Paragraph numbers below are the court’s original numbering, recovered from the source text.
23. In Saw Pipes1, the ambit and scope of the court's jurisdiction under Section 34 of the 1996 Act was under consideration. The issue was whether the court would have jurisdiction under Section 34 to set aside an award passed by the Arbitral Tribunal, GAFTA which was patently illegal or in A contravention of the provisions of the 1996 Act or any other substantive law governing the parties or was against the terms of the contract. This Court considered the meaning that could be assigned to the phrase "public policy of India" occurring in Section 34(2)(b)(ii). Alive to the subtle distinction in the concept 8 of 'enforcement of the award' and 'jurisdiction of the court in setting aside the award' and the decision of this Court in Renusagar3, this Court held in Saw Pipes1 that the term "public policy of India" in Section 34 was required to be interpreted in the context of the jurisdiction of the court where the validity of the award is challenged before it becomes final and executable C in contradistinction to the enforcement of an award after it becomes final. Having that distinction in view, with regard to Section 34 this Court said that the expression "public policy of India" was required to be given a wider meaning. Accordingly, for the purposes of Section 34, this Court added a new D category- patent illegality- for setting aside the award. While ,..__, adding this category for setting aside the award on the ground of patent illegality, the Court clarified that illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against public policy. Award could E also be set aside if it was so unfair and unreasonable that it shocks the conscience of the court.
24. From the discussion made by this Court in Saw Pipes1 in paragraph 1a· (pgs. 721-722), paragraph 22·· (pgs. 723- *18. Further, in Renusagar Power Co. Ltd. v. General Electric Co. this Court considerded Section 7(1) of the Arbitration (Protocol and Convention) Act, 1937 which inter alia provided that a foreign award may not be enforced under the said Act, if the court dealing with the case is satisfied that the enforcement of the award will be contrary to the public policy. After elaborate discussion, the Court arrived at the conclusion that public comprehended in Section 7(1)(b)(ii) of the Foreign Award (Recognition and Enforcement) Act, 1961 is the "public policy of India" and does not cover the public policy of any other counrty. For giving meaning to the term •public policy", the Court observed thus: (SCC p. 682, para) 66 ……. **22. The aforesaid submission of the learned Senior Counsel requires to be accepted. From the judgments discussed above, it can be held that the term "public policy of India" is required to be interpreted in the context of SHRI LAL MAHAL LTD. v. PROGETTO GRANO SPA 621 [R.M. LODHA, J.] 724) and paragraph 31··· (pgs. 727-728) of the Report, it can A the jurisdiction of the court where the validity of award is challenged before it becomes final and excutable. The concept of enforcement of the award after it becomes final is different and the jurisdiction of the court at that stage could be limited. Similar is the position with regard to the execution of a decree. It is settled law as well as it is provided under the Code of Civil Procedure that once the decree has attained finality, in an execution proceeding, it may be challenged only on limited grounds such as the decree being without jurisdiction or a nullity. But in a case where the judgment and decree is challenged before the appellate court or the court exercising revisional jurisdiction, the jurisdiction of such court would be wider. Therefore, in a case where the validity of award is challenged, there is no necessity of giving a narrower meaning to the term "public policy of India". On the contrary, wider meaning is required to be given so that the "patently illegal award" passed by the Arbitral Tribunal could be set aside. If narrow meaning as contended by the learned Senior Counsel Mr. Dave is given, some of the provisions of the Arbitration Act would become nugatory.Take for illustration a case wherein there is a specific provision in the contract that for delayed payment of the amount due and payable, no interest would be payable, still however, if the arbitrator has passed an award granting interest, it would be against the terms of the contract and thereby against the provision of Section 28(3) of the Act which specifically provides that "Arbitral Tribunal shall decide in accordance with the terms of the contract". Further, where there is a specific usage of the trade that if the payment is made beyond a period of one month, then the party would be required to pay the said amount with interest at the rate of 15 per cent. Despite the evidence being produced on record for such usage, if the arbitrator refuses to grant such interest on the ground of equity, such award would also be in violation of sub-sections (2) and (3) of Section 28. Section 28(2) specifically provides that the arbitrator shall decide ex aequo et bono (according to what is just and good) only if the parties have expressly authorised him to do so. Similarly, if the award is patently against the statutory provisions of substantive law which is in force in India or is passed without giving an opportunity of hearing to the parties as provided under Section 24 or without giving any reason in a case where parties have not agreed that no reasons are to be recorded, it would be against the statutory provisions. In all such cases, the award is required to be set aside on the ground of "patent illegality". ***31. Therefore, in our view, the phrase "public policy of India" used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public c be safely observed that while accepting the narrow meaning given to the expression "public policy" in Renusagar3 in the matters of enforcement of foreign award, there was departure from the said meaning for the purposes of the jurisdiction of the Court in setting aside the award under Section 34.
