BURN STANDARD COMPANY LIMITED versus MCDERMOTT INTERNATIONAL INC. AND ANOTHER

Citation: [1991] 2 S.C.R. 67 · Decided: 03-04-1991 · Supreme Court of India · Bench: A.M. AHMADI · Disposal: Dismissed

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Judgment (excerpt)

• 
BURN STANDARD COMPANY LIMITED 
v. 
McDERMOTT INTERNATIONAL INC. AND ANOTHER 
APRIL 3, 1991 
[A.M. AHMADI, V. RAMASWAMI AND 
M. FATHIMA BEEVI, JJ.] 
Foreign Exchange Regulation Act, 1973/ Foreign Exchange 
Manual, 1978-Section 28 ( 1) IP aragraphs 24A. 11 ( 1) and 25A. 2-1 ndian 
Company-Technical Collaboration agreement with foreign corpora-
tion-General or special permission of RBI-Collaboration approved 
by Secretariat for Industrial Approvals-Agreement taken on record by 
Government-Whether separate permission of RBI necessary-Deci-
sion taken by RBI, but approval not communicated-Whether failure to 
discharge ministerial duty ob/iterates conscious decision taken-Non-
filing of FNC5 form for grant of permission-Whether erases decision 
already taken. 
Arbitration Act, 1940: Sections 14, 17, 30 and 33-Foreign col-
laboration agreement-RBI's approval-Whether arbitration clause 
rendered void by virtue of agreement itself being void ab initio for want 
of RBI permission under Section 28( 1) of Foregin Exchange Regulation 
Act, 1973. 
Administrative Law: Administrative action-Whether decision 
becomes binding. 
A" 
B 
c 
D 
E 
The appellant, a Government company, entered into a Technical 
collaboration agreement with the respondent, a foreign corporation, F 
under which the respondent was to provide technical know-how to the 
appellant, and the appellant was to pay the respondent fee in foregin 
currency in three instalments. The appellant was required to apply for 
registration and/or Governmental approval and furnish satisfactory 
evidence of receipt of such approval. The effective date of the agree' 
ment was the date on which the notification was received by the respon-
G 
dent that all governmental approvals in that regard had been secured . 
The agreement was entered into with the approval of the Secretariat for 
Industrial Approvals. The agreement as well as the supplementary 
agreement, incorporating certain changes suggested by the Govern-
ment, were filed with the Government, which took the same on record, 
by its letter of approval, A copy of the letter of approval and also the H 
67 
A 
B 
68 
SUPREME COURT REPORTS 
[ 1991] 2 S.C.R. 
collaboration agreement was sent to the RBI. 
After obtaining the necessary order under Section 195(2) of the 
Income Tax Act from the Income Tax Officer and the permit from the 
RBI, the appellant remitted the first instalment offee to the respondent. 
Thereafter, the respondent, alleging non-payment of subsequent instal-
ments, and consequent breach of terms of contract, sought to invoke 
clause 8.2 of the agreement for terminating the agi:eement. The appcl· 
Iant questioned respondent's right to invoke clause 8.2. Thereafter the 
respondent invoked the arbitration clause, clause 12.1 of the agree-
ment, for referring disputes and difference to the arbitration of Inter-
national Chamber of Commerce and claimed certain amount for the 
services actually rendered and also informed the ICC accordingly. The 
C appellant challenged the legality and validity of the agreement as void 
ab initio, and also clause 12.1 as non-est and legally unforceable, and 
filed an application under Section 33 of the Arbitration Act, contending 
that the agreement being a contingent one, commencing from the effec-
tive date, and necessary approval having not been secured, the agree-
D ment had not commenced and, consequently the arbitration clause, 
being part of the very same agreement, the respondent was not entitled 
to invoke the said clause, and that in the absence of a valid permission 
from the RBI under Section 28(1) (b) of the Foreign Exchange Regula-
tion Act, 1973, the agreement was clearly void by the thrust of Section 
28(2) of the Act. 
E 
The respondent contended that the necessary Government 
approvals were obtained and hence the 'effective date' was reached and 
that under the Exchange Control Manual only the Indian Company 
could apply to SIA for approval and once such approval was accorded, 
the foreign collaborator to the contract was not expected to secure the 
F 
RBI permission under Section 28(l)(b), since under the manual, SIA 
approval was to be deemed to be RBl's permission also; and therefore, 
the agreement was legal and valid and the respondent was entitled to 
seek its enforcement. 
The High Court held that on a true interpretation of the contract, 
G 
it must be held to be voidable at the discretion of either party, that, even 
if the contract was terminated or rend

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