Holding

The force majeure clause does not apply because the ban did not restrict the manufacture of rapeseed oil, and the court cannot interfere with a non‑speaking arbitration award absent arbitrator misconduct.

Summary

The appellant, Markfed Vanaspati & Allied Industries, entered into a contract with the Union of India to supply rapeseed oil but failed to meet the delivery schedule, leading to contract cancellation. The appellant invoked a force majeure clause, claiming that a government ban on the use of rapeseed oil for manufacturing Vanaspati excused its non‑performance. The High Court held that the ban did not prohibit the manufacture of rapeseed oil itself, so the force majeure clause could not be attracted. The dispute was arbitrated, and the arbitrator issued a non‑speaking award which was made a rule of court by the High Court. On appeal, the Supreme Court affirmed that courts have a very limited scope to interfere with non‑speaking arbitration awards and cannot probe the arbitrator’s reasoning absent misconduct. Consequently, the appeal was dismissed and each party was ordered to bear its own costs.

Issues considered

Whether the government ban on the use of rapeseed oil for manufacturing Vanaspati triggers the force majeure clause in the supply contract.
Whether a court may interfere with or set aside a non‑speaking arbitration award.

Subjects

force majeurearbitrationnon-speaking awardjudicial reviewcontract breachgovernment bansupply contractliquidated damages

Judgment

MARKFED VANASPATI & ALLIED INDUSTRIES A
v.
UNION OF INDIA

SEPTEMBER 14, 2007

(TARUN CHATIER.JEE AND DALVEER BHANDARI, JJ.) B

Contract-Non-performance of-Invoking of force majeure clause in
agreement-Under a contract for supply of rapeseed oil, supplier failed to
supply the specified quantity of oil-Plea of ban by Government on use and C
processing of rapeseed oil by manufacturers-Held, High Court was right in
holding that on facts force majeure clause could not be attracted since the
ban covered use of rapeseed oil for manufacturing Vanaspati, and
manufacturing rapeseed oil was not banned or restricted-Arbitration.

Arbitration-Non-speaking award by arbitrator-Court cannot probe D
into mental process of arbitrator-Court should endeavour to support a non-
speaking arbitration award provided it adhered to parties' agreement and
was not invalidated due to arbitrator's misconduct-Contract.

The parties entered into a contract for supply of the specified quantities
of rapeseed oil. It was the case of the respondent-Union of India that the E
supplier-appellant failed to supply the oil as per the delivery schedule and,
therefore, the contract was cancelled. The dispute was referred to arbitration.
The stand of the supplier was that it was unable to supply the oil because of
the ban by the Government on use of processing of rapeseed oil by
manufacturers. The arbitrator gave a non-speaking award against the
supplier, and the single Judge of the High Court made the award rule of the F
court. The Division Bench of the High Court dismissed the appeal of the
supplier.

In the instant appeal filed by the supplier company, the arguments were
confined only to the plea with regard to force majeure clause in the agreement. G
Dismissing the appeal, the Court

HELD: 1. The Division Bench of the High Court, while affirming the
judgment of the single Judge has correctly observed that the force majeure
957 H
-{

958 SUPREME COURT REPORTS [2007] 9 S.C.R.

A clause could not be attracted in the facts and circumstances of this case. This
was so because the ban was on the use of rapeseed oil for manufacturing '·
Vanaspati but manufacture of rapeseed oil was not debarred or restricted.
fPara 7 and 8) (960-C-E)
2. Arbitration is a mechanism or a method of resolution of disputes that
B unlike court takes place in private, pursuant to agreement between the parties.
The parties agree to be bound by the decision rendered by a chosen arbitrator
after giving hearing. The consistent and settled legal position is that the scope
of interference is extremely limited in a non-speaking award. The Court
cannot probe into the mental process of the arbitrator. The endeavour of the
Court should be to honour and support a non-speaking arbitration award
C provided it adhered to the parties' agreement and was not invalidated due fo.
arbitrator's misconduct. Considering the judgments of the single Judge and
the Division Bench of the High Court, no interference is called for.
(Para 9, 15, 18 and 19) (960-F; 962-A, F-H; 963-AJ

Mis Sudarsan Trading Co. v. Govt. ofKera/a & Anr., (198912 SCC 38;
D State ofA.P. v. R. V. Rayanim, (1990) 1 SCC 433; Bijendra Nath Srivastava v.
Mayank Srivastava & Ors., (199416 SCC 117; New India Civil Erectors (P)
Ltd v. Oil & Natural Gas Corporation., (1997) l l SCC 75; Rajasthan State
Mines & Minerals Ltd v. Eastern Engineering Enterprises & Anr., (1999) 9
SCC 283; State of Bihar & Ors. v. Hanuman Mal Jain, (1997) 11 SCC 40,
P. V.; Subha Naidu & Ors. v. Govt. of A.P. & Ors., (1998) 9 SCC 407; Star
E Construction and Transport Co. & Ors. v. India Cements Ltd, (200113 SCC
351 and D.D. Sharma v. Union of India, (2004) 5 SCC 325, relied on.

Russell on Arbitration 19th Edition at Page 110, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2668 of2007.

