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PETITIONER: M/S ATLAS EXPORT INDUSTRIES

       Vs.

RESPONDENT: M/S KOTAK & COMPANY

DATE OF JUDGMENT:       01/09/1999

BENCH: S.R.Babu, R.C.Lahoti

JUDGMENT:

R.C.  Lahoti,J.

     The  appellant, the Atlas Export Industries,  Junagadh (hereinafter  ‘Atlas’,  for short) entered into  a  contract dated  3rd  June, 1980 with M/s Oceandale  Company  Limited, Hongkong  (  hereinafter‘Oceandale’,  for   short  ).    The agreement  was for the supply of 200 MT of Indian  groundnut extractions  of  the specifications as to quantity,  quality and  packages detailed in the contract and to be shipped  on or  before 30th June, 1980.  The price was agreed at US $200 per  M.T.   The goods were to be supplied through M/s  Kotak and  Company, Bombay (hereinafter ‘Kotak’, for short ).  M/s Prashant  Agencies, Bombay were the brokers.  The  existence of  the  contract, to which Atlas, Oceandale and Kotak  were the  parties,  is not in dispute.  Kotak were at  all  times responsible  for  the  performance on behalf  of  the  final buyers  Oceandale.   The  letter  of credit  was  opened  by Oceandale  in  favour  of Kotak who then transferred  it  in favour of Atlas.  The letter of credit was opened at US $203 whereas  Kotak’s purchase from Atlas was at US $200.  It was agreed  upon  between  Atlas and Kotak that  the  difference would  be  paid locally by Atlas to Kotak in Indian  rupees. The  time  for  shipment was extended  by  mutual  agreement between  the  parties  and  correspondingly  the  period  of validity  of  the  letter  of   credit  was  also  extended. However,  still  there was failure to ship the goods by  the time  appointed  by  the  contract  and  as  extended  which resulted into a dispute arising between the parties.

     The  contract  dated  3rd June, 1980  incorporated  an arbitration  clause  which  is   extracted  and   reproduced hereunder  :-  "This  contract is made under the  terms  and conditions  effective  at date of the Grain and  Food  Trade Association Ltd.  London Contract No.15 which is hereby made a  part  of this contract........  both buyers  and  sellers hereby  acknowledge  familiarity with the text of the  GAFTA contract and agree to be bound by its terms and conditions."

     ‘GAFTA’   stands   for  the   Grain  and  Food   Trade Association  Ltd.,  London.   Clause  27  of  the   Standard Contract 15 of the GAFTA provides as under:-

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     "27.  ARBITRATION -

     (a)  Any dispute arising out of or under this contract shall be settled by arbitration in London in accordance with the   Arbitration  Rules  of  the   Grain  and  Food   Trade Association  Limited, No.125 such Rules forming part of this contract and of which both parties hereto shall be deemed to be cognisant.

     (b)  Neither  party hereto, nor any  persons  claiming under  either  of them, shall bring any such  dispute  until such  dispute shall first have been heard and determined  by the  arbitrators, umpire or Board of Appeal, as the case may be,  in  accordance  with the Arbitration Rules  and  it  is expressly  agreed  and  declared that the obtaining  of  the award  from  the arbitration, umpire or Board of Appeal,  as the case may be, shall be a condition precedent to the right of  either  party  hereto or of any  person  claiming  under either   of  them  to  bring   any  action  or  other  legal proceedings against the other of them in respect of any such dispute."

     Kotak  appointed their own arbitrator and called  upon Atlas  to  appoint their arbitrator.  Both the  parties  did appoint  their respective arbitrators.  The arbitrators gave their  award, published on 22nd June, 1987 as per the  rules of GAFTA.  The award directed Atlas to pay Kotak a sum of US $9600 with interest calculated thereon at the rate of 12 per cent per annum from 26th October, 1980 until the date of the award  as  also the costs of arbitration as  specified.   No appeal was preferred against the award.

     Kotak  moved an application under Sections 5 and 6  of the  Foreign Awards (Recognition and Enforcement) Act,  1961 before  the High Court of Bombay seeking enforcement of  the award  by  filing  of  the  same  and  pronouncing  judgment according to the award.  Atlas raised objections against the prayer made by Kotak.  The objections have been rejected and the award made rule of the Court followed by decree in terms of  the award under the judgment dated 22nd September,  1992 passed  by learned Single Judge of the High Court of Bombay. A  Letters  Patent  Appeal preferred by  Atlas  having  been dismissed,  the  present  appeal by special leave  has  been filed.

