Absence Of A Specific Clause Under GAFTA Arbitration Rules Doesn’t Bar Arbitrator From Deciding The Challenge Made To Its Jurisdiction: Bombay High Court

The Bombay High Court has reiterated that a general reference to a standard form of contract would be enough for incorporation of an arbitration clause. The court was dealing with a petition seeking execution of a foreign arbitral award passed in the arbitral proceedings conducted under the ‘Grain and Feed Trade Association (GAFTA) Simple Disputes Arbitration Rules No.126.’

The bench of Justice Manish Pitale observed that the contract between the parties was executed as per the ‘Global Pulse Confederation (GPC) Contract No.1’, a standard form of contract which provided for resolution of disputes by way of arbitration. Since the contract between the parties specifically incorporated the terms of ‘GPC Contract No.1’ and contained a reference to the same, there was an arbitration agreement between the parties, the court concluded.

The court further dismissed the contention of the award-debtor that the arbitrator could not have pronounced upon its own jurisdiction since the ‘GAFTA Simple Disputes Arbitration Rules No.126’ do not provide a power to the arbitrator to decide his own jurisdiction. The bench said that a specific clause under the said Rules would not be necessary for deciding the challenge made to the jurisdiction of the arbitrator, as the said issue goes to the very root of the matter. It added that a decision on the said issue is necessary before proceeding to consider the claims / counter-claims raised by the parties, on merits.

The petitioner, Arbaza Alimentos Ltda, is a Brazilian company who entered into a contract with Respondent No. 1, MAC Impex, an Indian partnership firm, where the former agreed to sell certain agricultural products to the latter. The Respondents No. 2-4 are the partners of the said partnership firm.

The contract between the parties was executed under the aegis of the Global Pulse Confederation (GPC) and Grain and Feed Trade Association (GAFTA).

After a dispute arose between the parties with regard to the quality of the goods, the respondent-firm refused to pay for the consignments. Consequently, the petitioner invoked the arbitration clause and applied to GAFTA for appointment of arbitrator as per the ‘GAFTA Simple Disputes Arbitration Rules No.126’.

The Arbitrator allowed the claims of the petitioner and directed the respondents to pay the claimed amount along with interest. The petitioner, thereafter, filed a petition seeking enforcement of the foreign arbitral award before the Bombay High Court.

Resisting the enforcement of the award, the respondents argued that the goods received in India, upon being tested in terms of the Indian laws, were found to be unfit for human consumption and, in fact, poisonous. Thus, it claimed that the goods were in conflict with the laws of India.

The respondents further claimed that there was no arbitration agreement executed between the parties. It added that sufficient opportunity was not granted to them to present their case in view of the lightning speed with which the arbitrator proceeded under the GAFTA Rules.

Therefore, relying upon Section 48(2)(b) of the Arbitration and Conciliation Act, 1996 (A&C Act), as well as Explanation 2 to the said provision, the respondents contended that the award was contrary to the public policy of India and the fundamental policy of Indian law.

Perusing the facts of the case, the bench remarked that the contract between the parties specifically stated that the terms of the contract were as per ‘GPC Contract No.1’, which contained an arbitration clause. “This aspect was specifically taken into consideration by the learned arbitrator in the award, while holding that reference to GPC Contract No.1 and presence of arbitration clause therein, clearly indicated that there was indeed an arbitration agreement between the parties,” said the court.

The court relied upon the Apex Court’s decision in Inox Wind Limited vs. Thermocables Ltd, (2018) 2 SCC 519, where it was held that a general reference to a standard form of contract would be enough for incorporation of an arbitration clause.

The bench thus concluded, “…the contract dated 04.09.2019, executed between the parties specifically incorporated terms of GPC Contract No.1, which indeed contained an arbitration clause. Therefore, there was an arbitration agreement between the parties.”

The court further dismissed the contention that the arbitrator could not have pronounced upon its own jurisdiction since the GAFTA Rules do not provide such a power to the arbitrator. “As regards the learned arbitrator deciding upon his own jurisdiction, without there being a specific clause under the GAFTA Simple Disputes Arbitration Rules No.126, suffice it to say that, a specific clause would not be necessary for deciding such an issue challenging the jurisdiction of the arbitrator, as the said issue goes to the very root of the matter. A decision on the said issue is necessary before proceeding to consider the claims / counter-claim on merits. Therefore, the said contention raised on behalf of the respondents stands rejected,” the court ruled.

The bench also rejected the plea that the enforcement of the award was contrary to the public policy of India since the laboratory reports indicated that the goods in question were unfit for consumption. The court reckoned that as per the contract, the quality of the goods in question was final at the time and place of loading, as per the quality certificate issued by a GAFTA registered analyst. It noted that the same was indeed issued. Further, the contract specifically provided that the buyer (1^st Respondent) had a right to attend at the time of loading and to appoint an analyst, legal representative, etc. However, the respondents did not bother to take any such steps in terms of the contract, the court said.

It further reckoned that the contract specified that if there was any conflict with the destination import standards and regulations or laws, Respondent No.1 as the buyer would be fully liable for all the consequences. “Respondent No.1, having executed the said contract voluntarily and being fully aware of the consequences of such terms, cannot be permitted to turn around and claim that the liability that arose out of its actions under the contract could not be its responsibility, while claiming that the enforcement of the award would be contrary to the public policy of India,” the court concluded.

While considering the plea that the arbitral proceedings were taken up at a lightning speed and thus, the principles of natural justice were violated, the court observed that the timelines of the proceedings were as per the schedules specified under the ‘GAFTA Simple Disputes Arbitration Rules No.126’. “Both parties, having agreed to arbitration as per the aforementioned rules, it cannot lie in the mouth of the respondents to claim that the schedule was inconvenient for them,” the bench added, dismissing the contention that the respondents were not given sufficient opportunity by the Arbitrator.

The court thus allowed the petition, holding that the foreign arbitral award was enforceable.

Case Title: Arbaza Alimentos Ltda vs MAC Impex and others

Dated: 05.06.2023

Counsel for the Petitioner: Mr. Chaitanya B. Nikte a/w. Mr. Hitanshu S. Jain and Mr. Prajit S. Sahane

Counsel for the Respondents: Mr. Mahesh Vaswani a/w. Ms. Shreya Tiwari, Ms. Sheetal Patkar, Mr. Sunil Behal and Mr. Ashutosh Shukla and Ms. Priyali Chavan i/b. Ms. Dharini Nagda

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