Delhi High Court
State Trading Corporation Of ... vs Indian Sugar Mills on 24 April, 2012
Author: Sanjay Kishan Kaul
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 22.03.2012
Date of Decision: 24.04.2012
+ FAO (OS) No.53 of 1986
STATE TRADING CORPORATION OF INDIA ..... Appellant
Through: Mr. Gunjan Kumar & Mr. Ankit Khurana,
Advs.
versus
INDIAN SUGAR MILLS ..... Respondent
Through: Mr. Sandeep Sethi, Sr. Adv. with Ms.
Sunita Bansal, Mr. Abhishek Swaroop &
Ms. Pankhuri Jain, Advs.
Ms. Priya Kumar, Adv. for UP State Sugar
Corporation Ltd., Rampur.
Mr. A.S. Mathur & Ms. Shruti Verma,
Advs. for Kichha Sugars.
CORAM:
HON'BLE MR. JUSTICE SANJAY KISHAN KAUL
HON‟BLE MR. JUSTICE RAJIV SHAKDHER
SANJAY KISHAN KAUL, J.
1. Thirty-three (33) years and still going strong! This is the fate of
the present dispute which was referred to arbitration in the year
1979. The appeal itself is of the vintage 1986 when practically all
appeals up to the year 2006 have been decided. Since a part of the
decretal amount was directed to be released to the beneficiaries of
the award, which are 155 sugar mills, against bank guarantee,
issue of extension of bank guarantee has been going on before the
Registrar and but for a search as to whether there was any older
appeals pending, it would not have come to light that the appeal is
rotating before the Registrar‟s Court on something which has
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nothing to do with the final hearing of the appeal. The
observations made by the Supreme Court as far back as in M/s.
Guru Nanak Foundation Vs. M/s. Rattan Singh & Sons (1981) 4
SCC 634 in the opening paragraph (which has also been referred
to in the impugned order) sound so apposite: :
"1. Interminable, time consuming, complex and expensive
court procedures impelled jurists to search for an alternative
forum, less formal, more effective and speedy for resolution
of disputes avoiding procedural claptrap and this led them to
Arbitration Act, 1940 ('Act' for short). However, the way in
which the proceedings under the Act are conducted and without
an exception challenged in Courts, has made lawyers laugh and
legal philosophers weep. Experience shows and law reports
bear ample testimony that the proceedings under the Act have
become highly technical accompanied by unending prolixity, at
very stage providing a legal trap to the unwary. Informal
forum chosen by the parties for expeditious disposal of their
disputes has by the decisions of the Courts been clothed with
'legalese' of unforeseeable complexity. This case amply
demonstrates the same."
2. We note with anguish that having located this appeal, which was
displayed for a whole week in the cause list making it clear that
this appeal will be taken up on a particular date and no
accommodation will be granted, yet the first request made on
behalf of the appellant was to seek an adjournment which we
declined and then we proceeded to hear the counsels for the
parties.
3. Now coming to the facts of the case. Two orders for supply for
export of sugar, one from Iran for 1,20,000 metric tonnes and
another from European Economic Community i.e. EEC for 25,000
metric tonnes were placed on the appellant, State Trading
Corporation of India (for short „STC‟). To meet the commitments,
the STC in turn entered into agreements with Indian Sugar Mills
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Association (for short „ISMA‟)/respondent No.2 and National
Federation of Co-operative Sugar Factories Ltd. (for short
„NFCSF‟)/respondent No.1 vide agreement dated 23.3.1977 for
supply of 1,25,000 metric tonnes of sugar of grade C/D/E-30. We
may note that NFCSF (for co-operative factories) and ISMA (for
privately owned and limited companies) represented all the 155
sugar factories. The agreement envisaged in clause 4 that the
dispatch will be completed by the sugar factories by 31.5.1977.
The pre-requisite, however, was: (i) ISMA & NFCSF will give
factory-wise break up of allocation immediately upon receipt of
region-wise break up from STC; (ii) all formalities required to be
completed by STC/their agents, at least, 30 days before the last
date of delivery by factories (implying that the factory should have
in their possession all valid documents 30 days before the last date
of delivery). In case of failure to provide all requisite documents
within the stipulated time of 30 days, the factory had the option to
either dispatch the quantity or treat it as cancelled partly or
wholly.
4. The STC appointed Indian Sugar Industry Export Corporation Ltd.
(for short „ISIEC‟) as their handling agent which would enter into
contracts incorporating usual terms & conditions with each sugar
factory supplying sugar against the purchase made under the
agreement (clause 6).
