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TMI Blog2018 (7) TMI 1873X X X X Extracts X X X X X X X X Extracts X X X X ..... and deliberately avoided a proceeding knowing fully well that the result of the proceeding may be adverse to its interest cannot complain of violation of natural justice. The petitioner was under no disability and nothing has prevented the petitioner to file its statement of defence along with documents. The petitioner is in effect seeking a review of the foreign award on merit which is not permitted in this proceeding. Even under the domestic award, a possible view by the arbitrator on acts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers is 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. Once it is found that the arbitrators approach is not arbitrary or capricious, and then he is the last word on facts. Appeal dismissed with costs. X X X X Extracts X X X X X X X X Extracts X X X X ..... 'LMJ') under the contract was required to open an irrevocable confirmed unrestricted Letter of Credit in USD in favour of Sleepwell within seven working days from the date of signing of the contract through a scheduled bank of India which, in this case was the Standard Chartered Bank (India) for the value of the goods to be shipped under the contract. 6. The contract is an FOB contract. The contract stipulates that 100 per cent value of the contracted cargo would be payable on receipt of the shipping documents by the Letter of Credit negotiating bank at 30 days sight. The contract mentions about eleven shipping document to be submitted for receiving payment under the Letter of Credit. The contract in 'other terms' provided that all other terms and conditions not in contradiction with the stipulated terms of the contract shall be governed by GAFTA 48 and disputes to be resolved as per GAFTA 125 in London. 7. The goods were meant for the Government of People's Republic of Bangladesh. The consignment to be shown as "to order" notifying "M/s. Director General of Food, Government of People's Republic of Bangladesh, 16 Abdul Ghani Road, Dhaka&quo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and MV Genlus Mariner which we do not agree. We have never received any inferior quality claim from you before nor we are responsible for any inferior quality claim. Our sales are based on weight/quality final at loading port as per surveyor certificate appointed by you which we have given to you with our documents presented through your bank and was accepted by you and you have paid 97.78 pct and there is a balance of 2.28 pct (US$10.00 per mton)" 11. LMJ however reiterated its claim alleging inferior quality in their e-mail dated 16th February, 2011. LMJ, however, did not provide any quality inspection report. Sleepwell in its letter dated 25th February, 2011 clarified that there was no issue or claim in respect of the shipment made and requested for the payment. LMJ however, in their letter dated 10th March, 2011 again raised the issue with regard to the inferior quality without providing any inspection report. LMJ, however, subsequently withdrew their quality claim by their email dated June 1, 2011. Thereafter, there were some exchange of correspondences between the parties and since the seller did not receive 2.22 per cent in respect of the consignment, it had initi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uments which the terms of the credit, supplementing the terms of the contract, require, the buyer is discharged; that was the Ficom case. In the ordinary case, therefore, of which the present is an example, the due establishment of the letter of credit fulfils the buyer's payment obligation unless the bank which opens the credit fails for any reason to make payment in accordance with the credit terms against documents duly presented. I know of no case where a seller who has failed to obtain payment under a credit because of failure on his part to comply with its terms has succeeded in recovering against a buyer personally. If this were an available road to recovery, many of the familiar arguments about discrepancies in documents would be unnecessary. Bearing in mind the likelihood that buyers will (as here) sell on to sub-buyers, such a result would, I think, throw the course of international trade into some confusion. It must in my view follow that the sellers here, not having complied with the credit terms, cannot recover against the buyers personally." 14. Mr. Mitra has submitted that the Tribunal has completely misdirected its mind in referring to the Gafta Rules in o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs to a quality inspection at the port of destination, the Tribunal arrived at a finding by reference to the Gafta Rules 1948 in order to find out as to who was responsible for producing the quality inspection certificate and has arrived at a conclusion that buyer had failed to perform its obligation under the contract. The relevant observations of the Tribunal in this regard are. 6.9 "If we disregard of the alterations envisaged by the Amendment to the Contract dated 7 December 2010, granting an even higher level of, at least for "Broken Grains" and "Dead, Damaged and Discoloured Grains", the results provided by ISC and OMIC were well within the parameters foreseen for the quality under the Contract. 6.10 The Tribunal therefore FINDS THAT the quality of the cargo of the shipment under the Contract is contractual. 6.11 In addition to the above, the relevant provision of the Quality Clause 5 of GAFTA Contract No. 48, being a Tale Quale contract as such, states, inter alia, "Certificate of Inspection at time of loading shall be final as to quality." 