ASEAN LNG TRADING CO. LTD., NOW KNOWN AS PETRONAS LNG LTD vs NISHU TOURS AND TRAVELS LTD.
- Court
- Gujarat High Court
C/FA/3694/2018 CAV JUDGMENT DATED: 24/06/2026
Reserved On : 21/04/2026
Pronounced On : 24/06/2026
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/FIRST APPEAL NO. 3694 of 2018
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2018
In
R/FIRST APPEAL NO. 3694 of 2018
FOR APPROVAL AND SIGNATURE:
HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE
SUNITA AGARWAL
and
HONOURABLE MR.JUSTICE D.N.RAY
======================================
Approved for Reporting Yes No
======================================
ASEAN LNG TRADING CO. LTD., NOW KNOWN AS
PETRONAS LNG LTD
Versus
NISHU TOURS AND TRAVELS LTD.
======================================
Appearance:
MR DEVANG NANAVATI, SENIOR ADVOCATE with MR
PARINAY VASANDANI, ADVOCATE with MR KARTIK YADAV,
ADVOCATE with MR MEGHESH KHANDELWAL, ADVOCATE
with MR VINAYAK GOSWAMI, ADVOCATE with MR MANAV
SHROFF for MR APURVA R KAPADIA(5012) for the
Appellant(s) No. 1
MR MIHIR JOSHI, SENIOR ADVOCATE with MR AYAN
PATEL, ADVOCATE with MR AYUSHRI M. THAKKAR for
SINGHI & CO(2725) for the Defendant(s) No. 1
======================================
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CORAM: HONOURABLE THE CHIEF JUSTICE MRS.
JUSTICE SUNITA AGARWAL
And
HONOURABLE MR.JUSTICE D.N.RAY
CAV JUDGMENT
(PER : HONOURABLE THE CHIEF JUSTICE MRS.
JUSTICE SUNITA AGARWAL)
[I] Introduction :-
1. This is an appeal filed under Section 50 of the
Arbitration and Conciliation Act’ 1996 (in short ‘the Act’
1996’), directed against the judgment and order dated
05.07.2018 passed by the learned Single Judge refusing to
enforce a foreign award under Section 48 of the Act’ 1996.
In the judgment and order dated 05.07.2018, subject
matter of challenge herein, the learned Single Judge
records in paragraphs ‘75’ to ‘81’ as under:-
“75. Upon considering the submissions made by both the
sides and examining the findings and on perusal of the
findings arrived at by the learned Arbitral Tribunal and
keeping in mind the aforesaid narrow jurisdiction of this
Court under section 48 of the Act, and only to examine
whether the objections raised by the opponent falls
within the scope and ambit of explanation 1 to section 48
of the Act in particular, the following facts narrated
hereinbelow are necessary to be noted and appreciated.
76. That admittedly, the Master Agreement executed
between Malasia LNG SDN and Adani Energy Ltd. on
02.08.2006. It is inter alia provided that such agreement
shall be served as Master LNG Sale and Purchase
Agreement and shall cover transactions between parties,
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which shall be described more specifically by each
confirmation notice, in general form attached as
Schedule C.
77. The confirmation notice which is part and parcel of
the said master agreement as Annexure-C contained
details such as LNG ship, receiving terminal, date range,
scheduled unloading date range, quantity, plant, loading
port, contract sale price, payment, payment security,
quality, demurrage and notices. As the record unfolds,
the parties agreed to keep the master agreement as it is,
however, voluntarily, agreed and divided original
confirmation notice into confirmation notice and delivery
notice. Such confirmation notice was subject of meeting
held on 21.03.2007.
78. Whereas, the proposed format of delivery note
includes details such as LNG Ship, Receiving Terminal,
Scheduled Unloading date range, quantity, quality and
payment security.
79. The aspects which are highlighted by both the sides
are on the aspect of price and receiving terminal in
particular.
80. The confirmation notice prescribes for LNG ship,
receiving terminal, scheduled unloading date, range,
quantity, plant, loading port, contract sale price,
payment, payment security, quality, demurrage, force
majuere, buyers first right of refusal, diversion right,
notices. Such confirmation notice was thus
composite notice for four cargoes as can be seen from
clause 4 of the said confirmation notice which provides
for scheduled unloading date range. The said
confirmation notice also provides as under -
“For the purposes of this Confirmation Notice, the
term “Delivery Notice” means a notice by Seller
to Buyer which shall not be later than two (2)
weeks prior to loading date of the LNG at the
Loading Port, confirming the necessary details
pertaining, including but not limited to, LNG
Ship, Schedule Unloading Date Range, Plant,
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Loading Port, Quantity and Contract Sales
Price, for the successful delivery of each of
the four (4) LNG cargoes under this Confirmation
Notice. The form of Delivery Notice is attached
herewith as an exhibit.”
The delivery notice prescribes for parties, LNG ship,
receiving terminal, Scheduled unloading date range,
quantity, quality and payment security.
81. Thus, the confirmation notice duly signed by
both the parties on 12.03.2007 envisaged a
separate delivery notice. It appears from the record
that details such as receiving terminal was not
fixed and price was alternatively provided,
i.e.,Henry Hub Price + USD 1.85 or the price to be
offered by the seller. Broadly speaking, the April
cargo was loaded from the port of Trinidad. However,
the same was sold on 06.04.2007 before the cargo
reached the Hazira terminal. Similarly, the record
indicates that May cargo was sold before the loading
date and June and August cargo were never
loaded. The record also indicates that receiving
terminal was not agreed between the parties and
the opponent as buyer inspite of intimating the
exact receiving terminal, on the contrary informed
the petitioner that slots are not available. In spite
of such factual position, the learned arbitral
tribunal came to the conclusion that there is a
concluded contract and that the opponents are
liable for TOP obligation for April, May and June
cargo and damages for August cargo.
Master agreement provided for TOP clause as
under -
“12.1 Sellers and Buyer's Obligations Seller
agrees to sell and deliver to Buyer at the
Receiving Terminal, and Buyer agrees to
purchase, take and pay for, or pay for if not
taken, LNG in quantities, the quality and at
the prices determined in accordance with this
Agreement and the relevant Confirmation
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Notice.
12.2 Buyer's obligation to Take or Pay
If Buyer fails to accept delivery of any
LNG cargo under the Agreement, unless
excused by Force Majeure or Seller's
material failure to perform, Buyer shall be
liable to pay Seller, in accordance with this
clause 12.2, an amount equal to such LNG
quantity as specified in the Confirmation
Notice multiplied by the LNG Price as
specified in the Confirmation Notice in respect
thereof (“Take or Pay Amount”)
Notwithstanding the above, if Seller is able to
find and complete sale transaction of such
LNG cargo to a third party purchaser and
Buyer has paid Seller, Buyer shall be entitled to
receive the net proceeds of such sale
realized by Seller from such third party,
being the following (the “Net Proceeds”)
(a) the total proceeds received from the sale
to such third party plus any shipping costs saved,
less
(b) all fees, commissions, duties, expenses and
costs of sale, additional bunkering and other
LNG Ship expenses over and above those costs
which would have been incurred in transporting
the cargo to Buyer's Facilities on the
Scheduled Unloading Date Range (Including
but not limited to demurrage for any delays
resulting from such alternative sale);
provided, however, that if the Net Proceeds
exceed the amount paid or payable by Buyer
in respect of such LNG cargo, the difference
between such Net Proceeds and the amount paid or
payable by Buyer shall be retained by Seller
for its own account.”
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2. The conclusion in paragraphs ‘82’ to ‘84’ in the
judgment impugned are as under:-
“82. Even at the cost of repetition, it is provided that
the aforesaid facts are noted and taken into
consideration in order to test whether the findings
arrived at by the Tribunal falls within the scope and
ambit of explanation 2 of section 48. In the aforesaid
factual background and following the judgment of the
Apex Court in the case of Renusagar Power Co. Ltd.
(supra) & Lalmahal (supra), even while exercising
very limited and narrow jurisdiction under section 48,
this Court finds that the learned arbitral tribunal has
come to a finding that there is a concluded contract
and that the details which were to be mentioned in
delivery notice were operational in nature and post
contract obligations and on such main plank, liability of
the opponent is decided. On one hand, the master
agreement provides that it would be a basic
agreement for sale and purchase of LNG and
accompanied by confirmation notice of each
transaction. As per the conduct of the parties mutually,
the original confirmation notice is given a go by as
far as each transaction is concerned and a composite
notice of all the four cargoes came to be executed as
observed hereinabove on the finding that Henry Hub
price was the alternative price, the claim is decided in
favour of the petitioner by the learned arbitral
tribunal. Even without touching the merits involved in
the matter, with respect, the findings arrived at by the
learned arbitral tribunal are perverse and irrational.
The price aspect remained undecided till the last
moment and admittedly, the receiving terminal was
not fixed at all. Only because there are two
terminals available in India, i.e., Dahej and Hazira, the
same can neither be presumed one way or the other and
it cannot be termed as operational aspect. In a
commercial transaction, if the goods are sent by the
seller to the purchaser and that too at a distance like in
the case on hand, to believe that the destination was
operational in nature itself is perverse and irrational.
The facts clearly and establish that the delivery notices
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sent by the petitioner was a unilateral act on the part of
the petitioner and the same are never signed by the
opponent and that too without any SBLC being provided
by the opponent, without determination of price and
even without fixing the place of receiving the goods. In
opinion of this Court, in any commercial transaction, the
price segment and place of delivery are important
segments for execution of a binding contract. Such
notice is not signed by the opponent is an admitted fact
and in such circumstances, with respect, the findings
arrived at by the learned arbitral tribunal defies logic as
rightly contended by the opponent. Even at the cost of
repetition, it is provided that this Court has not
endeavored to examine the award on merits as this
Court lacks jurisdiction. However, on the aforesaid facts,
it is clear that the findings are based on assumption that
there is a concluded contract. The original confirmation
notice was changed and the delivery notices not having
been signed and also considering the fact that there was
no agreement on price and no fixation of the receiving
terminal, in such circumstances finding that there was a
concluded contract is a perverse finding and the same
defies logic. The confirmation notice dated 12.03.2007
also provided for details like receiving terminal, price,
contract price and right of the buyer to refuse delivery
etc. as well as clause of SBLC. The facts clearly establish
that no security was provided by the opponent and that
the opponent had informed the petitioner that no slots
are available. In addition to that, the facts reveal that in
fact, the cargoes for May, June and August were not
loaded at all for its shipment and even April cargo
though loaded was sold before it reached its destination
which was fixed by petitioner to be delivered at Dahej.
Even as per the findings arrived at by the learned
Tribunal, there is no finding to the effect that the
delivery was physically brought at the doorstep of the
terminal and it was refused by the opponent and
therefore, the finding that the liability of take or pay is
triggered defies logic in facts of this case.
83. In light of the aforesaid therefore, this Court is of the
opinion that the findings arrived at by the learned
arbitral tribunal are perverse, irrational and are as such
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that it shocks the conscience of this Court. Even the
basic ingredients of take or pay are also not coming out
from the bare reading of the record as well as conclusion
arrived by the learned Tribunal as mentioned herein
above, still however, a huge claim of take or pay is
allowed by the arbitral tribunal and the same in opinion
of this Court, with respect, is based on irrelevant
consideration and perverse, irrational, defies logic and it
shocks conscience of the Court and therefore, even
within the limited jurisdiction of section 48 of the Act,
the same is against fundamental public policy which falls
within explanation 2 of section 48(2).
84. Even considering the binding decisions of the Apex
Court and this Court, as well as the judgment rendered
in petition no.2/17, there is no blanket bar that a foreign
award cannot be examined even within the limited scope
of explanation 2 of section 48(2). Having examined the
same within that limited scope, the impugned arbitral
award is perverse, irrational and is against fundamental
public policy and is such that it shocks conscience of this
Court and therefore, the execution of the award in
question is refused. The application stands dismissed.
However, there shall be no order as to costs.”
3. The refusal to enforce the foreign award, as per the
opinion of the learned Single Judge, is within the limited
scope of Explanation 2 of sub-section (2) of Section 48 of
the Act’ 1996, while holding the arbitral award to be
perverse, irrational and against the fundamental public
policy, and is such that it shocks the conscience of the
Court.
[II] Summary of Facts :-
4. Before adverting to the arguments of the learned Senior
Counsels for the parties, brief facts and circumstances of
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the present case are relevant to be noted hereinunder:-
(a)The appellant herein namely, Asean LNG Trading Co. Ltd.
now known as Petronas LNG Ltd. had entered into an
agreement with the respondent namely, M/s. Adani Energy
Ltd., as a Master agreement for LNG sale and purchase on
02.08.2006. The Master agreement has been executed
between Malaysia LNG SDN BHD (for an on behalf of
Malaysia LNG Companies) and Adani Energy Ltd.
(respondent herein) for sale of Liquified Natural Gas (LNG)
for a period of three years. Malaysia LNG Companies,
referred to as ‘MLNG’ in the agreement is the seller and
Adani Energy Ltd. ‘Adani’ is the buyer as described in the
agreement.
(b)Relevant Clauses 1.1, 1.5, Clause 2, 6.1, 6.2, 6.5, 6.6, 7.1,
9.1, 12.1, 12.2, 20.1, 20.3, 20.9, Clauses 21 and 26 and
27.2 of the agreement placed before us by the learned
Senior Counsels for the parties are relevant to be extracted
hereinunder:-
“1.1. The terms and expressions in this Agreement and
any effective Confirmation Notices hereof, unless the
context otherwise requires, shall have the meanings
respectively assigned to them as follows:
Affiliate
Means a company, partnership or other legal entity
which directly or indirectly controls, or is directly or
indirectly controlled by, or which is directly or indirectly
controlled by an entity which directly or indirectly
controls Seller.
For the purposes of this definition, "control" and its
derivatives means the ownership directly or indirectly of
more than fifty (50) percent of the shares, interests or
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voting rights in a company, partnership or other legal
entity.
Agreement
This Master LNG Sale And Purchase Agreement,
including Schedules A, B, C and D (the provisions
contained in any effective Confirmation Notices).
Allowed Laytime
Has the meaning assigned to it in Clause 9.3.
Btu
British thermal unit, being that amount of heat which is
equal to 1,055.06 joules.
Buyer's Facilities
The berthing unloading, receipt, storage, regasification
and regasified LNG processing and delivery facilities at
the Receiving Terminal to be mutually agreed in the
relevant Confirmation Notice.
Confirmation Notice
The notice to be executed by the Parties substantially in
the form set out in Schedule C in relation to the sale and
purchase of a cargo of LNG pursuant to this Agreement.
Day
A period of twenty-four (24) consecutive hours starting
00:00 hours and ending at 00:00 hours of the next
following day in the country of the Unloading Port.
Expert
means an individual appointed pursuant to Clause 27.1
to resolve certain disputes between the Parties as
designated therein.
Force Majeure
As defined in Clause 22.1.
Full Cargo Lot
A cargo of LNG which fills an LNG Ship to its fully
loaded capacity or to the fullest extent that the LNG
Ship can safely load, carry, discharge and leaving
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reasonable quantity for heel.
Gross Heating Value (Mass Based)
When expressed in megajoules or MJ, the quantity of
heat produced by the complete combustion of 1 kilogram
mass of anhydrous gas in anhydrous air, and the
condensation of all the water formed, with the initial and
final temperature and pressure being 15 degrees Celsius
and 1,013.25 milibars respectively; when expressed in
Btu, the quantity of heat produced by the complete
combustion of 1 kilogram mass of anhydrous gas in
anhydrous air, and the condensation of all the water
formed, with the initial and final temperature and
pressure being 60 degrees Fahrenheit and 14.696
pounds per square inch absolute respectively.
Gross Heating Value (Volume Based)
When expressed in Btu, the quantity of heat produced by
the complete combustion of 1 Standard Cubic Foot of
anhydrous gas in anhydrous air, and the condensation of
all the water formed, with the initial and final
temperature and pressure being 60 degrees Fahrenheit
and 14.696 pounds per square inch absolute
respectively.
Independent Inspector
As defined in Clause 15.2.
LNG
Liquefied Natural Gas, being a product obtained from
liquefying Natural Gas and consisting predominantly of
methane.
LNG Heel
The quantity of LNG, as determined by Seller, remaining
on the LNG Ship after a discharge of the cargo required
for the LNG Ship to proceed from the Receiving
Terminal to the Loading Port, or dry-dock or other port,
and arrive at such facility with sufficient LNG to meet
the required arrival temperature.
LNG Ship
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A ship provided by Seller for the transportation of LNG
to Buyer at the Receiving Terminal in accordance with
this Agreement and the relevant Confirmation Notice.
Loading Port
The port for loading of LNG into LNG Ship located at
Bintulu, Sarawak, Malaysia and/or other ports as
specified in the relevant Confirmation Notice.
Malaysia LNG Companies
Any one of the companies organized and existing under
the laws of Malaysia which at the date hereof comprise
Malaysia LNG Sdn. Bhd., Malaysia LNG Dua Sdn. Bhd.,
Malaysia LNG Tiga Sdn Bhd and Asean LNG Trading
Company Ltd.
MMBtu
1,000,000 Btu.
Month
A Gregorian calendar month.
Natural Gas
A mixture consisting mainly of hydrocarbons that exist
either in the gaseous phase or in solution with crude oil
in natural underground reservoirs.
Notice of Readiness (NOR)
A notice sent by the master of the LNG Ship or its agent
to Buyer or Buyer's agent by letter, telegraph, facsimile,
radio or telephone upon arrival of the LNG Ship at the
customary place at the Unloading Port where the first
pilot boards the LNG Ship at the Unloading Port
indicating that the LNG Ship is ready to discharge LNG,
berth or no berth.
Plant
The liquefaction trains and associated facilities at
Bintulu, in the State of Sarawak, Malaysia (or such other
locations as may be specified or reasonably inferred
from the relevant Confirmation Notice), including the
facilities in the Loading Port used by Seller to produce
and load the LNG to be delivered hereunder.
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Quantity Delivered
Quantity of LNG in MMBtu delivered by Seller to Buyer
at the Unloading Point in the Receiving Terminal of the
Unloading Port as specified in the relevant Confirmation
Notice.
Receiving Terminal
The regasification and associated facilities which Buyer
has confirmed in the relevant Confirmation Notice that it
will use to unload the LNG purchased under the
Agreement (if any).
Rounding or Rounded
To eliminate unrequired digits in order to establish a
required number by using the following method: if the
first of the digits to be discarded is 5 or more, the last of
the digits to be retained is increased by 1; if the first of
the digits to be discarded is 4 or less, the last of the
digits to be retained is unaltered. The following example
is given to illustrate how a number is to be established in
accordance with the above.
Number before Rounding Number after
Rounding to 1 decimal place
6.74 6.7
6.749 6.7
6.750 6.8
6.76 6.8
Scheduled Unloading Date Range
As defined in Clause 6.1.
Seller's Facilities
All facilities in connection with the production, storage
and transportation of the LNG to be delivered in
accordance with this Agreement and which shall include,
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without limitation, the Natural Gas wells and production
facilities, pipelines and utilities, Natural Gas treatment,
liquefaction and related facilities, LNG storage facilities
and loading port facilities located either onshore or
offshore the state of Sarawak, Malaysia (or such other
locations as may be specified or reasonably inferred
from the relevant Confirmation Notice) and including all
modifications, alterations or additions thereto as they
may be made from time to time, whether owned or not
owned and/or controlled by Seller.
Ship Owner
The owner of the LNG Ship.
Standard Conditions or SC
The reference conditions of 15 degrees Celsius and
1,013.25 millibars absolute.
Standard Cubic Foot or SCF
In relation to gas, the quantity of anhydrous gas which
occupies i cubic foot of space at a temperature of 60
degrees Fahrenheit and a pressure of 14.696 pounds per
square inch absolute.
Unloading Port
As assigned to it in the relevant Confirmation Notice.
Unloading Point
The point at the Receiving Terminal at which the flange
coupling of the LNG unloading manifold on board an
LNG ship joins the flange coupling of Buyer's receiving
arm.
Working Day
A day, other than a Saturday or Sunday upon which
banks are open for general business (a) in the country of
Buyer's nominated bank and (b) in Malaysia or the
country of Seller's nominated bank (if Seller's nominated
bank is not in Malaysia).
1.5. This Agreement comprises this Master LNG Sale
and Purchase Agreement, Schedules A, B and the
relevant effective Confirmation Notice following the
format set out in Schedule C hereto. If any inconsistency
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appears between the provisions contained in the Master
LNG Sale and Purchase Agreement, Schedules A, B and
the provisions of the relevant effective Confirmation
Notice, the documents shall prevail in the following
order of priority:
(a) the relevant effective Confirmation Notice;
(b) this Master LNG Sale and Purchase Agreement;
and
(c) Schedules A and B
CLAUSE 2 - DURATION
2.1 This Agreement shall come into force and effect as of
the date above written and shall continue in force and
effect for a period of three (3) years. For the avoidance
of doubt, this Agreement shall expire on the 3rd
Anniversary of effective date.
2.2. The duration of this Agreement may be extended on
such terms and conditions as may be mutually agreed.
The Party requesting to extend this Agreement shall give
written notice to the other Party not later than three (3)
months prior to the expiry of this Agreement pursuant to
Clause 2.1 above.