5. The disputes inter se the parties, if any, were required to be settled
through the process of arbitration in terms of clause 7, which reads
as under:
"7. Arbitration. - All disputes or differences whatsoever
arising between the parties out of xxxx relating the
construction, meaning and operation or the effect of this
agreement or breach thereof shall be settled in accordance
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with the Rules of arbitration of the Indian Council of
Arbitration and the award made in pursuance thereof shall
be binding on all the parties. The venue of arbitration shall
be New Delhi."
6. ISIEC consequently executed separate factory-wise agreements
from April, 1977 onwards, which inter alia contained clause 9 (f)
as under:
"Since the contract with the foreign buyers generally
stipulates delivery of 5% more or less of the contracted
quantity ISIEC shall be free to take delivery up to 5% less
than the accepted quantity. The balance quantity, if any, left
with the factory shall be disposed of without claiming any
damage in the international market in accordance with the
release order(s) normally issued by the Chief Director,
Directorate of Sugar and Vanaspati."
The STC also obtained release orders for export at agreed price
for dispatch of sugar as per ISIEC instructions from 6.4.1977
onwards. However, an unforeseen eventuality occurred in the
form of export of sugar being suspended by the Government
pending finalization of export policy by the Government in April,
1977 itself. The consequence was that STC could lift only
58,730.3 metric tonnes of sugar by the stipulated date of
31.5.1977.
7. It appears that issues arising from such suspension of export of
sugar received the attention of the Government resulting in a
decision in a meeting of the Cabinet Committee on Economic
Affairs on 19.7.1977 that the sugar to be export during 1977-78
session to the extent of commitments made should be handed in a
manner which would minimize the extent of financial loss. Thus,
on 10.8.1977, the Under Secretary to the Government of India
asked STC to immediately go ahead to meet the export
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commitments to Iran and EEC while clearing 1.13 lakh metric
tonnes of sugar lying with STC advising that any delay would not
be in their interest. However, by that time apparently Iran became
disinterested in import from India and EEC expressed inability to
lift sugar before March, 1978.
8. The factual matrix which emerged in the arbitration proceedings
showed that ISIEC insisted upon signing of contract by Modi
Sugar Mills on 11.8.1977 and a number of contracts were signed
much beyond 31.5.1977 till as late as 11.8.1977. It is on
10.10.1977 that STC informed Nizam Sugar Factory that export
of sugar was suspended since April, 1977 pending finalization of
sugar export policy by the Government and assured that ISIEC
would be taking steps to procure undelivered quantity as soon as
the sugar is required at the port for further shipments. In October,
1977 itself a note emanated from the Commerce Secretary to the
Cabinet Committee on Economic Policy and Co-ordination
referring to a decision of 19.7.1977 and noticing that STC had
1.13 lakh metric tonnes of stocks available, out of which 47,000
tonnes were lying in the port godowns and 66,000 tonnes were
lying with the sugar factories. These stocks were from 1976-77
crops and earmarked for exports, as they were not required for
meeting past commitments for exports, it was decided to take an
early decision qua their disposal. Thereafter, the Cabinet took a
decision on 9.12.1977 that 1.13 lakh metric tonnes of sugar with
the STC should be sold in the local market and not exported at a
loss. Despite this decision the STC is alleged to have taken no
steps and forced sugar factories to hold over the stock. It is on
26.12.1977 that the STC informed ISIEC about the decision of
Food Department to cancel the un-dispatched quantity of sugar of
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1976-77 crop of approx. 66,000 tonnes lying with the individual
sugar factories purchased at `290.00 per quintal and to release the
same out of 1977-78 production simultaneously. Information was
sought from ISIEC regarding un-dispatched sugar lying with the
factories. ISIEC consequently vide letter dated 29.12.1977 sought
grade-wise quantity that the factories would supply from 1977-78
production against the un-dispatched quantities of 1976-77
production already being released and NFCSF stated in response
dated 19.1.1978 that 1976-77 production quantity was purchased
by STC about ten (10) months back and the factories are facing
considerable hardship both financially and on account of storage
and, therefore, the STC is committed to lift the quantity. In view
of the stand taken by the sugar mills STC is stated to have
obtained an opinion from its law department which advised that
unless release orders were cancelled at the instance of STC, the
stock lying at the factories will be treated as the property of the
STC. The STC thereafter informed sugar mills on 20th March,
1978 that they have referred the matter to the Government
(Directorate of Sugar) and shall revert on receipt of their advise
with regard to the un-dispatched quota.
