2020 Supreme(SC) 318

SUPREME COURT OF INDIA
ARUN MISHRA, M.R. SHAH, B.R. GAVAI, JJ.
NATIONAL AGRICULTURAL COOPERATIVE MARKETING FEDERATION OF INDIA – APPELLANT
VERSUS
ALIMENTA S.A. – RESPONDENT
Civil Appeal No. 667 of 2012
Decided on : 22-04-2020

IMPORTANT POINTS
(1) – Contract became void on happening of contingency as provided in the agreement.
(2) A contingent contract is liable for cancellation on happening of contingency stipulated therein.
(3) Arbitrator is supposed to follow ethical standards.

Headnote:

(A) Contract Act, 1872 – Sections 32 and 56 – Void contract – Impossibility and frustration are used as interchangeable expressions – Principle of frustration is an aspect of discharge of a contract – Dissolution of agreement would take place under terms of contract itself – Such cases would be outside purview of Section 56 of Contract Act altogether – They would be dealt with under Section 32 of Contract Act – If contract contained impliedly or expressly a stipulation, according to which it would stand discharged on happening of particular circumstances – Dissolution of agreement would take place under terms of contract itself – Such cases would be outside purview of section 56 of Contract Act altogether – They would be dealt with under section 32 of Contract Act which deals with contingent contracts – Provisions of Section 56 of Contract Act could not apply to self-induced frustration – Doctrine of frustration of contract is really an aspect, or part of law of discharge of contract by reason of supervening impossibility or illegality of act agreed to be done and hence comes within purview of Section 56 of Indian Contract Act – Section 56 lays down a rule of positive law and does not leave the matter to be determined according to intention of parties. (Paras 49, 50 and 51)

(B) Foreign Awards (Recognition and Enforcement) Act, 1961 – Sections 5, 6 and 7 – Contract Act, 1872 – Sections 32 and 56 – Clause 14 of FOSFA, 20 Contract dated 12.1.1980 – Enforceability of foreign award – Cancellation of contingent contract – Contract became void on happening of contingency, as provided in Section 32 of Contract Act – High Court observed that it was a case of self-induced frustration – High Court ignored and overlooked that it was not a case of frustration under section 56 of Contract Act, but there was a stipulation in Clause 14 of Agreement, effect of which was ignored and overlooked, and said term was based upon law as applicable in India and was based on export restrictions, it was within realm of public policy – NAFED was a canalising agency and could not have supplied without prior permission of Government, nor could it have lawfully carried forward last year's supply to next year that too limited quota and to supply Government permission was necessary to make it – Enforcement of such an award in violation of export policy and Government order would be against public policy as envisaged in Section 7 of Act of 1961 – Contract was rendered void in terms of Section 32 of Contract Act – Parties agreed for its cancellation as such an award is against basic law and public policy as applied in India – Clause 14 of FOSFA Agreement and as per law applicable in India, no export could have taken place without permission of Government, and NAFED was unable to supply, as it did not have any permission to effect supply – Award is ex facie illegal, and in contravention of fundamental law – Award is unenforceable – NAFED could not have been held liable to pay damages under foreign award – Arbitrator is supposed to follow ethical standards and ought not to have defended arbitration award passed by him in subsequent judicial proceedings – Appeal filed by NAFED allowed and impugned judgment and order passed by High Court set aside. (Paras 48, 52, 53, 55, 57, 68, 69, 78, 80 and 81)

Facts of the Case:

Question involved in the present appeal is the enforceability of the foreign award. The main objections for its enforceability are (i) whether NAFED was unable to comply with the contractual obligation to export groundnut due to the Government's refusal?; (ii) whether NAFED could have been held liable in breach of contract to pay damages particularly in view of Clause 14 of the Agreement?; and (iii) whether enforcement of the award is against the public policy of India?

Findings of the Court:

Resultantly, the award is ex facie illegal, and in contravention of fundamental law, no export without permission of the Government was permissible and without the consent of the Government quota could not have been forwarded to next season. The export without permission would have violated the law, thus, enforcement of such award would be violative of the public policy of India. On the happening of contingency agreed to by the parties in Clause 14 of the FOSFA Agreement the contract was rendered unenforceable under Section 32 of the Contract Act. As such the NAFED could not have been held liable to pay damages under foreign award.

Result : Appeal allowed.