6.12 Consequently, and under consideration of the Payment Term of the Contract providing fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forward the certificate within this time limit of 14 days, any claim for rejection or for an allowance in respect of any matters dealt with under the Contract, and its Amendments, shall be deemed to be waived and absolutely barred, AND SO WE DO FIND. 6.21 WE FIND THAT a total of 10,500.00 metric tons of Rice was shipped. Therefore, Sellers' claim for payment of the balance invoices based on USD 10.00 per metric ton, totalling USD 105,000.00, SUCCEEDS." 18. The Tribunal was conscious of the fact that payment was refused in view of alleged failure by the seller to produce the quality inspection report at the port of destination and dealt with the issue and arrived at a finding that the seller is not responsible. GAFTA contract No. 48 was specifically incorporated into the contract. The Tribunal has referred to Clauses 5, 11, 17, 24 and 28 of the GAFTA contract No. 48 and held that GAFTA would apply Clause 17 of GAFTA contract No. 48 reads: "17. SAMPLING, ANALYSIS AND CERTIFICATES OF ANALYSIS-the terms and conditions of GAFTA Sampling Rules No. 124 are deemed to be incorporated into this contract. Samples shall be taken at the time of discharge on or before removal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out in the statement of claim that the balance 2.22% could not be realized because there was no valid Letter of Credit in existence. There is no finding by the arbitral tribunal that the balance 2.22% could not be realized because there was no valid Letter of Credit. This argument is unacceptable as this was not submitted to the tribunal. In any event, it is an admitted position that 97.78% was realized under the same irrevocable Letter of Credit established by the buyer and accepted by the seller. Payment No. 2 being the balance 2.22% was payable at sight against submission of certificate of quality inspection report at port of destination provided payment No. 1 being 97.78% was accepted. The acceptance of payment No. 1 means "acceptance of documents" required under payment No. 1 by buyer when such documents are presented by the seller to its banker which in terms negotiates the documents with the LC opening bank. The right to obtain payment accrues the moment the documents are presented by the seller and accepted by the buyer. It has nothing to do with the release of funds by the seller's bank to the seller. The submission that there was no valid Letter of Credit w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Letter of Credit opened from Bank of Baroda as per addendum to the contract. The said correspondence were annexed to the statement of claim. LMJ appears to have withdrawn its quality claim by its email dated June 1, 2011. The tribunal in paragraph 3.16 of the award has noted such fact. There is another interesting feature which has emerged during the submission made by Mr. Tilak Bose, the learned Senior Counsel representing the claimant in this proceeding. 24. In the instant case all shipments were made within the last date of shipment by reason whereof 97.78% could be realized. However balance 2.22% could not be realized as there was no valid Letter of Credit when such payment of 2.22% could be triggered. 25. It is also pertinent to note that similar objection raised with regard to a similar contract where similar dispute was raised with regard to another contract having similar terms was rejected by this Court in G.A. No. 3306 of 2016 with EC No. 487 of 2013 (Sleepwell Industries Co. Ltd. v. LMJ International Ltd. reported at 2017 (4) CHN (Cal) 621) the relevant paragraphs where such objections were recorded are: "However, the Arbitral Tribunal proceeded on the basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claimant that said GAFTA Sampling Rules provide that a quality inspection report was to be provided by the buyer. It is submitted that in paragraph 6.18 the Tribunal has quoted GAFTA Sampling Rules 124, without holding that the said clause 6.1 provided that the certificate of analysis was to be sent to the seller by the buyer. The finding in paragraph 6.20 that "with respect to clause 6.1 of the GAFTA Sampling Rules 124 buyer was obliged to provide certificate of analysis" is without any reasons and is not supported by paragraph 6.18 of the award. It is not a case of interpretation of GAFTA Rules No. 6.1 by the Tribunal, who have not analysed or interpreted Clause 6.1 of the Rule. Suddenly, the Tribunal have made an observation in paragraph 6.20, without any reason in support of their assumption, which is not really a finding. It is totally unreasonable, contradictory and wholly perverse. The award is contrary to the terms of the agreement to be read with Letters of Credit as required under English Law and, therefore, makes the award contrary to public policy. The award proceeds on the basis that the buyer failed to forward the certificate. The contract is gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hs 6.18, 6.20 and 6.22 of the award is on the fact of its untenable as it is against the specific contract terms. Furthermore the Arbitral Tribunal has omitted to consider that GAFTA Sampling Rules if in contradiction with the terms of the contract would not be applicable. The terms of the contract read with letter of credit clearly mean that certificate of quality inspection report of the destination port was to be acquired by the seller. Accordingly, reliance on the GAFTA Sampling Rules is perverse, contrary to the terms of the contract and void." 26. These objections were dealt with in paragraphs 109 to 125 of the judgment and, on the basis of the reasons