9. It is on 12.6.1978 that STC sought cancellation of release order
from the Department of Food on the strength of legal opinion
sought from the lawyer on the consequences of cancellation of
release orders with sugar factories. In the meantime on 26.6.1978
NFCSF & ISMA while acknowledging receipt of ISIEC‟s circular
dated 29.12.1977 informed STC that requisite information had
already been given to ISIEC and that they were awaiting
dispatched instructions for 66,269.6 tonnes as the export of sugar
had already been resumed. STC was also put to notice that in case
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instructions are not issued within fifteen (15) days of receipt of
the letter, sugar factories would treat STC to be in breach of the
contract and would have no option but to sell the balance quantity
of sugar in free market at the risk and cost of STC and claim all
losses & damages suffered by sugar factories. There was,
however, no response to this letter.
10. On 7.7.1978, STC‟s Department of Food admitted that as per the
legal opinion, cancellation of release orders would put an end to
the existing contract as on date of withdrawal of release orders
and if no dispatch instructions were issued then sugar factories
would sell sugar in free market and recover losses & damages
suffered from STC. NFCSF instructed all co-operative sugar
factories on 26.7.1978 to request the Sugar Directorate to release
the said un-lifted sugar for sale in the free market as the STC had
failed to take delivery of the same. The ban against export of
sugar was ultimately lifted on 16.8.1978.
11. In view of the facts that STC did not take any steps to cancel the
release order, NFCSF & ISMA invoked the arbitration clause on
6.3.1979 against STC and sought appointment of an arbitrator by
the Indian Council of Arbitration. Justice V. Bhargava (Retd.)
was consequently appointed as the arbitrator vide letter dated
31.8.1979. This letter stated that as per the sugar mills, STC had
failed to lift the balance quantity of 66,269.6 tonnes of sugar and
did not issue any dispatch instructions to the mills concerned in
spite of their repeated requests. The sugar mills ultimately
disposed of the sugar in the local market after sending notice to
STC and were claiming losses and damages suffered by them on
this account from the STC. 94 sugar mills had filed their
references giving authority to ISMA while 53 mills had filed their
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references giving authority to NFCSF totaling to 147 references.
The claims were in the range of `50,000.00 to `46.00 lakh per
sugar mill. The consent of the arbitrator was sought which was
duly given and the arbitrator entered upon reference and
proceeded with the arbitration.
12. An award was made and published on 10.6.1981 by the arbitrator
qua 155 claims made by sugar factories. Different amounts were
awarded to different sugar mills inclusive of interest up to date of
filing of the claim being quantified and further interest @ 12 per
cent per annum on the principal amount from date of filing of the
claim till date of award. The award was filed on the Original Side
of the Delhi High Court and since there were different claims,
they were registered as Suit No.895A-1049-A/1981. STC filed
objections under Sections 30 & 33 of the Arbitration Act, 1940
(hereinafter referred to as the „said Act‟) on 2.11.1981 and the
first adjudication by the learned single Judge took place on
30.7.1982. This adjudication resulted in the matter being referred
back to the arbitrator for re-consideration on the issues raised in
paragraph 64 of the judgement dated 30.7.1982. We may notice
that the award dated 10.6.1981 was a non-speaking award but the
material on the basis on which the award was made was discussed
at length by the learned single Judge in the order dated 30.7.1982.
The learned single Judge was conscious of the limitation in
dealing with such a non-speaking award given the legal position
and noticed the same in paragraph 63 of the judgement. The
learned single Judge observed that the rival contentions and the
material had been referred to in order to ascertain whether the
contention of the STC that the learned arbitrator fell into a basic
error in computation of damages, and further ignored certain
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material evidence placed before him has any basis. The learned
single Judge took a view that if material documents are ignored
while arriving at a just decision to resolve the controversy
between the parties, then the award can be treated to suffer from
an error of law despite the award emanating from a legal luminary
of the stature of Mr. Justice V. Bhargava (Retd.), an expert in the
field. It would be, thus, useful to reproduce paragraph 64 of that
judgement, which reads as under:
"64. In my considered opinion, the award in the present
cases suffer from infirmity when the learned arbitrator over-
looked the very material documents relating to the
restrictions placed by the Government in July, 1977 on the
export of sugar. The position about these documents has
been discussed at some length above in paras 29, 33 & 59.
It is for the learned arbitrator to consider their implications
on the controversies raised before him whether the contracts
became frustrated, and whether they could not be treated is
alive after 31.5.1977 or July, 1977. Those documents can
also throw light how far the observations made above,
specially in paras 47 and 48, with regard to the non-
marketing of the sugar in domestic market after 31.5.1977
have relevance, and the sugar mills and the government
were interested to not allow the domestic price of sugar to
fall. How far in that case the STC could be made liable, has
to be considered. The clause in the contract about 5% of the
stipulated quantity being less lifted, has not been referred to
by the learned arbitrator. In present cases where damages
have gone to crores, those 5% can have material bearing.