2.3. Although it is the intention of the Parties to enter
into contracts for sale and purchase of cargoes of LNG
from time to time, the execution of this Agreement by
the Parties shall not oblige either Party at any time to
enter into any contract with the other Party for the sale
and purchase of LNG. Seller may, in its absolute
discretion, at any time offer to sell quantities of LNG to
Buyer on the terms and conditions contained herein. If
Buyer accepts such offer, the Parties shall negotiate and
execute a Confirmation Notice, substantially in the form
set out in Schedule C. Any contract that may be entered
into by the Parties for the sale and purchase of any
cargo or cargoes of LNG shall be in accordance with the
terms of this Agreement and the relevant Confirmation
Notice, which shall be mutually agreed, relating to each
contract. The execution of any Confirmation Notice by
the Parties shall constitute an individual and several
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contract whereby Seller agrees to supply, sell and
deliver a cargo or cargoes of LNG to Buyer and Buyer
agrees to purchase, receive and pay Seller for such
cargo or cargoes of LNG in accordance with this
Agreement and the relevant Confirmation Notice.
6.1. Prior to loading of any cargo of LNG under this
Agreement, Seller and Buyer shall consult each other
and agree in the Confirmation Notice terms that are to
be applicable to a cargo or cargoes of LNG to be loaded,
including a two (2) Day date-range (or other date-range
as mutually agreed) for arrival of the LNG Ship to
deliver a Full Cargo Lot of LNG at the Receiving
Terminal (the "Scheduled Unloading Date Range" )
taking into consideration Seller's LNG Ship's operation
and its commitment on long term contracts as well as
Buyer's berth schedule, the name of the LNG Ship to be
utilized (which Seller shall have the right but not the
obligation to substitute if necessary prior to loading
subject to compliance with Clause 17.1), LNG Ship's
estimated fully laden draft and estimated quantity of
LNG to be delivered.
During such consultation between Buyer and Seller,
Buyer shall also use all reasonable endeavours to
provide Seller with information about the requirements
of the proposed Unloading Port, Receiving Terminal and
for the shipment concerned.
Seller shall send to Buyer the notice by letter, telex,
facsimile, electronic mail or other electronic method of
written transmission within twenty four (24) hours after
loading completion. Buyer shall, on receipt of the above
advice, provide Seller with full documentation
requirements for the shipment concerned.
6.2. The LNG Ship referred to in Clause 6.1 shall be any
of the LNG Ships having the specifications and
dimension as mentioned in Clause 17.1.
6.5. Seller shall give or cause to be given to Buyer:
(a) not less than seventy-two (72) hours notice of the
estimated time of arrival of the LNG Ship at the
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Receiving Terminal;
(b) a notice of not less than forty eight (48) hours prior
to the estimated time of arrival of the LNG Ship at the
Receiving Terminal;
(c) an additional notice of not less than twenty four (24)
hours prior to the estimated time of arrival of the LNG
Ship at the Receiving Terminal;
(d) prompt notice of any alteration of more than three (3)
hours to the time contained in the notice given under
Clause 6.5(c); and
(e) any other or further notice as may be proposed by
Buyer in order to meet with the additional requirements
of the Unloading Port and included in Buyer's delivery
instructions.
6.6. Seller shall cause the information of the latest
temperature of the liquid cargo and pressure of the LNG
tanks of the LNG Ship to be provided to Buyer within
twenty-four (24) hours (and at such other time as may be
mutually agreed) before the estimated time of arrival of
the LNG Ship at the Receiving Terminal. If the latest
temperature of the liquid cargo and pressure of the LNG
tanks and the LNG Ship should change due to
circumstances discovered after transmission of such a
notice, the master of the LNG Ship shall give prompt
notice thereof to Buyer amending the information
previously given to Buyer.
7.1. Upon arrival of an LNG Ship at the customary
anchorage or waiting place at the Unloading Port, as
advised by Buyer, where the first pilot boards the LNG
Ship, the master of the ship shall cause the Notice Of
Readiness to be sent. After the LNG Ship has cleared the
necessary formalities with the relevant authorities.
Seller shall cause the LNG Ship to be berthed safely and
expeditiously at Buyer's berth and Buyer shall cooperate
where reasonably practicable in the LNG Ship being
safely and expeditiously berthed.
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9.1. Buyer shall accept discharge of LNG at a berth
which Buyer shall provide or cause to be provided free of
charge and which the LNG ship can safely reach, lie at
and depart from, always safely afloat.
12.1 Seller's and Buyer's Obligations
Seller agrees to sell and deliver to Buyer at the
Receiving Terminal, and Buyer agrees to purchase, take
and pay for, or pay for if not taken, LNG in the
quantities, the quality and at the prices determined in
accordance with this Agreement and the relevant
Confirmation Notice.
12.2 Buyer's Obligation to Take or Pay
If Buyer fails to accept delivery of any LNG cargo under
the Agreement, unless excused by Force Majeure dr
Seller's material failure to perform, Buyer shall be liable
to pay Seller, in accordance with this Clause 12.2, an
amount equal to such LNG quantity as specified in the
Confirmation Notice multiplied by the LNG Price as
specified in the Confirmation Notice in respect thereof
("Take or Pay Amount").
Notwithstanding the above, if Seller is able to find and
complete sale transaction of such LNG cargo to a third
party purchaser, and Buyer has paid Seller, Buyer shall
be entitled to receive the net proceeds of such sale
realized by Seller from such third party, being the
following (the "Net Proceeds"):
a) the total proceeds received from the sale to such third
party plus any shipping costs saved, less
b) all fees, commissions, duties, expenses and costs of
sale, additional bunkering and other LNG Ship expenses
over and above those costs which would have been
incurred in transporting the cargo to Buyer's Facilities
on the Scheduled Unloading Date Range (including but
not limited to demurrage for any delays resulting from
such alternative sale);
provided, however, that if the Net Proceeds exceed the
amount paid or payable by Buyer in respect of such LNG
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cargo, the difference between such Net Proceeds and
the amount paid or payable by Buyer shall be retained
by Seller for its own account.
20.1. For any sale of LNG pursuant to this Agreement
and the relevant Confirmation Notice, the price for the
LNG expressed in United States Dollars as per MMBtu
shall be specified in the Confirmation Notice (the
Contract Sale Price").
20.3. The amount payable by Buyer to Seller for the
LNG cargo(es) sold, or any other amounts payable
pursuant to this Agreement shall be calculated by
multiplying the Quantity Delivered by the Contract Sale
Price specified in the relevant Confirmation Notice.
20.9. Credit Support
a) Buyer shall if requested by Seller in accordance with,
and as specified in, a Confirmation Notice provide to
Seller either (i) a parent company guarantee,
substantially similar to the form set out in Form II of
Schedule D; provided, however, that the company giving
such guarantee is reasonably acceptable to Seller, or (ii)
an irrevocable standby letter of credit, substantially
similar to the form set out in Form I of Schedule D
provided by a first class international bank having a debt
rating of at least A- by Standard & Poor's or the
equivalent by Moody's.
b) If during the term of any Confirmation Notice, Buyer's
(or its guarantor's) financial condition materially
deteriorates to such a degree that Seller has reasonable
grounds for believing that Buyer either will cease to
have the financial resources to meet its financial
obligations or that Buyer's (or its guarantor's) financial
circumstances have deteriorated to an unacceptable
level, Seller may by giving notice to Buyer (including
details of Seller's reasonable grounds) request that
Buyer promptly provide additional financial security, as
specified in such notice, to secure Buyer's performance.
Upon receipt of such notice, Buyer shall within five (5)
Business Days provide Seller with the requested
financial security. In the event Buyer fails to provide the
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requested financial security within the requested time
period, Seller shall have the immediate right upon notice
to Buyer to suspend deliveries of LNG until Seller
receives such financial security and/or draw any amount
due on the credit support documents provided by Buyer
under this Agreement. Such suspension shall not
constitute a failure by Seller to make such quantities
available for sale pursuant to the terms of this
Agreement, but shall be deemed a failure by Buyer to
accept under Clause 12.2. Buyer shall have no rights in
respect of such suspended deliveries while such financial
security has not been provided but shall be obligated to
make all payments that become due and payable
pursuant to Clause 12.2 in relation to such suspended
deliveries.
c) If Seller does not request credit support in accordance
with Clause 20.9(a) above then, if during the term of any
Confirmation Notice, Buyer's (or its parent's) financial
condition materially deteriorates to such a degree that
Seller, in its sole opinion, has reasonable grounds for
believing that Buyer either will cease to have the
financial resources to meet its financial obligations or
that Buyer's (or its parent's) financial circumstances
have deteriorated to an unacceptable level, Seller may
by giving notice to Buyer (including details of Seller's
reasonable grounds) request that Buyer promptly
provide additional financial security, as specified in such
notice, to secure Buyer's performance. Upon receipt of
such notice, Buyer shall within five (5) Business Days
provide Seller with the requested financial security. In
the event Buyer fails to provide the requested financial
security within the requested time period, Seller shall
have the immediate right upon notice to Buyer to
suspend deliveries of LNG until Seller receives such
financial security. Such suspension shall not constitute a
failure by Seller to make such quantities available for
sale pursuant to the terms of this Agreement, and Buyer
shall have no rights in respect of such suspended
deliveries while such financial security has not been
provided but shall be obligated to make all payments
which become due and payable pursuant to Clause 12.2
in relation to such suspended deliveries.
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Any claim by the Seller on any credit support provided
by the Buyer in accordance with this Clause 20.9 and the
applicable Confirmation Notice shall be deemed to be a
payment of the relevant amount by the Buyer.
CLAUSE 21 - DELIVERY, TRANSFER OF TITLE AND
RISK
21.1. Delivery of LNG shall be on an Ex-ship basis and,
unless otherwise agreed in the Confirmation Notice, the
point of delivery of every LNG sale under this Agreement
shall be at the Unloading Point. Title and risk of LNG
delivered hereunder shall pass from Seller to Buyer at
the points where the outlet flanges of the unloading lines
of the LNG Ship connected with the inlet flanges of the
receiving lines of the Unloading Point.
CLAUSE 26 APPLICABLE LAW
26.1 This Agreement and every Confirmation Notice
executed hereunder shall be governed by and construed
in accordance with the Law of England and Wales. The
United Nations Convention on Contracts for the
International Sale of Goods (the Vienna Sales
Convention) and the Convention on the Limitation Period
in the International Sale of Goods shall not apply.
27.2 Any dispute arising out of or in connection with this
Agreement, which cannot be resolved amicably by
discussion in good faith between the Parties (but
excluding any dispute that must be referred to an Expert
pursuant to Clause 27.1(a), shall upon written request by
one Party, be settled by arbitration in accordance with
the London Court of International Arbitration (LCIA)
Rules as in force at the date of such arbitration. Any
arbitration commenced pursuant to this Clause shall be
administered by the LCIA. The number of arbitrators
shall be three (3). Each Party shall appoint an arbitrator
and the two (2) arbitrators shall appoint a third
arbitrator who shall be the presiding arbitrator, in case
either Party fails to appoint an arbitrator or the two (2)
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arbitrators appointed by the Parties fail to agree on the
choice of the presiding arbitrator, the appointing
authority shall be the LCIA. Unless otherwise agreed,
the place of arbitration shall be London, the United
Kingdom. The language to be used in the arbitration
shall be English. Any award shall be final and binding
upon the Parties. Judgment on any award rendered by
arbitrators may be entered in any court having
jurisdiction over the Parties.”
(c)Schedule ‘C’ containing the sample confirmation notice, ex-
ship sale and purchase of LNG reads as under:-
SCHEDULE C
CONFIRMATION NOTICE (SAMPLE)
EX-SHIP SALE & PURCHASE OF LNG
PARTIES
Buyer :
Attn :
Telephone :
Telefax :
Seller :
Attn :
Telephone :
Telefax :
The following Confirmation Notice confirms the agreement made between
Buyer and Seller as Identified herein. This sale is subject to the terms and
conditions of the existing Master Agreement executed between Buyer and
Seller on………….. ("Agreement"). The execution of this Confirmation Notice
by the Parties shall form a valid, individual and several contract whereby
Seller agrees to sell a cargo or cargoes of LNG to Buyer and Buyer agrees to
purchase and pay Seller for such cargo or cargoes of LNG in accordance with
the Agreement and this Confirmation Notice.
2. LNG SHIP
Name of Ship :_______________________
Designed Draft (moulded) :_______________________
Estimated Fully Laden Draft :_______________________
Length Overall Service Speed :_______________________
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Gross Cargo Tank Capacity :_______________________
Name of Ship Owner :_______________________
Name of Ship Operator :_______________________
Flag :_______________________
Vessel's Current Position :_______________________
3. RECEIVING TERMINAL
Unloading Port :_______________________
State :_______________________
Country :_______________________
4. SCHEDULED UNLOADING DATE RANGE
Date of unloading expected to commence :____________________
Targeted period of unloading :____________________
5. QUANTITY
Number of Full Cargo Lots :____________________
Estimated Quantity Loaded in MMBtu :____________________
Estimated Quantity to be Unloaded in MMBtu :____________________
Estimated Quantity of Heel in cubic meters :____________________
to be retained at Unloading Port
Quantity Delivered: Will be ascertained using the method mentioned in
Clause 13 of the Master LNG Sale And Purchase Agreement.
6. PLANT :______________________________
7. LOADING PORT :_______________________________
8.CONTRACT SALE PRICE
USD/MMBtu of Quantity Delivered :____________________
9. PAYMENT
In accordance with the terms in Clause 20 of the Master LNG Sale And
Purchase "Agreement or otherwise agreed mutually between both Parties.
Seller's Account No :____________________
Bank Address :____________________
Country :____________________
Buyer's Account No :____________________
Bank Address :____________________
Country :____________________
10. PAYMENT SECURITY: :____________________
11. QUALITY
LNG to be unloaded by Seller from LNG Ship at Unloading Point at the
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Receiving Terminal, when converted to a gaseous state, comply with the
quality specifications as agreed by Buyer and Seller herein.
12. DEMURRAGE
USD …………………..per Day and pro-rated for part Days
13. NOTICES
Only routine operational notices to be sent to the following addresses-
BUYER
Individual :_______________________________
Email :_______________________________
Tel. (Office) :_______________________________
Tel. (Mobile) :_______________________________
Tel. (24hrs) :_______________________________
Гах (Office) :_______________________________
Address :_______________________________
SELLER
Individual :_______________________________
Email :_______________________________
Tel. (Office) :_______________________________
Tel. (Mobile) :_______________________________
Tel. (24hrs) :_______________________________
Fax (Office) :_______________________________
Address :_______________________________
Other notices not classified as routine operational notices such as general
correspondences, commercial documents, invoices etc. to be sent to the
addresses appeared in Clause 32 and in the manner specified in Clause 32
or, for invoice and documents accompanying invoice, in the manner specified
in Clause 20 of the Master LNG Sale And Purchase Agreement.
AGREED and ACCEPTED this Day ………….. of ………………..
On behalf of seller
Signature
Name:
Title:
On behalf of Buyer
Signature
Name:
Title:
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(d)In continuation of the Master agreement vide e-mail dated
04.02.2007, between Mr. Sidek for MLNG @ Petronas and
Mr. Affendy (MLNG) (internal e-mail of the appellant), four
cargoes for the respondent, one each for April, May, June
and August had been discussed. The minutes of the
meeting held between the representatives of the parties
namely, the appellant and respondent herein held on
15/16.02.2007 at Bangkok in relation to the schedule for
delivery of cargoes and pricing are at page ‘815’ of the
second part of the paper-book wherein schedule for
delivery in April, May, June and August, 2007, pricing,
payment guarantee, diversion clause, confirmation notice
and next steps were discussed. Paragraph ‘7’ of the
minutes of meeting are to be noted as under:-
“7. Next Steps
7.1 Schedule
7.1.a Adani to revert if the new dates proposed are
acceptable for them.
7.2 Pricing
7.2.a Both parties to agree on the Sharing of Upside and
Helping Hand Concepts.
7.3 Payment Guarantee
7.3.a Adani to revert on the usage of either one or multiple
SBLCS
7.3.b. MLNG to revert on status of proposed banks by
Adani.
7.4 Confirmation Notice
7.4.a Both parties to agree on the Confirmation Notice mode,
either one or multiple.
7.4.b To add new clauses in the Confirmation Notice
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7.4.b1 Diversion Clause
7.4.b2 "First Right of Refusal"”
5. The case of the learned Senior Counsel for the
respondent (buyer) is that the terms relating to schedule
for delivery, pricing etc. though were discussed in the said
meeting but it was resolved that the buyer would revert
back on the terms discussed therein.
6. A letter dated 22.02.2007 of Hazira LNG Private Ltd.
addressed to the respondent – buyer has been placed at
page ‘838’ of the second part of the paper-book wherein it
was intimated that “considering the expected arrivals of
LNG vessels at our terminal in the coming months, we are
not in a position to offer any regasification capacity, which
may please be noted”.
7. The confirmation notice dated 12.03.2007 was executed
between the parties namely, the appellant (seller) and the
respondent herein (buyer) for sale and purchase of four
cargoes of LNG in the months of April, May, June and
August, as per the schedule of unloading date range
listed therein as under:-
4. SCHEDULED UNLOADING DATE RANGE
The Scheduled Unloading Date Range for the four
cargoes shall be as listed below.
i. First Cargo : 26-28 April 2007
ii. Second Cargo : 26-27 May 2007
iii. Third Cargo : 25-26 June 2007
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iv. Fourth Cargo : 26-27 August 2007
Seller shall immediately inform Buyer and Buyer shall
immediately inform Seller of any circumstances as a
result of which delivery of a Cargo might be made on a
date other than the Scheduled Unloading Date shown
above. In such circumstances, the Party concerned shall,
use its best endeavours to minimize any adverse effects
arising from such circumstances and the Parties shall
consult together as to whether any alteration of the then
Scheduled Unloading Date Range shall be made.
8. A perusal of Clause 4 of the Schedule unloading date
range mentioned therein indicates that the seller had
agreed to immediately inform buyer and the buyer in turn
to immediately inform the seller of any circumstances for
change in the date other than the scheduled unloading date
shown therein, while using its best endeavours to minimise
any adverse effects arising from such circumstances and
that the parties shall consult together about any alteration
of the scheduled unloading date range whether to be made.
9. The confirmation notice further refers to and provides
format of delivery notice, as exhibit attached to it, as
under:-
DELIVERY NOTICE
EX-SHIP SALE & PURCHASE OF LNG
1. BUYER
Buyer : Adani Energy Limited
Attn : Deputy General Manager – Gas Sourcing
Telephone : +91-120-2443008
fax : +31-120-2443009
Seller : Asean LNG Trading Co.Ltd. (ALTCO)
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Attn : General Manager, Marketing & Trading
(Sector 3)
Telephone : +603-2331-6747
Telefax : +603-2331-7888
This Delivery Notice confirms the agreement made between Buyer and
Seller as identified herein. This sale is subject to the terms and
conditions of the existing Master Agreement ("Agreement") executed
on 2.August 2006. and Confirmation Notice executed on 12 March
2007 ("Agreement") between Buyer and Seller.
2. LNG SHIP
Name of Ship :_________________________
Designed Draft (moulded) :_________________________
Estimated Fully Laden Draft :_________________________
Length Overall :_________________________
Service Speed :_________________________
Gross Cargo Tank Capacity :_________________________
Name of Ship Owner :_________________________
Name of Ship Operator :_________________________
Flag :_________________________
Vessel's Current Position :_________________________
3. RECEIVING TERMINAL
Unloading Port :_________________________
State :_________________________
Country :_________________________
4. SCHEDULED UNLOADING DATE RANGE
Date of unloading expected to commence :________________
Targeted period of unloading :____________________
5. QUANTITY
Estimated Quantity Loaded in MMBtu :____________________
Estimated Quantity to be Unloaded in MMBtu :____________________
Estimated Quantity of Heel in cubic meters :____________________
to be retained at Unloading Port
6. QUALITY
Without prejudice to paragraph 11 (Quality) in the Confirmation
Notice, the average total sulfur content of three preceding cargoes
loaded on February 26th to 27th 2007, March 2nd to 4th 2007 and
March 5th to 6th 2007 contain not more than 15 mg/Nm3 by weight of
total sulfur compound.
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7. PAYMENT SECURITY
Irrevocable SBLC value at US$….. with a validity period from ………..
to......
On behalf of SELLER
Signature:
Name:
Title:
On behalf of BUYER
Signature:
Name:
Title:
10. By placing the delivery notice, it was sought to be
demonstrated by the learned Senior Counsel for the
respondent – buyer herein before us that the particulars of
the LNG Ship, receiving terminal, scheduled uploading date
range, quantity, quality, payment security etc. were to be
provided in the delivery notice itself.
11. The copy of an e-mail dated 15.03.2007 appended at
page ‘924’ (second part of the paper-book) is an internal
communication between the officers of the seller (MLNG),
wherein it is is stated by the In-charge Marketing &
Trading India & South East Asia 2 that an e-mail was sent
on behalf of the buyer on the July pricing but it was yet to
arrive. However, having spoken to the representative of
the seller, his offer price to the buyer was US$8.15.
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12. A delivery notice along with the letter dated 16.03.2007
addressed to the buyer’s Deputy General Manager is
enclosed at page ‘925’ of second part of the paper-book
wherein the details with regard to the scheduled unloading
th th
date between 26 and 28 April, 2007 has been mentioned
with the details of LNG Ship, receiving terminal, quantity,
quality and payment security. The receiving terminal of
unloading port disclosed therein is Hazira, Gujarat.
13. It is contented by the learned Senior Counsel for the
respondent that the delivery notice for April Cargo does not
specify the price and further it is indicated therein that the
amount and the validity period of the payment security will
be advised at a later day. The delivery notice further states
that the sale is subject to the terms and conditions of the
existing master agreement executed on 02.08.2006 and the
confirmation notice executed on 12.03.2007 between buyer
and seller. A perusal of the delivery notice at pages
‘925’-’927’ (second part of the paper-book) indicates that
the signature column on behalf of the buyer is blank.
