An Indian government export company has won an arbitration case amounting to around $9 million against a firm from Thailand before the London High Court, a top international lawyer said.
The dispute involved Thailand's Asian Golden Rice (AGR) which entered into an agreement May 16, 2008,with New Delhi-based PEC Ltd., over a contract worth $26 million to supply 25,000 metric tonnes rice.
The deal in which AGR was to sell the rice to PEC had to be completed by June 2008, as per the contract terms.
Before AGR was to make the shipment, PEC had to pen a Letter of Credit, which it failed to do.
PEC allegedly defaulted because the contract was signed on its behalf by an official, Ravi Kumar, PEC's then chief general manager, who had not been properly authorized to do so, following which ADR challenged the default by the Indian side.
"The contract, signed on behalf of PEC Ltd. by its senior official contained a Grain and Feed Trade Association (GAFTA) London Arbitration clause, which is why it subsequently went to the London court," said Sarosh Zaiwalla, eminent Indian solicitor of Zaiwalla & Co. Solicitors, who fought the case on behalf of PEC.
Early 2013, the GAFTA ruled that the PEC official had the authority and hence the company (PEC) was liable to pay the damages claimed by AGR, Thailand.
"The arbitrators made an International Arbitration Award granting AGR Thailand's claim against PEC Ltd. India. After this, the PEC Ltd. challenged the arbitrators' jurisdiction on the same before the London High Court," Zaiwalla explained to IANS via email.
He said that since the contract was executed in India, one of the prime issues before the court was whether the senior official who signed the contract was legally authorized by PEC board to enter the deal on its behalf.
The London High Court ruled in favour of PEC a couple of days ago, saying the senior PEC official did not have legal authority to conclude the contract, providing a major relief for the Indian company.
Zaiwalla pointed out that PEC faced a $6.2 million liability, plus several years' accumulated interests and costs under the GAFTA.
"If the Indian side had lost, they would have faced around $9 million liability, plus the other side's costs and PEC Ltd.'s own costs in the case," he said.
Zaiwalla said that on a question of Indian law, the Attorney General of India gave evidence in the London Court while senior Supreme Court of India lawyer Harish Salve gave evidence for AGR, which was represented by Clyde & Co., a large international City of London law firm.'
To a query on what prompted the PEC official to sign the deal without proper authority, Zaiwalla remarked: "The PEC Ltd. official would have been on the frolic of his own...!"
As per the case details, the AGR said that May 15, 2008, Pawan Jain of M/s. Pawan Jain & Sons made an oral agreement committing PEC to buy the rice from them and it included an arbitration agreement.
The following day, the then CGM Ravi Kumar confirmed the deal and signed a written agreement which was emailed to Jain.
Later, PEC contended that neither Kumar nor Jain had any authority to enter into the Purchase Agreement and hence the company could not be party to any arbitration agreement.
"This judgment can be seen as an encouraging development for the future of international arbitration cases in the English court. It may well be a case of a good omen for the new Indian government, which is taking office next week," Zaiwalla said.
It is not known in what capacity Pawan Jain & Sons acted on behalf of PEC, Kumar's role in the entire deal and whether any disciplinary action was initiated against Kumar for the embarrassment caused to the company in various international fora.
Founded in 1971, PEC works under the commerce ministry and focuses on exports, imports, deemed exports, third country trading, arranging financing, logistics, project exports and management.