Similarly documents referred to in paras 48 and 51 to 54 and
others having bearing on the computation of damages may
be looked into. Their probative value has to be considered
for arriving at just decisions. I am, in the circumstances,
constrained to remit back the award to the learned arbitrator
for consideration of all these aspects."
13. The record discloses that a Special Leave Petition was filed
against the judgement dated 30.7.1982 being SLP No.949-
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1103/1983, which was, however, dismissed as withdrawn on
3.3.1983.
14. Justice V. Bhargava (Retd.) thereafter proceeded to hear the
matter, once again, in pursuance of the order of remand and made
and published the award dated 1.5.1984 adopting the view taken
earlier. It may be added that the arbitrator now gave detailed
reasoning for his view in respect of all issues, not restricted only
to the limited question on which the matter was remanded back to
him. This award was, once again, filed on the Original Side of
this Court and registered as Suit No.857A-1049A/1984. STC,
once again, filed objections under Sections 30 & 33 of the said
Act on 9.8.1984. These objections were dismissed by the learned
single Judge vide judgement dated 18.11.1985 and the award was
made rule of the Court. It was further directed that in case the
awarded amount was not paid within three (3) months by the STC
there would be a liability to pay interest @ 12 per cent per annum
from the date of the award till date of release. The STC thereafter
filed the present appeal under Section 39 of the said Act on
20.1.1986 and the appeal was admitted on 9.2.1987. In terms of
order dated 9.2.1987 the proceedings in execution of decree were
stayed for four months and STC was also directed to deposit the
decretal amount within four months, leaving out (i) the disputed
amount of interest from the date of award till date of decree; and
(ii) compensation for 5% of the goods for which there was an
option with STC under the contract. This amount, as noticed in
the beginning, was to be released to sugar factories against bank
guarantees to be furnished by them.
15. The learned arbitrator in the award dated 1.5.1984 noticed that
both the parties had requested him to give a reasoned award
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because they had apparently given an undertaking to obtain such
an award in the various cases before the arbitrator. The arbitrator
thereafter proceeded to deal with all the issues raised before him
point by point.
16. The first issue raised by the appellant was that the property in the
sugar which was sold at a loss never vested in the STC in view of
the provisions of Section 23 of the Sale of Goods Act, 1930
(hereinafter referred to as the „Sale of Goods Act‟). The second
point was that the sugar mills themselves had pleaded that the
breach of contract by the STC took place on 31.5.1977 when
delivery was not taken of the balance quantity from the sugar
factories and, thus, the sugar factories ought to have sold the sugar
soon thereafter to mitigate their losses. In such an eventuality
there would not have been much losses as there was no fall of
prices soon after 31.5.1977.
17. Learned arbitrator noticed that during 1976-77 sugar was a
controlled commodity when a certain percentage of sugar used to
be taken by the Government as levy sugar at a low price while the
remaining percentage of sugar could be sold in the open market
by the sugar factories where they would charge prices as per the
prevalent market position. The latter sugar was, however, subject
to release orders. Release orders were in turn of different forms:
in some cases the release orders permitted the sugar factories to
sell their sugar anywhere they could find the market at any price
which they could obtain and the second class of release orders
were where the party to which the sugar had to be sold was named
and the free sugar could only be sold to a particular party and not
in the open market.
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18. In order to appreciate the findings of the learned arbitrator, we
consider it appropriate to reproduce Section 23 of the Sales of
Goods Act, which reads as under:
"23. Sale of unascertained goods and appropriation.-
(1) Where there is a contract for the sale of unascertained or
future goods by description and goods of that description
and in a deliverable state are unconditionally appropriated to
the contract, either by the seller with the assent of the buyer
or by the buyer with the assent of the seller, the property in
the goods thereupon passes to the buyer. Such assent may be
expressed or implied, and may be given either before or after
the appropriation is made.
(2) Delivery to carrier.- Where, in pursuance of the contract,
the seller delivers the goods to the buyer or to a carrier or
other bailee (whether named by the buyer or not) for the
purpose of transmission to the buyer, and does not reserve
the right of disposal, he is deemed to have unconditionally
appropriated the goods to the contract."