25. In our view, what has been stated by this Court in Renusagar3 with reference to Section 7(1 )(b)(ii) of the Foreign A'l.(ards Act must equally apply to the ambit and scope of Section 48(2)(b) of the 1996 Act. In Renusagar3 it has been c expressly exposited that the expression "public policy" in Section 7(1 )(b)(ii) of the Foreign Awards Act refers to the public policy of India. The expression "public policy" used in Section 7(1)(b)(ii) was held to mean "public policy of India". A distinction in the rule of public policy between a matter governed by the domestic law and a matter involving conflict of laws has been noticed in Renusagar3. For all this there is no reason why Renusagar3 should not apply as regards the scope of inquiry under Section 48(2)(b). Following Renusagar3, we think that for the purposes of Section 48(2)(b), the expression "public policy of India" must be given narrow meaning and the enforcement E of foreign award would be refused on the ground that it is contrary to public policy of India if it is covered by one of the interest. Such award/judgmenUdecision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term "public policy" in Renusagar case it is required to be held that the award could be set aside if it is patently illegal. The result would be – award could. be set aside if it is contrary to: (a) fundamental policy of Indian law; or (b) the interests of India; or (c) justice or morality, or (d) in addition, if it is patently illegal Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. Such award is opposed to public policy and is required to be adjudged void. SHRI LAL MAHAL LTD. v. PROGETIO GRANO SPA 623 [R.M. LODHA, J.] three categories e:r::..tmerated in Renusagar3. Although the same expression 'public policy of India' is used both in Section 34(2(b)(ii) and Section 48(2)(b) and the concept of 'public policy in India' is same in nature in both the Sections but, in our view, 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.
26. We are not persuaded to accept the submission of Mr. Rohinton F. Nariman that the expression "public policy of India" in Section 48(2)(b) is an expression of wider import than the "public policy" in Section 7(1)(b)(ii) of the Foreign Awards Act. We have no hesitation in holding that Renusagar3 must apply for the purposes of Section 48(2)(b) of the 1996 Act. Insofar as the proceeding for setting aside an award under Section 34 is concerned, the principles laid down in Saw Pipes1 would govern the scope of such proceedings.
27. We accordingly hold that enforcement of foreign award would be refused under Section 48(2)(b) only if such enforcement would be contrary to (i) fundamental policy of Indian law; or (2) the interests of India; or (3) justice or morality. The wider meaning given to the expression "public policy of India" occurring in Section 34(2)(b)(ii) in Saw Pipes1 is not applicable where objection is raised to the enforcement of the foreign award under Section 48(2)(b).
28. It is true that in Phulchand Exports2, a two-Judge Bench of this Court speaking through one of us (R.M. Lodha, J.) accepted the submission made on behalf of the appellant · therein that the meaning given to the expression "public policy of India" in Section 34 in Saw Pipes1 must be applied to the same expression occurring in Section 48(2)(b) of the 1996 Act. However, in what we have discussed above it must be held that the statement in paragraph 16 of the Report that the expression A "public policy of India used in Section 48(2)(b) has to be given a wider meaning and the award could be set aside, if it is patently illegal" does not lay down correct law and is overruled.
29. Having regard to the above legal position relating to B the scope of "public policy of India" under clause (b) of sub- section (2) of Section 48, we shall now proceed to consider the submissions of the parties.
