Bombay High Court

M/S. Hem Intrnational vs Maharashtra State Co-Op. Cottom ... on 15 April, 2016

Bench: S.C. Dharmadhikari

                                                                     907-WP.1590.2013.doc


      IN THE HIGH COURT OF JUDICATURE AT BOMBAY
          ORDINARY ORIGINAL CIVIL JURISDICTION
                        WRIT PETITION NO. 1590 OF 2013




                                                                           
     M/s.Hem International                 }




                                                   
     501, J. M. chambers, 316, Narsi Natha }
     Street, Masjid, Mumbai 400 009        }                        Petitioner

                      Versus




                                                  
     1. Maharashtra State Co-operative                     }
     Cotton Growers Marketing Federation                   }
     Ltd., Gautam Building, Zakaria Bunder                 }
     Road Sewree, Mumbai 400 015                           }




                                       
     2. The Divisional Joint Registrar
                              ig                           }
     Co-operative Societies, Mumbai                        }
     Division Mumbai, Malhotra House,                      }
     6 th floor, Opp. GPO, Fort,                           }
                            
     Mumbai 400 001                                        }        Respondents


     Mr. Sanjay Udeshi and Mr. Netaji Gawde
     i/b. M/s. Sanjay Udeshi and Co. for the
      


     petitioner.
   



     Mr. M. H. Belosay for respondent no. 1.


                                   CORAM :- S. C. DHARMADHIKARI &





                                            G. S. KULKARNI, JJ.

DATED :- APRIL 15, 2016

ORAL JUDGMENT :-

By this petition, under Article 226 of the Constitution

of India, the petitioner is challenging an order dated 5 th April,

2013, copy of which is at Annexure 'A' hereto, in the following

circumstances:

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2) The petitioner has, on the own showing of the parties,

executed certain contracts. The details of the said contracts are

to be found in a document styled as an application, copy of which

is at page 36 of the paper book.

3) The respondents to the writ petition are firstly, a

Society registered under the Maharashtra Co-operative Societies

Act, 1960 (for short "the MCS Act") and secondly, the Divisional

Joint Registrar exercising the powers of Registrar under the MCS

Act.

The first respondent is appointed as chief agent to the

Government of Maharashtra for procurement of raw cotton

grown by the cotton growers in the State of Maharashtra on

monopoly basis and for sale of Full Pressed (F. P.) cotton bales

and also for purchasing, selling, storing, processing, marketing

and carrying on other business in cotton as contemplated under

the Maharashtra Raw Cotton (Procurement, Processing and

Marketing) Act, 1971 (for short "the Raw Cotton Act"). The

respondent no. 1, therefore, can sell F. P. cotton bales on behalf of

Government of Maharashtra as part of their business. The case of

these respondents is that the present petitioner had agreed to

purchase bales of cotton from the federation and entered into

various contracts. According to these respondents, these

contracts were entered into and executed after approving the

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quality of cotton. The amounts or money per cotton bales were

also deposited. The delivery period for lifting was also stipulated.

The contract, according to the respondents, is in accordance with

the provisions of Forward Contract Regulation Act, 1952. There

is a condition, according to the respondents, in this contract that

it would not be cancelled and that is how they rely upon certain

endorsements. 1100 bales of cotton at the rate of Rs.500/- per

cotton bale were thus to be lifted. However, the petitioner failed

to take delivery of 1000 bales of cotton. It failed to take such

delivery within the specified time. That is how the respondent

federation claims to be entitled to levy carrying charges at the

rate specified in the contract for the defaulted period. Condition

no. 7 is relied upon for that purpose. Thus, alleging that there is a

breach of the terms and conditions of the contract to lift cotton

within the specified period, the petitioner has rendered itself

liable to pay the price difference, carrying charges, together with

interest at the rate of 24% per annum.

4) The application in that regard was filed by the

federation before the Registrar, Co-operative Societies, Pune. It is

on such an application that the Divisional Joint Registrar, Co-

operative Societies, Maharashtra, passed the impugned order.

