1995 Supreme(Del) 408

High Court Of Delhi
FOOD CORPORATION OF INDIA - Appellant
Versus
AROSAN ENTERPRISES LIMITED - Respondent
First Appeal (OS) 196 of 1993
Decided On : 05/12/1995

In a C.I.F. contract, the seller is not in breach if he tenders shipping documents in accordance with the contract, even if the goods are not delivered within the stipulated time.

Headnote:

ARBITRATION - AWARD - JUDICIAL REVIEW - ERROR OF LAW ON THE FACE OF THE AWARD - C.I.F. CONTRACT - DELIVERY PERIOD - EXTENSION - BREACH OF CONTRACT - FORFEITURE OF PERFORMANCE BANK GUARANTEE - RIGHT TO PAYMENT UNDER LETTER OF CREDIT - DUTY OF BANK - AMENDMENT OF CONTRACT AND LETTER OF CREDIT - NECESSITY - REASONABLE TIME FOR DELIVERY - LIABILITY FOR INTEREST AND PAYMENT IN FOREIGN CURRENCY.

Fact of the Case:

The Union of India floated a tender for purchase of sugar to meet the urgent requirement of sugar in the Indian Market for the ensuing November 1989 Dussehra/diwali festival season. M/s. Arosan Enterprises Ltd (hereinafter referred as the seller) offered to supply 1 lac metric tonne of sugar at the rate of US $ 480 per metric tonne C. I. F. delivery within 30 days of the receipt of letter of credit. The Seller informed the Ministry of Food on 19th October 1989 that sugar is lying ready for despatch on ships afloat high seas and the same could be delivered at Indian ports before 31st October 1989. On 23rd October 1989 the Seller agreed to the contract for floating cargo on standard terms and conditions of contract. On 24th October 1989 the Seller confirmed to the Joint Secretary (Sugar), Department of Food, Government of India, the price for the sugar to be supplied by it at US $ 480 per metric tonne C. I. F. The offer was accepted by Union of India on 24th October 1989. A contract dated 25th October 1989 came into existence between the parties with a stipulation that effective contract date will be 24th October 1989. The contract,inter-alia, stipulated that:- (A)THAT the claimant shall supply 58,000 M. T. of sugar ( Net weight plus/minus 5% at sellers option ). (b)That the claimant shall arrange Shipment of entire quantity of the contracted sugar so as to reach Indian Ports not later than 31st October, 1989; shipment within the contracted delivery period was to be the essence of the contract. In case of delay the seller was to be deemed to be in contracted default with a right to the buyer to cancel the contract. The buyer could, however, extend the delivery period at a discount as may be mutually agreed between the buyer and the sellor. (c)That price payable was to be U. S. doller 480 per M. T. (d)That the seller had to establish an unconditional irrevocable performance guarantee in favour of the buyer by any Indian Nationalised Bank at New Delhi for 10% of the total contract value of the maximum guaranteed quantity to be shipped, within 7 days of the contract. (e)That the payment was to be made to the seller by irrevocable letter of credit covering 100% value of the contract quantity. This L/c was to be established by the buyer within seven days of the receipt of an acceptable Performance Bank Guarantee (PBG ). (f)The performance Bank guarantee (PBG) was to be by any Indian Nationalised Bank at New Delhi and was to be kept valid for a minimum period of ninety days beyond the last date of contract shipment period. Pursuant to the terms and conditions of the contract the seller furnished a Performance Bank Guarantee (for short hereinafter referred to as "pbg") on 24th October 1989 issued by the State Bank of India for US $ 29,28,000. The contract was assigned by Union of India in favour of Food Corporation of India. The buyers also performed their part of the contract in opening a confirmed irrevocable letter of credit for the full value of the quantity of the sugar. The Seller failed to make the supplies upto 31st October 1989. By letter dated 8th November, 1989, the contract was cancelled. The letter of cancellation was,however, withdrawn by issue of letter dated 11th November 1989. In fact, the sugar was never supplied. Finally, by letter dated 25th January 1990 the contract was cancelled at the risk and cost of the seller and the PBG furnished by the seller was encashed and the amount forfeited by the Government/fci (hereinafter referred to as respondents). The cancellation of the contract and forfeiture of the amount of PBG led to arbitration proceedings between the parties. The seller claimed the refund of US $ 29,28,000 and also made a claim for US $ 77,11,268 on account of the loss of profit and other expenses. The respondents denied the claim of the seller and justified their action of forfeiture of the amounts under PBG. Besides, they also preferred counter claim for damages suffered on account of breach of contract on the part of the seller in making the supply of the sugar.

Finding of the Court:

The arbitrators found that the breach of contract was on the part of the respondents and the basis of the finding is:- A)NON fixing of fresh date of delivery by the respondents after the letter of cancellation of contract was withdrawn on 11th November 1989; b)Failure of the respondents to suitably amend the letter of credit which the respondents had opened in favour of the seller in pursuance of the contract.

Issues: Whether the breach of contract was committed by the seller or the respondents.

Ratio Decidendi: 1. The withdrawal of cancellation was on representation of the seller that the shipment would reach by 14th/15th November 1989. 2. In law, it was not obligatory on the respondents to fix fresh date of delivery and also to amend letter of credit. 3. In law, without amendments as aforesaid, and having regard to letter dated 11th November, 1989, the respondents could not refuse to accept delivery on 14th/15th November 1989. 4. The bank could not refuse payment of the amount covered by letter of credit on the ground that supply had not been made within the stipulated period of 31st October 1989.

Final Decision: Appeals allowed; Judgment under appeal and the award dated 18th August, 1991 set aside.