     Having  heard  the learned counsel for the parties  we are  of  the opinion that the appeal is devoid of any  merit and hence liable to be dismissed.  The only objection raised by  Atlas before the High Court of Bombay was that there was no  agreement  in writing between the parties requiring  the disputes  arising  out  of the contract  being  referred  to arbitration  in  accordance  with the arbitration  rules  of GAFTA.   No particulars of the plea were given.  As  already noticed,  the  existence of contract between the parties  is not  denied.   The  arbitration clause in  the  contract  is incorporated  by reference.  The parties knew that excepting the terms specifically set out therein in the contract dated 3rd  June 1980, the rest of the terms and conditions were to be  the  same as were incorporated in the Standard  Contract No.15  of  GAFTA as effective on the date of  the  contract. Clause  27,  entitled Arbitration, and finding its place  in Standard  Contract No.15 is also not in dispute.  The law on the  subject  is  stated  in Russell  on  Arbitration  (19th

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Edition, at page 50) is under :-

     "The  agreement may arise by the incorporation of  one document  containing an arbitration clause in another  under which  the  dispute arises.  "Where parties by an  agreement import  the  terms of some other document as part  of  their agreement   those   terms   must  be   imported   in   their entirety...but subject to this:  that if any of the imported terms  in any way conflicts with the expressly agreed terms, the  latter  must  prevail  over  what  would  otherwise  be imported."

     In  Halsbury’s Law of England (4th Edition, Vol.2 Page 267, para 522), it is stated as under:-

     "If  the agreement is written, it may be included in a particular  contract  by  reference   or  implication.   The agreement  between  the parties may incorporate  arbitration provisions  which are set out in some other document, but in order  to  be  binding the arbitration  provisions  must  be brought to the notice of both parties.

     It  is inherent in cases of incorporation by reference that  the parties are concerned not with one document  alone but  with at least two, one of which contains an arbitration clause  and the other of which does not.  In some cases  the one  document  may  constitute  a  contract  between   other parties.  A common case is where the two documents concerned are  a  charterparty and a bill of lading.  If the  relevant contract  between  the relevant parties is contained in  the document  which  does  contain the  arbitration  clause,  no question  of  incorporation arises.  Where this is  not  the case,  the  question  whether the  document  containing  the arbitration  clause is incorporated in the relevant contract between  the  relevant parties is, as always, a question  of construction."

     In  Alimenta  S.A.   Vs.   National  Agricultural  Co- operative  Marketing  Federation of India Ltd.  and Anr.   - AIR  1987  SC  643, the arbitration clause contained  in  an earlier contract between the parties was incorporated into a latter  contract  only by reference.  This Court  held  that such  a  referential incorporation was permissible  and  the clause  was  binding  between  the  parties  unless  it  was insensible,  unintelligible  or  was inconsistent  with  the terms of the present contract.

     It  is  not the case of the appellant Atlas that  they were  not aware of the terms and conditions of the  Standard Contract  No.15  of  GAFTA.  Such a plea if at  all  it  was sought   to  be  raised  then   should  have   been   raised specifically  but that is not the case here.  The High Court was  therefore  right in rejecting the only objection  which was raised on behalf of the appellant Atlas before it.

     It  was  however contended by the learned counsel  for the  appellant  that the award should have been held  to  be unenforceable  inasmuch  as  the very contract  between  the parties relating to arbitration was opposed to public policy under  Section 23 read with Section 28 of the Contract  Act. It  was submitted that Atlas and Kotak, the parties  between whom  the  dispute  arose, are both Indian parties  and  the contract  which had the effect of compelling them to  resort to  arbitration by foreign arbitrators and thereby impliedly

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excluding  the  remedy available to them under the  ordinary law  of India should be held to be opposed to public policy. Under   Section   23  of  the   Indian  Contract   Act   the consideration or object of an agreement is unlawful if it is opposed to public policy.  Section 28 and Exception 1 to it, (  which only is relevant for the purpose of this case)  are extracted and reproduced hereunder:-

     "28.   Every agreement, by which any party thereto  is restricted  absolutely from enforcing his rights under or in respect  of any contract, by the usual legal proceedings  in the  ordinary  tribunals,  or which limits the  time  within which  he  may  thus  enforce his rights, is  void  to  that extent.

     Exception  1.  - This section shall not render illegal a  contract  by  which two or more persons  agree  that  any dispute  which  may  arise between them in  respect  of  any subject   or  class  of  subjects   shall  be  referred   to arbitration,  and  that  only  the amount  awarded  in  such arbitration  shall be recoverable in respect of the  dispute so referred."

     The  case at hand is clearly covered by Exception 1 to Section  28.  Right of the parties to have recourse to legal action  is  not excluded by the agreement.  The parties  are only  required to have their dispute/s adjudicated by having the  same  referred  to  arbitration.   Merely  because  the arbitrators  are  situated  in a foreign country  cannot  by itself  be enough to nullify the arbitration agreement  when the parties have with their eyes open willingly entered into the  agreement.   Moreover, in the case at hand the  parties have  willingly initiated the arbitration proceedings on the disputes  having  arisen between them.  They have  appointed arbitrators,  participated  in arbitration  proceedings  and suffered an award.  The plea raised before us was not raised either  before or during arbitration proceedings, nor before the learned Single Judge of the High Court in the objections filed  before  him, nor in the Letters Patent  Appeal  filed before  the Division Bench.  Such a plea is not available to be  raised by the appellant Atlas before this Court for  the first time.

     For  the foregoing reasons, we find no fault with  the award  having been made rule of the Court by the High Court. The  appeal  is dismissed with costs.