14. A copy of the e-mail dated 19.03.2007 at page ‘928’
(second part of the paper-book) indicates that in the said
internal e-mail between the officers of MLNG, it was
communicated that:-
“As per our telecom on Friday, this is a reverse
confirmation of Adani's offer for the said cargo being fix
and firm at USD 8.15 or HH + 1.50. The float price is
also subject to us agreeing to hedge Adani's cost
exposure capping it to USD 8.15 equivalent.
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At this point in time, due to the prevailing HH for Jun /
July, the fix and firm offer is not economical and the
“
alternative float offer with hedging is also not possible.
15. A copy of the e-mail dated 21.03.2007 sent by the seller
(MLNG) to the buyer, further reads that a confirmation was
needed regarding the price for April cargo and it was also
requested to clear the issue regarding the standby letter of
credit. The extract of the communication relevant for our
purposes at page ‘934’ of the second part of the paper-
book reads as under:-
“I also like to assure you that we are looking at all
possibilities in getting the best price for Adani in this
transaction, As you are well aware, the weather factor in
US lately is not to our favour. The Henry Hub price has
been yo-yo between 6.84 to 7.00 lately. However, we are
still optimistic that the price will go down further and
level around 6.65 (will give DES price of 8.50) is still
possible. Thus, as I mentioned to Alok earlier today, we
need your confirmation whether you would accept 8.50
to be the firmed price for April cargo should we able to
hedge at that level. As we are running short of time, we
need the confirmation urgently.”
16. A reading of another e-mail dated 22.03.2007 sent by the
appellant (seller) to the respondent (buyer) at page ‘937’ of
the second part of paper-book indicates that there was no
agreement or consensus on the price, inasmuch as, the
same reads as under:-
“Affendy B. Adnan\(MLNG\)” To : “Alok Singh”<Alok.
<affenad@[email protected] [email protected]>
> <[email protected].
my>, “Rajeev Sharma”
03/22/2007 11:28 AM <Rajeev.Sharma@
adanienergy.com>
bcc
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Dear Alok,
I think there's some misunderstanding. We have not yet
offered to you a firmed price of $8.50. What we are
offering is that should we are in the position to hedge
the price at $8.50. Do you want us to do this? As stated
in Mr Shaharuddin email. What you are suppose to
revert to us by today is that your agreement for to hedge
at $8.50 whenever we can. Currently, the price is still
too high for us to hedge therefore the price is still based
on indexed pricing.
I will call you later to explain further.""
Regards.
Affendy Adnan
From: Shaharuddin B M Sidek (MLNG)
Sent: Thursday, March 22, 2007 12:34 AM
To: [email protected]; Affendy B Adnan
(MLNG).
Cc: Rajeev Sharma
Subject: RE: future July cargo & the coming April cargo
Dear Mr. Rajeev Sharma and Mr Alok Singh,
“I also like to assure you that we are looking at all
possibilities in getting the best price for Adani in this
transaction. As you are well aware, the weather factor in
US lately is not to our favour. The Henry Hub price has
been yo-yo between 6.84 to 7.00 lately. However, we are
still optimistic that the price will go down further and
level around 6.65 (will give DES price of 8.50) is still
possible. Thus, as I mentioned to Alok earlier today, we
need your confirmation whether you would accept 8.50
to be the firmed price for April cargo should we able to
hedge at that level. As we are running short of time, we
need the confirmation urgently.
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Once again I plead to you to clear the SBLC issue so that
we can proceed with the bigger agenda. By the way,
what is the news on the Nigerian Cargo for April?
Regards
SHAHARUDDIN
17. In response thereto at page ‘949’ of the second part of
the paper-book is the letter of the appellant (seller) to the
respondent (buyer) acknowledging the letter dated
27.03.2007, which reads that:-
28 March 2007
Mr Shirdhar Tambraparni,
Vice President,
Adani Energy Limited
Deputy General Manager - Gas Sourcing
Adani Energy Limited
Greetings,
Master LNG Sale and Purchase Agreement For Ex-Ship
Short Term Sale and Purchase of Liquefied Natural Gas
between Malaysia LNG Sdn. Bhd. (for and on behalf of
Malaysia LNG Companies) and Adani Energy Limited
(Adani) dated 2 August 2006 ("Master Agreement").
Confirmation Notice between Adani Energy Limited and
Asean LNG Trading Co. Ltd. (ALTCO) dated 12 March
2007 ("Confirmation Notice") and Delivery Notice sent
by ALTCO to Adani on 16 March 2007 ("Delivery
Notice")
Thank you for your letter dated 27 March 2007 (the
"Letter"). We understand from the Letter that Adani will
not be able to accept the delivery of the cargoes agreed
between the Parties under the Confirmation Notice
scheduled for delivery on 26-28 April 2007 (the "April
Cargo") and the cargo scheduled for delivery on 26-27
May 2007 (the "May Cargo").
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Based on the above mentioned Letter on Adani's failure
to accept delivery of the April Cargo and the May Cargo,
we will be sending an invoice to your goodselves for
Adani's obligation to Take or Pay under Clause 12.2 of
the Master Agreement.
We would also like to reiterate our request for the
Standby Letter of Credit (SBLC) in accordance with the
Master Agreement and Confirmation Notice which was
due from your goodselves to us on 22 March 2007.
Best Regards,
For and on behalf of Asean LNG Trading Co. Ltd.
SHAHARUDDIN M.SIDEK
General Manager
Marketing & Trading (Sactor 3)
Commercial Division
18. There is another letter dated 28.03.2007 (at page ‘950’
of the paper-book) sent by the buyer to Hazira LNG Private
Ltd. on the subject of making inquiry about requirement of
regasification capacity of the Hazira terminal during April-
August, 2007 wherein while stating that the first cargo was
proposed to be loaded at Port Fortin, Trinidad and Tobago
on 01.04.2007, the buyer sought confirmation from the
Hazira terminal on the availability of regasification slot at
the terminal. The details of the ship and the quantity of the
gas had also been disclosed therein with the Annexures
appended to the said letter. It was also stated therein that
in case there is difficulty in accepting the cargo on the
above days, a suggestion be made about minor
reschedulement of the cargo, which may be acceptable to
the terminal, while stating that there is a possibility of first
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cargo being rescheduled to first week of May, 2007.
19. Another communication dated 29.03.2007 at page ‘972’
of the paper-book indicates that upon inquiry made by the
respondent (buyer) vide letter dated 28.03.2007 regarding
availability of regasification slot during April-August, 2007
at Dahej terminal in the State of Gujarat, the Petronas LNG
Ltd. responded by saying that their capacity during the said
period was fully booked, they would not be in a position to
accept the cargo mentioned in the letter dated 28.03.2007.
20. In reply to the letter dated 28.03.2007 for inquiry into
the requirement of regasification capacity at Hazira
terminal, a response was received by the respondent
(buyer) vide letter dated 03.04.2007 at page ‘980’ of the
paper-book wherein it is stated that it would be difficult to
offer regasification capacity considering the expected
arrival of LNG cargoes in the coming month and that they
are not in a position to offer any regasification capacity.
21. The appellant, however, sent a message through FAX
dated 03.04.2007 appended at page ‘981’ of the paper-
book, whereby Take or Pay invoice was sent to the
respondent in respect of the April cargo. The said notice is
stated to be in terms of the Master agreement dated
02.08.2006, the Confirmation notice dated 12.03.2007 and
the delivery notice dated 16.03.2007, stating that the
payments were to be made to the bank account designated
in the letter of instructions dated 03.04.2007.
22. By inviting attention of the Court at pages ‘1028’-’1032’
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of the paper-book, it is sought to be demonstrated before us
that April cargo, allegedly sent to the respondent by the
appellant had been sold to one BG LNG Trading, LLC vide
master agreement dated 06.04.2007.
23. It seems, thereafter, the respondent (buyer) wrote a
letter dated 10.04.2007, indicating that they were facing
unforeseen difficulties in obtaining regasification capacity
at both the terminals at Dahej and Hazira for taking April
and May cargoes as scheduled in the confirmation notice
signed on 12.03.2007 and that intimation with regard to
the same was sent to the appellant vide letter dated
27.03.2007. It was also stated therein that as the
respondent had received a letter dated 28.03.2007 and
Take or Pay invoice dated 03.04.2007 from the appellant
and they may meet at the earliest to amicably settle the
issue and that once the above matter would be resolved by
mid April, 2007, the respondent (buyer) would be in a
position to get end May, 2007 slot. The content of the
letter dated 10.04.2007 at page ‘1033’ of the second part of
the paper-book are to be extracted hereinunder:-
“Dear Mr Shahruddin,
This is in continuation with our earlier letter dated 27
March 2007 wherein we had submitted the difficulties
being faced by us for getting necessary slots at the LNG
re-gasification terminals at Dahej and Hazira for taking
the April and May Cargoes as scheduled under the
confirmation notice signed on the 12th of March 2007.
Subsequently, we have received your letter dated 28
March 2007 and your Take or Pay Invoice dated 3 April
2007.
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As intimated to you earlier also, you would appreciate
that we are facing unforeseen difficulties in obtaining re-
gasification capacities at the terminals which we hope to
resolve soon. Unless the aforesaid matter is resolved
with the terminal owners and a firm re-gasification slot
is made available by them it would not be possible for us
to confirm on the delivery location, date or acceptance of
the cargoes. We are hopeful that the above matter would
be resolved by mid April 2007. Once that is resolved, we
are hoping to get end May 2007 slot.
At this stage let me assure you that we stand by the
spirit of the agreement. In order to resolve the issues
regarding the first cargo scheduled for Delivery in April
2007 we suggest that we meet at the earliest date at
New Delhi to amicably settle the Issue.
In this regard I would like to invite MLNG team to New
Delhi for a meeting tentatively on the 18th April 2007
and 17th of April 2007 to discuss on the way forward
and to resolve the issues related with the first LNG
cargo.
We look forward to hearing from you soon on the above
matter.”
24. A communication dated 17.04.2007, however, was sent
by the Senior Manager India / South Asia 2, of the
appellant to the respondent (buyer) enclosing another
th th
delivery notice for 26 -27 May, 2007 cargo and Receiving
terminal / unloading port mentioned therein is both
Hazira / Dahej though the details of the vessel remain the
same as was mentioned in the previous delivery notice. A
perusal of the content of the delivery notice sent along with
the communication dated 17.04.2007 indicates that it is
mentioned therein in the column “Schedule Unloading
Date Range” that the buyer’s letter dated 27.03.2007
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confirm that “buyer is not able to accept the delivery or the
th
cargo scheduled for delivery on 26 – 2th May, 2007 as
agreed between the parties under the confirmation notice”.
Further while mentioning the quantity and quality, it is
stated therein that the buyer was required to immediately
provide SBLC for the May, 2007 cargo in the amount of
US$29,265,600, the validity period of which shall be until
18.06.2007 from the date, i.e. 17.04.2007.
25. A perusal of the delivery notice in respect of the May
cargo at pages ‘1041’-’1043’ of the paper-book indicates
that it does not bear the signature of the buyer. Another
Take or Pay notice with the invoice was sent through FAX
dated 17.04.2007 itself, at page ‘1044’ of the second set of
the paper-book on the premise that the buyer showed
inability to accept the delivery of the May cargo.
26. A communication dated 19.04.2007 was sent by the
respondent to the appellant stating that the confirmation
notice did not contain the details of LNG Ship and
receiving terminal and those details were deliberately left
blank as it was understood that the shipments were to take
place subject to finalization of the receiving terminal and
execution of the delivery notice confirming the availability
of the same. The fact that the buyer was unable to finalize
the receiving terminal was totally beyond its control and
without the receiving terminal being finalized, confirmation
notice was not complete and final. It was, thus, intimated
that as there was no agreement on the receiving terminal,
it was inappropriate on the part of the appellant to have
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hastily invoked Take or Pay invoice clause and issued
invoice thereunder.
27. A request was made to withdraw the letter dated
28.03.2007 and the invoices dated 03.04.2007 and
17.04.2007 until by mutual agreement the issue relating to
the receiving terminal is resolved. It was conveyed that the
said issue can be discussed in the forthcoming meeting
scheduled on 20.04.2007 at New Delhi.
28. It was further submitted by the learned Senior Counsel
for the respondent (buyer) that a confirmation
memorandum dated 30.04.2007 was executed between the
appellant (seller) and one Vitol S.A. for the purchase of
LNG in respect of the May cargo.
29. An e-mail dated 15.05.2007 (page ‘1076’ of the paper-
book) was sent by the appellant to the respondent (buyer)
requesting to confirm the terminal (whether Dahej or
Hazira) for the upcoming third cargo loading on
01.06.2007. However, vide letter dated 18.05.2007 (page
‘1078’ of the paper-book) the appellant sent a letter
th
enclosing the delivery notice for 25-26 June 2007 cargo.
In response thereto an e-mail dated 18.05.2007 was sent by
the respondent (buyer) (page ‘1081’ of the paper-book)
interalia stating that the slots in both the regasification
terminals have been denied, and hence, they cannot accept
to take any cargo in June, 2007. Again Take or Pay invoice
was sent by the respondent on 23.05.2007 through fax in
respect of the June cargo (Ref:page ‘1085’ of the paper-
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book).
30. A termination notice dated 24.05.2007 (page ‘1096’ of
the paper-book) was sent by the appellant (seller) to the
respondent (buyer) terminating the confirmation notice
dated 12.03.2007 agitating that there is a breach of
contract by the buyer, by failing to accept delivery, open
letters of credit or nominate the receiving terminal(s) for
the discharge of the LNG cargoes, besides other numerous
breaches of the contract. The particular breaches stated in
the termination letter while stating that the said list is a
non-exhaustive list of the breaches of the contract on the
part of the buyer are:-
(1) In breach of clause 10 of the Confirmation Notice
and clause 20.9(a) of the Master Agreement, the Buyer's
failure to provide a letter of credit to secure the April
2007 delivery under the Confirmation Notice.
(2) In breach of clause 10 of the Confirmation Notice and
clause 20.9(a) of the Master Agreement, the Buyer's
failure to provide a standby letter of credit to secure the
May 2007 delivery under the Confirmation Notice.
(3) In breach of clause 9 of the Confirmation Notice and
clauses 12.1, 12.2 and 20 of the Master Agreement, the
Buyer's failure to pay the take or pay invoices sent to the
Buyer on 3 April 2007 in respect of the April 2007
delivery under the Confirmation Notice.
(4) In breach of clause 9 of the Confirmation Notice and
clauses 12.1, 12.2 and 20 of the Master Agreement, the
Buyer's failure to pay the take or pay invoices sent to the
Buyer on 17 April 2007 in respect of the May 2007
delivery under the Confirmation Notice.
(5) In breach of the Contract, the Buyer's failure to
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nominate a Receiving Terminal to receive the June 2007
delivery under the Confirmation Notice.
(6) In breach of clause 10 of the Confirmation Notice
and clause 20.9(a) of the Master Agreement, the Buyer's
failure to provide a standby letter of credit to secure the
June 2007 delivery under the Confirmation Notice.
31. It is also brought on record that by an agreement dated
30.05.2007 between the appellant (seller) and Suez Global
LNG Ltd. (supplier) it was agreed that the appellant would
forgo taking delivery of the full cargo lot described in
confirmation # 3 and Suez agreed to cancel the
confirmation # 3 and the list subject to the conditions
mentioned therein.
32. The respondent (buyer) replied to the termination notice
dated 24.05.2007 by communication dated 01.06.2007,
interalia, stating that the price was to be mutually agreed
through the delivery notice and no fixed price was provided
by the buyer. Moreover, the said seller was required to
deliver LNG cargo on ex-ship basis at a terminal agreed
between the two sides in the confirmation notice. Since
the buyer did not have any regasification terminal available
which had been explicitly communicated to the seller by
the buyer and two sides agreed to restructure the
confirmation notice as envisaged at Annexure-’C’ of the
Master agreement (MSPA), under the restructured form
the “confirmation notice” was split into two parts. The first
part was designated “confirmation notice” which covered
the commercial terms for the proposed, whilst the second
part designated as “delivery notice” would cover the buyers
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facility (regasification terminal), the SLBC amount and the
details of Sulpher content (a subject of concern for the
buyer). Subject to availability of the regasification terminal,
acceptability of the price for raising SBLC and the total
Sulpher content, the two sides were to mutually agree
through the “delivery notice” making the contract effective.
33. It is stated therein that under the provisions of the
“confirmation notice”, the seller is supposed to provide a
fixed price to the buyer before the date of loading and seek
the acceptance of the buyer on the pricing. The seller has
failed in all the occasions to provide a fixed price option to
the buyer which is a breach of the provisions of the
“confirmation notice”. Further, in absence of a valid /
effective contract, as the delivery notice has not been
mutually executed between the parties, raising Take or Pay
invoice has no sanctity.
34. The buyer through e-mail letters dated 27.03.2007,
06.04.2007, 18.04.2007 and 18.05.2007 informed the seller
of the non-availability of regasification terminal, raising
reservation regarding the invocation of Take or Pay clause
and sending invoices. It was, thus, finally stated by the
respondent (buyer) that:-
“It will therefore, be seen that there is no concluded
contract between the parties, as the material terms,
including the agreement on the discharge terminal. In
view of the fact that there is no concluded contract, the
question of termination thereof does not arise at all. We
however, have taken note of your letter dated 24th May,
2007 titled as Termination Notice and shall consider the
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matter to be closed, reserving our right under the MSPA
and Confirmation Notice.”
35. Final Take or Pay notice was issued by the appellant for
the April, May and June, 2007 cargoes dated 30.09.2007
(page ‘1151’-’1193’ of the paper-book).
36. The arbitral award came to be passed on 25.06.2009 by
the London Court of International Arbitration.
37. An execution application No.71 of 2014 had been filed
on 29.01.2014 by the appellant before the City Civil Court
at Ahmedabad. By order dated 16.03.2017 the said
execution application had been transferred to the
Commercial Division of the High Court. As noted
hereinbefore, vide judgment and order dated 05.07.2018,
the learned Single Judge of this Court refused to enforce
the arbitral award dated 25.06.2009, which has led to this
appeal.
[III] Arbitral Award:-
38. The learned Arbitrator after hearing the learned
Counsels for the parties and perusal of the evidence framed
the following questions for determination:-
“80……..
(1) Whether, as Altco contends, the 12 March
Confirmation Notice constituted a binding contract for
the sale of the four LNG cargoes or whether, as Adani
contends, there was no binding contract at all, no
intention to create legal relations, or at most only a
framework agreement unless and until a Delivery Notice
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was completed (or perhaps completed and signed) for
each cargo.
(2) The related Issue arising from Adani's submissions
that whether or not the Confirmation Notice was a
binding contract its terms were insufficiently certain or
amounted to no more than an agreement to agree in
certain significant and important respects such that it
was not legally effective. The matters relied upon by
Adani in this context, with the emphasis and greatest
reliance on the first two, were:
(a) The Price;
(b) The identity of the Receiving Terminal;
(c) The amount of the SBLC;
(d) The particulars of the LNG Ship; and
(e) The Sulphur level of the LNG.
(3) Even if Adani is unsuccessful on the first two Issues
Adani submits that on the proper construction and
application of the TOP Clause Altco is not entitled to
TOP payments for any of the first three cargoes and even
if it is wrong in that submission that there are features
of the TOP claims for each of the individual April, May
and June cargoes which make the Clause inapplicable to
those cargoes.
(4) If Altco is entitled to any TOP payments what is the
amount (including interest) to be awarded in respect of
each cargo.
(5) Is Altco's claim for damages in respect of the August
cargo valid and if it is what is the quantum (including
interest) of the claim.
th
39. On the first issue whether the 12 March confirmation
notice constituted a binding contract, it was concluded by
the learned Arbitrator that:-
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“82. The purpose of the Confirmation Notice was
expressly agreed at the meeting on 15 and 16 February
as recorded in paragraph 5 of the minutes and that
purpose was faithfully carried out in the Confirmation
Notice itself. It was to be and was a single contract for
the four cargoes. That of course is wholly consistent
with the fact Altco itself had agreed to purchase the four
cargoes from Suez.
83. The only factor of any potential significance which
might lend support to the submission of Adani is the
undoubted fact that the form of Delivery Notice attached
to the Confirmation Notice provided for the signatures of
both parties. But the Tribunal does not think that factor
comes near to outweighing the other matters to which it
has referred and that is in any event makedly
improbable that the parties would ever have intended
that a binding commitment could be left to be agreed or
not to a date which could be only 14 days before the
relevant cargo was due to be loaded. That would not be
in the interests of Adani or Altco.
84. The language used in the form of Delivery Notice is
itself indicative that the matters to be included in it were
indeed of an operational nature nor, of course, does it
follow that because the document was not signed by
Adani what it contained was not in fact agreed.”
40. On the second issue as to whether there was certainty
on the aspects of the price etc., it was held that the agreed
price for each of the four cargoes was Henry Hub (HH)
price for the relevant month plus US$1.85 unless the
buyer sought a hedge of the HH element of the price at a
specific level, which it was possible for the seller to achieve
and was in fact achieved. Reference has been made to the
th th
minutes of meetings held on 15 -16 February, 2007 and
th th
5 and 6 March, 2007 and the terms of the confirmation
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notice to record that the above noted price was the
agreement underlying clause 8 of the confirmation notice.
It was concluded in paragraph ‘86’ as under:-
“86. As Altco submitted, an obligation upon Altco to
offer a fixed price is, without more, meaningless. It was
no doubt in recognition of this and that it was the only
way to secure to Adani the margin it sought on the
transaction, that Adani, at least in submissions, if not in
the evidence of the witnesses, came close to
acknowledging that any fixed price would be derived
from a hedge. It would follow that it would be for Adani
to make the judgment whether or not a hedge at a given
price, if achievable, would be likely to produce a lower
price than the price on the relevant determination date.