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5) It is common ground that the Maharashtra Raw

cotton (Procurement, Processing and Marketing) Act, 1971 is an

Act promulgated by the competent legislature so as to provide for

the carrying on, in certain time, all trade in raw cotton by the

State of Maharashtra. It was the experience that ginned and

pressed cotton has been commanding a high level of prices at the

terminal markets in recent years. It has been brought to the

notice of the Government of Maharashtra that because of too

many intermediaries and also defects in the marketing system,

growers of cotton in the State do not get a fair share of the price

for their crop. It was also necessary to supply unadulterated

cotton to consumers at a reasonable price and to guarantee the

purity of cotton and honest trade practices at processing centres.

Therefore, the Government of Maharashtra decided that all trade

in raw cotton should be carried on by the State for a certain time

and for that purpose assume power for acquiring cotton from the

growers and other persons having stocks thereof and carry on

further processing so that it becomes available.

6) Chapter I contains preliminary provisions including

definitions. The terms "bale", "cotton" and "guaranteed price" are

all defined in the Act. It has been the experience that by State's

intervention, the cotton growers would get fair price for their

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cotton in the market. The federation operates as an agent of the

State and that is how it carries on the defined functions. Chapter

III contains provisions relating to prohibition on trading in and

transport of cotton and on cotton ginning and pressing factories.

We are concerned with Chapter IV, which contains provisions

regarding procurement, grading and pooling cotton. In the

present case, Chapter V, namely, "Mode of Fixing and Payment of

Price for Cotton Tendered at Collection Centres" need not be

referred in details given the nature of the contract. Once the

contract was understood by the parties as one of lifting of cotton

by the petitioner and allowing it to be so lifted by the federation,

then, according to the petitioner, relying upon the contract

document itself, any dispute touching the same or regarding

quality of the goods sold or regarding the price or delivery of such

goods or any other matter connected with the sale, unless

resolved by settlement, ought to be referred to the East India

Cotton Association Ltd. for arbitration. According to the

petitioner, the order of the Divisional Joint Registrar proceeds on

the footing that the petitioner is admitting the breach or that

there is no dispute. This is an incorrect understanding of the

matter.

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7) Mr. Udeshi appearing for the petitioner submits that

instead of taking recourse to section 38, particularly after a

breach was alleged by the federation, it could not have resorted to

the Chapter, which sets out a procedure for recovery of sale

proceeds from purchases of ginned cotton, cotton bales and cotton

seeds. For appreciating this contention of Mr. Udeshi, we would

have to refer to section 40. Section 40 of the Raw Cotton Act

reads as under:-

"40. (1) Notwithstanding anything contained in any law

for the time being in force, when ginned cotton, cotton bales or cotton seeds are supplied or sold to any person by or on behalf of the State Government, and there is a default in

payment of the amount payable for a purchase of such cotton, bales or seeds, then on an application by an officer or person authorized by the State Government made in the prescribed manner, the Registrar may, after holding such inquiry as he deems fit, and after giving the party

concerned a reasonable opportunity of being heard grant a certificate for the recovery of the whole or any part of the

amount stated in the application to be due as arrears. (2) A certificate by the Registrar under sub-section (1) shall be final and conclusive as to the arrears due. Without prejudice to any other mode of recovery, the arrears stated

to be due in such certificate shall be recoverable according to the law and under the rules for the time being in force for the recovery of arrears of land revenue."

8) Thus, this provision gives the Raw Cotton Act an

overriding effect and when either cotton or cotton bales or cotton

seeds are supplied or sold to any person on behalf of the State

Government and there is default in payment of the amount

payable as purchase price, then, on an application made by

person authorized by the State and after giving parties concerned

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reasonable opportunity of being heard, the Registrar may grant a

certificate for recovery of amount payable.

9) It is after the amount is crystallized and the certificate

is issued within the meaning of sub-section (1) of section 40 that

the execution of the same is permissible by section 41.

