LexPHULCHAND EXPORTS LTD versus O.O.O. PATRIOT
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[2011] 15 (ADDL.) S.C.R 1129 PHULCHAND EXPORTS LTD. v. 000 PATRIOT (CIVIL APPEAL NO. 3343 OF 2005) OCTOBER 12, 2011 [R.M. LODHA AND JAGDISH SINGH KHEHAR, JJ.] A B Arbitration and Conciliation Act, 1996 - ss.47 and 48 - Enforcement of award - Test of principles of public policy - C/F Contract - The appellant-sellers shipped goods and the c vessel freighted by the sellers left the port of loading viz. Kand/a, India - The vessel carrying the goods, however, suffered engine failure and consequently the goods did not reach the port of destination (port of Novorossiysk, Russia) - The respondent-buyers lodged recovery claim against the 0 sellers before the International Court of Commercial Arbitration at the Chamber of Commerce and Industry of the Russian Federation, Moscow - The said Arbitral Tribunal held that there were breaches by the sellers and that the clause for reimbursement could be invoked by the buyers - The Arbitral Tribunal, however, did not award the full price paid E by the buyers to the sellers but instead awarded /Jalf of that amount as there was delay by the buyers in invoking the clause of reimbursement [clause 4 of the contract] and the buyers also did not pass the shipping documents and the insurance certificate to the sellers - Arbitration petition filed F by respondent-buyers for enforcement of the award - Allowed by High Court - Whether enforcement of the award in favour of the respondent was contrary to public policy of India under s.48(2)(b) of the Act - Held: The appellant-sellers breached the terms of the contract at the very threshold by late shipment G of goods and by loading on board the vessel which was no longer to reach the port of Novorossiysk as the first port of discharge - The sellers' failure to discharge the primary obligation under the contract regarding the shipment of goods 1129 H 1130 SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R. A can be held to have resulted in postponement of transfer of title in goods to the buyers - Even if the property in the goods was deemed to have transferred to the buyers, since there was no delivery of the goods due to the fault of the sellers in shipment of the goods, the goods continued to be at the risk B of the sellers - In that situation, first proviso to Section 26 of the 1930 Act was clearly attracted - No merit in the case set up by the sellers that their liability ceased to exist on shipment of the goods or in any case when the shipping documents were handed over through the banking channels on negotiations of Letter of Credit - Stipulation for C reimbursement in the event stated in clause 4 of the contract was not in the nature of penalty; the clause was not in terrorem - It was neither punitive nor vindictive - No reason why the sellers should not be bound by it and the court should not enforce such term - The sellers and the buyers in the present D case were business persons having no unequal bargaining ppwers - Having regard to the subject matter of the contract, the clause for reimbursement or repayment in the circumstances provided therein was neither unreasonable nor unjust; far from being extravagant or unconscionable - It was E the precise sum which the sellers were 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 - More so, the fact of the matter was that goods never arrived at the port of,discharge - The Arbitral Tribunal only awarded F reimbursement of half the· price paid by the buyers to the sellers and, therefore, the award cannot be held to be unjust, unreasonable or unconscionable or contrary to the public policy of India - Sale of Goods Act, 1930 - s.26 - Contract Act, 1872 - ss.23, 73 and 74. G Arbitration and Conciliation Act, 1996 - s.48(2)(b) - Expression 'public policy of India' used in s.48(2)(b) - Held: Has "to be given wider meaning - Arbitral award can be set aside, 'if it is patently illegal'. Contract- CIF contract- Obligations upon a seller under H a C.J.F. contract - Held: In relation to goods, the seller must PHULCHAND EXPORTS LTD. v. 000 PATRIOT 1131 ship goods of contract description on board a ship bound to A the contract destination - If there is a late shipment or the seller has put goods on board a ship not bound to the contract destination as stipulated, the logical inference that must necessarily follow is that the seller has not
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