F From the Judgment and Order dated 17.04.2006 of the High Court of
Delhi at New Delhi in F.A.0. No. 206 of2006.

L. Nageshwar Rao, K.G. Bhagat, Vineet Bhagat, Hari Kumar G. and Neha
Jain (Dabasis Misra) for the Appellant.

G Vikas Singh, ASG., Shilpa Singh, Shiva Lakshmi and R.C. Kathia (for
D.S. Mabra) for the Respondents.

The Judgment of the Court was delivered by

DALVEER BHANDARI, J. 1. This appeal is directed against the judgment
H of the Division Bench of the Delhi High Court dated 17.4.2006 passed in FAO
MARKFEDVANASPATI&ALLIEDINDUS.v. U.0.1.(BHANDARI,J.J 959 ·

(OS) No. 206/2006. A
2. The respondent, Union of India, issued tender dated 29th June, 1989
for purchase of oil. The appellant offered to supply 1600 metric tons of
different categories ofoil vi de quotation dated 15th July, 1989, the details of
which are as under:-
B
1. 200 MT@ 24, 150/- per MT by 31.8.89 (Refined Cotton Seed Oil)

2 500 MT@ Rs.21,500/- per MT by 31.8.1989 (Rapeseed Oil)

3. 300 MT@ Rs.24,550/- per MT by 30.9.1989 (Refined Soyabeen
Oil)
4. jQO MT@ Rs.22,000/- per MT by 30.9.1989 (Rapeseed Oil).
c
3. The respondent-Union of India accepted the offer given by the
appellant and consequently the respondent issued tender in the fonn of a
letter dated 22nd August, 1989. The appellant failed to supply the oil as per
the delivery schedule. The time for supply was extended, reserving the D
respondent's right to levy liquidated damages. All the supplies could not be
~· delivered. The contract was cancelled and the appellant resorted to force
majeure clause.

4. The dispute was referred to an arbitrator. The sole arbitrator made and
published his award on 20th June, 1995. The appellant prayed before the E
arbitrator thac in view of the extension of time on various occasions, the time
was not the essence of the contract. The appellant has admitted various
delays including in furnishing security, but stated that the same were
unintentional.

5. It may be pertinent to mention that the objections regarding limitation F
and jurisdiction were given up by the appellant before the Division Bench of
the High Court. Before the Division Bench, the appellant sought the benefit
of the force majeure clause because the government had banned the use and
process of rapeseed oil by manufacturers. The Division Bench specifically
·noted in the impugned judgment that no other argument was advanced by the G
learned counsel appearing for the appellant. Therefore, we requested the
learned counsel for the appellant to confine his submissions oniy with regard
to force majeure clause argued before the Division Bench of the High Court
in this case. On the basis of the documents referred to the court by the
learned counsel for the appellant, it is clear that the ban was imposed for the
use of rapeseed oil for manufacturing Vanaspati but manufacturing of rapeseed H
960 SUPREME COURT REPORTS [2007) 9 S.C.R.

A oil was not debarred or restricted. Therefore, even the plea of force maje~~e
clause taken by the appellant was found to be totally devoid of any merit.

6. The arbitrator in the instant case gave a non-speaking award, which
was made rule of the court by the order of the learned Single Judge on 21st
February, 2006. The appellant preferred FAO (O.S.) No. 206/2006, before the
B Division Bench of the High Court, which was also dismissed on I 7th April,
2006. The appellant has preferred special leave petition against the said
impugned judgment of the Division Bench. This Court granted leave on 14th
May, 2007.

C 7. The Division Bench, in the impugned judgment, while affirming the
judgment of the learned Single Judge has correctly observed that the ban was
on the use of rapeseed oil for manufacturing Vanaspati but manufacture of
rapeseed oil was w;c debarred or restricted.

8. We have heard Mr. L. Nageshwar Rao, the learned senior counsel for
D the appellant, and Mr. Vikas Singh, the learned Addi. Solicitor General for the
respondent, Union of India. In this case, the award has been made rule of the
court by the learned Single Judge of the High Court and the findings of '-....
learned Single Judge have been affirmed by the Division Bench. The Court
in the impugned judgment held that the force majeure clause could not be
attracted in the facts and circumstances of this case. This was so because
E the ban covered the use of rapeseed oil for manufacturing Vanaspati, yet
manufacturing rapeseed oil was not debarred or restricted. We concur with
the learned Single Judge's findings, which were affirmed by the Division
Bench.

9. The consistent and settled legal pos1t1on is that the scope of
F interference is extremely limited in a non-speaking award. The legal position
has been consistently followed in number of judicial decisions. The findings
of some of those judgments are recapitulated as under.