30. Mr. Rohinton F. Nariman, learned senior counsel for the appellant, argued that the appeal awards by the Board of C Appeal cannot be enforced on the touchstone that they are contrary to public policy of India. It is so as both the Arbitral Tribunal, GAFT A and the Board of Appeal have gone beyond the terms of the contract between the sellers and the buyers. Despite the contract being FOB contract between the parties D which specifically sets out that the certificate of quality obtained at the load port from the buyers' nominated certifying agency, i.e., S.G.S. would be final and the certifying agency in fact issued such a certificate, the Arbitral Tribunal, GAFTA as well as the Board of Appeal relied upon evidence procured E unilaterally by the buyers from other certifying agencies beyond the terms of the contract which was based on quality specifications of a forward contract which the buyers had signed with OAIC Algiers. In this regard, learned senior counsel referred to the certificate issued by S.G.S. India which F confirmed that weight, quality and packing of the goods met the contractual specifications both in terms of description and quality. The Merchandise was found to be sound, loyal, merchantable, free from living insects, defects, diseases and contamination of any nature. However, the buyers appointed Crepin Analysis and Controls, Rouen for testing the sample of G the goods for their forward contract with OAIC Algiers. The said agency tested the goods on a completely different set of parameters as stipulated under the contract. Crepin did not even test the goods for their contents of vitreous and moisture.
31. Learned senior counsel for the appellant submitted that SHRI LAL MAHAL LTD. v. PROGETTO GRANO SPA 625 [R.M. LODHA, J.] being an FOB contract the title of the goods and risk is passed on to the buyers the moment the goods were loaded on the ship. The goods were admittedly loaded on 08.08.1994 after which the risk fell on the buyers. In this regard reliance was placed on a decision of this Court in O.K. La/14.
32. Mr. Rohinton F. Nariman vehemently contended that once parties had agreed that certification by an inspecting agency would be final, it was not open to the Arbitral Tribunal, :x: GAFTA as well as Board of Appeal, to go behind that certificate and disregard it even if the certificate was inaccurate (which c was not the case). In this regard, reliance was placed on two judgments of the English courts, namely, Agroexport5 and Alfred C. Toepfer. 6. He submitted that House of Lords in Gill & Duffus has affirmed the decision in Alfred C. Toepfer. It was, thus, submitted that the Arbitral Tribunal, GAFTA and the Board of Appeal having disregarded the finality of the certificate D ~J. issued by S.G.S. rndia, the awards were plainly contrary to contract and, therefore, not enforceable in India. It was submitted on behalf of the appellant that it was not an issue in dispute and not the buyers' case before the Arbitral Tribunal, GAFT A and/or the Board of Appeal that the procedure adopted by SGS India was not in conformity with the contract. It was, therefore, not open to the Board of Appeal to render a finding which went beyond the scope of the buyers' very case. Accordingly, it was argued that the Board of Appeal dealt with the questions not referred to it and which were never in dispute and, therefore, award cannot be enforced because it is contrary to Section 48(1)(c) of the 1996 Act as well. . . ……,, 4 . Contship Container Lines Limited v. D.K. Lall and Others; (2010) 4 SCC 256. 5. Agroexport Enterprise D'etat Pour Le Commerce Exterieur v. N. V. Goorden Import CY. U.S.A; (1956) 1 Q.B. 319. 6. Alfred C. Toepfer v. Continental Grain Co (1974) 1 Lloyds Law Reports 11. 7. Gill & Duffus S.A. v. Berger & Co.Inc. (1984) 1 Lloyd's Law Reports 227.
33. Learned senior counsel for the appellant highlighted that the real problem in the present case was not that S.G.S. India did not properly certify the goods and/or that they did not meet the contractual specifications provided for under the contract between the buyers and sellers but because the buyers were unable to use it for their forward contract with OAIC Algeria. This is further fortified from the fact that the buyers entered into a further contract with the sellers on 09.09.1994 for a much larger quantity of the goods with the very same specifications. He, ttius, submitted that the judgment of the High Court should be set c aside and the appeal awards must be held to be not enforceable in India.
34. Mr. Jayant K. Mehta, learned counsel for the respondent, on the other hand, supported the impugned judgment and submitted that the High Court was justified in D dismissing the objections of the appellant as no ground was established or proved by the appellant on which enforcement of the foreign awards could be refused under Section 48 of the 1996 Act.
