National Agricultural Cooperative a Marketing Federation of India vs Alimenta S.A.

HELD: 1.1 Section 32 of the Contract Act provides for enforcement of contingent contracts. Section 56 of the Contract Act deals with the agreement to do an impossible act or to do acts afterward become impossible or unlawful. It also provides for liability of the promisor to do something which he knew or might have known with reasonable diligence an act which is impossible or unlawful; as such, the promisor must make compensation for the non-performance of the promise. [Paras 45, 46][812-C, G-H]

Davis Contractor Ltd v. Fareham Urban District Council (1956) 2 All ER 145; Tsakiroglou & Co. Ltd. v. Noblee & Thorl GmbH, [1961] 2 All ER 179; Ocean Tramp Tankers Corporation v. V/O Sovfracht, [1964] 1 All ER 161; National Carriers Ltd. v. Panalpina (Northern) Ltd, [1981] 1 All ER 161; Pioneer Shipping Ltd. & Ors. v. BTP Tioxide Ltd.; The Nema, (1981) 2 All ER 1030; Paal Wilson & Co. A/S v. Partenreederei Hannah Blumenthal; The Hannah Blumenthal, [1983] 1 All ER 34; Delhi Development Authority v. Kenneth Builders & Developers Private Limited and Ors., (2016) 13 SCC

561 – referred to.

1.2 Section 32 of the Contract Act applies in case the agreement itself provides for contingencies upon happening of which contract cannot be carried out and provide the consequences. To this case, provisions of Section 32 of the Contract Act is attracted and not section 56. In case an act becomes impossible at a future date, and that exigency is not provided in the agreement on the happening of which exigency, impossible or unlawful, the promisor had no control which he could not have prevented, the contract becomes void as provided in section 56. However, section 56 also provides liability for a cause where the promisor has agreed to do something which he knew or with reasonable diligence might have known and which the promisee did not know to be impossible or unlawful. Such a promisor must make compensation to such promise and is liable to pay damages. The latter part of section 56 is applicable when promisee did not know the act to be impossible or unlawful and that it was not known to the promisor; the action was impossible or unlawful or with reasonable diligence might have known. [Para 47][813-A-C]

1.3 In the present case, because of the clear stipulation in Clause 14 of the Agreement, it is apparent that the parties have agreed for a contingent contract. They knew very well that the Government’s executive, or legislative actions might come in the way as provided in Clause 14 of the Agreement. Thus, in this case, section 32 of the Contract Act is attracted and not the provisions of section 56. It was an agreement to do an act impossible in itself without permission, and that is declared to be void by section 32. The 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 the Government order would be against the public policy as envisaged in section 7 of the Act of 1961. [Paras 48, 52][813-D-E; 821-A-B]

Satyabrata Ghose v. Mugneeram Bangur & Co., AIR 1954 SC 44 : [1954] SCR 310; Naihati Jute Mills Ltd. v. Khyaliram Jagannath, AIR 1968 SC 522 :

[1968] 1 SCR 821; Boothalinga Agencies v. V.T.C. Poriaswami Nadar, AIR 1969 SC 110 : [1969] 1 SCR 65; Smt. Sushila Devi and Ors. v. Hari Singh and Ors. (1971) 2 SCC 288 : [1971] Suppl. SCR 671

– referred to.

Narayana Chandrasekhara Shenoy and Bros. by sole Proprietor Narayana Shanbog v. R. Palaniappa Mudaliar, AIR 1952 Mad. 670; Ram Kumar v. P.C. Roy & Co. (India) Ltd., AIR 1952 Cal. 335 (338); Kunjilal Manohar Das v. Durga Prasad Debi Prosad, AIR 1920 Cal. 1021 – referred to.

2. It would have been unlawful for NAFED to affect the supply in view of the Government’s refusal to accord the permission, and both the parties knew it very well and agreed that the contract would be cancelled in such an exigency for nonsupply in quantity. Thus, they were bound by the agreement. The award pre-supposes supply could have been made after the Government’s refusal. If supply had been made, it would have been unlawful. Thus, the parties agreed for its cancellation as such an award is against the basic law and public policy as applied in India. [Para 57][825-A-B]

3.1 It is provided in Section 7(1)(b)(ii) that if the court dealing with the case is satisfied that the enforcement of the award will be contrary to public policy, the foreign award may not be enforced. The foreign award may also not be executed in the case as per section 7(1)(a)(i) if the parties to the agreement under the law applicable are under some incapacity or agreement is not valid under the law. Similar exigency is provided in section 7(1)(a)(ii) if proper notice of appointment of Arbitrator is not given or the party was unable to present its case. Section 7(1)(a)(iii) provides that if the award deals with the questions not referred or contains decisions on matters beyond the scope of the agreement renders award unenforceable. Section 7(1)(a)(iv) makes an award not capable of enforcement in case the composition of the Arbitration Tribunal or procedure is not in accordance with the agreement of the parties. [Para 60][826-G-H; 827-A-B]

Renusagar Power Co. Ltd. v. General Electric Co., (1994) 1 Suppl. SCC 644 : [1993] 3 Suppl. SCR 22 – relied on.

Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705 : [2003] 3 SCR 691; Shri Lal Mahal Limited v. Progetto Grano Spa, (2014) 2 SCC 433 : [2013] 13 SCR 599; Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49 : [2014] 13 SCR 895; Ssanyong Engineering & Construction Co. Ltd. v. National Highways Authority of India (NHAI), (2019) 8 SCALE 41; Central Inland Water Transport Corporation Ltd. & Anr. v. Brojo Nath Ganguly & Anr. (1986) 3 SCC 156 : [1986] 2 SCR 278 - referred to.

3.2 Clause 14 of FOSFA Agreement and as per the law applicable in India, no export could have taken place without the permission of the Government, and the NAFED was unable to supply, as it did not have any permission in the season 1980-81 to effect the supply, it required the permission of the Government. It became void under section 32 of the Contract Act on happening of contingency. Thus, it was not open because of the clear terms of the Arbitration Agreement to saddle the liability upon the NAFED to pay damages as the contract became void. There was no permission to export commodity of the previous year in the next season, and then the Government declined permission to NAFED to supply. Thus, it would be against the fundamental public policy of India to enforce such an award, any supply made then would contravene the public policy of India relating to export for which permission of the Government of India was necessary. The award could not be said to be enforceable, given the provisions contained in Section 7(1)(b)(ii) of the Foreign Awards Act. Thus, award is unenforceable, and the High Court erred in law in holding otherwise in a perfunctory manner. As such the NAFED could not have been held liable to pay damages under foreign award. [Paras 68, 69, 80][842-F-H; 843-A-C; 850-G]

Manohar Lal (Dead) by LRs. v. Ugrasen (Dead) by LRs. & Ors.,(2010) 11 SCC 557 : [2010] 7 SCR 346; C.L. Subramaniam v. Collector of Customs, Cochin (1972)

3 SCC 542 : [1972] 3 SCR 485; Board of Trustees of the Port of Bombay v. Dilipkumar Raghavendranath Nadkarni and Ors. (1983) 1 SCC 124 : [1983] 1 SCR 828; The State of Punjab & Anr. v. Shamlal Murari & Anr., (1976) 1 SCC 719 : [1976] 2 SCR 82; Kailash v. Nankhu & Ors., (2005) 4 SCC 480 : [2005] 3 SCR

289 – referred to.