice. We need not stress that, in these days of quickened transport by air, it is conceivable, and even quite probable, that the defendant-respondent could have made an appearance in person, or by agent, and ex planted the breaches of contract, if an opportunity had been given intimating at least the place and date of the hearing or hearings. In a word, the arbitrators seem to have thought that it was a matter of putting their heads together, without any reference to the parties and their representations, and imposing some kind of just and equitable settlement That is not arbitration at all as known to law For that essentially implies the functioning of the joint arbitrators as some kind of a Judicial body, and proceedings of arbitration in that regard. We are constrained to differ from the learned Judge, and to conclude that there has really been no arbitration at all and that the award.' are. therefore, totally void
18. We do not think it necessary to decide separately the matter of limitation (Article 178 in the light of our discussion of the above moral crucial aspects. We have been invited now to remit the proceedings to the London Association, since there has been no real arbitration and no valid awards, and reference is made to Section 18 of the Arbitration Act, 1940 and to the observations of the Supreme Court in Juggilal v. General Fibre Dealers Ltd., : AIR1962SC1123 . But obviously, we cannot do this, for the simple reason that neither the London Association nor the arbitrators, who have hitherto been functioning, can be said to be within the jurisdiction of this Court, or amenable to it. Further, it is perfectly possible that the London Association might decline to act in conformity with the directions of this Court, or to submit to its judicial superintendence. It is for the concerned party (plaintiff-appellant) to take such further action as he may be advised to take in the light of the situation that the awards are void, and that the suits under Act VI of 1937 have clearly to fail.
19. The appeals are dismissed accordingly. Defendant-respondent will have costs upon half the usual scale.