National Agricultural Co-opeartive Marketing Federation of India (NAFED) v Alimenta SA Civil Appeal No. 667 of 2012 - Synopsis
Lakshay Parmar 1 May 2020

Case Analysis of: National Agricultural Co-operative Marketing Federation of India (NAFED) v Alimenta SA Civil Appeal No. 667 of 2012

In a notable ruling, the Supreme Court held a foreign award as unenforceable on the grounds that it opposed the "fundamental policy of Indian law and basic principles of justice.

 NAFED did not export HPS Groundnut to Alimenta, taking into account the government prohibition (and export control rules as they existed at the time). This led to international arbitration proceedings before the Oil Seeds and Fats Associations Federation Ltd., London ("FOSFA"), which resulted in a 1989 award requiring NAFED to pay a total of USD 4,681,000 with interest @10.5 percent p.a. to Alimenta SA.

During 1979-80, NAFED, a channelling agency for the Government of India, and Alimenta had entered into a 5,000-ton Indian groundnut supply deal. The State agency required the GoI's express consent for any sale, and the transaction was also regulated by covenants such as Force Majeure.

Although only 1,900 tonnes could be shipped in the Saurashtra region due to crop disruption, and due to the government's restricted export policy and quota cap the balance stock could not be supplied. In February 1981, Alimenta viewed the non-supply of product by the Nafed as a notice of default and launched arbitration proceedings before the Federation of Oil, Seeds and Fats Associations (FOSFA), London. The Delhi HC had been staying the arbitration proceedings on NAFED's request. After several rounds of proceedings in various courts including the SC, FOSFA eventually passed an arbitration judgment in November 1989, demanding that NAFED pay $4,681,000 plus damages and interest.

Although Alimenta moved the HC to impose the award, the Delhi HC agreed to low the application but NAFED objected to the award on the ground that it was contrary to public policy and, thus, was unenforceable.   Agreeing with the NAFED’s stance, the SC stated: 'Clause 14 of the FOSFA Agreement made it clear that, during the contract shipping period,  in the event of an executive or legislative act banning export by any of the Governments of Origin, that restriction shall be deemed to be applicable by both parties. Thus, if for reasons stated in the clause the shipment is impossible, the agreement shall be cancelled.

The Apex court stated, “The award is ex facie illegal, and in contravention of fundamental law, no export without permission of the government was permissible and without the consent of the government quota could not have been forwarded to next season. The export without permission would have violated the law, thus, enforcement of such award would be violative of the public policy of India.

Bench of the Supreme Court stated, “Enforcement of such an award in violation of export policy and the Government order would be against the public policy as envisaged in section 7 of the Foreign Awards (Recognition and Enforcement) Act, 1961”.

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