The information on necessary would be available on
NYMEX. In the event the figure proposed by Adani for
April was not achievable and Adani did not put forward
any figures for the other cargoes.”
41. On the issue of receiving terminal (part of issue No.2), it
was held that:-
“87. Again in summary, the Tribunal has found that at all
times prior to 27 March Adani, on its own evidence, fully
borne out by the conduct of Mr Sharma and M. Singh,
was confident that it had or could readily obtain slots at
either Dahej or Hazira for each of the four cargoes. That
is supported by the original Petronet letter, the 15 and
16 February meeting, the 5 and 6 March meeting, the
very fact that the parties continued to discuss the
cargoes and the lack of any record of expressions of
doubt let alone conditionality on the part of Mr Sharma
and Mr Singh.
88. The Tribunal has also found that Adani expressly
nominated Hazira as the Receiving Terminal for the
April cargo. The possibility was raised at the 5 and 6
March meeting and confirmed at the signing ceremony
on 12 March. That is further supported by the reference
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to Hazira in the Delivery Notice sent on 16 March and
the draft forms of SBLC sent to Adani on 23 March.
89. The Tribunal has determined that the underlying
assumption on 12 March, reflected in the fact that it was
for Altco and not Adani to name the Receiving Terminal
in the Delivery Notice, was that Adani would, notify
Altco for each cargo for inclusion in the Delivery Notice
one or other of Dahej or. Hazira. Again it would be
commercially wholly improbable that the existence or
not of a binding contract would be left to whether or not
Adani chose to give such a notice at any time upto 14
days before loading. An agreement that one or other
terminal would be nominated by Adani is, as is rightly
not in issue, sufficiently certain to be a binding
obligation.”
42. The conclusion on issue Nos. 1and 2 arrived by the
Arbitral Tribunal in paragraph ‘93’ of the award is as
under:-
“93. The Tribunal is entirely satisfied that the
Confirmation Notice was, and was intended by the
parties to be, a binding legal commitment for the sale by
Altco and purchase by Adani of the four cargoes. Such
matters as remained outstanding were of an operational
nature. If there was to be a fixed price the onus was
upon Adani to seek it or the price would be fixed on the
HH determination date for the relevant date. It was for
Adani to nominate one or the other of Hazira or Dahej as
the Receiving Terminal. In accordance with that
agreement Adani did nominate Hazira for the April
cargo. There was agreement on the estimated value to
be used for the SBLC. The details of the LNG ship were
known and appropriate. The Sulphur specification had
been addressed and agreed.”
43. With the above, on issue No. 3 about the Take or Pay
(TOP claim), the learned Arbitrator had concluded that the
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buyer “fails to accept the delivery of LNG cargo” so it is
required to pay an amount equal “to such LNG quantity as
specified in the confirmation notice multiplied by the LNG
price as specified in the confirmation notice”. It was
concluded that although the nature of the agreement
changed following the February and March meetings, the
new form of confirmation notice did include the price
provision, estimated quantities and a reference to “quantity
delivered” to be ascertained as provided in Clause 13 of the
Master agreement.
44. It was held that in view of Clause 12 of the Master
agreement and that the Commercial sense dictate that the
words are given the meaning for which the seller contents
that require no more than that the buyer makes clear that
it cannot or will not accept delivery of a given cargo at the
time, it has otherwise agreed to do so. That construction
accords with the language of “Take or Pay”. It was in the
interest of both parties that if cargo was not to be taken by
the buyer that was known as soon as possible thereby
probably improving the chance of a sale to a third party at
a reasonable price.
45. It was held that in case of each of the April, May and
June cargoes, a delivery notice was sent by the seller
before it invoked the Take or Pay clause and, in each case,
the notice referred to the statement by the buyer that it
would not accept delivery of the relevant cargo.
th
46. The tribunal records that 27 March letter was
unequivocal that buyer would not accept the May cargo.
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th
The 10 April letter, whilst expressing the hope that buyer
might get an end of May slot, was clear no slot had been
obtained and, as such, the acceptance of the cargo could
th
not be confirmed. The discussion in 20 April meeting
made clear that the seller sought to sell the cargo without
any protest from the buyer. The delivery notice sent on
th th
17 April expressly referring to the 27 March letter and
the fact that buyer was not able to accept delivery of the
cargo. The provisional Take or Pay (TOP) notice had been
sent on the same day. No SBLC was provided by the buyer
and further, had the buyer obtained a slot at either
receiving terminal, and so informed the seller so that the
seller before the on-sale then the sale to buyer could have
been revived. It was, thus, concluded that Clause 12.2 of
the Master agreement operates as the buyer fails to accept
delivery of “any LNG cargo”. It also entitles the buyer to
the “net proceeds” from the sale by buyer of “such LNG
cargo” to a third party. The case of the buyer that there
was no cargo unless and until the ship was actually loaded
and until it was identified in the delivery notice, was
rejected by the tribunal.
47. While saying that the contract was entered into between
the seller with Suez on 09.03.2007 and even in February
when seller first informed buyer about them, and that in
the confirmation notice with reference to the ship
(paragraphs ‘6’ and ‘7’) the seller identified the cargoes as
those bought from Suez, it was concluded in paragraph
‘107 as under:-
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“107. On the evidence both the April and May
cargoes were, in any event, in fact loaded on the LNG
ship. There is a discrete factual issue in this context
relating to the June "cargo". This cargo was bought by
Altco from Suez but the sale was cancelled when Adani
refused to accept delivery of it. Nonetheless, the
Tribunal considers that the cargo was sufficiently
identified and it would make no commercial sense for
either party to miss the opportunity for such an
arrangement should it be available. The issue is also
relevant to the calculation of the LNG Quantity of the
June cargo required by Clause 12.2 of the TOP Clause
and is further considered in that context. “
48. Further discussions are on the issue Nos.4 and 5 about
the quantum of Take or Pay (TOP) payments and damages
claimed by the seller.
[IV] Order of the learned Single Judge:-
49. The learned Single Judge while dealing with the
applications seeking enforcement of the arbitral award, has
noted the arguments of the respondent that there was no
concluded contract only by virtue of the confirmation notice
signed by the parties. The tribunal has misread the
contract and has arrived at a perverse finding erroneously
coming to the conclusion that the respondent had agreed to
buy and pay for the cargo worth USD110,000,000,
approximately, even without knowing the price or without
the unloading port being finalized. It was contended by the
respondent that the tribunal has defied all logics in holding
that the issues about price or the receiving tribunal were
merely operational issues.
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50. It was argued opposing the enforcement of the arbitral
award that the tribunal, on the one hand, concluded that
the price USD 8.50 for the purchase of cargo would cause
loss to the buyer and that the fixed price was not offered
before HH determination date, but had reached at the
conclusion that by default HH price would become the
agreed price, as buyer did not offer the fixed price before
the HH determination date. It was contended that this
finding is wholly perverse and unreasonable, inasmuch as,
when the price was not agreed in writing between the
parties, it cannot be said that there was a concluded
contract.
51. On the issue of receiving terminal, it was contented that
the only available terminals at Dahej and Hazira were
unavailable at the relevant point of time and it was highly
inconceivable that the respondent would purchase such
huge cargo without determination of the receiving
terminal and its availability.
52. Even the Master agreement prescribed that the
receiving terminal was an essential term, which infact had
to be agreed in writing before the contract could have been
said to be concluded. The findings arrived at by the
tribunal that the receiving tribunal is an irrelevant factor
for the foreign supplies and it was for the respondent to
nominate the terminal is wholly unreasonable, irrational,
defies logics. The tribunal has erred in coming to this
findings considering the determination of receiving
terminal as a post contract obligation of the respondent,
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which is nothing but a result of misreading of the contract.
53. With the above, it was argued that in absence of any
concluded contract, no price having agreed between the
parties and the receiving terminal could not be determined
by the respondent for the circumstances beyond its
control, or could not be agreed between the parties, the
findings arrived at by the tribunal are illogical, irrational,
perverse and are such which are against the fundamental
public policy of Indian law and, thus, falls within the scope
of sub-section (2) of Section 48 of the Act’ 1996.
54. It was argued that without touching upon the merits of
the arbitral award, the reasoning given by the learned
Arbitrator to hold that there was a concluded contract and
the buyer had committed the breach of the contract leading
to invocation of Take or Pay clause of the Master
agreement are nothing but such which would make the
award wholly perverse, irrational and against the
fundamental public policy so much so that it shocks the
conscience of the Court, and therefore, the execution /
enforcement of the award is to be refused.
55. While noticing that the learned Counsel for the
petitioner / appellant herein had taken the Court through
plethora of evidence which were produced before the
learned tribunal, the enforcement Court recorded that it
was conscious of the fact that it was not sitting in appeal
over the findings given by the learned Arbitral Tribunal on
merits and that the contentions of the petitioner requiring
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the Court to examine the evidence de novo was outside
the jurisdiction of Section 48 of the Act’ 1996. It was also
observed therein that on the reference made to the
evidence and on merits of the award passed by the Arbitral
Tribunal, it cannot examine the contentions of both the
parties namely, the petitioner as well as the opponent
therein on merits.
56. Thus, without touching upon the merits of the arbitral
award, keeping in mind the scope of scrutiny within the
limited jurisdiction of Section 48 of the Act’ 1996, the
enforcement Court has held in paragraph ‘75’ to ‘84’
[extracted in the opening paragraphs (1 & 2) of this
judgment] that the impugned award cannot be enforced
being against the fundamental public policy of Indian law
and is such that it shocks the conscience of the Court.
[V] Arguments of learned Senior Counsel for the
appellant:-
57. Mr. Devang Nanavati, learned Senior Counsel for the
appellant would vehemently argue that the question as to
whether there was a concluded contract could only be
decided in a substantive appeal which could have been
filed under the English law. As per Clauses 26 and 27 of
the Master agreement, insofar as the agreement and every
confirmation notice was concerned, it was governed by and
to be construed in accordance with the laws of England and
Wales. Whereas London Court of International Arbitration
Rules were governing laws of Arbitration.
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58. The award had not been challenged in accordance with
the governing English law and the respondent filed a
misconceived application under Section 34 of the Act’
1996 before the City Civil Court at Ahmedabad wherein
application under Order VII Rule 11 of the Code of Civil
Procedure, 1908 for rejection of the same was dismissed.
However, the Civil Revision was allowed and the Special
Leave Petition challenging the order of the revisional Court
had been dismissed. The challenge to the arbitral award
raised by the respondent has, thus, been exhausted. In the
Execution Petition filed by the appellant before the Civil
Court by the appellant, the matter was transferred to the
High Court.
59. The submission is that the learned Single Judge while
refusing to enforce the arbitral award has lost sight of the
fact that merit review as to the construction of the contract
or interpretation of the contract, which was solely within
the jurisdiction of the Arbitrator, is not permissible. The
award had been passed after full participation by the
respondent and it is a unanimous award. Without there
being any challenge to the award on merits under the
governing laws, interference in the enforcement
proceedings under Section 48 falls foul of the limited
scope of interference under the Act of 1996. The limited
scope of judicial interference on the premise of the award
being in conflict with fundamental policy of Indian law or
basic notion of morality is limited by Explanation 2 to sub-
section (2) of Section 48 of the Act’ 1996. Even otherwise,
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the scrutiny or interference in the award by applying the
Indian Contract Act was not permissible.
60. It was urged that the Court wherein enforcement of
foreign award is sought cannot analyse the reasoning of the
Arbitrator in terms of business efficacy that there was
concluded contract between the parties. The commercial
sense of the Court is not to be seen. What is to be examined
by this Court in appeal is whether it was permissible for the
enforcement Court under Section 48 of the Act’ 1996 to
look into or examine the question as to whether the
contract was concluded in the facts of the case or under the
contract law applicable to the agreement.
61. The submission is that the question of interpretation of
construction of contract was completely out of bounds of
the Court under Section 48, which would obviously require
re-appreciation of evidence and arriving at an independent
finding analysing the reasoning of the learned Arbitrator,
which is a completely prohibited arena. Even otherwise, in
the limited inquiry, even if the Court was examining the
question, it could not have the applied principles of the
Indian Contract Act.
62. On the scope of inquiry into a foreign award under
Section 48 of the Act’ 1996 while refusing for enforcement
of an arbitral award under sub-section (2) of Section 48 of
the Act’ 1996, the learned Senior Counsel for the appellant
has taken us through the law stated by the Apex Court
holding the field.
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63. Taking us through the judgment of the Apex Court in
Government of India Vs. Vedanta Limited (Formerly
1
Cairn India Ltd.) referring to paragraphs ‘118’ to ‘121’,
it was submitted that the Apex Court has categorically held
therein that the merits of the Arbitral award are not open
to review by the enforcement Court, as it lies within the
domain of the Seat Court. Errors of judgment are not a
sufficient ground for refusing enforcement of a foreign
award. Considering the well settled position of law with
respect to the finality of the awards in international
commercial arbitrations, and the limits of judicial
intervention on the grounds of public policy of the
enforcement State, it was held therein, in the facts of the
case, that the contention of the appellant therein who had
not made out a case of violation of the procedural due
process in the conduct of the arbitral proceedings or of
procedural fairness, fair and equal treatment of the parties,
which constitutes a fundamental basis of the integrity of
the arbitral process, cannot contend that the award may
not be enforced since it is contrary to the basic notions of
justice.
64. It was held by the Apex Court therein that Section 48 of
the Act’ 1996 does not provide a de facto appeal on the
merits of the award. The enforcement Court exercising
jurisdiction under Section 48, cannot refuse enforcement
by taking a different interpretation of the terms of the
contract.
1
[(2020) 10 SCC 1]
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65. Taking note of the judgment of the Apex Court in
2
Renusagar Power Co. Ltd. Vs. General Electric Co. it
was held therein that the enforcement may be refused only
if it violates the enforcement state’s most basic notions of
morality and justice, which has been interpreted therein to
mean that there should be great hesitation in refusing the
enforcement, unless it is obtained to “corruption or fraud,
or undue means”.
66. Placing Vijay Karia and Others Vs. Prysmian Cavi E.
3
Sistemi SRL it was argued that the Apex Court has held
therein that the enforcement of foreign award under
Section 48 of the Act’ 1996 may be refused only if the party
resisting enforcement furnishes to the Court proof that any
of the stated grounds has been made out to resist
enforcement. The said ground are watertight-as no ground
outside Section 48 can be looked into.
67. On the contention made therein as to the discretion of
the Court to refuse to enforce an arbitral award for the use
of the word “may” under sub-section (2) of Section 48, it
was held therein that in the proceeding for enforcement of
a foreign award, since the grounds stated in sub-section (2)
of Section 48 can only be looked into, when it comes to the
“public policy of India”, there would be no discretion in
enforcing an award, which is induced by fraud or
corruption, or which violates the fundamental policy of
Indian law, or if it is in conflict with the basic notions of
morality of justice.
2
1994 Supp (1) SCC 644
3
(2020) 11 SCC 1
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68. The expression “may” in Section 48 of the Act’ 1996 can,
depending upon the context, mean “shall” or as connoting
that a residual discretion remains in the Court to enforce a
foreign award, despite grounds for its resistance having
been made out. What is clear is that the width of this
discretion is limited to the circumstances pointed out in
paragraphs ‘52’ to ‘58’ of the judgment, in which case a
balancing act may be performed by the Court enforcing
upon it.
69. On the plea of violation of principles of natural justice,
on the interpretation of Clause 48(1)(b) of the Act’ 1996,
“unable to present his case” being co-terminus with the
breach of natural justice and which would go to the extent
of making an inquiry, in line with broader arbitral
requirements of the audi alteram partem rule of natural
justice, it was held therein that given the fact that the
object of Section 48 is to enforce foreign awards subject to
certain well defined narrow exceptions, the expression
“was otherwise unable to present his case” occurring in
Section 48(1)(b), cannot be given an expansive meaning
and would have to be read in the context and colour of the
words preceding the said phrase.
70. In a case where no opportunity was given to deal with
the arguments which goes to the root of the case or
findings based on evidence which goes behind the back of
the parties and which results in denial of justice to the
prejudice of the party; or additional or new evidence is
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taken which forms the basis of the award on which a party
has been given no opportunity of rebuttal, would, on the
facts of the given case, render a foreign award
unenforceable on the ground that a party has been unable
to present his case. However, this must come with a caveat
that such breach be clearly made out on the facts of the
given case and the award must always be read supportively
with an inclination to uphold rather than destroy, given the
minimal interference possible with foreign awards under
Section 48.
71. The Apex Court therein has further held therein that if a
foreign award fails to determine a material issue which
goes to the root of the matter or fails to decide a claim or
counter claim in its entirety, the award may shocks the
conscience of the Court and may not be enforced on the
ground of violation of the public policy, as in that case it
would offend a most basic notion of justice in this country.
It was, however, clarified therein that poor reasoning, by
which a material issue or claim is rejected, can never fall in
this class of cases.
72. It was urged that the most important point, as observed
therein, to be considered is that the foreign award must be
read as a whole, fairly and without nit-picking. If read as a
whole, if the said award has addressed the basic issues
raised by the parties and has, in substance, decided the
claims and counter claims of the parties, enforcement must
follow.
73. The observations in paragraph ‘112’ of Vijay Karia and
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3
Others was pressed into service to agitate that applying
the said principles, if the award, in the instant case, is read
as a whole, no interference was permissible.
74. Paragraph ‘20’ of the judgment of the Apex Court in LMJ
International Ltd. Vs. Sleepwell Industries Company
4
Ltd. has been placed before us to argue that in the instant
case, the arbitral tribunal has considered all aspects of the
matter and even if it is accepted for a moment that it has
committed any error, the same could, at best, be a matter
for correction by way of appeal on the grounds as may be
permissible under the English law, by which the arbitration
proceedings are governed, which has not been resorted to.
The instant appeal, as such, is liable to the allowed.
75. Reliance is placed on paragraph ‘66’ of Renusagar
2
Power Co. Ltd. to agitate on the narrow scope of refusal
of recognition and enforcement of a foreign award on the
grounds available under the Indian law.
76. Reliance is placed on the decision of the Apex Court in
Gemini Bay Transcription Private Limited Vs.
5
Integrated Sales Service Ltd. & Anr to submit that a
foreign award cannot be set at naught under Section 48 on
the ground that it has infracted the substantive law of a
foreign country under the agreement.
77. Placing Shri Lal Mahal Ltd. Vs. Progetto Grano
6
Spa , it was argued that Section 48 of the Act’ 1996 does
4
(2019) 5 SCC 302
5
(2022) 1 SCC 753
6
(2014) 2 SCC 433
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not give an opportunity to have a “second look” at the
foreign award at the award enforcement stage. The scope
of inquiry under Section 48 does not permit review of the
foreign award on merits.
6
78. Placing reliance on Shri Lal Mahal Ltd. and Avitel
Post Studioz Ltd & Ors Vs. HSBC PI Holdings
7
(Mauritius) Ltd it was argued that the expression “public
policy of India” is used both in Section 34(2)(b)(ii) and
Section 48(2)(b) of the Act’ 1996, however, the application
of “public policy of India” doctrine for the purpose of
Section 48(b) is more limited.
79. Placing OPG Power Generation Pvt. Ltd. Vs. Enexio
Power Cooling Solutions India Private Ltd. &
8
Another , it was argued that the test as to whether there
is a contravention with the fundamental policy of Indian
law, shall not entail a review on the merits of the dispute.
80. Placing Cruz City 1 Mauritius Holdings Vs. Unitech
9
Limited , it was argued that the contravention of any
provision of an enactment is not synonymous to
contravention of fundamental policy of Indian law.
81. With the aid of decision of the Apex Court in Swan Gold
10
Mining Ltd. Vs. Hindustan Copper Ltd. , it was urged
that the Arbitrator is the final Judge of the facts and the
findings of facts cannot be interfered with on the grounds
that the terms of the contract was not correctly interpreted
7
2024 SCC OnLine SC 345
8
(2025) 2 SCC 412
9
2017 SCC OnLine Del 7810
10
(2015) 5 SCC 739
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by the Arbitrator.
82. Summing up his arguments, it was vehemently
submitted by the learned Senior Counsel for the appellant
that mere violation of codified law of enacted statute of
India is not a reason to interfere in the arbitral award.
Substantive law of contract being English law and no
appeal having been preferred under the English law, the
enforcement Court could not have substituted its own view
on merits by re-assessment of the reasoning or evidence
appreciated by the Arbitrator to hold that there was a
concluded contract.
83. The Arbitral Tribunal has decided mixed questions of law
and facts and the enforcement Court has not been able to
make out any ground that the tribunal’s view was not a
plausible view or is such which shocks the conscience of
the Court.
84. Section 48 prohibits review on merits and the scope of
violation of fundamental policy of India is such that the
error must go to the core value of the Indian law and
perversity goes to the fulcrum of the dispute, root of the
case. None of these grounds could be made out by the
respondent in the instant case and the interpretation of
contract by the learned Arbitrator considering business
efficacy was not open to review by applying the commercial
sense of the Court by enforcement. The submission, thus,
is that the order of refusal to enforce a foreign award under
Section 48(2) of the Act’ 1996 by the learned Single Judge
of this Court is directly hit by Explanation 2 attached
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thereto. The appeal, thus, deserves to be allowed, setting
aside the order passed by the enforcement Court.
[VI]Arguments of learned Senior Counsel for the
respondent:-
85. Mr. Mihir Joshi, learned Senior Counsel appearing for
the respondent, on the legal principles of interference in an
arbitral award would argue that the present case pertains
to pre-amendment regime of the Act' 1996 with effect from
23.10.2015 by Act No.3 of 2016, whereby Explanation 2 to
sub-section (2) of Section 48 was brought on the statute
book by substitution of the explanation originally attached
to Section 48 of the Act' 1996.