35. Learned counsel submitted that the FOB contract has no relevance to the liability of a seller to sell the contractual goods or to the quality of the goods sold. It is only relevant for determination of risk and liability during transportation of the goods which is not the issue in the present case. With reference to D.K. La/14 relied upon by the learned senior counsel for the appellant, it was submitted that D.K. La/14 was only on issue of insurance liability and in that context the nature of FOB contract had been discussed. D.K. La/14 does not concern with the issue of sellers' breach in selling uncontractual goods.
36. Mr. Jayant K. Mehta submitted that the findings of the 't.– · Arbitral Tribunal, GAFTA, as upheld by the Board of Appeal, are that (a) the contract specified that the certification of quality is final at the time and place of loading; (b} as per the contract certification by S.G.S. India was to be conclusive based on sampling at the time and place of loading; (c) two distinct. SHRI LAL MAHAL LTD. v. PROGETIO GRANO SPA 627 [R.M. LODHA, J.] aspects were required to be considered whether S.G.S. India A was the contractual party and, if yes, whether S.G.S. India certificate was in the contractual form. While it was found that S.G.S. India was the contractual agency, the sellers failed to establish that the S.G.S. India certificate was in contractual form. Buyers, on the other hand, did establish that the S.G.S. India certificate was not in contractual form, (d) S.G.S. India's certification was uncontractual as there were two fatal errors in the certification, firstly, it did not follow the contractual specified mode of sampling in that the contract required the result to be of an average sample taken at the port of loading, not the c weighted average of pre-shipment and shipment, secondly, the analysis done by S.G.S. India was doubtful; (e) as the buyers held the sellers to be in breach on the grounds of defective sampling and certification by S.G.S. India, the buyers requested the sellers to attend at discharge for joint sampling which was not accepted by the sellers and (f) the method used for determining soft wheat used by S.G.S. India obviously produced very· different results to the methods used by Crepin and other laboratories. On the balance of probabilities, the Arbitral Tribunal, GAFTA found and the Board of Appeal agreed that the wheat described in the certificate of quality and condition was soft wheat and, therefore, buyers were entitled to damages.
37. Learned counsel submitted that the findings recorded by the Arbitral Tribunal, GAFTA and the Board of Appeal were in the realm of interpretation of the contract and appreciation of the evidence which cannot be reopened by arguing that the foreign award is contrary to the contract and, therefore, its enforcement would offend public policy of India. About the decisions of the English courts in Agroexport5 and Alfred C. Toepfer, learned counsel submitted that decisions of English courts cannot form part ofpublic policy of India. This Court does not exercise appellate jurisdiction over the foreign awards and cannot be called upon to enquire as to whether foreign awards are contrary to the principles of English law. Learned counsel [2013) 13 S.C.R submitted that in any case the judgments of the English courts _,.. in Agroexporf' and Alfred C. Toepfer do not apply to the fact situation of the present case. Learned counsel also submitted that the decision of House of Lords ih Gill & Ouffus7 has no application to the present case.
38. Learned counsel for the respondent argued that once the sampling by S.G.S. India has been found to be uncontractual, that certificate cannot bind the buyers and, therefore, no error or illegality was committed by the Arbitral c Tribunal, GAFTA, or the Board of Appeal to look into the certificate issued by Crepin. Learned counsel for the respondent thus, submitted that the Delhi High Court was justified in rejecting the objections of the appellant.
39. It is not necessary to advert to the findings recorded D by the Arbitral Tribunal, GAFTA as what is sought to be ,_ . enforced by the buyers is the two awards of the Board of ,.i._ – Appeal.
