Author: Shrijeta Pratik, 1st Year law student at KPMSOL, NMIMS, Mumbai.
Original Copy: View
Citation: 2009 SCC OnLine Del 1884
Appellant: National Agricultural Cooperative Marketing Federation of India
Respondent: Alimenta S.A
Bench: Arun Mishra, M.R. Shah, Aniruddha Bose
Date of Judgment: 22nd April, 2020
With the rise in the domain of alternative dispute resolution in recent years, it has been noted that there have not been many organized and concerted attempts by both the Parliament and the Judiciary to promote India’s transformation into an arbitral centre. The interference of Indian courts in situations relating to and settled by arbitration has been one of the greatest roadblocks to this lofty goal. In NAFED vs. Alimenta S.A., the Supreme Court altered public perceptions about the function of the court in issues of arbitration, as well as the enforcement of foreign awards, ruling it to be a violation of the nation’s public policy.
Background of the case
- A contract was signed between the NAFED and Alimenta S.A. for the shipment of 5,000 tons of Indian HPS groundnut. The contract signed was not a Free on Board (FOB). NAFED was the Government of India’s canalizing authority for the commodity’s exports. NAFED, as a canalizing agency, sought the specific consent and assent of the Government of India for any export that was to be carried forward to the following year from the preceding year.
- The agreement was reached between NAFED and Alimenta S.A. at a pricing of USD 765 per metric ton. Only 1900 metric tons of the stipulated amounts of 5000 metric tons could be supplied. Due to crop harm sustained by cyclones and other natural disasters in the Saurashtra region, the remaining quantity could not be exported. NAFED sent only 1900 metric tons of merchandise in compliance with the initial Agreement in August 1980. Due to government constraints, the balance reserves of 3100 metric tons of commodities could not be delivered as planned.
- It is worth noting that NAFED received clearance from the Indian government to engage in exports for three years, but no authority under the Export Control Order to continue the operations. In the end, Alimenta S.A. on 13.2.1981, instituted arbitration procedures with the Federation of Oil, Seeds and Fats Associations Ltd. (FOSFA) in London. On 19.3.1981, NAFED filed a petition against Alimenta S.A. with OMP No.41 of 1981. Alimenta S.A. was restrained by a prayer and FOSFA from pursuing the arbitration proceedings, citing, among other things, the agreement’s lack of an explicit arbitration provision.
Issues taken into consideration
- Was NAFED unable to fulfill its contractual commitment to ship groundnut because of the government’s rejection?
- Whether NAFED was to be held accountable for damages for breach of contract, especially in light of clause 14 of the Contracts Act?
- Is enforcing the decision against Indian public policy?
The Apex Court in NAFED refused to enforce the decision on the grounds that the “public policy” in Section 7 of the Foreign Awards (Recognition and Enforcement) Act, 1961 was triggered for the following reasons:
- A force majeure clause was included in Clause 14 of the parties’ deal, which stated that the contract will be terminated if the government refuses to allow Alimenta to follow the service.
- The commitment was in fact a conditional contract under Section 32 of the Contract Act, and therefore was invalid if the contingency occured, namely the Government’s rejection to grant authorization.
- Accordingly, it was stated that following the government’s directive and enforcing the decision would be a breach of India’s export policy.
Given these considerations, it was reasonably held that the third reason of “infringement of export policy” is the only constitutionally viable cause for the Court to withhold prosecution in the current case, since it could constitute far more fundamental breach of legal provisions.
- It has been contended that the consideration of the Supreme Court on the grounds of the foreign award and the subsequent decision to withhold execution violated the recognized statutory interpretation and international rules governing the evaluation of foreign awards’ merits. This piece of work examines some of the case’s key elements, such as the extent and understanding of public policy, but it avoids delving into the substantive law of the force majeure provision and contract failure under the Indian Contract Act, 1872.
- The decision of the Supreme Court in this case is vague on this distinction, and it also does not explain why a violation of export policy constitutes a violation of fundamental principles of the Indian legislature. This decision generates more concerns than it resolves due to the lack of transparency in its rationale and, as correctly observed, has the potential to stimulate upcoming problems in arbitral rulings by widening the scope of public policy in India.