86. The submission is that the award was rendered in the
year 2009 and the application seeking for enforcement of
the award under Section 48 was filed in 2014. The
unamended explanation to Section 48 was couched in a
different language. It is also pertinent to note that the
application for enforcement of the award was filed in the
City Civil Court, which had no jurisdiction and upon
transfer, it was registered on 16.03.2017 in the High Court.
87. Be that as it may, inviting attention of the Court to the
2
decision of the Apex Court in Renusagar Power Co. Ltd. ,
it was urged that the enforcement of foreign award can be
refused on the ground that it is contrary to public policy if
such enforcement would be contrary (i) fundamental policy
of Indian law; (ii) the interest of India; and (iii) justice or
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morality.
88. Taking us through the development of law beginning
2
from Renusagar Power Co. Ltd. , it was submitted that
11
ONGC Vs Saw Pipes Ltd. has added patent illegality in
6
the public policy. However, Shri Lal Mahal Ltd.
2
referring to Renusagar Power Co. Ltd. has held that
2
what has been stated in Renusagar Power Co. Ltd. with
reference to Section 7(1)(b)(ii) of the Foreign Awards
(Recognition and Enforcement) Act, 1961 must apply
equally to the ambit of scope of Section 48(2)(b) of the
2
Act'1996. Following Renusagar Power Co. Ltd. it was
held therein that for the purposes of Section 48(2)(b), the
expression "public policy of India" must be given a narrow
meaning and the enforcement of foreign award would be
refused on the ground that it is contrary to the public policy
of India if it is covered by one of the three categories
2
enumerated in Renusagar Power Co. Ltd. .
6
89. It was further clarified in Shri Lal Mahal Ltd. that the
expression "public policy of India" is used both in Section
34(2)(b)(iii) and Section 48(3)(b) and the concept of "public
policy of India" is same in nature in both the sections, but
its application differs in degree insofar as these two
sections are concerned. The application of "public policy
of India" doctrine for the purposes of Section 48(2)(b) is
more limited than the application of the same expression
in respect of the domestic arbitral award. It was, thus, held
2
that Renusagar Power Co. Ltd. must apply for
11
(2003)5 SCC 705
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understanding the scope of inquiry under Section 48(2)(b)
of the Act' 1996 and the wider meaning given to the
expression "public policy of India" occurring in Section
11
34(2)(b)(ii) in Saw Pipes Ltd. is not applicable to the
objection raised to the enforcement of the foreign award
under Section 48(2)(b).
12
90. In Associate Builders v. DDA decided on 25.11.2014,
while elaborating on each of the heads contained in Saw
11
Pipes Ltd. to set aside an award being on the ground of
being against the public policy of India on "fundamental
policy of India" referring to ONGC v. Western Geco
13
International Ltd. , it was held in paragraph nos.'27',
'28', '29', '30', '31', '32', '33' and '34' as under:-
"27. Coming to each of the heads contained in Saw
Pipes [(2003) 5 SCC 705 : AIR 2003 SC 2629] judgment,
we will first deal with the head “fundamental policy of
Indian law”. It has already been seen
from Renusagar [ Renusagar Power Co. Ltd. v. General
Electric Co. , 1994 Supp (1) SCC 644] judgment that
violation of the Foreign Exchange Act and disregarding
orders of superior courts in India would be regarded as
being contrary to the fundamental policy of Indian law.
To this it could be added that the binding effect of the
judgment of a superior court being disregarded would be
equally violative of the fundamental policy of Indian law.
28. In a recent judgment, ONGC Ltd. v. Western Geco
International Ltd. [(2014) 9 SCC 263 : (2014) 5 SCC
(Civ) 12] , this Court added three other distinct and
fundamental juristic principles which must be
understood as a part and parcel of the fundamental
policy of Indian law. The Court held : (SCC pp. 278-80,
paras 35 & 38-40)
12
(2015) 3 SCC 49
13
(2014) 9 SCC 263
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“ 35 . What then would constitute the ‘fundamental
policy of Indian law’ is the question. The decision
in ONGC [(2003) 5 SCC 705 : AIR 2003 SC 2629]
does not elaborate that aspect. Even so, the
expression must, in our opinion, include all such
fundamental principles as providing a basis for
administration of justice and enforcement of law in
this country. Without meaning to exhaustively
enumerate the purport of the expression
‘fundamental policy of Indian law’, we may refer to
three distinct and fundamental juristic principles
that must necessarily be understood as a part and
parcel of the fundamental policy of Indian law.
The first and foremost is the principle that in every
determination whether by a court or other
authority that affects the rights of a citizen or leads
to any civil consequences, the court or authority
concerned is bound to adopt what is in legal
parlance called a ‘ judicial approach ’ in the matter.
The duty to adopt a judicial approach arises from
the very nature of the power exercised by the court
or the authority does not have to be separately or
additionally enjoined upon the fora concerned.
What must be remembered is that the importance
of a judicial approach in judicial and quasi-judicial
determination lies in the fact that so long as the
court, tribunal or the authority exercising powers
that affect the rights or obligations of the parties
before them shows fidelity to judicial approach,
they cannot act in an arbitrary, capricious or
whimsical manner. Judicial approach ensures that
the authority acts bona fide and deals with the
subject in a fair, reasonable and objective manner
and that its decision is not actuated by any
extraneous consideration. Judicial approach in that
sense acts as a check against flaws and faults that
can render the decision of a court, tribunal or
authority vulnerable to challenge.
*
38 . Equally important and indeed fundamental to
the policy of Indian law is the principle that a court
and so also a quasi-judicial authority must, while
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determining the rights and obligations of parties
before it, do so in accordance with the principles of
natural justice. Besides the celebrated audi alteram
partem rule one of the facets of the principles of
natural justice is that the court/authority deciding
the matter must apply its mind to the attendant
facts and circumstances while taking a view one
way or the other. Non-application of mind is a
defect that is fatal to any adjudication. Application
of mind is best demonstrated by disclosure of the
mind and disclosure of mind is best done by
recording reasons in support of the decision which
the court or authority is taking. The requirement
that an adjudicatory authority must apply its mind
is, in that view, so deeply embedded in our
jurisprudence that it can be described as a
fundamental policy of Indian law.
39 . No less important is the principle now
recognised as a salutary juristic fundamental in
administrative law that a decision which is
perverse or so irrational that no reasonable person
would have arrived at the same will not be
sustained in a court of law. Perversity or
irrationality of decisions is tested on the
touchstone of Wednesbury [ Associated Provincial
Picture Houses Ltd. v. Wednesbury Corpn. , (1948)
1 KB 223 : (1947) 2 All ER 680 (CA)] principle of
reasonableness. Decisions that fall short of the
standards of reasonableness are open to challenge
in a court of law often in writ jurisdiction of the
superior courts but no less in statutory processes
wherever the same are available.
40 . It is neither necessary nor proper for us to
attempt an exhaustive enumeration of what would
constitute the fundamental policy of Indian law nor
is it possible to place the expression in the
straitjacket of a definition. What is important in the
context of the case at hand is that if on facts
proved before them the arbitrators fail to draw an
inference which ought to have been drawn or if
they have drawn an inference which is on the face
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of it, untenable resulting in miscarriage of justice,
the adjudication even when made by an Arbitral
Tribunal that enjoys considerable latitude and play
at the joints in making awards will be open to
challenge and may be cast away or modified
depending upon whether the offending part is or is
not severable from the rest.”
29. It is clear that the juristic principle of a “judicial
approach” demands that a decision be fair, reasonable
and objective. On the obverse side, anything arbitrary
and whimsical would obviously not be a determination
which would either be fair, reasonable or objective.
30. The audi alteram partem principle which
undoubtedly is a fundamental juristic principle in Indian
law is also contained in Sections 18 and 34(2)( a )( iii ) of
the Arbitration and Conciliation Act. These sections read
as follows:
“ 18. Equal treatment of parties .—The parties
shall be treated with equality and each party shall
be given a full opportunity to present his case.
*
34. Application for setting aside arbitral award .
—(1)*
(2) An arbitral award may be set aside by the court
only if—
( a ) the party making the application furnishes proof
that—
*
( iii ) the party making the application was not given
proper notice of the appointment of an arbitrator
or of the arbitral proceedings or was otherwise
unable to present his case;”
31 . The third juristic principle is that a decision which is
perverse or so irrational that no reasonable person
would have arrived at the same is important and
requires some degree of explanation. It is settled law
that where:
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( i ) a finding is based on no evidence, or
( ii ) an Arbitral Tribunal takes into account
something irrelevant to the decision which it
arrives at; or
( iii ) ignores vital evidence in arriving at its
decision,
such decision would necessarily be perverse.
32. A good working test of perversity is contained in two
judgments. In Excise and Taxation Officer-cum-Assessing
Authority v. Gopi Nath & Sons [1992 Supp (2) SCC
312] , it was held : (SCC p. 317, para 7)
“ 7 . … It is, no doubt, true that if a finding of fact is
arrived at by ignoring or excluding relevant
material or by taking into consideration irrelevant
material or if the finding so outrageously defies
logic as to suffer from the vice of irrationality
incurring the blame of being perverse, then, the
finding is rendered infirm in law.”
In Kuldeep Singh v. Commr. of Police [(1999) 2
SCC 10 : 1999 SCC (L&S) 429] , it was held : (SCC
p. 14, para 10)
“ 10 . A broad distinction has, therefore, to be
maintained between the decisions which are
perverse and those which are not. If a decision is
arrived at on no evidence or evidence which is
thoroughly unreliable and no reasonable person
would act upon it, the order would be perverse. But
if there is some evidence on record which is
acceptable and which could be relied upon,
howsoever compendious it may be, the conclusions
would not be treated as perverse and the findings
would not be interfered with.”
33. It must clearly be understood that when a court is
applying the “public policy” test to an arbitration award,
it does not act as a court of appeal and consequently
errors of fact cannot be corrected. A possible view by the
arbitrator on facts has necessarily to pass muster as the
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arbitrator is the ultimate master of the quantity and
quality of evidence to be relied upon when he delivers
his arbitral award. Thus an award based on little
evidence or on evidence which does not measure up in
quality to a trained legal mind would not be held to be
invalid on this score [ Very often an arbitrator is a lay
person not necessarily trained in law. Lord Mansfield, a
famous English Judge, once advised a high military
officer in Jamaica who needed to act as a Judge as
follows:“General, you have a sound head, and a good
heart; take courage and you will do very well, in your
occupation, in a court of equity. My advice is, to make
your decrees as your head and your heart dictate, to
hear both sides patiently, to decide with firmness in the
best manner you can; but be careful not to assign your
reasons, since your determination may be substantially
right, although your reasons may be very bad, or
essentially wrong”.It is very important to bear this in
mind when awards of lay arbitrators are challenged.] .
Once it is found that the arbitrators approach is not
arbitrary or capricious, then he is the last word on facts.
In P.R. Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H.
Securities (P) Ltd. [(2012) 1 SCC 594 : (2012) 1 SCC
(Civ) 342] , this Court held : (SCC pp. 601-02, para 21)
“ 21 . A court does not sit in appeal over the award
of an Arbitral Tribunal by reassessing or re-
appreciating the evidence. An award can be
challenged only under the grounds mentioned in
Section 34(2) of the Act. The Arbitral Tribunal has
examined the facts and held that both the second
respondent and the appellant are liable. The case
as put forward by the first respondent has been
accepted. Even the minority view was that the
second respondent was liable as claimed by the
first respondent, but the appellant was not liable
only on the ground that the arbitrators appointed
by the Stock Exchange under Bye-law 248, in a
claim against a non-member, had no jurisdiction to
decide a claim against another member. The
finding of the majority is that the appellant did the
transaction in the name of the second respondent
and is therefore, liable along with the second
respondent. Therefore, in the absence of any
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ground under Section 34(2) of the Act, it is not
possible to re-examine the facts to find out whether
a different decision can be arrived at.”
34. It is with this very important caveat that the two
fundamental principles which form part of the
fundamental policy of Indian law (that the arbitrator
must have a judicial approach and that he must not act
perversely) are to be understood."
91. The third grounds setting aside the award included in
11
public policy, of "justice and morality" in Saw Pipes Ltd. ,
it was observed that these are two different concepts in
law. An award can be said to be against the justice only
when it shocks the conscience of the Court and would be
liable to be set aside on that ground.
92. The discussion on morality is also on the same
fundamental principle that the contract, which is made
upon an immoral consideration or for an immoral purpose
is unenforceable, however, interference on this ground
would also be only if something shocks the Court's
conscience. On patent illegality as one of the grounds
included in the public policy of India, it was held that such
a ground will be available, for instance in a case where the
Arbitrator commits jurisdictional error, if he wanders
outside the contract and deal with the matters not allotted
to him.
93. The rationale of the rule is that the nature of the dispute
is something which has to be determined outside and
independent of what appears in the award. However, if the
view taken by the Arbitrator is a possible, even if not a
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plausible view, it is not possible to say that the Arbitrator
had travelled outside his jurisdiction and the Court cannot
substitute its view in place of the interpretation accepted
by the Arbitrator.
94. In Ssangyong Engg. & Construction Co. Ltd. v.
14
NHAI decided on 08.05.2019, the Apex Court while
dealing with Section 34 petition filed on 30.07.2016 post
amendment Act of 2016, was considering the effect of
amendment from 23.10.2015, in particular, in the "public
policy of India" ground for challenge of arbitral awards.
95. It was noted therein that there is no doubt that
fundamental changes have been brought in law and the
11
expansion of "public policy of India" in Saw Pipes Ltd.
13
and Western Geco International Ltd. has been done
away.
96. However, while surveying the law as it relates to ground
of setting aside an arbitral award being in conflict with the
public policy of India as it existed before the amendment
Act' 2015, the Apex Court referred to the judgment in
2
Renusagar Power Co. Ltd. followed by Associate
12
Builders and while noticing the pre-amendment Sections
34(2)(b) and 48(2)(b) of the Act' 1996, it was recorded that
when it comes to the ground "public policy of India" used to
set aside an award under Section 34 or to refuse
recognition and enforcement of a foreign award under
Section 48, Section 34(2)(b) ought to have been construed
in the same manner as Section 48(2)(b).
14
(2019) 15 SCC 131
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97. It was noted that the Apex Court has expanded the scope
of the ground of "public policy of India" to set aside an
arbitral award under Section 34 with Western Geco
13
International Ltd. as explained in Associate
12
Builders , which included juristic principle of "judicial
approach", which demands that the” decision must be fair,
reasonable and objective, audi alteram principle, equal
treatment of parties, perversity and irrationality that no
reasonable person would have arrived at the same decision
in the public policy of India. However, while clarifying that
when a Court is applying the public policy” test to arbitral
award, it does not act as a Court of appeal and
consequently errors of fact cannot be corrected, it was
observed therein that a possible view by the Arbitrator on
facts has necessarily to pass muster as the Arbitrator is the
ultimate master of the quality and quantity of evidence to
be relied upon when he delivers his arbitral award. The
award based on little evidence or on evidence, which does
not measure up for quality to a trained legal mind would
not be held to be invalid on this score. Once it is found that
the arbitrators approach is not arbitrary or capricious, then
he is the last word on facts.
98. It was noted that this observation was with the
important caveat that the two principles which form part of
fundamental policy of Indian law, that the Arbitrator must
have a judicial approach and that he must not act
perversely, are to be understood.
99. It was further noted in Ssangyong Engg. &
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14
Construction Co. Ltd. that fundamental changes have
been brought with the amendment of 2015 pursuant to
th
246 report of the Law Commission of India of August,
2014. The amended Section 48 proposed therein noted in
paragraph '29' of Ssangyong Engg. & Construction Co.
14
Ltd. reads as under:-
“29. So far as Section 48 is concerned, an amendment
was proposed as follows:
“ Amendment of Section 48
22. In Section 48—
( i ) In sub-section (2), in the “ Explanation .—”, delete
the words “Without prejudice to the generality of
clause ( b ), it is hereby declared, for” and add the
word “for” and after the words “avoidance of any
doubt,” add the words “it is clarified” and after the
words “the public policy of India” add the word
“only” and after the word “if” delete “-” and “;” and
insert sub-clause “( a )” before the words “the
making of the award” and delete “.” And add “;”
after the words “by fraud or corruption” and add
sub-clauses “( b ) it is in contravention with the
fundamental policy of Indian law; ( c ) it is in conflict
with India's most basic notions of morality or
justice.”
100. The supplementary report of February, 2015 of the Law
Commission of India, after Western Geco International
13 th
Ltd. has noted that the Law Commission, in its 246
report, provided for the same narrow standard, namely that
a mere violation of law of India would not be a violation of
"public policy” in cases of international commercial
arbitrations held in India.
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101. The amendments have been brought in Section 34 with
insertion of sub-section (2A) introducing the ground of
"patent illegality” test with respect to domestic arbitration.
It was observed in the supplementary report of the Law
Commission at paragraphs '10.5' and '10.6' as under:-
“10.5. As the Supreme Court's judgment in Western
Geco [ ONGC v. Western Geco International Ltd. , (2014)
9 SCC 263 : (2014) 5 SCC (Civ) 12] would expand the
court's power rather than minimise it, and given that it
is also contrary to international practice, a clarification
needs to be incorporated to ensure that the term
“fundamental policy of Indian law” is narrowly
construed. If not, all the amendments suggested by the
Law Commission in relation to construction of the term
“public policy” will be rendered nugatory, as the
applicability of Wednesbury [ Associated Provincial
Picture Houses Ltd. v. Wednesbury Corpn. , (1948) 1 KB
223 (CA)] principles to public policy will certainly open
the floodgates.
10.6. This will have four major deleterious effects, being
( a ) a further erosion of faith in arbitration proceedings
amongst individuals and businesses in India and abroad;
( b ) a reduction in popularity of India as a destination for
international and domestic commercial arbitration; ( c )
increased investor concern, amongst domestic and
foreign investors, about the efficacy and speed of dispute
resolution and potential for judicial interference; and, ( d )
an incidental increase in judicial backlog. In this regard,
the following amendment to the draft is suggested, by
inserting Explanation 2 to Section 34(2)( b )( ii ) of the Act:
‘For the avoidance of doubt the test as to whether there
is a contravention with the fundamental policy of Indian
law shall not entail a review on the merits of the
dispute.’”
(emphasis supplied)
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102. Pursuant to the Law Commission report, the 1996 Act
was amended with effect from 23.10.2015. Corresponding
amendments have been brought in Sections 34 and 48 of
the Act' 1996 to bring the unamended Section 48 in line
with the amendments made in Section 34, except sub-
section (2A) of Section 34, which is missing in Section 48,
as the said section deals with the recognition and
enforcement of the foreign awards.
103. It was, then observed in paragraphs '34' and '35' in
14
Ssangyong Engg. & Construction Co. Ltd. as under:-
“34. What is clear, therefore, is that the expression
“public policy of India”, whether contained in Section 34
or in Section 48, would now mean the “fundamental
policy of Indian law” as explained in paras 18 and 27
of Associate Builders [ Associate Builders v. DDA , (2015)
3 SCC 49 : (2015) 2 SCC (Civ) 204] i.e. the fundamental
policy of Indian law would be relegated to “Renusagar”
understanding of this expression. This would necessarily
mean that Western Geco [ ONGC v. Western Geco
International Ltd. , (2014) 9 SCC 263 : (2014) 5 SCC
(Civ) 12] expansion has been done away with. In
short, Western Geco [ ONGC v. Western Geco
International Ltd. , (2014) 9 SCC 263 : (2014) 5 SCC
(Civ) 12] , as explained in paras 28 and 29 of Associate
Builders [ Associate Builders v. DDA , (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204] , would no longer obtain, as
under the guise of interfering with an award on the
ground that the arbitrator has not adopted a judicial
approach, the Court's intervention would be on the
merits of the award, which cannot be permitted post
amendment. However, insofar as principles of natural
justice are concerned, as contained in Sections 18 and
34(2)( a )( iii ) of the 1996 Act, these continue to be
grounds of challenge of an award, as is contained in para
30 of Associate Builders [ Associate Builders v. DDA ,
(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] .
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35. It is important to notice that the ground for
interference insofar as it concerns “interest of India” has
since been deleted, and therefore, no longer obtains.
Equally, the ground for interference on the basis that the
award is in conflict with justice or morality is now to be
understood as a conflict with the “most basic notions of
morality or justice”. This again would be in line with
paras 36 to 39 of Associate Builders [ Associate
Builders v. DDA , (2015) 3 SCC 49 : (2015) 2 SCC (Civ)
204] , as it is only such arbitral awards that shock the
conscience of the court that can be set aside on this
ground.”
104. Paragraph '76' of Ssangyong Engg. & Construction
14
Co. Ltd. placed before us by Mr. Mihir Joshi, learned
Senior Counsel appearing for the respondent is also to be
extracted hereinunder:-
76. However, when it comes to the public policy of India,
argument based upon “most basic notions of justice”, it
is clear that this ground can be attracted only in very
exceptional circumstances when the conscience of the
Court is shocked by infraction of fundamental notions or
principles of justice. It can be seen that the formula that
was applied by the agreement continued to be applied
till February 2013 — in short, it is not correct to say that
the formula under the agreement could not be applied in
view of the Ministry's change in the base indices from
1993-1994 to 2004-2005. Further, in order to apply a
linking factor, a Circular, unilaterally issued by one
party, cannot possibly bind the other party to the
agreement without that other party's consent. Indeed,
the Circular itself expressly stipulates that it cannot
apply unless the contractors furnish an
undertaking/affidavit that the price adjustment under
the Circular is acceptable to them. We have seen how
the appellant gave such undertaking only conditionally
and without prejudice to its argument that the Circular
does not and cannot apply. This being the case, it is
clear that the majority award has created a new contract
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for the parties by applying the said unilateral Circular
and by substituting a workable formula under the
agreement by another formula dehors the agreement.
