[ Phulchand Exports Ltd. v. O.O.O. Patriot, (2001) 10 SCC 300
The question raised was whether enforcement of the award given by the International Court of Commercial Arbitration at the Chamber of Commerce and Industry of Russian Federation, Moscow in favour of the Respondent was contrary to public policy of India u/s.48(2)(b) of the Arbitration and Conciliation Act, 1996.
By a contract between PE Ltd. India and 0.0.0. Patriot Moscow Russia, a transaction relating to sale of India long grain was entered. It so happened that the vessel carrying the goods suffered an engine failure, as a result of which it was declared ‘General Average’ by the Master of the vessel. The entire cargo was sold out to compensate the cost of rescue of the vessel. The buyers lodged claim against the sellers for recovery of amount of USD 285,569.53 in the International Court of Commercial Arbitration at the Chamber of Commerce and Industry of the Russian Federation. The Arbitral Tribunal did not find any merit in the defences set up by the sellers. It held that the sellers broke the terms of the contract and shipped goods 16 days later than the stipulated time and the vessel freighted by the sellers left the port of Kandla (India) 38 days later than the time of departure stipulated in the contract. The vessel with the cargo had not arrived at the port of Novorossiysk on the date of lodging the claim (as a matter of fact the vessel never reached the port of destination). The Arbitral Tribunal therefore held that there was clear term about the commitment of the sellers to reimburse the amount paid towards goods in case of non-arrival.
The Arbitral Tribunal, therefore, split the amount of losses between the parties — buyers and sellers — in equal parts.
The buyers filed Arbitration Petition before the High Court of Bombay for enforcement of the above award. The sellers contested the petition on the ground that subject award was contrary to the principles of public policy and, therefore, the award was unenforceable. The Court did not find any merit in the objections raised by the sellers; and held that the award dated October 18, 1999 could be enforced as a decree of the Court.
On further appeal, the Supreme Court observed that a plain reading of section 74 of the Contract Act would show that it deals with the measure of damages in two classes of cases (i) where the contract names a sum to be paid in case of breach and (ii) where the contract contains any other stipulation by way of penalty. The stipulation for reimbursement in the event stated in last para of clause 4 of the contract is not in the nature of penalty; the clause is not in terrorem. It is neither punitive nor vindictive. Moreover, what has been provided in the contract is the reimbursement of the price of the goods paid by the buyers to the sellers. The clause of reimbursement or repayment in the event of delayed delivery/arrival or non-delivery was not to be regarded as damages. Even in the absence of such clause, where the seller has breached his obligations at threshold, the buyer is entitled to the return of the price paid and for damages.
The transactions covered by section 23 are the transactions where the consideration or object of such transaction is forbidden by law or the transaction is of such a nature that if permitted would defeat the provisions of any law or the transaction is fraudulent or the transaction involves or implies injury to the person or property of another or where the Court regards it immoral or opposed to public policy. Whether particular transaction is contrary to a public policy would ordinarily depend upon the nature of transaction. Where experienced businessmen are involved in a commercial contract and the parties are not of unequal bargaining power, the agreed terms must ordinarily be respected as the parties may be taken to have had regard to the matters known to them. The sellers and the buyers in the present case are business persons having no unequal bargaining powers. They agreed on all terms of the contract being in conformity with the international trade and commerce. It is the precise sum which the sellers are required to reimburse to the buyers, which they had received for the goods, in case of the non-arrival of the goods within the prescribed time.
The appeal was dismissed.
