Food Corporation Of India vs Reed Medway Packaging Co. Of India
2008 Latest Caselaw 1544 Del

9
*      IN THE HIGH COURT OF DELHI AT NEW DELHI

+                               CS(OS) 2176/1989

                                                            September 04, 2008

       FOOD CORPORATION OF INDIA                 ..... Plaintiff
                      Through Mr. P.K. Dey, Advocate

                       Versus

      REED MEDWAY PACKAGING CO. OF INDIA F+ ..... Defendant
                    Through Mr. Abhimanu Mahajan, Advocate
                    Defendant No.1.
                    Proxy counsel for Ms. Barkha Babbar, Advocate
                    for defendant No.2.
%04.09.2008
CORAM:

Mr. Justice S. Ravindra Bhat


1.

Whether reporters of local papers may be allowed to see the judgment? Yes

2. To be referred to the Reporter or not? Yes

3. Whether the judgment should be reported in the Digest? Yes

Mr. Justice S. Ravindra Bhat (Open Court)

1. The plaintiff, Food Corporation of India (hereafter referred to as "the FCI") entered into an

agreement with the first defendant on 2nd February, 1981, after the latter successfully tendered to

public notification. In terms of the contract, the defendant was to supply 48 Vehicles,

Weighbridges and spare parts for such equipment, for transporting foodgrains procured by the

FCI, as a part of its "All India Grain Storage Project".

2. Clause (1) of the agreement stipulated that the conditions spelt out in the general conditions

CS(OS) 2176/1989 Page 1 of the contract published in the tender document would govern it and bind the parties. In terms

of Clause (6) of the said tender conditions, the defendant agreed to pay actual customs duty,

auxiliary duty, counterveiling duty and such other duties prescribed by the law including port

charges. The defendant applied for customs duty drawback claims as actual user and was to

refund the amounts to the FCI.

3. It is not disputed from the pleadings that disputes arose in regard to the performance of

the agreement and finally on 14.10.1987, FCI terminated the contract and went in for

performance of the balance work by engaging third parties/agencies. The FCI thereafter

addressed a series of letters calling upon the defendant to account and pay the customs duty

drawback, which it was entitled to. According to the suit averments, the defendant neglected to

pay these amounts. The plaintiff adverts to issuing a legal notice on 10.8.1988 to the defendant

and upon failure to comply with its terms, it filed the present suit on 30.6.1989 seeking a decree

for the sum of Rs. 17,96,253.10 with interest at 18% per annum.

4. The defendant immediately upon entering appearance moved the Court under Section 34

of the Indian Arbitration Act, 1940 seeking stay of the proceedings on the ground that a valid

arbitration clause existed and bound the parties. It, therefore, urged that the disputes raised in

these proceeding should be referred to and settle in arbitration. The defendant's application

remained pending for a considerable period. The defendant inter alia relied upon its claim and

for that purpose, adverted to several letters including demands made on 31.03.1988, 02.04.1988

and 18.03.1989 where the sums in excess of Rs. 7 crores (eventually the sum of

Rs.8,29,17,443.56) were claimed from the plaintiff. This was also part of the averments made in

the application under Section 34, (I.A. 7745/1989) filed in this case.

5. The said application I.A. 7745/1989 was rejected by an order dated 19.12.2003. The

CS(OS) 2176/1989 Page 2 defendant appealed against this order; the appeal was dismissed on 23.3.2004. The Division

Bench affirmed the order of the single Judge which had reserved the right to the defendant to

claim a set off and adjustment for satisfying the plaintiff's claims.

