Alternative Dispute Resolution

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

2020 SCC OnLine SC 381

Facts

NAFED agreed to export Indian groundnuts to Alimenta S.A.
The contract was subject to governmental export permissions and contained:
a force-majeure clause;
a prohibition clause;
and FOSFA arbitration provisions.
A portion of the contracted quantity was not shipped within the original period.
The parties attempted to carry the balance forward.
The Government of India refused permission for the later export.
Alimenta commenced foreign arbitration and obtained an award for damages.
NAFED resisted enforcement in India.
It argued that:
export without government permission was prohibited;
the contract became incapable of performance;
the award required conduct contrary to Indian export-control law;
and enforcement violated public policy under Section 48(2)(b).

Whether the governmental refusal discharged NAFED under the contractual prohibition clause.
Whether enforcing the foreign award would violate the fundamental policy of Indian law.
Whether the enforcement court was impermissibly reconsidering the merits.

Foreign-award public policy must ordinarily be construed narrowly.
However, enforcement may be refused where the award directly requires:
performance prohibited by Indian law;
violation of a mandatory governmental restriction;
or a result fundamentally inconsistent with the legal order.
A contractual prohibition or force-majeure clause must be interpreted according to:
the government-controlled nature of the transaction;
the permission requirement;
and whether the prohibition made lawful performance impossible.
Section 48 review must not become a general contractual appeal.

NAFED was not an ordinary private seller entirely free to export.
Its authority to export agricultural commodities remained subject to governmental control.
The original permission did not automatically extend to the carried-forward quantity.
When the Government refused further permission, lawful export became impossible.
The Supreme Court treated the prohibition clause as releasing NAFED from the obligation.
It concluded that the foreign tribunal’s damages award effectively imposed liability for obeying a binding governmental prohibition.
Enforcing that result would, in the Court’s view, undermine the fundamental policy that state-controlled exports must comply with official permission.
Therefore, enforcement was refused.
The decision is controversial because the Court examined the underlying contractual prohibition in considerable detail.
Critics argue that this approached a merits review inconsistent with:
Renusagar;
Shri Lal Mahal; and
Vijay Karia.
It should therefore be applied narrowly to its exceptional facts:
a state cooperative;
export of controlled agricultural goods;
an express governmental-permission condition;
and a direct legal prohibition.
It does not establish that every:
regulatory difficulty;
government refusal;
increased cost;
or alleged force-majeure event permits refusal of foreign-award enforcement.
The legal inconsistency must be fundamental and directly connected with mandatory Indian law.

The Supreme Court refused enforcement of the foreign award.
It held that export had become prohibited without governmental permission and that enforcing damages for non-performance would violate Indian public policy.
Use this case for: the exceptional public-policy refusal of a foreign award requiring liability contrary to a mandatory export prohibition.