recorded therein, similar arguments were not accepted. The said paragraphs read: "In my view, it is not open for a party who has consciously avoided a proceeding and did not participate in the arbitration proceeding to allege at the stage of enforcement that the award is vitiated by fraud by nondisclosure of a document. It was incumbent upon the buyer to respond to the several notices issued by the Tribunal and to submit its defence. Although, the said letter may not have been produced but subsequent correspondence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d duly executed by the parties. The ground to resist the said arbitration is that it involves prohibitive costs. The appellant was not compelled to execute the said agreement. The appellant precisely knew at the time of execution of the contract that in the event of any dispute arising out of the said contract, it would be governed by the GAFTA Arbitration Rules, 125. In absence of any demonstrable injustice or harassment being caused by reason of initiation of the arbitral proceedings or participation in such proceeding and having regard to the fact that the agreement is not in dispute, in our view, the plaintiff is not entitled to an order of injunction." The buyer, of course, is not challenging the order on that ground. The circumstances are such which clearly debars the buyer to challenge the award on the ground that it is against public policy. The buyer has argued that there has been a breach of natural justice and the finding of the arbitral tribunal that the buyer was responsible to produce the quality certificate at the port of discharge is contrary to the terms of the contract which should shock the conscience of the Court and such finding is against justice an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), which was passed in relation to a domestic award also recognized and reaffirmed the settled law that where a cause or matters in differences are referred o an arbitrator, whether lawyer or layman, he is considered to be the sole and final judge of all questions of law and of fact obviously with the limited grounds of interference, namely, if it is opposed to fundamental policy of Indian Law, interest of India, justice or morality and patent illegality. It is an admitted position that the buyer did not participate in the proceeding nor has filed its pleading. The Tribunal on the basis of the materials on record has arrived at the following finding:- "6.10. If we disregard the alternations envisaged by the Amendment to the Contract dated 7th December 2010, granting an even higher level for "Broken Grains" and "Dead, Damages and Discoloured Grains", the results provided by ISC were well within the parameters foreseen for the quality under the Contract. 6.11. The Tribunal therefore finds that the quality of the cargo shipped on the three vessels was within the amended contractual specifications. 6.12. In addition to the above, the relevant provision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erior. 6.20. The Tribunal therefore finds that Buyers, with respect to cl. 6:1 of the GAFTA Sampling Rules No. 124 were obliged to provide a certificate of analysis latest 14 days after that message dated 5th February, 2011, therefore, latest 20 February, 2011." The aforesaid finding, in my view, is in the realm of the interpretation of contract and passed on appreciation of evidence. This finding cannot be interfered with in this proceeding. The findings are not opposed to justice or morality or contrary to the public policy of India. The said award is not passed in contravention of any law of the land. Even the English decisions on the basis of which it was argued that the buyer stands discharged because of non-submission of the quality certificate at the port of destination does not assist the petitioner. In Shamsher Jute Mills Ltd. (supra) the issue was:- "If an F.O.B seller who has contracted for payment under a letter of credit to be opened by the buyer ships the goods but fails to obtain payment under the credit because of a failure on his part to comply with its terms, may he recover the contract price or damages for non-acceptance against the buyer." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said issue, the following approach was adopted:- "I approach the matter in this way. It is plain on the authorities that parties to a contract of sale, under which payment is to be made by means of a letter of credit, can, by subsequently agreeing to terms of the letter of credit which differ from those specified in the sale contract, hereby vary their contractual obligation under the sale contract: see W.J. Alan & Co. Ltd. V. El Nasr Export and Import Co. [1972] 2 Q.B. 189; [1972] 1 Lloyd's Rep. 313. A somewhat similar case may arise where the parties do not, in their sale contract, define the terms of the proposed letter of credit. Where that occurs the letter of credit, as subsequently agreed between the parties, may fill the contractual gap and so supplement the terms of the sale contract; if that is not done, for example, where the parties are unable to agree on the terms of a letter of credit to be issued under a contract of sale, then the dispute may have to be resolved by defining where possible by means of implication or by resort to any approved custom of the trade, the terms upon which the parties must be taken to have agreed that the letter of credit should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yer. The Court held that property in the goods had passed to the buyer and, the buyer not having restored dominion over the goods to the seller, the seller was able to maintain an action for the price. The seller had sold and