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TMI Blog2013 (3) TMI 493X X X X Extracts X X X X X X X X Extracts X X X X ..... I.F. and F.O.B. Contracts essential feature of a C.I.F. contract is that delivery is satisfied by delivery of documents and not by actual physical delivery of the goods. Shipping documents required under a C.I.F. contract are bill of lading, policy of insurance and an invoice. No merit in the case set up by the sellers that their liability ceased to exist on shipment of the goods on January 29, 1998 or in any case when the shipping documents were handed over through the banking channels on negotiations of Letter of Credit. As in the present case, the sellers were in breach at the threshold, it is immaterial whether or not the buyers had a right of action against the insurers or carrier. The sellers and the buyers in the present case are business persons having no unequal bargaining powers. They agreed on all terms of the contract being in conformity with the international trade and commerce. Having regard to the subject matter of the contract, the clause for reimbursement or repayment in the circumstances provided therein is neither unreasonable nor unjust; far from being extravagant or unconscionable. It is the precise sum which the sellers are required to reimburse to the buye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on what was done under it, that the above question in this appeal turns. Some of the relevant terms, and, omitting clauses which do not appear important, are as follows : 1. SUBJECT OF CONTRACT : .the Goods on CIF Novorossiysk port, Russia basis, . 2. PRICE OF THE CONTRACT .........The price is fixed on the terms of CIF (liner out) Novorossiysk, Russia according to Incoterms-90 3. TERMS OF PAYMENT Payment for the Goods, delivered under the present contract is to be effected by irrevocable documentary Letter of Credit opened in favour of the sellers for the total value of the contract for the period of 45 days The L/C is governed by ICC Uniform customs and practice for documentary L/C .. The L/C should be opened within 10 working days from the date of signing of the contract. The L/C is executed by the beneficiary s bank against presentation by the sellers of the following documents: x x x x x x x x 3. Insurance Policy for 11% of the value of the Goods, Covering all risks stipulated in the Institute Cargo Clauses (A), Institute War Clauses, Institute Strike Clauses till the completion of the unloading of the Goods at the port of Novorossiysk, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve the right to cancel the Contract under the following circumstances: The quality of the delivered Goods does not correspond to the Appendices No. 1 and No. 2 to the present Contract (according to the report of the State Board Inspection of Russian Federation for the testing of the Goods at the port of shipment Kandla (India). The date of shipment of the Goods is postponed by the Sellers beyond the period of more than 15 days. The Sellers have the right to cancel the Contract if the date of the opening of the L/C is postponed for the period of more than 15 days from the agreed date. x x x x x x x x. 3. The buyers opened irrevocable letter of credit ( L/C ) for the total value of the contract on December 3, 1997 with the last date of shipment - January 12, 1998. On presentation of documents by the sellers, the bank honoured L/C and paid the amount to the sellers. The sellers shipped goods on January 29, 1998 - 16 days later of the stipulated time and the vessel freighted by the sellers left the port of loading viz., Kandla (India) on February 20, 1998 - 38 days later than the time of departure stipulated in the contract. The goods never reached the port of destination (p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ship owners but in so far the sellers were concerned, they were not liable. The sellers also set up the defence that the delayed shipment was acquiesced to and accepted by the buyers as they were informed of the delay of shipment; the buyers had right to repudiate the contract on the ground of delay in shipment which they never did. The sellers thus submitted before the Arbitral Tribunal that the claim was misconceived and liable to be dismissed. 6. The Arbitral Tribunal held its sessions on various dates; heard the parties through their representatives and delivered its judgment (verdict) on October 18, 1999. The Arbitral Tribunal did not find any merit in the defences set up by the sellers. It held that the sellers broke the terms of the Contract (Article 4) and shipped goods on January 29, 1998 - 16 days later of the stipulated time and the vessel freighted by the sellers left the port of Kandla (India) on February 20, 1998 38 days later than the time of departure stipulated in the contract. The sellers gave a line bill of lading giving a carrier right to determine the line of unloading and the consecutive order of destination of sea ports and, thus, at the moment of load ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Against the order of the Single Judge, the sellers preferred appeal before the Division Bench. The Division Bench relying upon the decision of this Court in Renusagar Power Co. Ltd vs. General Electric Co. AIR 1994 SC 860 held that award was purely based on findings of facts and no public policy was involved and the Single Judge rightly dismissed the petition. Consequently, the Division Bench by its order dated May 3, 2002 dismissed the appeal. 11. Mr. Krishnan Venugopal, learned Senior counsel for the appellant at the outset submitted that test concerning public policy applied by the Division Bench based on the decision of this Court in Renusagar Power Co. Ltd1. is flawed. He referred to a subsequent decision of this Court in Oil and Natural Gas Corporation Ltd. vs. Saw Pipes Ltd. (2003) 5 SCC 705 and submitted that this Court has given wider meaning to the expression public policy of India used in Section 34 of the 1996 Act in that case. He submitted that the wider meaning given to the expression public policy of India used in Section 34 by this Court has also been applied to the same expression occurring in Section 48 (2)(b) of the 1996 Act. He, thus, submitted that the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on October 18, 1999 and about 12 years have elapsed since then. We thought that the issue relating to enforceability of the subject award must be brought to an end finally one way or the other. 