Atlas Export Industries Vs. M/S Kotak & Company  INSC 316 (1
R.C.Lahoti R.C. Lahoti,J.
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.
time for shipment was extended by mutual agreement between the parties and
correspondingly the period of validity of the letter of credit was also
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.
contract dated 3rd
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:- "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.
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.
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
Letters Patent Appeal preferred by Atlas having been dismissed, the present
appeal by special leave has been filed.
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.
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 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.
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." 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.
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.
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.
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 excluding
the remedy available to them under the ordinary law of India should be held to
be opposed to public policy.
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.
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.
the foregoing reasons, we find no fault with the award having been made rule of
the Court by the High Court.
is dismissed with costs.