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National Agricultural Cooperative Marketing Federation of India v. Alimenta S.A.

Civil Appeal · 2020 INSC 345Decided 22 Apr 2020
Civil Appeal No. 667 of 2012
Justice Arun Mishra · Justice M.R. Shah · Justice B.R. Gavai

Background

NAFED, a canalising agency for groundnut exports on behalf of the Government of India, contracted with the Swiss firm Alimenta S.A. in 1979-80 to export 5,000 metric tonnes of groundnut. Only 1,900 tonnes could be shipped due to crop damage, and the balance was carried forward by addenda to the following season. The Government of India then refused permission to export the carried-forward quantity, and NAFED informed Alimenta it could not supply the balance. Alimenta treated this as a default and obtained a foreign arbitral award (upheld on appeal in London) holding NAFED liable for damages, which NAFED resisted enforcing in Indian courts on the ground that complying with the award would be impossible and against public policy.

Decision Breakdown

The Supreme Court held that the foreign award was unenforceable in India. It found that under Clause 14 of the FOSFA agreement, a government export prohibition rendered the contract void/unenforceable, and NAFED, a canalising agency, could not lawfully have shipped the goods without government permission, which was refused. Enforcing an award that effectively required an Indian public-sector canalising agency to violate the nation's export-control regime and quota policy would be contrary to the fundamental policy and public policy of India under Section 7 of the Foreign Awards (Recognition and Enforcement) Act, 1961. The Court also disapproved of the arbitrator personally appearing at the appellate stage to defend his own award, calling it inconsistent with ethical standards, though it did not rest its decision on that point. The appeal was allowed and the High Court's judgment enforcing the award was set aside.

Lesson Learnt

A foreign arbitral award will not be enforced in India if compliance would require violating binding government export/quota restrictions: courts can refuse enforcement on public-policy grounds in such circumstances, but this is a narrow, fact-specific exception rather than a general escape route from arbitral awards.

Official source (sci.gov.in)View Judgment (PDF)

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