14. Mr. Krishnan Venugopal, learned Senior counsel strenuously urged that the contract entered into between the sellers and the buyers was a CIF contract and the risk in the goods and the property passed over to the buyers upon the shipment of the goods on January 29, 1998 and in any case the property in the goods passed over to the buyers when the shipping documents were handed over to them through the Banking channels on negotiations of letter of credit on February 19, 1998. He would submit that from this day the sellers liabilities ceased to exist. In this connection he relied upon a decision of this Court in Maula Bux vs. Union of India 1969 (2) SCC 554. He also referred to Section 26 of the Sale of Goods Act, 1930 (for short 1930 Act ). 15. Learned Senior counsel also submitted that the stipulation in clause 4, in case the goods don t arrive the customs area of Russian Federation within 180 days from the date of payment the transferred amount is to be reimbursed to the Buyers a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this case (Seller in Sweden and buyers in England) enter into a c.i.f. contract, such as that entered into in the present case, (Ordinary c.i.f. terms), the vendor in the absence of any special provision to the contrary is bound by his contract to do six things. First, to make out an invoice of the goods sold. Second, to ship at the port of shipment goods of the description contained in the contract. Third, to procure (There might be added the words on shipment, see ante, 7 ) a contract of affreightment under which the goods will be delivered at the destination contemplated by the contract. Fourth, to arrange for an insurance upon the terms current in the trade which will be available for the benefit of the buyer. Fifthly, with all reasonable despatch to send forward and tender to the buyer these shipping documents, namely, the invoice, bill of lading and policy of assurance, delivery of which to the buyer is symbolical of delivery of the goods purchased, placing the same at the buyer s risk and entitling the seller to payment of their price .. . 19. Section 26 of the 1930 Act upon which reliance was placed by the learned senior counsel for the sellers reads as follows : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it, there is late shipment of goods by 16 days. Besides delay in shipping the goods and the delayed departure of the vessel from the port of loading, the goods were shipped in a vessel having no firm commitment to reach the port of Novorossiysk as the first port of discharge. As a matter of fact the sellers gave a line bill of lading giving a carrier right to determine the line of unloading and the consecutive order of destination of sea ports and as a result of that the goods were loaded on board the vessel that was no longer to reach the port of Novorossiysk as first port of discharge. The contract clearly provides in clause 4 that shipment should be done by a vessel that is on way to Novorossiysk as the first port of discharge. This term in the contract is not inconsequential or immaterial but seems to be fundamental having regard to the subject matter of the goods. The sellers breached the terms of the contract at the very threshold by late shipment of goods and by loading on board the vessel which was no longer to reach the port of Novorossiysk as the first port of discharge. The sellers having breached the terms of the C.I.F. contract at the threshold, it is very difficult to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pass the shipping documents and the insurance certificate to the sellers. The contention of the learned senior counsel for the sellers in contesting the enforcement of the award is that the clause of reimbursement amounts to penalty within the meaning of Section 74 of the 1872 Act and also unconscionable bargain and, therefore, void under Section 23 of that Act. He would, thus, submit that enforcement of such award would be contrary to public policy of India. 26. Section 73 of the 1872 Act provides for compensation for loss or damage caused by breach of contract and Section 74 makes a provision for compensation for breach of contract where penalty is stipulated for. These two Sections - 73 and 74 - of the 1872 Act read as under: 73. Compensation for loss or damage caused by breach of contract.- When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g for payment of liquidated damages and stipulations in the nature of penalty The Indian Legislature has sought to cut across the web of rules and presumptions under the English common law, by enacting a uniform principle applicable to all stipulations naming amounts to be paid in case of breach, and stipulations by way of penalty. 28. The plain reading of Section 74 would show that it deals with the measure of damages in two classes of cases (i) where the contract names a sum to be paid in case of breach and (ii) where the contract contains any other stipulation by way of penalty. In Fateh Chand(1964) 1 SCR 515 , this Court held : .The expression if the contract contains any other stipulation by way of penalty widens the operation of the section so as to make it applicable to all stipulations by way of penalty, whether the stipulation is to pay an amount of money, or is of another character, as, for example, providing for forfeiture of money already paid. There is nothing in the expression which implies that the stipulation must be one for rendering something after the contract is broken. There is no ground for holding that the expression contract contains any other st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that, if permitted, it would defeat the provisions of any law; or is fraudulent; or involves or implies injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void. 31. The transactions covered by Section 23 are the transactions where the consideration or object of such transaction is forbidden by law or the transaction is of such a nature that if permitted would defeat the provisions of any law or the transaction is fraudulent or the transaction involves or implies injury to the person or property of another or where the court regards it immoral or opposed to public policy. Whether particular transaction is contrary to a public policy would ordinarily depend upon the nature of transaction. Where experienced businessmen are involved in a commercial contract and the parties are not of unequal bargaining power, the agreed terms must ordinarily be respected as the parties may be taken to have had regard to the matters known to them. The sellers and the buyers in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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