19. The plea of the appellant was that the sugar which was sold was
un-ascertained quantity of sugar which was kept in the sugar
factories did not vest in the STC in terms of Section 23(1) of the
Sale of Goods Act. On the other hand, the sugar mills based their
case on Section 23 (2) of the Sale of Goods Act, to canvas that
the property in goods vested in the STC because sugar factories
themselves kept that sugar apart to be delivered to the buyer
(STC) and did not have the right of disposal because of the
scheme in force at the time of breach of the contract. The fact that
the sugar had been kept apart for being collected by the STC/its
agent ISIEC found support from the documents on record. The
arbitrator found that the documents on record clearly and
unambiguously supported the plea of the sugar mills that
ascertained quantity of sugar was kept apart to satisfy the
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obligations to STC. The communications emanating from the
Government of India referred to already in the beginning were
relied upon by the arbitrator. No doubt the commitment made to
the foreign buyers had become infructuous both because of the
stand of the Iranian Government resulting in disinterest in
obtaining the sugar and the EEC not being willing to lift the sugar
before March, 1978. However, the second limb of the
commitment of the sugar factories, as a result of which the
property in 66,000 tonnes of sugar lying with the sugar factories
vested with the STC remained, emerged from the Cabinet note
itself referring to two quantities of 47,000 tonnes in port godown
and 66,000 tonnes with the sugar factories. The admission of Mr.
Rajinder Singh, Chief Marketing Manager of STC who appeared
in the witness box was noted that the instructions of the
Government related to 1.13 lakh metric tonnes of sugar including
66,000 tonnes lying with the sugar factories.
20. As far as the second plea arising from delay in selling the sugar in
the open market and mitigating losses was concerned, the
arbitrator found that it was in ignorance of the scheme of control
of sugar discussed by the arbitrator. 66,000 tonnes sugar had been
released specifically at the request of the STC for delivery to STC
for export and the factories were then not in a position to dispose
it of in the open market. It is only when the control on sugar was
lifted on 16.8.1978 that the sugar factories were in a position to
sell the sugar in the open market. Since the property in sugar had
already vested in STC, the sugar lying with the factories fell in the
second kind of non-levy sugar. In some of the cases, STC had
issued release orders in favour of the mills where the sugar
factories had not laid claim. The arbitrator found that the
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obligation was not on the sugar factories but on the STC that they
had to obtain the cancellation of the order in their favour from the
Government of India so that the factories were not required to
keep the stock which they did maintain until de-control of sugar
took place on 16.8.1978.
21. As far as the plea of frustration of contract advanced before the
learned single Judge at first instance is concerned, the arbitrator
noted that despite opportunity given STC failed to prove the terms
of the ban by not producing a copy of the Cabinet Resolution or
an order issued under the signature of the Secretariat Staff on
behalf of the President of India. However the reference to the
Cabinet Resolution did seek to indicate that there was a ban but
the ban was conditional subject to honouring the commitments
already made to the extent of 1.13 lakh metric tonnes of sugar
which included 47, 000 tonnes of sugar lying on the port godowns
and 66,000 tonnes of sugar lying with the sugar factories Thus,
no question of frustration arose.
22. The second limb of what emerged from paragraph 64 of the order
dated 30.7.1982 was thereafter discussed, i.e., the STC had the
option to take delivery of 5 per cent less sugar than the contracted
quantity. Learned arbitrator relied upon the correspondences
exchanged, to come to the conclusion that the contractor was
required to keep in stock the entire quantity including 5 per cent
right up to 16.8.1978, the date of de-control. If the STC prior to
de-control had agreed to take delivery of the sugar, the factories
were bound to give delivery of the entire sugar without deducting
5 per cent. In fact, this was never the stand of the STC in any
correspondence till the arbitration proceedings.
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23. The arbitrator also took note of the fact that suddenly if 66,000
tonnes of sugar is dumped in the market, it would fetch a low
price, more so when it had been stored for such a long period
time. The sugar produced in 1977-78 crushing season had already
come into the market. The seasonal effect of sugar had been
taken into account by the arbitrator. The arbitrator also noticed
that the average price was made applicable though the same need
not be accepted as a final proper figure for which purpose the
prevailing rates as shown in the publications of the Federation will
have to be taken into account and in any special case where the
sale had been for a very low price, the factories had been given
the liberty which may justify that course. In such cases cross-
examination of witnesses of factories were also permitted. The
statement showing rates at which sugar was sold was filed by the
factories and the STC did not take any objection that any of the
sales were made at too low prices and, thus, no question arose for
recording of evidence any further.
24. The aforesaid is, thus, the reasoning of the arbitrator.
25. The objections to the award have been examined in depth by the
learned single Judge in the impugned judgement dated
18.11.1985. The learned single Judge took note of the scope of
scrutiny to the objection to an award that proceeded to trace out
the history of the dispute. In view of the earlier award dated
10.6.1981 and the judgement dated 30.7.1982 remitting the matter
to the arbitrator within the narrow compass of paragraph 64 of the
said judgement, the following issues were framed:
"1. Whether the award/order dated 1.5.1984 is bad in law
for not examining/considering the matters which had been
specifically directed to be considered by the remission order
of this Court; if so, to what effect?
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2. Whether the award in dispute is liable to be set aside
for the reasons stated in the objection petition?