IO. In Mis Sudarsan Trading Co. v. Govt. of Kera/a & Anr., [1989) 2
G sec 38 in para 29 at page 53, Sabyasachi Mukharji, J. speaking for the Court
observed that the court in a non-speaking award cannot probe into the
reasoning of the award. The Court further observed that only in a speaking
award the court may look into the reasoning of the award, and it is not open
to the court to probe the mental process of the arbitrator and speculate, where
no reasons are given by the arbitrator as to what impelled him to arrive at his
H conclusion. Furthermore, the reasonableness of the arbitrator's reasons cannot
MARKFED VANASPATI & ALLIED INDUS. v. U.0.1.[BHANDARI,J.] 961

be challenged. The arbitrator's appraisement of the evidence is never a matter A
for the court to entertain.

l l. This Court in State ofA.P. v. R. V. Rayanim, [1990] 1 SCC 433 in para
6 at page 437, dealt with a non-speaking award. The court observed that it
is not open to the court to probe the mental process of the arbitrator where
he has not provided the reasoning for his decision. B
12. This Court, in Bijendra Nath Srivastava v. Mayank Srivastava &
Ors., [19.94] 6 SCC 117 in para 20 at page 133 and para 31 at page 138,
observed that the arbitrator is under no obligation to give reasons in support
of the decision reached by him, unless the arbitration agreement or deed of
settlement so required. If the arbitrator or umpire chooses to give reasons in C
support of his decision, then it would be open to the court to set aside the
award upon finding an error of law. The reasonableness of the reasons given
by the arbitrator cannot, however, be challenged. It is not open to the court
to look for the reasons and proceed to examine whether they were right or
erroneous. The arbitrator is the sole judge of the quality as well as the D
quantity of the evidence. It will not be for the court to take upon itself the
task of being a judge of the evidence before the arbitrator. The Court should
approach an award with a desire to support it, if that is reasonably possible,
rather than to destroy it by calling it illegal.

13. In New India Civil Erectors (P) Ltd v. Oil & Natural Gas E
Corporation, [1997] 11 SCC 75 in para 7 at page 78, the Court observed while
dealing with a non-speaking award that the attempt of the court should
always be to support the award within the letter of law.

14. In Rajasthan State Mines & Minerals Ltd. v. Eastern Engineering
Enterprises & Anr., [1999] 9 SCC 283 in para 44 at page 309, the Court F
observed that in a non-speaking award the jurisdiction of the court is limited.
It is not open to the court to speculate where no reasons are given by the
arbitrator as to what impelled the arbitrator to arrive at his conclusion. It is
also not possible to admit to probe the mental process by which the arbitrator
has reached his conclusion where it is not disclosed by the terms of the G
award. Similar view has been taken in the following cases, namely, State of
Bihar & Ors. v. Hanuman Mal Jain, [ 1997] 11 SCC 40, P. V. Subha Naidu &
Ors. v. Govt. ofA.P. & Ors., [ 1998] 9 SCC 407, Star Construction and Transport
Co. & Ors., v. India Cements Ltd, [2001] 3 SCC 351 and D.D. Sharma v. Union
of India, [2004] 5 SCC 325.
H
962 SUPREME COURT REPORTS (2007] 9 S.C.R.

A 15. The decided cases of this Court demonstrate that this Court has
consistently taken the view that scope of interference in a non-speaking
award is extremely limited. The Court cannot probe into the mental process
of the arbitrator. The court should endeavour to support a non-speaking
arbitration award provided it adhered to the parties' agreement and was not
invalidated due to arbitrator's misconduct.
B
16. Russell on Arbitration 19th Edition at Pages 110-111 described the
entire genesis of arbitration as under:-

"An arbitrator is neither more or less than a private judge of a private
court (called an arbitral tribunal) who gives a private judgment (called
c an award). He is a judge in that a dispute is submitted to him; he is
not a mere investigator but a person before whom material is placed
by. the parties, being either or both of evidence and submissions; he
gives a decision in accordance with his duty to hold the scales fairly
between the disputants in accordance with some recognized system
D of law and rules of natural justice. He is private in so far as (1) he is
chosen. and paid by the disputants (2) he does not sit in public (3)
he acts in accordance with privately chosen procedure so far as that
is not repugnant to public policy (4) so far as the law allows he is set
up to the exclusion of the State Courts (5) his authority and powers
are only whatsoever he is given by the disputants' agreement (6) the
E effectiveness of his powers derives wholly from the private law of
contract and accordingly the nature and. exercise of those powers
must not be contrary to the proper law of the ·contract or·the public
policy of England bearing in mind that the paramount public policy
is that freedom of contract is not lightly to be inferred with."
F 17. Whatever has been mentioned by Russell in this paragraph is
equally true for Indian Arbitrators. ·

18. Arbitration is a mechanism or a method of resolution of disputes
that unlike court takes place in private, pursuant to agreement between the
G parties. The parties agree to be bound by the decision rendered by a chosen
arbitrator after giving hearing. The. endeavour of the court should be to
' .
honour and support the award as far as possible.

19. We have perused the award and the judgment of the learned Single
Judge by which the award has been made the rule of the Court and the
H impugned judgment of the Division Bench of the High Court. In our considered
MARKFEDVANASPATI&ALLIEDINDUS.v. U.0.1.[BHANDARI,J.] 963

view, no interference is called for. The appeal being devoid of any merit is A
accordingly dismissed. ln the facts and circumstances of the case, we direct
the parties to bear their own costs.

RP. Appeal dismissed.

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