6. The defendant thereafter filed its written statement on 08.04.2004. The written statement

was accompanied by about 400 documents. Subsequently, the defendant sought amendment to

the written statement which was allowed. The amendments incorporated a set off and

adjustment in respect of the plaintiff's claim. The said adjustment was articulated in the

following terms:

                   Details of claim                             Amount in Rs.

      a.           Import Licence fee held back by the          5,165.00
                   plaintiff
                   Interest thereon @ 18% from Jan. 1981        2,58,456.60
                   till March 2004
      b.           5% balance payment on supply and             98,875.00
                   erections retained by the plaintiff
                   Interest thereon @ 18% from August 1987      35,41,702.00
                   till March 2004
      c.           5% cash security deposit                     3,79,632.51
                   Interest thereon @ 18% from 14th Oct.
                   1982                                         1,75,61,799.91

      d.           Wrongful deduction towards TDS               78,073.00

      e.           Wrongful deduction towards TDS               10,932.00

      f.           Unpaid invoices towards 10 sets of spare 32,400.00
                   parts interest thereon @ 18% from Feb.
                   1987 to March 2004
      g.           Demurrage and Warehousing charges
                   paid to custom authorities on 10 sets of
                   imported components
                   Interest thereon @ 18% from Feb. 1987 to
                   March 2004                               32,000.00

      h.           Storage charges and inventory costs
                   arising from delayed lifting of supplies
CS(OS) 2176/1989                                                                             Page 3
                    from the Answering Defendant and
                   consequential loss of production

Interest thereon @ 18% from 1.1.1983 to 7,27,30,800.00 3.12.1984 i Interest on capital employed and processing Costs of preferring partial claim of draw Back of duty in stead of one consolidated 62,62,039.00 Claim during the period April-September

Interest thereon @ 18% Feb. 1987 to March 2004

7. In these proceedings, the Court had framed issues on 21.1.2006. The matter was sent for

recording of evidence of the parties to the Joint Registrar. At that stage, the defendant moved an

application I.A. 4680/2006 for placing two documents being letters dated 11.05.2004 issued by

the plaintiff and its reply dated 25.05.2004 on the record. The Court permitted the said

documents to be placed on record on 18.01.2007. On the same day, the Court made the

following order in the suit:

" CS(OS) No. 2176/1989

Learned counsel for the defendant submits that the defendant with a view to settle the claims in the suit is willing to pay to the plaintiff the amount of Rs. 12,95,559.09, which was computed by the plaintiff itself to be payable in May, 2004, along with a reasonable amount of interest at the rate fixed by the Court till the date of payment. Learned counsel for the plaintiff states that this proposal is not acceptable to it since the suit has been filed for realization of the custom duty draw back and any other dues payable by the Corporation to the defendant cannot be adjusted from an amount of the custom duty draw back. He states that the communication dated 11th May, 2004 has not been issued by an authorized officer. I direct the Director, Finance of the Food Corporation of India to state on affidavit with regard to the following :

1. Whether the communication dated 11th May, 2004 has been issued by a competent and authorized officer?

2. Whether the accounting position reflected in the said document, particularly with regard to the credits shown in favour of the defendant are correct as per the books of accounts of the plaintiff?

CS(OS) 2176/1989 Page 4 The Director, Finance would also consider whether the proposal of the defendant contained therein is acceptable to all. Let the affidavit be filed within three weeks. In the meantime, the defendant may deposit an amount of Rs. 12,95,559.09 in this Court along with interest at the rate of 11% per annum from 1st April, 2004 onwards till the date of deposit. The deposit be made in the name of Registrar General of this Court initially for a period of 91 days.

List before the Court on 5th April, 2007"

8. Accordingly, an affidavit was filed on 04.04.2007 by the Executive Director of FCI.

This was considered by the Court on 21.04.2007 when the following order was made:

"21.04.2007

Present: Mr. K.K. Joshi for Mr. P.K. Dey for the plaintiff.

Mr.Abhimanyu Mahajan for the defendant.

CS(OS) No. 2176/1989

The affidavit has been filed by the Executive Director, Finance. In the affidavit the plaintiff does not disowns the communication dated 11.5.2004 as per which the amount due from the defendant is computed at Rs. 12,95,559.09 after making adjustment of security deposit of Rs. 3,79,632/- and other liabilities of Rs. 69,493/-. In the affidavit it is stated by the plaintiff that the adjustment of the said amount from the customs duty draw back was erroneously made. It is further stated that security deposit was not liable to be refunded since the contract was terminated on account of its breach by the defendant. Similarly, the liability of Rs. 69,493/- was also not liable to be adjusted for the same reason.