3. Relief."
26. An important aspect taken note of by the learned single Judge
while considering the merits of the controversy was that the
arbitrator, as a measure of abundant caution, had even gone ahead
to pen down reasons on the submissions made by the appellant,
which, in fact, were not within the domain of the remittance order
as contained in paragraph 64 of the judgement dated 30.7.1982.
27. We may note that it is surprising that learned counsel for the
appellant before the learned single Judge raised the issue that the
question of applicability of Section 23 of the Sale of Goods Act
ought not to have been examined as it did not form a part of the
order while remitting the matter to the arbitrator. The fact
remains that this was an issue agitated by the counsel for the
appellant itself. It is in view of the submission of the appellant
that the learned arbitrator proceeded to examine this plea on the
basis of the facts on record and the appellant can hardly make a
grievance in that behalf. The Commerce Secretary to the
Government of India vide note dated October, 1977 itself set out
the stock position of the STC emanating from the stocks of 1976-
77 crops and earmarked for exports. The stock consisted of 1.13
lakh metric tonnes out of which 47,000 tonnes was lying at the
port godown while 66,000 tonnes was lying in the factories. It is
in that context that a decision of the Cabinet was sought as to
whether the STC should be directed to export 1.13 lakh metric
tonnes of sugar which was lying in the stock with it to avoid likely
losses of about `15.37 crore or what other alternative course
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should be adopted. The Cabinet Committee on Economic Affairs
in its meeting held on 8.12.1977 decided that 1.13 lakh metric
tonnes of sugar lying with the STC should be sold in the market
and not exported at a loss. This position was accepted by the STC
vide its letter dated 26.12.1977 to the Manager, ISIEC. Even the
legal opinion obtained by the STC from the Law Department was
that the stocks lying with the factory would be treated as property
of the STC and this was the stand of the STC before the learned
arbitrator. The STC proceeded to obtain further information
regarding the quantity of sugar released, total quantity dispatched
and total undelivered quantity lying with the factories and their
agents but despite this the matter did not move further. Thus, the
learned single Judge found that the STC treated the contracted
sugar as their own lying in the deliverable state with the factories
but for the reasons best known to them took no steps to cancel the
release order in spite of repeated notices and reminders of the
sugar factories.
28. We can hardly doubt the aforesaid finding of the learned single
Judge on this aspect. Firstly we must note that the findings of the
arbitrator are based purely on appreciation of evidence. It is not
as if now that any material evidence is stated to have been
ignored. In fact, no other findings could have been reached in
view of the material on record and the legal position has been
correctly applied both by the arbitrator and the learned single
Judge. This is also the manner in which the respective parties
understood their obligations. Once ascertained quantity of sugar
kept to meet the obligations of the factories to the STC, it cannot
be said that there are no ascertained goods in which property has
passed to the STC. The STC, one can only presume because of
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some indecision or lethargy, did not take the call to deal with the
sugar lying with the factoriesbut instead kept on vacillating over
the issue. Even the legal opinion which it obtained as well as the
options available to it in view of the notes of the Cabinet
Committee discussed aforesaid were not followed up.
29. We fail to appreciate how the appellant can assail the findings not
only in respect of the aforesaid but seek to put the burden on the
sugar factories that they ought to have disposed of the sugar
contracted for in the open market before the delivery date or
subsequently till the cancellation of the release order. The
factories were required to keep ready the contracted sugar for
dispatch on or before 31.5.1977 which they did. They were
awaiting instructions thereafter from the STC. The
communication on record shows that when endeavour was made
by the sugar factories to obtain permission from STC to sell the
sugar in the open market, the goods were not released. The letter
dated 11.10.1977 of ISIEC, agent of the STC, informed the sugar
factories that STC advised them not to issue any dispatch
instructions presently. This was not qua one of the factories,
Nizam Sugar Factory but in all other factories when further
instructions were issued on the basis of the princpal‟s advice.
Thus, there is ample evidence on record to show that STC neither
terminated the contract nor treated it as cancelled for the disposal
of the un-lifted sugar on or before 31.5.1977 and even thereafter
but on the other hand compelled the sugar mills to keep the
contract sugar available for their benefit.
30. A perusal of paragraph 64 of the judgement dated 30.7.1982
shows that material documents relating to the following aspects
were stated to have been ignored: (i) the documents relating to the
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restrictions placed by the Government in July, 1977 in export of
sugar and, thus, whether the contracts became frustrated or
whether they could not be treated alive after 31.5.1977 or July,
1977; (ii) the non-marketing of sugar in the domestic market after
31.5.1977; (iii) the option available to STC to lift 5 per cent less
sugar than the contracted quantity.
