Contingent contract and public policy barred enforcement of a foreign award directing damages for prohibited export non-performance.

A foreign award was held unenforceable because performance of the export contract depended on Government permission that was refused, and enforcement would have conflicted with the fundamental policy and public policy of Indian law under the Foreign Awards (Recognition and Enforcement) Act, 1961. The Court applied a narrow public policy test but found that directing export-related performance despite an express governmental prohibition would offend the export control regime and binding official directions. It also held that the contract was a contingent contract under Clause 14 and Section 32 of the Indian Contract Act, 1872: once export became prohibited, the contract stood discharged by its own terms, so no damages could be fastened for non-performance.

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Issues: (i) Whether the foreign award was enforceable in India or barred by public policy because the contract could not be performed without Government permission and the award required payment of damages despite the prohibition on export; (ii) Whether the contract stood discharged under Clause 14 and Section 32 of the Indian Contract Act, 1872 so that no liability for damages could be fastened on NAFED.

Issue (i): Whether the foreign award was enforceable in India or barred by public policy because the contract could not be performed without Government permission and the award required payment of damages despite the prohibition on export.

Analysis: The award had to be tested under Section 7(1)(b)(ii) of the Foreign Awards (Recognition and Enforcement) Act, 1961, which permits refusal where enforcement would be contrary to the public policy of India. The Court reiterated that, for foreign awards, public policy is construed narrowly and includes conflict with the fundamental policy of Indian law, the interests of India, or justice or morality. On the facts, NAFED was a canalising agency and could not lawfully carry forward the export to the next season without prior Government approval. The Government expressly refused permission, and the export contemplated by the award would have violated the export control regime and the binding governmental directions.

Conclusion: The award was not enforceable, as its enforcement would be contrary to the fundamental policy of Indian law and the public policy of India.

Issue (ii): Whether the contract stood discharged under Clause 14 and Section 32 of the Indian Contract Act, 1872 so that no liability for damages could be fastened on NAFED.

Analysis: Clause 14 expressly provided that if export was prohibited by executive or legislative action, the restriction would apply to the contract and the unfulfilled portion would be cancelled. The Court treated this as a contingent contract governed by Section 32 of the Indian Contract Act, 1872. Once the contemplated contingency occurred, the contract became void by its own terms. The case was therefore distinguished from one of mere frustration under Section 56, because the parties had already provided for the very contingency that happened. In such a situation, damages could not be awarded for non-performance of an act that had become unlawful and contractually cancelable.

Conclusion: The contract stood discharged on the happening of the contractual contingency, and NAFED was not liable to pay damages.

Final Conclusion: The foreign award could not be enforced in India, and the judgment under challenge was set aside.

Ratio Decidendi: Where a contract expressly provides for cancellation upon governmental prohibition and performance becomes unlawful without requisite permission, the contract is discharged by the contingency under Section 32 of the Indian Contract Act, 1872, and a foreign award directing damages for such non-performance is unenforceable if its enforcement would offend the fundamental policy of Indian law and public policy under Section 7(1)(b)(ii) of the Foreign Awards (Recognition and Enforcement) Act, 1961.

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