40. The challenge to the enforceability of the foreign awards passed by the Board of Appeal is mainly laid by the sellers- on the ground that the Board of Appeal has gone beyond the terms of the contract by ignoring the certificate of quality obtained at the load port from the buyers' nominated certifying agency, i.e., SGS India which was final under the contract. The Board of Appeal, while dealing with the question whether the SGS India certificate was issued by the contractual party and in contractual form, noticed the clause in the contract in respect of quality and condition and it held that SGS India was an acceptable certifying party under the contract. As regards the other part of that clause that provided, "certificate …,–: and quality showed in the certificate will be the result of an average samples taken jointly at port of loading by the representatives of the sellers and the buyers", the Board of Appeal recorded its finding as follows: "The SGS India certificate shows that an inspection took SHRI LAL MAHAL LTD. v. PROGETTO GRANO SPA 629 [R.M. LODHA, J.] ._,,__ place at the suppliers godowns inland, and representative samples taken. Sealed samples were inspected lotwise and the cargo meeting the contractual specifications was allowed to be bagged for dispatch to Kandla. Continuous supeNision of loading into the vessel was also carried out at the port. The samples drawn periodically were reduced and composite samples were sealed; one sealed sample of each lot was handed over to the supplier, one sealed sample of each lot was analysed by SGS and the remaining samples were retained by SGS for a period c l ..• of three months unless and until instructions to the contrary were given. The analysis section of the certificate states that "The above samples have been analysed and the weighted average Pre-shipment and Shipment results are as under: _ … -A We find that this Qrocedure was not in conformitv with the reguirements of the Contract, which reguired the result to be Of an average samQle taken at QOrt of loading, not the weighted average of Qre-shiQment and shiQment samQles. Accordingly the certificate is uncontractual and its results are not final. In conseguence the Board is obliged to evaluate all the evidence Qresented, including the evidence of the uncontractual SGS India certificate to decide whether or not the goods were of the contractual descriQtion, i.e. Durum wheat Indian origin." (Emphasis supplied by us)
41. Thus, having held that SGS India was the contractual agency, the Board of Appeal further held that the sellers failed to establish that the SGS India certificate was in contractual form. Two fundamental flaws in the certification by SGS India were noted by the Board of Appeal, one, SGS India's certification did not follow the contractual specified mode of [2013) 13 S.C.R. A sampling and the other, the analysis done by SGS India was doubtful. The Board of Appeal then sifted the documentary evidence let in by the parties and finally concluded that wheat loaded on the vessel Haci Resit Kalkavan was soft wheat" and the sellers were in breach of the description condition of the B contract.
42. It is pertinent to state that the sellers had challenged the award (no. 3782) passed by the Board of Appeal in the High Court of Justice at London. The three decisions; (i) Agroexport5 c by Queen's Bench Division, (ii) Toepfer6 by Court of Appeal, and (iii) Gill & Duffus? by House of Lords, were holding the field at the time of consideration of sellers' appeal by the High Court of Justice at London. In Agroexport5 , it has been held that an award founded on evidence of analysis made other than in accordance with contract terms cannot stand and deserves D to be set aside as evidence relied upon was inadmissible. The A- … Court of Appeal in Toepfer6 has laid down that where seller and buyer have agreed that a certificate at loading as to the quality of goods shall be final and binding on them, the buyer will be precluded from recovering damages from the seller, E even if, the person giving the certificate has been negligent in making it. Toepfer6 has been approved by the House of Lords in Gill & Duffus?. The High Court of Justice at London can be assumed to have full knowledge of the legal position exposited in Agroexport5 , Toepfer6 and Gill & Duffus? yet it found no F ground or justification for setting aside the award (no. 3782) passed by the Board of Appeal. If a ground supported by the decisions of that country was not good enough for setting aside the award by the court competent to do so, a fortiori, such ground can hardly be a good ground for refusing enforcement G of the award. Accordingly, we are not persuaded to accept the r· submission of Mr. Rohinton F. Nariman that Delhi High Court ought to have refused to enforce the foreign awards as the Board of Appeal has wrongly rejected the certificate of quality obtained from the buyers' nominated certifying agency and H taken into consideration inadmissible evidence in the nature of SHRI LAL MAHAL LTD. v. PROGETTO GRANO SPA 631 [R.M. LODHA, J.] certificates obtained by the buyers' for the purposes of A forwarding contract.
43. 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 c on the ground of public policy.
44. In what we have discussed above, even if it be assumed that the Board of Appeal erred in relying upon the report obtained by buyers from Crepin which was inconsistent l with the terms on which the parties had contracted in the D contract dated 12.05.1994 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.
45. 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).
46. The contention of the learned senior counsel for the appellant that the Board of Appeal dealt with the questions not referred to it and which were never in dispute and, therefore, these awards cannot be enforced being contrary to Section 48(1)(c) is devoid of any substance and is noted to be rejected.
47. In the circumstances, we hold that appeal has no merit. It is dismissed with no order as to costs. Bibhuti Bhushan Bose Appeal dismissed.