This being the case, a fundamental principle of justice
has been breached, namely, that a unilateral addition or
alteration of a contract can never be foisted upon an
unwilling party, nor can a party to the agreement be
liable to perform a bargain not entered into with the
other party. Clearly, such a course of conduct would be
contrary to fundamental principles of justice as followed
in this country, and shocks the conscience of this Court.
However, we repeat that this ground is available only in
very exceptional circumstances, such as the fact
situation in the present case. Under no circumstance can
any court interfere with an arbitral award on the ground
that justice has not been done in the opinion of the
Court. That would be an entry into the merits of the
dispute which, as we have seen, is contrary to the ethos
of Section 34 of the 1996 Act, as has been noted earlier
in this judgment.”
15
105. In MMTC Ltd. v. Vedanta Ltd. , decided on February
18, 2019, prior to Ssangyong Engg. & Construction Co.
14
Ltd. , with reference to scope of interference with the pre
2015 arbitral award under Section 34, it was observed in
paragraph '11' as under:-
“ 11. As far as Section 34 is concerned, the position
is well-settled by now that the Court does not sit in
appeal over the arbitral award and may interfere
on merits on the limited ground provided under
Section 34(2)( b )( ii ) i.e. if the award is against the
public policy of India. As per the legal position
clarified through decisions of this Court prior to the
amendments to the 1996 Act in 2015, a violation of
Indian public policy, in turn, includes a violation of
the fundamental policy of Indian law, a violation of
the interest of India, conflict with justice or
morality, and the existence of patent illegality in
15
(2019) 4 SCC 163
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the arbitral award. Additionally, the concept of the
“fundamental policy of Indian law” would cover
compliance with statutes and judicial precedents,
adopting a judicial approach, compliance with the
principles of natural justice,
and Wednesbury [ Associated Provincial Picture
Houses v. Wednesbury Corpn. , (1948) 1 KB 223
(CA)] reasonableness. Furthermore, “patent
illegality” itself has been held to mean
contravention of the substantive law of India,
contravention of the 1996 Act, and contravention of
the terms of the contract.”
1
106. In Vedanta Limited , three Judge Bench of the Apex
Court was dealing with an appeal against the judgment of
the High Court rejecting the application under Section 48
of the Act' 1996 for enforcement of the foreign award.
107. It was held therein that the enforcement Court cannot
set aside a foreign award, even if the conditions under
Section 48 are made out. The power to set aside a foreign
award vests only with the Court at the seat of Arbitration,
since the supervisory or primary jurisdiction is exercised by
the curial Courts at the seat of Arbitration. The
enforcement Court may "refuse” enforcement of a foreign
award, if the conditions contained in Section 48 are made
out.
108. The opening words of Section 48 are used permissive,
rather than mandatory language, that enforcement Court
"may be” refused. The use of words "may be” indicate that
even if the party against whom the award is passed, proves
the existence of one or more grounds for refusal of
enforcement, the Court would retain a residual discretion
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to overrule the objections, if it finds that overall justice has
been done between the parties, and may direct
enforcement of the award. It is clarified therein that this is
generally done where the ground for refusal concerns a
minor violation of the procedural rules applicable to the
arbitration, or if the ground for refusal was not raised in
the Arbitration. The Court may also take the view that the
violation is not such as to prevent enforcement of the
award in international relations. It was further held that
the grounds for refusing enforcement of foreign awards
contained in Section 48 are exhaustive, which is evident
from the language of the section, which provides that the
enforcement may be refused "only if" the applicant
furnishes proof of any of the conditions contained in that
provisions.
109. It was then clarified that the enforcement Court is not to
correct the errors in the award under Section 48, or
undertake a review on the merits of the award, but is
conferred with the limited power to "refuse” enforcement,
if the grounds are made out".
110. The learned Senior Counsel for the respondent has
referred to paragraphs '88', '94', '97', '100', '101', '103',
'105', '106', '111', '112', '113' and '125' to '128' in support
of his submissions.
“88. The enforcement of the award is a subsequent and
distinct proceeding from the setting aside proceedings at
the seat. The enforcement court would independently
determine the issue of recognition and enforceability of
the foreign award in India, in accordance with the
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provisions of Chapter 1 Part II of the Indian Arbitration
Act, 1996.
97. This issue is required to be determined in
accordance with the conditions laid down in Section 48
of the 1996 Act, which reads as:
“ 48. Conditions for enforcement of foreign
awards .—(1) Enforcement of a foreign award may
be refused, at the request of the party against
whom it is invoked, only if that party furnishes to
the Court proof that—
( a ) the parties to the agreement referred to in
Section 44 were, under the law applicable to them,
under some incapacity, or the said agreement is
not valid under the law to which the parties have
subjected it or, failing any indication thereon,
under the law of the country where the award was
made; or
( b ) the party against whom the award is invoked
was not given proper notice of the appointment of
the arbitrator or of the arbitral proceedings or was
otherwise unable to present his case; or
( c ) the award deals with a difference not
contemplated by or not falling within the terms of
the submission to arbitration, or it contains
decisions on matters beyond the scope of the
submission to arbitration:
Provided that, if the decisions on matters submitted to
arbitration can be separated from those not so
submitted, that part of the award which contains
decisions on matters submitted to arbitration may be
enforced; or
( d ) the composition of the arbitral authority or the
arbitral procedure was not in accordance with the
agreement of the parties, or, failing such
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agreement, was not in accordance with the law of
the country where the arbitration took place; or
( e ) the award has not yet become binding on the
parties, or has been set aside or suspended by a
competent authority of the country in which, or
under the law of which, that award was made.
(2) Enforcement of an arbitral award may also be
refused if the Court finds that—
( a ) the subject-matter of the difference is not
capable of settlement by arbitration under the law
of India; or
( b ) the enforcement of the award would be
contrary to the public policy of India .
Explanation .— Without prejudice to the generality
of clause (b) of this section, it is hereby declared,
for the avoidance of any doubt, that an award is in
conflict with the public policy of India if the making
of the award was induced or affected by fraud or
corruption .
(3)*”
(emphasis supplied)
100. The counsel for the respondents submitted that it
was the amended Section 48, which would be applicable
to the present case; or alternately, that the amendments
effected by the 2016 Amendment Act would have
retrospective effect.
101. We will now briefly touch upon the amendments
made to Section 48, and consider the issue whether the
amendments have retrospective application, and are
applicable to the present case.
103. After the judgment of the Supreme Court
in ONGC v. Western Geco International
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Ltd. [ ONGC v. Western Geco International Ltd. , (2014) 9
SCC 263 : (2014) 5 SCC (Civ) 12] , which had expanded
the power of judicial review, the Law Commission
submitted a Supplementary Report on “public policy”. It
was recommended that a clarification needs to be
incorporated to ensure that the phrase “fundamental
policy of Indian law” is narrowly construed. It was
recommended that a new Explanation being Explanation
2 be inserted into Section 34(2)( b )( ii ) i.e.:
“ Explanation 2 .—For the avoidance of doubt, the test as
to whether there is a contravention with the
fundamental policy of Indian law shall not entail a review
on the merits of the dispute.”
105. The highlighted portions show the amendments
made to Section 48 by the 2016 Amendment Act. We find
that these are substantive amendments, which have
been incorporated to make the definition of “public
policy” narrow by statute. It is relevant to note that the
2016 Amendment has dropped the clause “interests of
India”, which was expounded by Renusagar [ Renusagar
Power Co. Ltd. v. General Electric Co. , 1994 Supp (1)
SCC 644] judgment. The newly inserted Explanation 2
provides that the examination of whether the
enforcement of the award is in conflict with the
fundamental policy of Indian law, shall not entail a
review on the merits of the dispute.
106. The two Explanations in Section 48 begin with the
words “For the avoidance of any doubt”. It cannot,
however, be presumed to be clarificatory and
retrospective, since the substituted Explanation 1 has
introduced new sub-clauses, which have brought about a
material and substantive change in the section. A new
Explanation 2 has been inserted which states that the
test as to whether there is a contravention with the
fundamental policy of Indian law, shall not entail a
review on the merits of the dispute. Since the
amendments have introduced specific criteria for the
first time, it must be considered to be prospective,
irrespective of the usage of the phrase “for the removal
of doubts”. Reliance is placed on the judgment of this
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Court in Sedco Forex International Drill.
Inc. v. CIT [ Sedco Forex International Drill. Inc. v. CIT ,
(2005) 12 SCC 717] wherein it was held that an
Explanation if it changes the law, it cannot be presumed
to be retrospective, irrespective of the fact that the
phrases used are “it is declared” or “for the removal of
doubts”. In SsangYong Engg. & Construction Co.
Ltd. v. NHAI [ SsangYong Engg. & Construction Co.
Ltd. v. NHAI , (2019) 15 SCC 131 : (2020) 2 SCC (Civ)
213] this Court was considering the amendments made
to Section 34, wherein two Explanations to Section 34
had been inserted, which are identically worded with the
two Explanations to Section 48. In that case, a similar
ground of retrospectivity had been urged. This Court
held that since the Explanations had been introduced for
the first time, it is the substance of the amendment
which has to be looked at, rather than the form. Even in
cases where “for avoidance of doubt”, something is
clarified by way of an amendment, such clarification
cannot have retrospective effect, if the earlier law has
been changed substantially.
111. In view of the aforesaid discussion, we hold that
the amended Section 48 would not be applicable to the
present case, since the court proceedings for
enforcement were filed by the respondent-claimants on
14-10-2014 i.e. prior to the 2016 Amendment having
come into force on 23-10-2015.
112. We will now consider the issue whether the award
in the present case is in conflict with the public policy of
India, and contrary to the basic notions of justice, as
submitted on behalf of the appellants.
113. Applying the unamended Section 48 to the present
case, this Court in the Renusagar [ Renusagar Power Co.
Ltd. v. General Electric Co. , 1994 Supp (1) SCC 644]
judgment had placed reliance on the enunciation of the
law on international public policy in the judgment of the
US Court of Appeals for the 2nd Circuit in Parsons &
Whittemore Overseas Co. Inc. v. Societe Generale De L'
industrie du Papier [ Parsons & Whittemore Overseas Co.
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Inc. v. Societe Generale De L'industrie du Papier , 508 F
2d 969 (2nd Cir 1974)] (R AKTA ) wherein it was held that:
“ 7 . Article V(2)( b ) of the Convention allows the
court in which enforcement of a foreign arbitral
award is sought to refuse enforcement, on the
defendant's motion or sua sponte, if ‘enforcement
of the award would be contrary to the public policy
of (the forum) country’. The legislative history of
the provision offers no certain guidelines to its
construction. Its precursors in the Geneva
Convention and the 1958 Convention's ad hoc
committee draft extended the public policy
exception to, respectively, awards contrary to
‘principles of the law’ and awards violative of
‘fundamental principles of the law’. In one
commentator's view, the Convention's failure to
include similar language signifies a narrowing of
the defense [Paolo Contini, “International
Commercial Arbitration : The United Nations
Convention on the Recognition and Enforcement of
Foreign Arbitral Awards” [(1959) 8 Am J Comp L
283 at p. 304] ]. On the other hand, another noted
authority in the field has seized upon this omission
as indicative of an intention to broaden the defense
[Quigley, “Accession by the United States to the
United Nations Convention on the Recognition and
Enforcement of Foreign Arbitral Awards” [(1961)
70 Yale LJ 1049 at pp. 1070-71] ].
8 . Perhaps more probative, however, are the
inferences to be drawn from the history of the
Convention as a whole. The general pro-
enforcement bias informing the Convention and
explaining its supersession of the Geneva
Convention points towards a narrow reading of the
public policy defense. An expansive construction of
this defense would vitiate the Convention's basic
effort to remove pre-existing obstacles to
enforcement . [See Straus, “Arbitration of Disputes
between Multinational Corporations, in New
Strategies for Peaceful Resolution of International
Business Disputes” 114-15 (1971); Digest of
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Proceedings of International Business Disputes
Conference, 14-4-1971, at 191 (remarks of
Professor W. Reese)]. Additionally, considerations
of reciprocity — considerations given express
recognition in the Convention itself — counsel
courts to invoke the public policy defense with
caution lest foreign courts frequently accept it as a
defense to enforcement of arbitral awards
rendered in the United States.
9 . We conclude, therefore, that the Convention's
public policy defense should be construed
narrowly. Enforcement of foreign arbitral awards
may be denied on this basis only where
enforcement would violate the forum State's most
basic notions of morality and justice .
*
… To read the public policy defence as a
parochial device protective of national political
interests would seriously undermine the
Convention's utility. This provision is not meant to
enshrine the vagaries of international politics
under the rubric of “public policy”. Rather, a
circumscribe public policy doctrine was
contemplated by the Convention's framers and
every indication is that the United States, in
acceding to the Convention, meant to subscribe to
this supranational emphasis. Cf.Scherk v. Alberto-
Culver Co. [ Scherk v. Alberto-Culver Co. , 1974 SCC
OnLine US SC 128 : 41 L Ed 2d 270 : 94 S Ct
2449 : 417 US 506 : 42 USLW 4911 at pp. 4915-16
n. 15 (1974)] ”
(emphasis supplied)
125. The gravamen of the challenge of the appellants is
that the Tribunal has given an erroneous interpretation
of the terms of the PSC read with the Ravva
Development Plan, which would amount to rewriting the
contract.
125.1. The view taken by the Tribunal is based on an
interpretation of Article 15.5( c ) read with the exceptions
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contained in Article 15.5( e )( iii )( dd ). The Tribunal held
that the exception came into play on account of the
range of physical reservoir characteristics being
materially different, from what was contemplated in the
Ravva Development Plan.
125.2. The Tribunal relied upon the evidence of the
expert witness produced by the claimants who deposed
that the enlarged reservoir known as Block A/D showed
a range of physical characteristics, which were
“materially different” from those of the Fault Blocks
defined in Article 11.1 of the PSC, on which the Ravva
Development Plan was based. Since there was a material
change in the physical reservoir characteristics of the
existing reserves, Article 15.5( e )( iii )( dd ) would get
triggered, which would enable the claimants to request
for an increase in the capped figure of base development
costs under Article 15.5( e )( iii )( dd ).
125.3. The Tribunal noted that the PSC was entered into
for a period of 25 years and the parties envisaged the
possibility that the respondents may incur development
costs greater than those anticipated when the Ravva
Development Plan and the PSC were executed. Articles
15.5( d ) and ( e ) were events where the capped figure
under Article 15.5( c ) could be increased by the
management committee.
125.4. The Tribunal held that the cap on base
development costs under Article 15.5( c ) was to be read
with reference to the object of the Plan to achieve the
production profile of 35,000 BOPD. The production
profile of 35,000 BOPD was achieved on the drilling of
14 wells by about 31-3-1999. The reference to 21 wells
under Article 15.5( c )( xi ) was interpreted as being an
estimate of the number of wells contemplated by the
parties in 1993, which would be required to achieve the
object of achieving the production profile of 35,000
BOPD. It could not be construed to be an undertaking by
the claimants to drill 21 wells, even though the targeted
production profile of 35,000 BOPD had been achieved by
the drilling of 14 wells.
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125.5. The remaining 7 wells were drilled subsequently,
not for the purposes of the Ravva Development Plan, but
to take into account the changed physical characteristics
of the existing reserves which were encountered. The
costs of US $278 million were incurred by the
respondents as a result of events which fell within
Article 15.5( e )( iii )( dd ).
125.6. In 1998-1999 when the complete extent of the
reserves in the Ravva Field was known, the management
committee, approved an increase in the production
profile from 35,000 BOPD to 50,000 BOPD on 25-3-1998.
The respondents proceeded to develop the Ravva Field
to enable a production rate of 50,000 BOPD, and drilled
7 wells. The respondents incurred costs of US
$278,871,668 million towards the drilling of the 7 wells.
126. The appellants herein filed a counterclaim, seeking
sums equivalent to the amount which the respondents
had claimed as cost petroleum, in excess of the agreed
figure of US $198 million limit. On the interpretation of
Article 15.5( c ) of the PSC, and the circumstances in
which the PSC and the Ravva Development Plan, were
executed, the Tribunal held that the respondents were
entitled to costs of US $278 million, in excess of the US
$198 million. The counterclaim of the appellants to the
extent of US $22 million was allowed by the Tribunal.
127. The appellants are aggrieved by the interpretation
taken by the Tribunal with respect to Article 15.5( c ) of
the PSC and its other sub-clauses. The interpretation of
the terms of the PSC lies within the domain of the
Tribunal. It is not open for the appellants to impeach the
award on merits before the enforcement court. The
enforcement court cannot reassess or reappreciate the
evidence led in the arbitration. Section 48 does not
provide a de facto appeal on the merits of the award.
The enforcement court exercising jurisdiction under
Section 48, cannot refuse enforcement by taking a
different interpretation of the terms of the contract.
128. We feel that the interpretation taken by the
Tribunal is a plausible view, and the challenge on this
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ground cannot be sustained, to refuse enforcement of
the award.”
1
111. However, noticing that in Vedanta Limited , the Court
was specifically dealing with Section 48 of the Act' 1996,
we would like to make a deep study of the said decision, at
this stage only.
112. Proceeding further from paragraph '88' wherein the
Apex Court has held that the enforcement Court would
independently determine the issue of recognition and
enforceability of the foreign award in India in accordance
with the provisions of Chapter I Part II of the Act' 1996, it
1
was observed in Vedanta Limited in paragraph '92.3'
therein that the curial law of Arbitration is determined by
the seat of Arbitration, which is necessary to conduct the
arbitral proceedings in an international commercial
arbitration.
113. While the curial law governs the procedure of
arbitration, the commencement of arbitration, appointment
of Arbitrator(s) in exercise of the default power by the
Court, grant of provisional measures, collection of
evidence, hearing and challenge to the arbitral award, the
lex fori governs the proceedings for recognition and
enforcement of the award in other jurisdictions.
114. Article III of the New York Convention provides that the
national Courts apply their respective lex fori regarding
limitation periods applicable for recognition and
enforcement proceedings; the date from which the
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limitation period would commence, whether there is power
to extend the period of limitation. The lex fori determines
the Court which is competent and has the jurisdiction to
decide the issue of recognition and enforcement of the
foreign award, and the legal remedies available to the
parties for enforcement of the foreign award. It was held
in paragraph '94' that:-
“94. The enforcement court would, however, examine
the challenge to the award in accordance with the
grounds available under Section 48 of the Act, without
being constrained by the findings of the Malaysian
courts. Merely because the Malaysian courts have
upheld the award, it would not be an impediment for the
Indian courts to examine whether the award was
opposed to the public policy of India under Section 48 of
the Indian Arbitration Act, 1996. If the award is found to
be violative of the public policy of India, it would not be
enforced by the Indian courts. The enforcement court
would however not second-guess or review the
correctness of the judgment of the seat courts, while
deciding the challenge to the award.”
115. Proceeding further on the question of public policy
defense for refusing enforcement under Section 48, the
1
Apex Court in Vedanta Ltd. has referred to the three
6
Judge judgment in Shri Lal Mahal Ltd. wherein it was
held that the law as expounded in Renusagar Power Co.
2
Ltd would be applicable to the ambit and scope of Section
48(2)(b) even under the Act' 1996.
1
116. In Vedanta Limited , the question was for
enforceability of pre 2015 amendment award, rendered on
18.01.2011. It was argued therein by the learned Senior
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Counsel for the respondent therein that the amended
Section 48 would be applicable to the said case as the
amendment effected by 2016 amendment of 2015 would
have retrospective effect. The Apex Court, therefore,
proceeded to examine as to whether the amendments made
to Section 48 would have retrospective application and
were applicable to a pre-amendmend award.
117. Dealing with the said question, the Apex Court has taken
note of the judgment in Western Geco International
13
Ltd. , on public policy and that the amendments made to
Section 48 by the 2015 amendment were based on the
supplementary report of the Law Commission on "public
policy" wherein a clarification by way of Explanation 2 was
recommended to be inserted into Section 34(2)(b)(ii).
Corresponding amendment in Section 48 also resulted in
insertion of two explanations by amendment of Section 48,
which are pari materia to explanations in Section 34(2)(b)
(ii).
118. Noticing the above, the Apex Court proceeded to record
that amendments made to Section 48 by the 2016
Amendment Act are substantive amendments which have
been incorporated to make the definition of “public policy”
narrow by its statute. The newly inserted Explanation 2
provides that examination of whether the enforcement of
the award is in conflict with the fundamental policy of
Indian Law, shall not entail a review on merits of the
dispute. It was, thus, held in paragraphs '106' and '114'
that amended Section 48 would not be applicable to the
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case since the Court proceedings for enforcement were
filed by the claimants therein on 14.10.2014 prior to the
2016 amendment having come into force on 23.10.2015.
119. Further, while examining the question as to whether the
award can be held to be in conflict with the public policy of
India and contrary to the basic notion of justice as agitated
therein, the Apex Court while applying the unamended
Section 48 to the case, taking note of the judgment of the
US Court of Appeals for the second circuit in Parsons &
Whittemore Overseas Co. Inc. Vs. Societe Generale De
16
L’Industrie Du Papier (Rakta) and Bank of America, ,
2
relied on by the Apex Court in Renusagar Power Co. Ltd.
and the International Counsel for Commercial Arbitration
Guide to the interpretation of 1958 New York Convention a
"handbook for Judges" (2011), has observed in paragraphs
'123', '124', '125' and '127' as under:-
“123. It appears that both the parties are not satisfied
with said view of the Division Bench of the High Court in
applying the decision in Forasol case [1984 Supp SCC
263 : (1984) 1 SCR 526] to the present case.