The contract was terminated by the plaintiff on 14.10.1987. Any claim on account of any damages that might have been suffered by the plaintiff against the defendant could have been filed within three years of the termination of the contract. That has not been done and no claim for damages has been raised in the present suit. It is too late for the plaintiff to justify withholding of the security deposit or any other liability owed by the plaintiff to the defendant. It is seen that the total customs duty refund was to be tune of Rs. 17,06,505.81. This amount is mentioned by the defendant in its communication dated 6.2.1988 and is also the amount mentioned by the plaintiff in its communication dated 11.5.2004. Since these duty draw backs were received by the defendant some time in January and early February, 1988, the defendant, after adjustment of the security deposit, and the other liability, as aforesaid should be made liable to pay an amount of Rs. 12,95,559.09 with interest from 1.2.1988.

CS(OS) 2176/1989 Page 5 I have already indicated the rate of interest at the rate of 11% p.a. and the defendant has made a deposit in this Court of the amount of Rs. 12,95,559.09 along with interest at the rate of 11% p.a. from 1.4.2004 onwards.

The plaintiff should gain take specific instructions whether it is willing to accept, in full and final settlement the amount already deposited along with further interest at the rate of 11% p.a. from 1.2.1988 to 31.3.2004. Further affidavit in this respect may also be filed by the plaintiff. The defendant would also seek instructions whether it is willing to pay further interest, as aforesaid.

List on 10.9.2007."

9. On the basis of the order dated 21.04.2007, Mr. P.K. Dey, learned counsel on written

instructions submitted that the FCI would be agreeable for settlement of the dispute, upon its

being permitted to appropriate the amounts deposited with interest at 11% per annum from

01.02.1988 to 31.03.2004. On the basis of these, the defendants were asked to indicate their

response.

10. The defendant accordingly filed an affidavit on 11.02.2008 outlining its position. It has

averred as follows:

"7. Pursuant to the order dated 18th January, 2007, the Defendant No.1 deposited in Court, the amount of Rs. 12,95,559.09 alongwith interest amounting to Rs. 4,04,498.9 (being interest calculated @ 11% from 1st April, 2004 till 31st January, 2007).

8. Subsequently, an Affidavit was filed by the Executive Director, Finance, of plaintiff. In the affidavit, the Plaintiff did not disown the communication dated 11th May, 2004 as per which the amount due from the Defendant is computed at Rs. 12,95,559.09 after making adjustment of security deposit of Rs. 3,79,632/- and other liabilities of Rs. 69,493/-. In the affidavit, it is stated by the Plaintiff that the adjustment of the said amount from the customs duty drawback was erroneously made.

9. The Defendant states that the suit filed by the Plaintiff is for recovery of custom duty drawback benefits and the said letter dated 11th May, 2004 of the Plaintiff seeks the balance confirmation as at 31st March, 2004 after taking into account an amount of Rs. 17,06,505.81 as custom duty drawback. The Defendant with the view to settle the claims in the suit deposited the amount of Rs. 12,95,559.09 alongwith interest amounting to Rs. 4,04,498.9 (being interest calculated @ 11%

CS(OS) 2176/1989 Page 6 from 1st April, 2004 till 31st January, 2007). This amount was deposited without prejudice to the rights and contentions to the Defendant that no amount whatsoever was payable by Defendant to the Plaintiff as the Defendant has set offs amounting to Rs. 8,29,17,443.58 (as stated in the statement attached with letter dated 25th May, 2004 of the Defendant No.1 to the Plaintiff). It is also pertinent to note that the alleged letter of termination dated 14.10.1987 issued by the Plaintiff was signed by an officer other than the Competent Authority under the Contract M-2.

