Section 56 Contract Act 1872 :Agreement to do impossible act - An agreement to do an act

impossible in itself is void.

Contract to do act afterwards becoming impossible or unlawful — A contract to do an act which,

after the contract is made, becomes impossible, or, by reason of some event which the promisor
could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

Compensation for loss through non-performance of act known to be impossible or unlawful -

Where one person has promised to do something which he knew, or, with reasonable diligence,
might have known, and which the promisee did not know, to be impossible or unlawful, such
promisor must make compensation to such promisee for any loss which such promisee sustains
through the non-performance of the promise.

Facts:
National Agricultural Cooperative Marketing Federation of India v. Alimenta S. A
The appellant National Agricultural Cooperative Marketing Federation of India (NAFED) (a
canalizing agency for the Indian government and were performing export operation for the
period of 1977-1980) had entered into two contracts during 1979-80, with respondents Alimenta,
under which it was obligated to supply HPS groundnut kernels to the respondents. However,
due to crop damage and certain export restrictions such could not be executed as agreed. The
first contract included a force majeure and prohibition clause (clause 14), which allows the
cancellation of the agreement in case an embargo on export or any other legislative or
executive act by the Indian government.

Treating this as a violation of the agreement respondent invoked an arbitration proceeding

before FOSFA in London. An award was passed against NAFED which directed them to pay
USD 4,681,000 as damages to respondents. The said award by FOFSA was further approved
by the Board of Appeals and Delhi High Court which ultimately led to the appellants file the
present petition before the Supreme Court of India, to restrain the enforcement of the said
award.

Issues:
Whether NAFED’s inability to fulfill its contractual obligations was due to the government’s
restriction on export?

Whether the enforcement of the foreign award would amount to a breach of public policy of
India under Section 48 of Arbitration and Conciliation Act, 1996?

Judgement:
In its decision, the Apex Court refused to enforce the said award and held that due to the
government’s restrictions, NAFED was justified in not fulfilling its contractual obligation and
consequently cannot be made liable to pay any damages to Alimenta. To come to this
conclusion, the Court relied on the clause 14 of the first contract and held that the said contract
being contingent on the Government’s export policy can be rendered void as per Section 32 of
the Indian Contract Act, 1872. Further, the court held that the enforcement of the present foreign
award would be violative of the public policy of India as envisaged in section 7(1)(b)(ii) of
Foreign Awards Act, 1961. For this, the court referred to various judgments and concluded that
in light of government’s restriction, any supply made would contravene the public policy of India.

Analysis of Judgement in National Agricultural Cooperative Marketing Federation of India

v. Alimenta S. A

The present judgment seems to reverse the trend which our judiciary was following when it
comes to interpreting the term “Public Policy” of our country. In the case of Renusagar Power
Ltd v. General Electric Co.,
the court has settled that a foreign award would contravene public policy if it is contradictory to
the: fundamental policy of law in India; interest of India; (removed by 2015 Amendment act) or
morality or justice.

Ssangyong Engineering v. National Highways Authority of India Associate Builders v. Delhi

Development Authority

Next in the case of Oil and Natural Gas ltd. vs. Saw Pipes
court held that an award would be violative of ‘public policy’ if it shocks the conscience of the
court.
Moreover, in the recent case of Vijay Karia v. Prysmian Cavi E Sistemi Srl court explained the
phrase “fundamental policy of Indian law” as “core values of India’s public policy as a nation,
which may find expression not only in statutes but also time-honored, hallowed principles which
are followed by the Courts.”

Also in the cases of Shri Lal Mahal v. Progetto Grano Spa and Rashtriya Nigam v. Verma
Transport Company it was held that the basic scheme of Arbitration Act is that it prohibits courts
from having a “Second look” at foreign award when they are at enforcement stage and also, that
the task of enforcement judge is restricted to verifying the grounds which are enumerated in the
Act.

Conclusion

We may conclude that the court in National Agricultural Cooperative Marketing Federation of
India v Alimenta S. A has taken the interventionist approach by diving into the merit of the case.
Though lately a trend was followed by our court according to which a narrower meaning was
assigned to the term “public policy” when it comes to non-enforcement of a foreign award, but
such has been a turnaround in the present case. While we may argue that present judgment
can be fact-specific, but it has nevertheless put us in a questionable position for a principle
which was a settled one earlier.