124. Shri Venugopal has urged that in Forasol
case [1984 Supp SCC 263 : (1984) 1 SCR 526] this Court
was dealing with the enforcement of an award governed
by the Indian Arbitration Act and that the principles laid
down in the said decision cannot be applied to the
present case arising out of a foreign award which is not
governed by the provisions of the Indian Arbitration Act
but is governed by the provisions of the Foreign Awards
Act. It is no doubt true that in the Forasol case [1984
Supp SCC 263 : (1984) 1 SCR 526] this Court was
16 nd
508 F 2D 969(2 Cir 1974)
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dealing with an award governed by Indian Arbitration
Act but that does not affect the applicability of the said
decision to proceedings for enforcement of a foreign
award in Indian courts because the matter of conversion
of foreign currency into Indian currency at the stage of
enforcement of an award is governed by the same
principle irrespective of the fact whether the award is
governed by the Indian Arbitration Act or a foreign
award governed by the Foreign Awards Act. Moreover
the position has been made clear by Section 4(1) of the
Foreign Awards Act which lays down that a foreign
award shall subject to the provisions of this Act be
enforceable in India as if it were an award made on a
matter referred to arbitration in India. The said
provision equates a foreign award to an Indian award for
the purpose of enforcement with the exception that such
enforcement will be subject to the provisions of the
Foreign Awards Act. There is nothing in the provisions of
the Foreign Awards Act which excludes the applicability
of the principles laid down in Forasol case [1984 Supp
SCC 263 : (1984) 1 SCR 526] with regard to
enforcement of foreign awards. In our opinion,
therefore, the enforcement of the award in the instant
case is governed by the law laid down in Forasol
case [1984 Supp SCC 263 : (1984) 1 SCR 526] .
125. Shri Venugopal has further urged that the matter
of conversion of foreign currency and the rate of
exchange for such conversion is not a matter of
procedure but is a matter of substance and it is
governed by the proper law and that since the contract
as well as performance of the contract are both
governed by the New York law, the breach-date rule
which was applicable in the State of New York at the
relevant time, should be applied for the purpose of
ascertaining the exchange rate for conversion of U.S.
dollars into Indian rupees and that the rule in Forasol
case [1984 Supp SCC 263 : (1984) 1 SCR 526] can have
no application to the present case. Shri Venugopal has in
this regard placed reliance on certain observations
in Legal Aspects of Money by F.A. Mann, 5th Edn. at pp.
326-327 and The Conflict of Laws by Dicey & Morris,
11th Edn., Vol. II, p. 1454. We are unable to agree with
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this submission of Shri Venugopal. The manner in which
the court should pass the decree in a case where a
foreign award is sought to be enforced is a matter of
procedure and not of substance and is governed by lex
fori , i.e., the law of the forum. The rule laid down
in Miliangos case [1976 AC 443 : (1975) 3 All ER 801]
has been described as a rule of procedure.
(See : Services Europe Atlantique Sud (Seas) of
Paris v. Stockholms Rederiaktiebolag Svea of
Stockholm [1979 AC 685 : (1979) 1 All ER 421 sub nom
Eleftherotria (M.V.) (Owners) v. Despina (M.V.) (Owners)
sub nom Despina R. The ] at p. 704; Cheshire & North,
Private International Law , 12th Edn., p. 100). For the
same reasons, the principles laid down in Forasol
case [1984 Supp SCC 263 : (1984) 1 SCR 526] must be
held to be rule of procedural law and would be
applicable to the proceedings for enforcement of a
foreign award under the Foreign Awards Act.
127. We find that in the said passage which falls in
Chapter XI relating to “The Payment of Foreign Money
Obligations” the learned author is dealing with the
conversion of the money of account to the money of
payment and he has not considered the matter of
convertibility of the foreign currency at the stage of
enforcement of a judgment or award. We have already
indicated that convertibility of the money of account into
the money of payment involves determination of the
liability and is a matter of substance governed by the
proper laws of contract. This question arises prior to the
stage of the judgment or award. Here we are dealing
with a case where the award has already been made and
is sought to be enforced in India and the question is
about the conversion of the foreign currency in which
the award has been made into Indian currency. This
question has been dealt with by Dr F.A. Mann in Chapter
XII relating to “ The Institution of Legal Proceedings and
its effect upon Foreign Money Obligations ” and the
learned author has stated:
“It is now clear that English law does not require
any foreign money obligation to be converted into
sterling for the purpose of instituting proceedings
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or of the judgment; on the contrary, where the
plaintiff claims a sum of foreign money, he is both
entitled and bound to apply for judgment in terms
of such foreign money and it is only at the stage of
payment or enforcement that conversion into
sterling at the rate of exchange then prevailing
takes place. This is so whether the claim is for
payment of a specific sum contractually due or for
damages for breach of contract or tort or for a just
sum due in respect of unjustified enrichment or for
restitution. Nor does it matter whether the contract
sued upon is governed by English or by foreign law.
Nor is it necessary to ask for specific performance
rather than payment: in either case the defendant
will be ordered to pay foreign money. Moreover an
award in an English arbitration may be expressed
and enforced in foreign currency and a foreign
award or judgment so expressed may be enforced
like the English award or judgment.” (p. 352)
120. Applying the principles, noticing the challenge in the
1
facts of the said case, it was, thus, held in Vedanta Ltd.
that the enforcement Court exercising jurisdiction under
Section 48, cannot refuse enforcement while taking a
different interpretation of the terms of the contract and
since the interpretation taken by the tribunal is plausible
view, the challenge on the ground of erroneous
interpretation of the terms of the contract, that it amounts
to rewriting the contract, was held unsustainable, to refuse
enforcement of the award, as it does not contravene the
public policy of India, or it cannot be said that it is
contrary to the basic notions of justice.
121. Further, referring to paragraph '21' of the judgment of
3
the Apex Court in Vijay Karia and Others , it was argued
before us by the learned Senior Counsel for the respondent
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that the facts and circumstances of the said case are
similar to that of the instant case, inasmuch as, there was
no challenge to the award therein under the English
Arbitration law. The objections under Section 48 of the
Act' 1996 were raised only when the award was brought to
India for recognition and enforcement.
122. The submission before us is that in the said context, the
observations in paragraphs '81' and '83' can be relied upon
to hold that if a foreign award fails to determine a material
issue which goes to the root of the matter or fails to decide
a claim or counter claim in its entirety, the award may
shocks the conscience of the Court and may not be
enforced.
3
123. In Vijay Karia and Others as well, four foreign
awards, which were held to be enforceable in India, were
rendered prior to the 2015 Amendment Act, however, the
Court was dealing with the amended Section 48.
124. Further, referring to the decision of the Apex Court in
17
Satya Jain v. Anis Ahmed Rushdie , it was argued that
it is held therein that the principle of a business efficacy is
normally invoked to tweak in a term in an agreement of
contract so as to achieve the result or the consequence
intended by the parties acting as a prudent businessman.
Business efficacy means the power to produce intended
results. The classic test of business efficacy as proposed by
18
Bown, L.J. Moorcock , requires that a term can only be
17
(2013) 8 SCC 131
18
(1889) LR 14 PD 64 (CA)
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implied if it is necessary to give business efficacy to the
contract to avoid such a failure of consideration that the
parties cannot as reasonable businessmen have intended,
but only the most limited term should then be implied-the
bare minimum to achieve this goal. If the contract makes
business sense without the term, the Court will not imply
the same. Relevant paragraphs '32' and '33' of the said
decision are quoted hereinunder:-
“32. The High Court, notwithstanding the clear
language of Clause (7) of the agreement, had invoked
the principle of “business efficacy” to hold that a slight
deviation from the plain meaning of the language of
Clause (7) would be justified so as to read an obligation
on the part of the plaintiff to pay the further amount of
Rs 1 lakh as demanded by the defendant instead of
insisting on making such further payment(s) only to the
Income Tax Authorities.
33. The principle of business efficacy is normally
invoked to read a term in an agreement or contract so as
to achieve the result or the consequence intended by the
parties acting as prudent businessmen. Business efficacy
means the power to produce intended results. The
classic test of business efficacy was proposed by Bowen,
L.J. in Moorcock [(1889) LR 14 PD 64 (CA)] . This test
requires that a term can only be implied if it is necessary
to give business efficacy to the contract to avoid such a
failure of consideration that the parties cannot as
reasonable businessmen have intended. But only the
most limited term should then be implied—the bare
minimum to achieve this goal. If the contract makes
business sense without the term, the courts will not
imply the same. The following passage from the opinion
of Bowen, L.J. in Moorcock [(1889) LR 14 PD 64 (CA)]
sums up the position: (PD p. 68)
“… In business transactions such as this, what the
law desires to effect by the implication is to give such
business efficacy to the transaction as must have been
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intended at all events by both parties who are
businessmen; not to impose on one side all the perils
of the transaction, or to emancipate one side from all
the chances of failure, but to make each party
promise in law as much, at all events, as it must have
been in the contemplation of both parties that he
should be responsible for in respect of those perils or
chances.”
125. It was, thus, argued by the learned Senior Counsel for
the respondent that the business efficacy test should be
applied only in cases where the term that is sought to be
read as implied is such which could have been clearly
intended by the parties at the time of making of the
agreement.
126. Another decision of the Apex Court in Rajasthan State
Industrial Development & Investment Corpn. v.
19
Diamond & Gem Development Corpn. Ltd. has been
pressed into service to argue that the contract being a
creature of an agreement between the parties, has to be
interpreted giving literal meanings unless there is some
ambiguity therein. The contract is to be interpreted giving
the actual meaning to the words contained in the contract
and it is not permissible for the Court to make a new
contract, however, reasonable, if the parties have not made
it themselves. It is to be interpreted in such a way that its
terms may not be valid, inasmuch as, a party cannot claim
any more than what is covered by the terms of the contract,
for the reason that the contract is a transaction between
the parties and has been entered into with open eyes and
understanding the nature of contract. The terms of the
19
(2013) 5 SCC 470
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contract has to be construed strictly without altering the
nature of the contract as it may affect the interest of either
parties adversely.
127. With the aid of the above decisions in light of the law
laid down by the Apex Court in the matter of interpretation
of contract, the law to apply business efficacy test and to
interpret the terms of contract and the scope of Section 48
of the Act’ 1996, Mr. Joshi, learned Senior Counsel
appearing for the respondent has taken us to clause 1.1 of
the Master agreement under the heading “Buyers
Facilities” (quoted hereinbefore) to submit that it was
specifically agreed by the parties that the berthing
unloading, receipt, storage, regasification and regasified
LNG processing and delivery facilities at the receiving
terminal was to be mutually agreed in the relevant
Confirmation Notice, to be executed by the parties in the
form set out in Schedule 'C 'in relation to the sale and
purchase of a cargo of LNG pursuant to the Master
agreement. The receiving terminal as specified in clause
1.1 for regasification and associated facilities was to be
confirmed by the buyer in the confirmation notice, which
will be used to unload the LNG purchased under the
agreement (if any). The unloading port as mentioned in
clause 1.1 was to be assigned in the relevant confirmation
notice.
128. Clause 2 of the Master agreement pertaining to duration
of the agreement has been read over to submit that the sale
and purchase of cargoes of LNG from time to time as per
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the intention of the parties in the agreement were
individual and several contract. Clause 2.3 of the Master
agreement expressly provides that the execution of the
Master agreement by the party shall not oblige either party
at any time to enter into any contract with the other party
for sale and purchase of LNG. It would be in absolute
discretion of the seller, at any time offer to sell quantities of
LNG to buyer on the terms and conditions contained
therein. If the buyer accepts such offer, the parties shall
negotiate and execute a confirmation notice, substantially
in the form set out in Schedule 'C'.
129. The parties, thus, had agreed that any contract between
them for the sale and purchase of any cargo or cargoes of
LNG shall be in accordance with the terms of the Master
agreement, the relevant confirmation notice, which shall be
mutually agreed, relating to each contract (of sale and
purchase of cargo). It was clarified therein that execution
of any confirmation notice by the parties shall constitute an
individual and several contract whereby seller agrees to
supply, sell and deliver a cargo or cargoes of LNG to buyer
and the buyer agrees to purchase, receive and pay seller
for such cargo or cargoes of LNG in accordance with the
agreement and the relevant confirmation notice.
130. Clause 6.1 of the Master agreement has further been
placed before us to submit that it was also agreed between
the parties that prior to loading of any cargo of LNG, the
seller and the buyer shall consult each other and agree in
the confirmation notice, terms that are to be applicable to a
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cargo or cargoes of LNG to be loaded, which included (i)
scheduled unloading date range, i.e. day date-range for
arrival of the LNG ship at the receiving terminal taking into
consideration seller's LNG ship's operation and its
commitment on long term contracts as well as buyer's
berth schedule (ii) the name of the LNG ship to be utilized
(iii) LNG ship's estimated fully laden draft and estimated
quantity of LNG to be delivered.
131. It is further provided in clause 6.1 that during such
consultation between buyer and seller, buyer shall also use
all reasonable endeavours to provide seller with
information about the requirements of th e proposed
unloading port, receiving terminal and for the shipment
concerned. It further states that seller shall send notice to
the buyer by letter, telex, fax, email or other electronic
method of written transmission within 24 hours after
loading completion. The buyer shall on receipt of the above
advice, provide seller with full documentation requirements
for the shipment concerned.
132. Clause 6.3 further states that any revised scheduled
unloading date range agreed between the parties as a
result of any amendment, for the purpose of agreement,
replace the previously agreed details in clause 6.1 and the
confirmation notice shall be amended accordingly.
133. Clause 6.5 of the Master agreement provides for liability
of the seller to give or cause to be given notice (a) of not
less than 72 hours of the estimated time of arrival of LNG
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ship at the receiving terminal; (b) notice of not less than 48
hours prior to the estimated time of arrival of the LNG ship
at the receiving terminal; (c) an additional notice of not less
than 24 hours prior to the estimated time of arrival of the
LNG ship at the receiving terminal; (d) prompt notice of
any alteration of more than 3 hours to the time contained in
the notice given under Clause 6.5(c); and (e) any other or
further notice as may be proposed by buyer in order to
meet with the additional requirements of the unloading
port and included in Buyer's delivery instructions.
134. With these clauses of the contract, it was vehemently
argued by the learned Senior Counsel for the respondent
that the terms and conditions of the Master agreement
were clear to the extent that both the parties were to
mutually agree not only on the Scheduled unloading date
range, but also on the buyers berth Schedule, in the
Confirmation notice.
135. The receiving terminal having regassification and
associated facilities was to be confirmed at the ends of the
buyer in the confirmation notice and unloading port must
be assigned in the confirmation notice itself. The buyer
was obliged to use all reasonable endeavours to provide
information about the requirement of the purpose for
loading and receiving terminal, etc. to the seller.
136. Besides that, clause 20 pertaining to invoice, price,
payment and credit support of the Master agreement in
clause 20.1 provide for any sale of LNG pursuant to the
Master agreement, the contract sale price shall be
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specified in the confirmation notice. The credit support
was also to be provided by the buyer, if requested by seller
in accordance with and specified in the confirmation notice.
137. Clause 21.1 pertaining to delivery states that delivery of
LNG shall be on the ex-ship basis and unless otherwise
agreed in the confirmation notice, the point of delivery of
every LNG sale under the Agreement shall be at the
unloading point.
138. The Schedule 'C' to the Master agreement, the
confirmation notice contains clause, such as details of the
ship, receiving terminal (unloading port), scheduled
unloading date range, quantity, etc.
139. However, the confirmation notice jointly signed by the
parties (at page '176' of the paper-book) did not contain
these vital information such as the details of the LNG ship,
receiving terminal, unloading port, quantity, etc. and it was
agreed that all such information shall be notified by the
seller to buyer through the delivery notice. While agreeing
to the scheduled unloading date range in Clause 4 of the
confirmation notice (extracted hereinbefore), it was also
agreed that for any change of the scheduled unloading
date, buyer shall inform seller of any circumstances as a
result of which delivery of a cargo was to be made on any
other date than the scheduled unloading date shown
therein.
140. For the contract sale price, only a formula was provided
in clause 8 with the alternative option given to the buyer to
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confirm to seller on receipt of the price offer as to which
price was to be used for invoice and payment purpose.
Clause 8 of the confirmation notice signed by the parties
reads as under :-
“8.CONTRACT SALE PRICE
US$/MMBtu of Quantity Delivered=HH + US$1.85
"HH" means the final Henry Hub Natural Gas Futures
Contract Settlement price in US$/MMBtu/for the month
in which a particular LNG cargo shall be delivered at the
Receiving Terminal falls as quoted on the New York
Mercantile Exchange
OR
A fixed price to be offered by Seller (i) prior to the
loading of each cargo, or (ii) prior to the determination
date of the Henry Hub settlement price for the discharge
month.
Buyer shall confirm to Seller immediately upon receipt of
the price offer as to which price to be used for invoice
and payment purpose.”
141. It was, thus, vehemently argued by the learned Senior
Counsel appearing for the respondent that in fact the
delivery notice substituted the confirmation notice and it
was agreed between the parties that all terms of the sale
and purchase of LNG except scheduled unloading date
range agreed therein shall be mutually agreed at the time
of delivery notice to be sent by seller to buyer for each
cargo.
142. Pressing Clause 2.3 of the Master agreement, it was
submitted that with the substitution of confirmation notice
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with the delivery notice, it was mutually agreed by the
parties that the terms and conditions of the agreement for
sale and purchase, delivery or receiving and payment in a
cargo or cargoes of LNG shall be mutually agreed at the
stage of delivery notice.
143. The contention is that in absence of the vital details, viz.
information with respect to the LNG ship, receiving
terminal, quantity, contract sale price and payment
security in the confirmation notice, which was agreed to
constitute an individual and several contract, the
confirmation notice dated 12.03.2007 cannot be considered
to be concluded contract with regard to four cargoes
scheduled in the month of April, May, June and August.
The scheduled unloading date range mentioned in the
confirmation notice, though mutually agreed by the parties,
but the confirmation notice essentially was substituted by
the delivery notice and as such, all details were required to
be agreed at the stage of delivery notice.
144. Clause 12.2, Buyers obligation to Take or Pay could not
be invoked as the LNG price has not been specified in the
confirmation notice and it was never mutually agreed
between the parties. The submission, thus, is that the
details mentioned in the first delivery notice dated
th
16.03.2007 for the cargo unloading between 28 April 2007
containing the details of receiving terminal was without any
agreement of the parties. The buyer had already informed
the same on 27.03.2007 that it was not feasible to conclude
the contract with regard to April and May 2007 cargoes as
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regasification terminal operators have shown inability to
accept the cargoes during these months and request was
made to work out a suitable solution in the matter. The
letters written by the buyer to both Hazira and Dahej Port
requesting to offer regasification facility in the month of
March 2007 and their denial to offer any regasification
capacity are placed on record.
145. The submission is that there is no dispute about the fact
that the buyer intimated the seller well in time, i.e. on
27.03.2007 that it would not be possible to receive the
cargoes of April and May 2007 because of unavailability of
the unloading port which was beyond the control of the
buyer. The submission is that even as per Clause 4 of the
confirmation notice, buyer could have asked for change in
scheduled unloading date after due intimation/information
to seller of any circumstance as a result of which delivery
scheduled was to be changed.
146. Submission is that the first delivery notice for April
cargo sent along with letter dated 16.03.2007 contains a
unilateral mentioning of receiving terminal and does not
refer to final or frozen price of the cargo. It was
submitted that the contracted sale price formula stated in
the confirmation notice dated 12.03.2007 was not final.
Rather, there were two alternative options and negotiations
were going on between the parties with the exchange of e-
mails as mentioned hereinabove.
147. Without confirmation of the receiving terminals at the
ends of the buyer and agreement on the price, there was no
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question of releasing of the ship or invoking Take or Pay
Clause 12.2 of the Master agreement. The submission is
that each contract for sale and purchase of a cargo or
cargoes was to be entered by mutually signing the
confirmation notice, which was further agreed by the
parties at the stage of delivery notice. The result is that
unless the terms and conditions of the agreement
pertaining to receiving terminal and price of LNG was
mutually agreed, the scheduled unloading date range
mentioned in Clause 4 of the confirmation notice became
tentative.
148. The learned Arbitrator in a mechanical manner
completely ignoring this aspect of the matter that in
individual and several contracts pertaining to sale and
purchase of a cargo or cargoes, once the terms and
conditions of the supply, sale and receiving was not
decided, it could not have been held that the contract was
concluded with the signing of the confirmation notice dated
12.03.2007 and the issue pertaining to the receiving
terminal and price were operational issues.
149. The contention is that the second and third delivery
notices followed by the Take or Pay notices sent by the
seller mentioned in the delivery notice dated 17.03.2007
for the May cargo mentioning unloading port at both
Hazira and Dahej show that the seller has completely
bypassed all the terms to extract money from the buyer
alleging breaches. In fact, the price was never agreed,
frozen or locked by the mutual agreement of the parties
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and there was no obligation upon the buyer to accept the
deliveries sent through the notices for the month April,
May and June cargo. The Take and Pay notice were
completely unconscionable and the learned Arbitrator has
acted perversely and had thrust upon the new contract
upon the buyer to purchase LNG without availability of
unloading port. The Liquified Natural Gas (LNG) is a
product which cannot be stored anywhere and cannot be
unloaded without availability of regasification facility at the
unloading port and it is for this reason the receiving
terminal or unloading port was a pre-requirement of the
delivery notice, to be agreed at the time of signing of the
confirmation notice.