10. The Defendant No.1 most respectfully states that other than the amount deposited by the Defendant No.1 in Court, it is not willing to pay any further amount to the Plaintiff.

11. The above narration shows that the defendant did not dispute its liability to pay Rs.

12,95,559.09 with interest at 11% per annum from 1.4.2000 onwards. The position taken by it

now, however, is that it would not pay any interest for the period prior to 1.4.2004. The

justification given for this is that it claims a larger set off/adjustment to the extent of Rs. 8.3

crores.

12. Learned counsel for the defendant submitted that if the Court were to dispose off the suit

by permitting appropriation of the amount deposited in Court with interest accrued upon it, the

matter could be resolved and that further claims need not be adjudicated. Learned counsel relied

upon the contemporary inter se correspondence between the parties of the year 1988 in that

regard.

13. The above factual narration would show that the plaintiff's claim as made before the

Court originally was for the sum of Rs. 17,06,505.81. The main component of this claim was the

customs duty drawbacks which the defendants were to pass on to the FCI. The defendants did

not dispute this; however, they were claiming larger amounts and making out a case for set off.

The defendants also sought for stay of the proceedings under Section 34 of the Arbitration Act

which were pending for a considerable period. Eventually, that application was dismissed.

CS(OS) 2176/1989 Page 7 While dismissing the said application, the Court reserved the defendant's right to raise the issue

of adjustment. The order of Court was made in 2003. The written statement was subsequently

filed and eventually amended where the same claims which have been articulated in 1988-89

were urged as a set off.

14. It is evident from the previous discussion that the defendant was aware of its liability but

at the same time was insisting on payments of its dues. At this stage, the defendant is expressing

its willingness to give up the set off if no further direction for payment of interest is made.

Although, the plaintiff has not agreed to the closure of these proceedings on those terms, it has to

a certain extent scaled down its demand; in stead of the amount originally claimed at Rs.

17,06,505.81 it expressed willingness to be satisfied with the amount deposited in Court with

interest from 1.2.1988 to 31.3.2004. In these circumstances, the Court is of the opinion that an

equitable approach to the issue is called for.

15. The defendant's application for stay of proceedings did not succeed, it remained pending

for more than 13 years. Its attempts to attack that order was also unsuccessful; the Division

Bench dismissed the appeal. The original written statement filed did not contain any set off. In

these circumstances, the Court is convinced that the defendant cannot be completely absolved

from the liability of paying interest apart from the interest w.e.f. 31.3.2004. At the same time,

the Court cannot be completely oblivious of the claim made by the defendant in the early stages

of the proceedings and even articulated in the application under Section 34. That it amended the

written statement subsequently is a matter of detail. In these circumstances, the Court is of the

opinion that the most equitable order in the case would be to direct the first defendant to pay

interest for a part of the period. Accordingly, in stead of the period being 01.02.1988 to

31.02.2004, the Court is of the opinion that the defendants should bear interest liability for a 5

CS(OS) 2176/1989 Page 8 year period from 1.4.1999 to 31.3.2004 on the said amount lying in deposit.

16. In view of the above discussion, the following directions are issued:

(i) The plaintiff is held entitled to the sum of Rs. 12,95,559.09 with interest at 11%

from 1.4.2004 till the date it was deposited in the Court along with the interest

accrued on the said amount, as kept in deposit by this Court;

(ii) The defendant is directed to bear interest liability at 11% per annum on the said

amount of Rs. 12,95,559.09 from 1.4.1999 to 31.3.2004.

17. The plaintiff is permitted to withdraw the amount deposited in the Court with interest

accrued on it. The balance interest, according to the above direction, too shall be paid by the

defendant to the plaintiff within four weeks. The parties are directed to be present before the

Joint Registrar on 15.09.2008, for complying with the above directions, and to give effect to it.

18. The suit is decreed in the above terms. No costs.

                                                             S. RAVINDRA BHAT,J


SEPTEMBER 04, 2008
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CS(OS) 2176/1989                                                                             Page 9