10) If one peruses the order passed and copy of which is at

Annexure 'A', it is apparent that the same refers to the contents

of the application and surprisingly, the stand of the petitioner is

spelt out. It specifically is to the effect that the claims of the

federation are misconceived and are not maintainable in law,

they are time barred, there is an agreement and in writing which

contains an arbitration clause, that reference is made to section

38, which we have adverted above.

11) Then, there is a specific allegation that there is

correspondence between the parties. The dispute is regarding

quality of bales of cotton, which were substandard, according to

the petitioner. Thus, section 38 and mechanism provided therein

cannot be displaced when the claims are contested and debatable.

The petitioner has also taken a stand that it is not liable to pay for

any inferior quality of goods supplied. There is security deposit

which is wrongly retained and it denied the claim of the

federation.

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12) The Divisional Joint Registrar surprisingly refers to

section 40 and in relation to the version of the federation, he

records a finding of fact that the petitioner entered into a

contract and partly executed it by lifting 250 bales out of 1250

bales. He records a finding of fact that the petitioner has failed to

perform its part of the contract and the ground specifically raised

by the petitioner that what it was shown as sample and what was

offered for lifting was inferior in quality is merely set out but not

at all considered.

13) We do not see how and in what circumstances the

determination by the Divisional Joint Registrar can be said to be

binding and conclusive. Beyond setting out the rival claims, there

is no reference to the pleadings, the documents produced, the

terms and conditions of contract and the specific breach. If the

burden was on the federation to establish and prove the breach,

then, in what manner the same has been discharged has not been

clarified at all. Secondly, some documents have been taken on

record and from that a conclusion is reached that the petitioner

was buyer and has accepted the terms and conditions as per the

contract. It may be so, but in what circumstances they have been

breached and whether there is any material on record to

substantiate the plea that quality of the goods is inferior and

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poor, has not been discussed, much less at length. We do not see

how the Divisional Joint Registrar, therefore, in the facts and

circumstances, could have displaced the contractual mechanism

of arbitration. The summary inquiry under section 40(1) of the

Raw Cotton Act thus is not the remedy for the federation in this

case.

14) On the two occasions, on which we heard this matter,

we indicated to Mr. Belosay appearing for the federation to take

proper instructions and then it would not have been necessary for

us had the federation agreed to refer the matter to arbitration to

pass such detailed order. However, once we find that there is no

readiness and willingness to refer the matter to arbitration under

the Arbitration and Conciliation Act, 1996 and this court is called

upon to go into the merits of claim and by considering the rival

contentions, then, we have no alternative but to set out the

nature of the dispute. We have sufficiently outlined it in the

foregoing paragraphs. We do not wish to comment more for that

would affect and adversely the cause of both sides in the

arbitration. We see that the Act contains a specific provision to

refer such dispute and as presently raised to arbitration. The

agency also has been named in the contract document between

the parties. We find that there is a clause and which refers to bye-

laws of East India Cotton Association Ltd., Bombay. At page 46

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and which is a copy of the letter dated 25 th January, 1999, the

federation itself refers to this arrangement in the contract in the

following words:-

"We have this day sold to you Full Pressed Cotton Bales as per the Description given below Subject to bye-laws of the East India Cotton Association Ltd., Bombay which contain amongst other things, provisions for the settlement of

disputes by Arbitration on account of quality."

15) In the above circumstances, the stand of the

federation as indicated by Mr. Belosay in writing today is

perplexing and surprising. It could not have assumed to itself

any adjudicatory powers nor it could have then sought the

intervention of the Divisional Joint Registrar in terms of section

40 of the Raw Cotton Act. All this means that there is a one sided

and pre-determined adjudication of a contractual dispute. We do

not find that, that would be a permissible course in the present

case bearing in mind the claim of the federation and the counter

thereto by the petitioner.

16) As a result of the above discussion, we have no

alternative but to quash and set aside the impugned order. It is