150. The submission is that the enforcement Court has rightly
held that the award referring to vital terms as operational
issues and applying the test of business efficacy has
rendered the award illogical and perverse, and such, which
shocks the conscience of the Court and hence, cannot be
enforced.
151. It was argued that the reasoning given by the learned
Arbitrator are implausible, inasmuch as, terming the
conditions of the Master agreement read with the
confirmation notice about fixation of the price and
receiving terminal as operational issues resulted in foisting
a new contract upon the buyer by unlawful delivery notice.
In fact, as mutually agreed by the parties while executing
the confirmation notice dated 12.03.2007 that the contract
shall be concluded with the delivery notice, when the
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details are locked therein. All three delivery notices were
unilateral and sending of Take and Pay notice along with
the subsequent two delivery notices for May and June
cargo with the assertion therein that the buyer refused to
receive the cargo of LNG is unacceptable. The learned
Arbitrator has rendered an illogical award by treating the
issues of receiving terminal and fixing of price as
operational issues, post concluded contract.
152. It was submitted that the standby letter of credit was to
be issued by the buyer after the price was quoted and
acceptance by the buyer. There can be no assumption
with regard to receiving terminal by unilateral mentioning
of unloading port in the delivery notice without seeking
confirmation from the buyer and further forcing delivery
for May and June cargo. It was contended that it is an
accepted position that May, June and August cargoes were
never uploaded and April cargo was sold much before the
delivery date.
153. The learned Senior Counsel for the respondent would
submit that the respondent is not seeking intervention of
the Court to interpret the terms of the contract, rather a
bare reading of the Master agreement, confirmation notice
and delivery notice, on the face of it would establish that
there was no concluded contract and hence, there was no
question of breach for invoking Take or Pay clause by
seller. This case is a glaring example of perversity in the
award, which goes to the root of the matter being
irrational, defying all logics or illogical and the
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enforcement Court cannot be said to have erred in holding
that the award shocks the conscience of the Court and is
against the fundamental public policy of Indian law, and is
such, that the enforcement is to be refused even within the
limited jurisdiction of Section 48 of the Act.
154. In rejoinder, Mr. Devang Nanavati, learned Senior
Counsel appearing for the appellant would emphasize on
the law of limited scope of interference under Section 48 to
submit that the interpretation made by the Arbitrator or
the reasoning which accord with business sense and
commercial realities and probabilities as to the
construction of the contract are not open for scrutiny
within the scope of Section 48, inasmuch as, re-
appreciation of evidence to arrive at different conclusion, is
impermissible.
[VII] Analysis and Conclusion:-
155. Having considered the submissions of the parties and
perused the record, at the outset, we may note that Section
48 of the Act’ 1996 though comes with restrictions and
limitations, but the Courts are not required to adopt a
hands-off approach. Rather, limited discretion is
conferred upon the Court where it may refuse to enforce a
foreign award, if the party agitating enforcement furnishes
proof of the any of the circumstances mentioned in Clauses
(a) to (e) of sub-section (1) of Section 48 of the Act and the
Court in exercise of its residuary discretion finds it legally
to do so.
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156. Sub-section (2) of Section 48 provides public policy
grounds to refuse enforcement of the award. Explanation 1
of Section 48(2) (b) provides three contingencies when the
award would be said to be in conflict with the public policy
of India, viz. (i) the award is an outcome of fraud or
corruption or violation of Section 75 or Section 82; (ii) is
in contravention with the fundamental policy of Indian law;
(iii) in conflict with the most basic notions of morality and
justice. Explanation 2 of Section 48(2)(b) adds a
clarification by a caveat that the Court shall not review the
award on merits of the dispute, while refusing to enforce it
on the grounds of being in contravention with the
fundamental policy of Indian law.
157. For ready reference, Section 48 of the 1996 Act is
extracted hereinunder :-
“ 48. Conditions for enforcement of foreign awards.
— (1) Enforcement of a foreign award may be refused, at
the request of the party against whom it is invoked, only
if that party furnishes to the court proof that—
(a) the parties to the agreement referred to in section
44 were, under the law applicable to them, under
some incapacity, or the said agreement is not valid
under the law to which the parties have subjected it
or, failing any indication thereon, under the law of the
country where the award was made; or
(b) the party against whom the award is invoked was
not given proper notice of the appointment of the
arbitrator or of the arbitral proceedings or was
otherwise unable to present his case; or
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(c) the award deals with a difference not contemplated
by or not falling within the terms of the submission to
arbitration, or it contains decisions on matters beyond
the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to
arbitration can be separated from those not so
submitted, that part of the award which contains
decisions on matters submitted to arbitration may be
enforced; or
(d) the composition of the arbitral authority or the
arbitral procedure was not in accordance with the
agreement of the parties, or, failing such agreement,
was not in accordance with the law of the country
where the arbitration took place; or
(e) the award has not yet become binding on the
parties, or has been set aside or suspended by a
competent authority of the country in which, or under
the law of which, that award was made.
(2) Enforcement of an arbitral award may also be
refused if the Court finds that—
(a) the subject-matter of the difference is not capable of
settlement by arbitration under the law of India; or
(b) the enforcement of the award would be contrary to
the public policy of India.
Explanation 1.—For the avoidance of any doubt, it is
clarified that an award is in conflict with the public
policy of India, only if,—
(i) the making of the award was induced or affected by
fraud or corruption or was in violation of section 75 or
section 81; or
(ii) it is in contravention with the fundamental policy of
Indian law; or
(iii) it is in conflict with the most basic notions of
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morality or justice.
Explanation 2.—For the avoidance of doubt, the test as
to whether there is a contravention with the
fundamental policy of Indian law shall not entail a review
on the merits of the dispute.
(3) If an application for the setting aside or suspension
of the award has been made to a competent authority
referred to in clause (e) of sub-section (1) the Court may,
if it considers it proper, adjourn the decision on the
enforcement of the award and may also, on the
application of the party claiming enforcement of the
award, order the other party to give suitable security.”
158. Without entering into the dispute, at this stage,
irrespective of whether the pre or post 2015 amended
Section 48 would apply in the present case where
enforcement application under Section 48 of the Act was
filed in the year 2014 in a wrong Court, we may record that
1
in a case of unamended Section 48 in Vedanta Limited ,
the Apex Court has clarified that the enforcement Court
cannot reassess or re-appreciate the evidence on record in
the arbitration as Section 48 does not provide a de facto
appeal on the merits of the award. The enforcement cannot
be refused by taking a different interpretation of the terms
of the contract. The errors of judgment are not a sufficient
ground for refusing enforcement of a foreign award and
that the limits of judicial intervention on the grounds of
public policy of the enforcement State are to be looked into
within the contours of Section 48.
2
159. Applying Renusagar Power Co. , enforcement of a
foreign award could be refused on the ground that it was
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contrary to the public policy, if such enforcement would be
contrary to (i) fundamental policy of Indian law; or (ii) the
interests of India; or (iii) justice or morality. Explanation to
unamended Section 48(2)(b) reads as under :-
" Explanation . Without prejudice to the generality of
clause (b) of this section, it is hereby declared for
avoidance of any doubt, that an award is in conflict with
the public policy of India if the making of the award was
induced or affected by fraud or corruption."
Which means that the enforcement of award induced or
affected by fraud or corruption could be refused being in
conflict with the public policy of India.
6
160. Shri Lal Mahal Ltd. , rendered on 03.07.2013 relying
2
on Renusagar Power Co. , has held that :-
“45. Moreover, Section 48 of the 1996 Act does not give
an opportunity to have a “second look” at the foreign
award in the award enforcement stage. The scope of
inquiry under Section 48 does not permit review of the
foreign award on merits. Procedural defects (like taking
into consideration inadmissible evidence or
ignoring/rejecting the evidence which may be of binding
nature) in the course of foreign arbitration do not lead
necessarily to excuse an award from enforcement on the
ground of public policy.
46. In what we have discussed above, even if it be
assumed that the Board of Appeal erred in relying upon
the report obtained by the buyers from Crepin which
was inconsistent with the terms on which the parties had
contracted in the contract dated 12-5-1994 and wrongly
rejected the report of the contractual agency, in our
view, such errors would not bar the enforceability of the
appeal awards passed by the Board of Appeal.
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47. While considering the enforceability of foreign
awards, the court does not exercise appellate
jurisdiction over the foreign award nor does it enquire as
to whether, while rendering foreign award, some error
has been committed. Under Section 48(2)( b ) the
enforcement of a foreign award can be refused only if
such enforcement is found to be contrary to: ( 1 )
fundamental policy of Indian law; or ( 2 ) the interests of
India; or ( 3 ) justice or morality. The objections raised by
the appellant do not fall in any of these categories and,
therefore, the foreign awards cannot be held to be
contrary to public policy of India as contemplated under
Section 48(2)( b ).”
14
161. Ssangyong Engg. , while referring to pre and post
2015 amendment to Section 48 of 1996 Act, held that the
expression “public policy of India ” would mean
“fundamental policy of Indian law” as explained in
12
paragraphs ‘18’ and ‘27’ of Associate Builders , i.e. the
fundamental policy of Indian law would be relegated to
“Renusagar” understanding of the expression. Reverting
2
to Renusagar Power Co. , paras '18' and '27' are
extracted hereinunder :-
“18. In Renusagar Power Co. Ltd. v. General Electric
Co. [ Renusagar Power Co. Ltd. v. General Electric Co. ,
1994 Supp (1) SCC 644] , the Supreme Court construed
Section 7(1)( b )( ii ) of the Foreign Awards (Recognition
and Enforcement) Act, 1961:
“ 7. Conditions for enforcement of foreign
awards .—(1) A foreign award may not be enforced
under this Act—
*
( b ) if the Court dealing with the case is satisfied
that—
*
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( ii ) the enforcement of the award will be
contrary to the public policy.”
In construing the expression “public policy” in the
context of a foreign award, the Court held that an award
contrary to
( i ) The fundamental policy of Indian law,
( ii ) The interest of India,
( iii ) Justice or morality,
would be set aside on the ground that it would be
contrary to the public policy of India. It went on further
to hold that a contravention of the provisions of the
Foreign Exchange Regulation Act would be contrary to
the public policy of India in that the statute is enacted
for the national economic interest to ensure that the
nation does not lose foreign exchange which is essential
for the economic survival of the nation ( see SCC p. 685,
para 75). Equally, disregarding orders passed by the
superior courts in India could also be a contravention of
the fundamental policy of Indian law, but the recovery of
compound interest on interest, being contrary to statute
only, would not contravene any fundamental policy of
Indian law ( see SCC pp. 689 & 693, paras 85 & 95).”
“27. Coming to each of the heads contained in Saw
Pipes [(2003) 5 SCC 705 : AIR 2003 SC 2629] judgment,
we will first deal with the head “fundamental policy of
Indian law”. It has already been seen
from Renusagar [ Renusagar Power Co. Ltd. v. General
Electric Co. , 1994 Supp (1) SCC 644] judgment that
violation of the Foreign Exchange Act and disregarding
orders of superior courts in India would be regarded as
being contrary to the fundamental policy of Indian law.
To this it could be added that the binding effect of the
judgment of a superior court being disregarded would be
equally violative of the fundamental policy of Indian
law.”
162. As held therein in construing the expression “public
policy of India” in the context of foreign award, if an award
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is contrary to the “fundamental policy of Indian law”, its
enforcement may be refused. This comes with the caveat
in paragraph ‘33’ that when a court is applying the “public
policy” test in an arbitral award, it does not act as a court
of appeal and consequently errors of fact cannot be
corrected. The award based on little evidence which is not
arbitrary or capricious, the Arbitrator shall be treated as a
last word of facts.
163. From the reading of the public policy test to an arbitral
12
award, as held in Associate Builders , such award which
shocks the conscience of the Court may be refused to be
enforced by applying public policy test.
3
164. In Vijay Karia and Others , while dealing with the
enforcement of a foreign award, the Apex Court has
2
observed that Renusagar Power Co. , which was one of
the first judgments which construed pari materia provisions
in the Foreign Awards Act, 1961 would continue to apply to
cases which arise under Section 48(2)(b) and wider
meaning given to "public policy of India” in the domestic
sphere shall not be applicable in enforcement of
proceedings under Section 48(2)(b). While interpreting the
fundamental policy of the Indian law, as has been held in
2
Renusagar Power Co. , must amount to a breach of some
legal principle or legislation which is so basic to Indian law
that it is not susceptible of being compromised. It is held
therein that “fundamental policy” refers to the core values
of public policy as a nation, which may find its expression
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not only in statutes but also time honoured, hallowed
principles which are followed by the Courts.
165. If a foreign award fails to determine a material issue,
which goes to the root of the matter, the award may shocks
the conscience of the Court and may not be enforced. The
test laid down therein is that a foreign award must be read
as a whole, fairly, and without nit-picking. If upon reading
as a whole, the award has addressed the basic issues raised
by the parties and has, decided the claims and counter-
claims of the parties, enforcement must follow.
3
166. The Apex Court in Vijay Karia and Others , has noted
a judgment of the Delhi High Court ( Cruz City 1
9
Mauritius Holdings v. Unitech Limited ) , while dealing
with the challenge to the enforcement of foreign award
under Section 48(1)(b) of the Act, wherein it was observed
that the width of the public policy defence to resist
enforcement of a foreign award is extremely narrow and
the same cannot be equated to offending particular
provision or statute.
167. The observations in paragraph ‘98’ therein ( Cruz City)
9
(Delhi High Court Judgement) are that the objections
to enforcement on the ground of public policy must be such
that offend the core values of a member State's national
policy and such which cannot be expected to compromise.
The expression “fundamental policy of law” must be
interpreted in that perspective and must mean only the
fundamental and substratal legislative policy and not a
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provision of any enactment. The enforcement of foreign
award on the public policy ground cannot be refused when
it violates any one or the other provisions of Indian statute.
This very reasoning met with the approval of the Apex
3
Court in Vijay Karia and Others .
168. Keeping in mind the above principles as to the public
policy defence while examining in the facts and
circumstances of the instant case as to whether the award
can be said to offend the core values of the fundamental
policy of Indian law, reminding ourselves that we cannot
enter into the merits of the award or re-appreciate the
evidence on record, when we look to the objections of the
respondent dealt with by the enforcement Court, no error
can be attached to the reasoning given in paras ‘75’ to ‘84’
of the judgement impugned.
169. The enforcement Court, on a bare look to the Master
agreement entered into between the parties for LNG sale
and purchase, the confirmation notice, which is part and
parcel of the Master agreement, and the delivery notice,
has noted that;
(i) while the parties agreed to keep the Master agreement
as it is, they voluntarily agreed and divided original
confirmation notice into confirmation notice and delivery
notice.
(ii) The proposed format of delivery notice includes
details such as LNG ship, receiving terminal, scheduled
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unloading date range, quantity, quality and payment
security.
(iii) The confirmation notice duly signed by both the
parties on 12.03.2007 envisaged a separate delivery notice.
(iv) From a bare perusal of the record, the details such
as receiving terminal, was not fixed and the price was
alternatively provided, i.e. Henry Hub Price + USD 1.85 or
the price to be offered by the seller in the
confirmation notice.
(v)The record indicates that receiving terminal was not
agreed between the parties and the buyer informed the
seller that slots for registration were not available.
(vi) These facts were noted and taken into
consideration in order to test whether the findings arrived
at by the Tribunal falls within the scope and ambit of
Explanation 2 of Section 48 and while taking note of the
2
judgments in Renusagar Power Co. and Shri Lal Mahal
6
Ltd. , while exercising very limited and narrow jurisdiction,
the enforcement Court in the judgment impugned has held
that there is no concluded contract as the details which
were to be mentioned in the delivery notice were not
operational in nature and cannot be termed as post
contract obligations, as held by the learned arbitrator.
(vii) It was noted that the Master agreement provides
that it would be a basic agreement for sale and purchase of
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LNG and confirmation notice would precede each
transaction.
(viii) The composite notice for all four cargoes came to
be executed with the Henry Hub price as an alternative
price and the learned Arbitrator decided the claim of the
seller on the premise that the receiving terminal mentioned
in the confirmation notice were merely operational issues
and were post contract obligations.
(ix) The price aspects remained undecided till the last
moment and admittedly, the receiving terminal was not
fixed at all. Only because two terminals were available in
India, i.e. Dahej and Hazira, the same can neither be
presumed one way or the other and fixing of the receiving
terminal cannot be termed as operational aspect.
(x)In a commercial transaction, if goods are sent by the
seller to the purchaser and that too at a distance like the
case in hand, to believe that the destination was
operational in nature is itself perverse and irrational. On
the face of it, the facts clearly establish that the delivery
notices sent by the seller was a unilateral act on the part of
the seller and admittedly the same were never signed by
the buyer and that too without any SBLC being provided by
the buyer, without determination of price and even without
fixing the place of receiving the goods, the contract cannot
be said to have been concluded.
(xi) In any commercial transaction, the price segment
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and the place of delivery are the important aspects for
execution of a binding contract. The delivery notice not
being signed by the buyer is an admitted fact and in such
circumstances, the findings arrived at by the arbitral
tribunal defies all logic. The findings are based on
assumption that there was a concluded contract.
(xii) The facts that no security was provided by the
buyer and the buyer had already informed the seller that no
slots were available on the receiving terminal were
sufficient for the seller not to proceed, as there was no
concluded contract.
(xiii) Besides that the April cargo though was loaded
from the port of Trinidad, but was sold on 06.04.2007
before the cargo reached the Hazira terminal. May cargo
was sold before the loading date and June and August
cargoes were never loaded.
170. The only argument made by the learned counsel for the
appellant to assail this reasoning of the enforcement Court
that the April cargo had not reached Hazira terminal or
May cargo was sold before the loading date or June and
August cargoes were never loaded, would be wholly beyond
the limited scope of inquiry, inasmuch as, the question of
loading of cargo or reaching the cargo at the terminal was
not relevant for invoking Take or Pay notice in Clause 12.1
of the Master agreement.
171. The appellant had already secured the lot of LNG for
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each cargo from Suez under a Master agreement which
incurred liability upon the appellant when delivery was
refused to Suez and further, the sale of cargo were distress
sale because of the refusal by the respondent buyer, and
hence, it would have no effect on the claim of the appellant.
However, there is no answer as to how the receiving
terminal could have been decided by the seller on its own
when much before the scheduled unloading date of April
cargo, the respondent buyer intimated about the
unavailability of the receiving terminal.
172. There is no answer as to how in absence of regasification
facility being available at the receiving terminal, the
appellant buyer could receive the delivery of LNG gas and
that under the contract itself, receiving terminal was
required to be confirmed by the buyer for each of the slated
delivery of cargo. There is no answer as to the language of
Clauses 4 and 8 of the confirmation notice dated
12.03.2007, mutually signed by the parties that, in case,
the buyer informs the seller of any circumstance, as a
result of which, delivery of cargo cannot be received at the
scheduled date, the parties shall consult together about any
alteration to the scheduled unloaded date range.
173. The consultative process to mutually agree between the
parties with regard to the schedule unloading date range
mentioned in the confirmation notice in view of the
inconvenience expressed by the buyer on account of
unavailability of regasification in any of the two ports,
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namely Dahej & Hazira, had never been undertaken and
the appellant seller had forced upon the delivery of LNG
cargoes by sending unilaterally delivery notices one after
the other, mentioning one or both the receiving terminals
available in India, as an alternate or only receiving port.
174. It is incomprehensible that a loaded LNG ship would not
know its route, i.e. whether it will reach at Hazira or Dahej
port in India.
175. The contract sale price, from the bare reading of Clause
8 of the confirmation notice dated 12.03.2007 was offered
an alternative price and buyer was required to confirm to
seller immediately upon receipt of the price offer as to
which price was to be used for invoice and payment
purpose. There has been no agreement between the
parties about the price as admitted by the parties.
176. The insistence of the learned Senior counsel for the
appellant that the Henry Hub price was a fixed price
accepted by the parties in the confirmation notice dated
12.03.2007 itself is misreading of Clause 8 thereof, and the
findings of the learned Arbitrator that the HH price was a
default price is wholly incomprehensive.
177. All the above noted issues go to the very core value of
the fundamental policy of the Indian law that in absence of
a concluded contract, there was no question of breach. The
time honoured, hallowed principles which are followed by
the Indian Courts are that (i) a proposal when accepted,
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becomes a promise, (ii) every promise and every set of
promise forming consideration for each other is an
agreement, (iii) the agreement enforceable by law is a
contract. In the instant case, resistance to enforcement of
a foreign award is not on the ground that the arbitral
award offends one or the other provisions of the Indian
Contract Act. Rather, the objections to enforcement on the
ground of public policy are that the award offends the
fundamental and substratal principles of contract laws.
178. With the above, we reach at an irresistible conclusion
that none of the reasonings given by the enforcement Court
for refusal would violate Explanation 2 of Section 48(2)(b)
of the Act’ 1996 and that the liability of Take or Pay
triggered in the facts of the present case defies all logic.
The award has rightly been held to be based on irrelevant
consideration and perverse, irrational and such that it
shocks the conscience of the Court, therefore, the same is
against the fundamental public policy of Indian law.
179. Within the limited scope of the grounds available under
Section 48(2) of the Arbitration and Conciliation Act' 1996,
the refusal by the enforcement Court in the exercise of its
residuary discretion, to enforce foreign award in the
present case, cannot be said to suffer from any error of law.
The enforcement Court cannot be said to have travelled
beyond its jurisdiction in refusing to enforce the award in
the facts and circumstances of the instant case.
180. Consequently, the appeal is found devoid of merits and
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hence, dismissed. No order as to costs.
Pending Civil application, if any, would not survive and shall
stand disposed, accordingly.
(SUNITA AGARWAL, CJ.)
(D.N.RAY, J.)
siji /Bijoy
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