31. Despite the aforesaid position the learned arbitrator in the
subsequent award dated 1.5.1984 has noticed that the senior
counsel for the appellant during the oral arguments did not seek to
emphasise the points which had led to the High Court to remand
the matter to the arbitrator but on the other hand raised two new
points, i.e., (a) the property in the sugar which was sold at a loss
had never vested with the STC in view of provisions of Section 23
of the Sale of Goods Act; (b) the claimants having pleaded that
the breach of contract by the STC took place on 31.5.1977 when
the delivery was not taken the sugar factories ought to have taken
steps forthwith to dispose of the stock with them to mitigate the
losses which would have resulted in no major variation as the
prices had not gone down by then.
32. It is, thus, the counsel for the appellant who sought to open a new
chapter by raising these two new points which have been rightly
rejected for the reasons set out hereinbefore and correctly
appreciated both by the arbitrator and the learned single Judge.
33. In so far as the issue of frustration of the contract is concerned,
which is an aspect referred to in paragraph 64 of the judgement
dated 30.7.1982, the learned single Judge has, once again,
examined this plea. The documents on record and the testimony
of Mr. Rajinder Singh, Chief Marketing Manager of the STC
clearly shows that STC had rightly understood that the property in
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the goods vested with the STC and it is the STC which had to
make the necessary arrangement for lifting of the goods. The
Minutes of the meeting of the Cabinet Committee on Economic
Affairs dated 9.12.1977 also substantiated that the decision was of
the STC to take necessary action to sell the stocks in the open
market rather than export them at a loss. The Department of Food
was required to closely monitor the internal supply to ensure that
the average price remained stable. Despite this, the STC failed to
take any steps and the logjam would have continued on account of
the inaction of the STC but for the fortuitous circumstance that the
sugar was de-controlled on 16.8.1978 and, thus, the factories were
in a position to sell the stock in the open market to mitigate their
losses after having put STC to notice. The stock was lying with
the factories causing considerable hardship to them. Another
interesting aspect which emerged is that on a question being
raised in the Lok Sabha qua the issue of the Government stopping
export of sugar and the losses suffered as a result thereof, a
statement was made that the Government never stopped the export
of sugar and as such there is no question of losses. The
Government took a further decision on 19th July, 1977 that the
sugar for the year 1977-78 should be exported to the extent of the
existing commitments. Despite this STC neither cancelled the
orders nor issued the release orders while simultaneously not
issuing any dispatch instructions for the disposal of the un-lifted
sugar with the result that the sugar mills were found to have
suffered heavy losses. De hors all the aforesaid factual matrix
the property in the goods lying at the factory had already passed
to STC and, thus, the question of frustration of the contract would
not arise. The property in goods had already passed to STC. The
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question of frustration of the contract would have arisen only after
the contract was entered into but before the property in goods had
passed or the contract had become impossible of legal
performance (see the observations of the Supreme Court in Raja
Dhruv Dev Chand Vs. Raja Harmohinder Singh & Anr. AIR 1968
SC 1024 relied upon in the impugned order). The STC had
already purchased its sugar and the only task they had to perform
was to lift the sugar from the factories and to make the payment to
the sugar factories. These two obligations were not incapable of
being discharged by the STC. The STC, in fact, did not lift the
sugar not because of a Government ban but because of foreign
buyers‟ refusal to take the sugar from the STC and, thus, the
benefit of Section 56 of the Indian Contract Act, 1872 (hereinafter
referred to as the „Contract Act‟) is not available to STC.
34. The sugar factories in view of the aforesaid position had no option
but to retain the stocks awaiting a response of STC which was not
forthcoming.
35. The learned single Judge has also examined the issue of
mitigation of losses contended by learned counsel for the
appellant on account of paragraph 64 of the judgement dated
30.7.1982 and the subsequent discussion in the award dated
1.5.1984. The agreement inter se the parties provided the
stipulated date as 31.5.1977 with regard to the obligation of the
factories to complete dispatches subject to the condition that all
formalities required to be completed by the STC were completed,
at least, thirty (30) days prior to the last date of delivery by the
factories. The contract was, however, kept alive by both the
parties even after the stipulated date of 31.5.1977. The STC
continued to assure sugar factories that they would be lifting the
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quantities from the factories and it was not permissible for the
sugar factories to have marketed the goods in which the property
had passed to the STC. The only way the STC could have
facilitated the sugar factories to sell the sugar in the open market
was by cancellation of the release order. The STC, however,
continued to treat the sugar as its own and in this behalf the
communication of STC dated 7.7.1978 has been relied upon by
the learned single Judge where a reference has been made to the
procurement of the un-lifted quantity of 66,000 tonnes of sugar of
1976-77 production. The stipulated date of 31.5.1977 was not the
stipulated last date for the STC to lift the sugar and was material
only with respect to the factory obligation and the STC was free to
lift the sugar even after that date. The finding of the learned
single Judge is, thus, unexceptionable qua this issue. The STC
also understood their obligation at the contemporaneous time in
this manner and thus it did not revoke the contract but on the other
hand continued to represent to the sugar mills that they would lift
the sugar as and when the shipment schedule was fixed.