delivered the goods to the buyer and was entitled to payment unless there was a term in the contract excusing payment. It held that on the facts there was no such term since the letter of credit was not confirmed and provided for part payment only of the price. The Court then considered what the position would have been if the letter of credit had been intended as the "primary source of payment" and said: Had the issue been whether the letter of credit was intended as the primary source of payment, the answer would have been that it was. In that event, the further question would have arisen whether the circumstances in which that primary source failed excused the defendant from payment altogether. It would seem that the only possible ground upon which the seller could have been defeated in his claim for the price would have been that the seller was solely responsible for the failure of the primary source of payment." (emphasis supplied) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s Rep 388: see para 3.54 above. 3.63 The buyer may receive the goods and yet the seller remain unpaid in two contrasting situations. One is where the credit provides for deferred payment and the documents are duly processed and taken up by the buyer in order to obtain the goods. The other is where the documents are not accepted, perhaps because the bank rightly rejects them, but the buyer nonetheless obtains the goods. He may, for example take delivery from the vessel without bills of lading by giving an indemnity to the shipowner. An equivalent result may obtain by reason of a fraudulent scheme devised by the buyer. He may for example have ensured that the letter of credit demands a document that the seller is unlikely to be able to provide, or he may have failed to extent the period of the credit to cover a later shipment to which the parties have agreed. 3.65 Where the documents have not been accepted and yet the buyer has received the goods one may be confined that the buyer will be held liable for the price. However, the legal basis for reaching this solution may be difficult to predict without knowledge of the precise circumstances. It might be held that by instructin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quality returned a finding in favour of the seller. The Court in this limited jurisdiction and the narrower scope within which the Court has to act under Section 48 of the Arbitration and Conciliation Act, 1996 is unable to accept the submission of the buyer that the said award is contrary to public policy of India or opposed to justice and morality. In the instant case, in so far as the seller is concerned, it is quite clear that certificate at the port of loading is final. The reference to GAFTA Rules for the purpose of interpretation of the relevant contractual terms to find out who is responsible for the production of the quality certificate at the destination port by the arbitral tribunal, in my view, is entirely within the domain of the Tribunal and is within the realm of interpretation of the contract. Even a Court in dealing with a domestic award would not touch the award on this ground. In any event, such grounds of challenge are not coming within the purview of Section 48 of the Act." 27. Mr. Mitra although tried to distinguish the said judgement on the ground that in the that case a Bill of Exchange was issued in respect of the last of the three Letters of Credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... informality is attached to such proceeding. It cannot be scrutinized with an Eagle's eye or as an appellate authority. 29. The reliance of the arbitrator on the GAFTA Rules in order to find out the responsibility of the person required to produce such certificate in my view is not de hors the contract or a matter which does not fall within the jurisdiction of the arbitrator or falling within the terms of submission to arbitration. In the arbitration proceeding the seller had asserted three things. Firstly, invoices for the balance 2.22% of the invoice value was raised and accepted by the buyer, however, the said invoices had remained unpaid. Secondly, the seller never had received any inferior quality claim before 15th February 2011, nor was the seller responsible for any inferior quality claim. Thirdly, the buyers did not produce any quality inspection report. In the claim statement, the sellers have annexed relevant documents and correspondence between the parties. The buyer is not required to plead evidence. The tribunal proceeded on the uncontroverted statements made in the claim statement. The tribunal considered the documentary evidence and construed the payment terms me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a man who founds his cause of action upon an immoral or illegal act. The rule has been further illustrated by Russel by stating that grounds of public policy on which an award may be set aside include: (1) that its effect is to enforce an illegal contract; (2) that the arbitrator, for instance manifested obvious bias too late for an application for his removal to be effective before he made his award. 31. None of the above conditions apply in the instant case. The petitioner is not alleging fraud or bias by the arbitrator. 32. Even under the domestic award, a possible view by the arbitrator on acts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers is 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. Once it is found that the arbitrators approach is not arbitrary or capricious, and then he is the last word on facts. The construction of the terms of the contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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