Important Points
1. Merely because the arbitrators are situated in a foreign country cannot by itself be enough to nullify the arbitration agreement when the parties have with their eyes open willingly entered into the agreement. Awards, rendered pursuant to such an agreement cannot be held to be unenforceable merely on ground both the parties are Indian parties, for such a case is clearly covered by Exception 1 Section 28 of the Indian Contracts Act.
2. Referential incorporation of arbitration of dispute is permissible and such a clause in contract is binding on the parties unless it is insensible, unintelligible or is inconsistent with the terms of contract.

Headnote:(i) Foreign Awards (Recognition and Enforcement) Act, 1961-Sections 5 and 6-Making award rule of Court-Arbitration clause in contract was incorporated by reference to Arbitration Rules of GAFTA -Dispute referred to arbitrators of GAFTA and award published-Objection to make award rule of Court on ground that there was no agreement in writing between parties requiring dispute in accordance with rules of GAFTA-Not sustainable-Referential incorporation permissible-Fact that both parties Indian parties not ground to invalidate award on ground arbitrators were situated in foreign country.
       Held : The arbitration clause in the contract is incorporated by reference. The parties knew that excepting the terms specifically set out therein in the contract dated 3rd June, 1980, the rest of the terms and conditions were to be the same as were incorporated in the Standard Contract No. 15 of GAFTA as effective on the date of the contract. Clause 27, entitled Arbitration, and finding its place in Standard Contract No. 15 is also not in dispute. Such a referential incorporation was permissible and the clause was binding between the parties unless it was insensible, unintelligible or was inconsistent with the terms of the present contract. (Paras 5 & 6)
       It is not the case of the appellant Atlas that they were not aware of the terms and conditions of the Standard Contract No. 15 of GAFTA. Such a plea if at all it was sought to be raised then should have been raised specifically but that is not the case here. The High Court was therefore right in rejecting the only objection which was raised on behalf of the appellant Atlas before it. (Para 7)
       (ii) Indian Contract Act, 1872-Sections 23 and 28 read with Sections 5 and 6 of Foreign Awards (Recognition and Enforcement) Act, 1961-Contract opposed to public policy-Both parties to contract Indian parties-Contract contained Arbitration in foreign country as per arbitration rules of that country-Dispute referred to arbitrators and award published-In proceedings to make award rule of Court plea raised that award unenforceable as being opposed to public policy-Not tenable-Right of parties to have recourse to legal action not excluded by agreement-Case covered by Exception 1 to Section 28.
       Held : The case at hand is clearly covered by Exception 1 to Section 28. Right of the parties to have recourse to legal action is not excluded by the agreement. The parties are only required to have their dispute/s adjudicated by having the same referred to arbitration. Merely because the arbitrators are situated in a foreign country cannot by itself be enough to nullify the arbitration agreement when the parties have with their eyes open willingly entered into the agreement. Moreover, in the case at hand the parties have willingly initiated the arbitration proceedings on the disputes having arisen between them. They have appointed arbitrators, participated in arbitration proceedings and suffered an award. The plea raised before us was not raised either before or during arbitration proceedings, nor before the learned Single Judge of the High Court in the objections filed before him, nor in the Letters Patent Appeal filed before the Division Bench. Such a plea is not available to be raised by the appellant Atlas before this Court for the first time. (Para 9)

Judgment

R.C. Lahoti, J.-The appellant, the Atlas Export Industries, Junagadh (hereinafter ‘Atlas’, for short) entered into a contract dated 3rd June, 1980 with M/s. Oceandale Company Limited, Hongkong (hereinafter ‘Oceandale’, for short). The agreement was for the supply of 200 MT of Indian groundnut extractions of the specifications as to quantity, quality and packages detailed in the contract and to be shipped on or before 30th June, 1980. The price was agreed at US $200 per M.T. The goods were to be supplied through M/s. Kotak and Company, Bombay (hereinafter ‘Kotak’, for short). M/s. Prashant Agencies, Bombay were the brokers. The existence of the contract, to which Atlas, Oceandale and Kotak were the parties, is not in dispute. Kotak were at all times responsible for the performance on behalf of the final buyers Oceandale. The letter of credit was opened by Oceandale in favour of Kotak who then transferred it in favour of Atlas. The letter of credit was opened at US $203 whereas Kotak’s purchase from Atlas was at US $200. It was agreed upon between Atlas and Kotak that the difference would be paid locally by Atlas to Kotak in Indian rupees. The time for shipment was extended by mutual agreement between the parties and correspondingly the period of validity of the letter of credit was also extended. However, still there was failure to ship the goods by the time appointed by the contract and as extended which resulted into a dispute arising between the parties.

2. The contract dated 3rd June, 1980 incorporated an arbitration clause which is extracted and reproduced hereunder :

“This contract is made under the terms and conditions effective at date of the Grain and Food Trade Association Ltd. London Contract No. 15 which is hereby made a part of this contract............... both buyers and sellers hereby acknowledge familiarity with the text of the GAFTA contract and agree to be bound by its terms and conditions.”

‘GAFTA’ stands for the Grain and Food Trade Association Ltd., London. Clause 27 of the Standard Contract 15 of the GAFTA provides as under :-

“27. Arbitration-

(a) Any dispute arising out of or under this contract shall be settled by arbitration in London in accordance with the Arbitration Rules of the Grain and Food Trade Association Limited, No. 125 such Rules forming part of this contract and of which both parties hereto shall be deemed to be congnisant.

(b) Neither party hereto, nor any persons; claiming under either of them, shall bring any such dispute until such dispute shall first have been heard and determined by the arbitrators, umpire or Board of Appeal, as the case may be, in accordance with the Arbitration Rules and it is expressly agreed and declared that the obtaining of the award from the arbitration, umpire or Board of Appeal, as the case may be, shall be a condition precedent to the right of either party hereto or of any person claiming under either of them to bring any action or other legal proceedings against the other of them in respect of any such dispute.”

3. Kotak appointed their own arbitrator and called upon Atlas to appoint their arbitrator. Both the parties did appoint their respective arbitrators. The arbitrators gave their award, published on 22nd June, 1987 as per the rules of GAFTA. The award directed Atlas to pay Kotak a sum of US $9600 with interest calculated thereon at the rate of 12 per cent per annum from 26th October, 1980 until the date of the award as also the costs of arbitration as specified. No appeal was preferred against the award.

4. Kotak moved an application under Sections 5 and 6 of the Foreign Awards (Recognition and Enforcement) Act, 1961 before the High Court of Bombay seeking enforcement of the award by filing of the same and pronouncing judgment according to the award. Atlas raised objections against the prayer made by Kotak. The objections have been rejected and the award made rule of the Court followed by decree in terms of the award under the judgme

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1999 Supreme(SC) 960

Cases Referred (1)