36. As far as the issue of quantification of damages is concerned, both
the sides had agreed upon a formula with regard to the grant of
damages. The parties had agreed that damages would have to be
assessed on one of the two basis: (a) the actual sale price in
respect of un-lifted quantities sold by various factories; (b) the
figure worked out from the prevailing rate as shown with the
publication "co-operative sugar".
37. The sugar factories prepared a chart on the basis of the first
alternative showing the rates at which various sugar factories sold
the sugar in respect of which they had filed the claim. The finding
interestingly is that had the damages been quantified at the
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alternative agreed price on publication of "co-operative sugar",
the claimant factories would have been entitled to higher amount.
The arbitrator did not traverse this path but awarded the amount
on the basis of the first alternative. The charts given were never
doubted by the STC nor did they seek to cross-examine any
witnesses of the STC in this behalf for which option had been
made available as noticed by the arbitrator in the award dated
1.5.1985. Even in respect of the option of 5 per cent less delivery
than the contracted quantity the STC had got the release order
issued for the entire quantity and, thus, never opted for obtaining a
lesser quantity. In such a situation even the 5 per cent quantity
could not have been disposed of by the factories as rightly held in
the impugned order.
38. The last aspect discussed by the learned single Judge is qua the
plea advanced on behalf of the appellant that the arbitrator had
gone beyond the term of reference by passing an award in respect
of even claims regarding production of sugar out of the year 1977-
78, which was never the subject matter of contract between the
parties. This allegation is qua 26 sugar mills.
39. The learned single Judge has noticed that the terms of reference
under which disputes were referred are contained in the letter
dated 6.3.1979 from NFCSF to the Registrar, Indian Council of
Arbitration. In the said letter the entire claims including claim
arising from re-processed sugar of 1977-78 was set out and, thus,
was referred to arbitration. The arbitration was qua the sugar
lying with the mills "indicating deterioration in quality". Along
with the letter the names of the sugar factories, the quantity of
sugar sold by them was annexed. At no stage of the proceedings
either while reference was sought to be made or before the
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arbitrator or before the learned single Judge thereafter and the
earlier award dated 10.6.1981 came under challenge or thereafter
before the Supreme Court or in the remand proceedings before the
learned arbitrator this objection was raised or pressed by the
appellant. It was sought to be raised really as a new issue for the
first time after the second award passed on 1.5.1984 and the
objections to that award were filed. The stand of the sugar mills
was that what was mentioned as 1977-78 production was really a
reference to the contracted sugar of 1976-77 which became sugar
of 1977-78 production on re-processing because of provisions of
explanation (ii) of Clause 4 (ii) of the Sugar Packing and
Marketing Order, 1970 made by the Central Government in
exercise of the power conferred by Clause 5 of the Sugar Control
Order, 1966. The learned single Judge has also found that the
STC has not suffered any loss because if sugar of 1977-78 had
been taken into consideration the same is for the benefit of the
STC as the sugar of 1976-77 would have fetched much lower
price.
40. We may also note that the observations out of the order dated
30.7.1982 of the learned single Judge cannot be taken out of the
context to canvas that the award dated 10.6.1981 had been set
aside by the learned single Judge while the fact remains that in the
operative paragraph 64 of the judgement dated 30.7.1982, the
matter had been remitted to the arbitrator only on a limited
account. In fact, on that limited account the arbitrator noticed in
the subsequent award dated 1.5.1984 that no submission were
made by the appellant. The arbitrator as a matter of abundant
caution dealt with the issues raised before him even for the first
time post remittance.
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41. In the end we may note that we have taken care to go through
both, the voluminous records and the awards and judgements to
ensure that whatever pleas were urged and formed a part of the
opinion of the learned single Judge in the impugned order are
dealt with by us even though the submissions of learned counsel
for the appellant did not touch all these aspects. This has been
done so as to keep no further questions to be adjudicated in view
of the long pendency of this dispute.
42. We may note the submission of learned counsels for the
respondents that, in fact, some of the factories may no more be
existing and have been wound up over a passage of time.
43. We find the appeal completely meritless and dismiss the same
with costs quantified at `50,000.00.
SANJAY KISHAN KAUL, J.
APRIL 24, 2012 RAJIV SHAKDHER, J.
b'nesh
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