Delhi High Court
Food Corporation Of India, ... vs M/S Brar Rice And General Mills And ... on 14 December, 2018
$~23
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: 14th December, 2018
+ O.M.P. 451/2012
FOOD CORPORATION OF INDIA, FEROZEPUR ..... Petitioner
Through: Mr. Mohan Lal Sharma, Advocate.
versus
M/S BRAR RICE AND GENERAL MILLS AND
ORS ..... Respondents
Through: Mr. Rajesh Chhetri, Mr. Pawan
Upadhayay, Mr. Rajeev Chhetri &
Ms. Meenakshi Rawat, Advocates
(M-9891675255)
CORAM:
JUSTICE PRATHIBA M. SINGH
Prathiba M. Singh, J. (Oral)
1. The present petition under Section 34 of the Arbitration and
Conciliation Act, 1996 challenges the award dated 12th December, 2011
passed by the Learned Sole Arbitrator.
2. The Petitioner - Food Corporation of India (hereinafter, „FCI‟) and
M/s Jai Bharat Rice Mills and Partners (hereinafter „miller‟) had entered
into a milling agreement dated 24th January, 1995. Under the said contract,
the miller was to mill the paddy and supply the rice to FCI, on or before 28th
February, 1995. As per the contract, FCI had supplied 35374 bags (22993
quintals) of paddy to the miller for milling and to be delivered to the FCI by
28th February, 1995. It is claimed by the FCI that the miller had milled only
1662 bags (1058 quintals) of paddy and 750 bags (709 quintals) of rice was
supplied to the FCI by 28th February, 1995. The milling was also not
completed by the extended date of 31 st May, 1995. The balance paddy was
not milled and had to be sold by FCI at a lower price in the open market.
The FCI, however, alleging breach of the agreement on part of the miller
invoked arbitration for failure to mill the paddy on or before 28 th February,
1995, claiming 11/2 times rate of the unmilled paddy as the economic cost.
3. The miller on the other hand claimed that the agreement dated 24 th
January, 1995 was a forged and fabricated document insofar as the partner
who had signed the agreement, i.e., Mr. Kirpal Singh, has passed away on
27th November, 1994 i.e., nearly two months before entering into the
contract. His son, Mr. Kuldip Singh, was not a partner and thus, was not
authorised to sign the agreement. Thus, there does not exist a valid and
enforceable agreement between the FCI and the miller. On the merits of the
dispute as well, it is the claim of the miller that it was the FCI that was in
breach of the agreement, as they notified the sale of the paddy in the open
market, before expiry of the extended period of the contract, thus, not giving
the miller the opportunity to mill the paddy. Thus, the miller filed a counter
claim for Rs.1,43,56,487/- before the Ld. Arbitrator, on the following
grounds:
The paddy was of inferior quality, due to which the percentage of
broken rice retrieved, increased;
The miller had spent a large amount of money on engagement of
labour, but was not given an opportunity to perform the contract;
The miller had to suffer loss of milling charges and forfeit the security
amount deposited.
4. The Ld. Arbitrator, on the objection that the agreement was invalid
and forged held that admittedly, Mr. Kirpal Singh had passed away before
the agreement was signed, however, going by the fact that the stamp paper
used for the agreement, shows that it was purchased by him. Further, it is
agreed between the parties that the terms of the contract were negotiated by
Mr. Kirpal Singh, and his son had signed the agreement with full knowledge
and consent of the other partners.
5. In light of the above facts and circumstances, the Ld. Sole Arbitrator
passed the following award:
"In this connection the claim laid by the F.C.1. in the
balance sheet of being entitled to 1-112 times of the
economic cost in respect of the paddy left unmilled,
Rs.l,31,39,768/- after adjusting the amount fetched by
sale of the same, is not tenable, for the reason that the
fixation of the rate of economic cost being arbitrary and
unilateral was not binding on the respondents. All that
the respondents are liable in law to pay on account of
breach of contract by them, would be the difference
between the procurement price and the total amount
fetched by the sale of unmilled paddy, along with certain
other amounts e.g. cost of gunnies etc, the total amount
of which as stated above comes to Rs.10,60,743/-.
The respondent's contention that the claimant is liable to
forfeit the right to claim the difference between the sale
price of unmilled paddy and its procurement price, as
compensation, because they did not try to first get the
paddy in Balance milled by any other miller to arrive at
the figure of loss, if any, is also not tenable on the face of
it, as clause 13 in the. agreement is a mere enabling
provision and is not mandatory. Further about six moths
having elapsed since procurement, any further delay
would have made the paddy unfit to yield the full
percentage of rice in shelling .The act of the claimants to
sell the same was thus in consonance with the principle
laid down in sec. 73 of the contract Act, making it
obligatory to take steps to minimize the damages.
The respondents thus as discussed above are found liable
to pay by way to damages to the claimant the amount of
Rs.1 0,60,743/- for breach of contract by them
(respondents)."
6. The Ld. Arbitrator has awarded to the FCI the difference between the
amount actually recovered and the sale price of unmilled paddy as per the
open sale notice.
7. The economic cost in respect of unmilled paddy which was a claim of
FCI for sum of Rs.1,31,39,768/- has been refused and the said part of the
award does not call for any interference inasmuch as none of the paddy was
either pilfered or diverted. This Court in FCI v. S. K. International [OMP
487/2011 decision dated 23rd October, 2018] has held as under:
"38. The intervening circumstances of notices for
open sale during the currency of the contract go to the
root of the matter insofar as it relates to implementation
of the contract by the millers. The documents on record
do demonstrate that a policy decision was taken not to
create distress for the millers due to various reasons, not
attributable to the millers and in view of the same the
decision for open sale with the preferential right to the
millers to buy was taken. The FCI cannot be seen to
argue that it is entitled to the price of the unmilled paddy
at the rates fixed by it and in addition it is entitled to 1 ½
times the rate of the paddy in the form of the economic
cost. Such a double benefit cannot be granted, especially
in cases where the millers have acted in a bonafide
manner.
39. The court cannot lose sight of the fact that
awards have to be passed in consonance with public
policy. The documents on record show that there were
various levels of consultation which went into the
decision to sell the paddy by means of open sale. This
shows that the Government had reconciled to the fact
that the best step to take was to sell in the market and
recover the cost of the paddy. Further the FCI was also
given a benefit of Rs. 120 crores by the Central
Government to compensate for the losses suffered by it.
This is evident from letter dated 29th March, 2000.
40. The initiation of arbitration claim against the
millers in the light of open sale notices and the
correspondence, which is set out in the present case,
clearly seems to be an erroneous step by the FCI against
the miller and the documents on record shows clearly
that even in the settlements entered into by FCI, it did not
insist on the 1½ times of the economic cost of paddy. FCI
is clearly being selective in the manner in which the
arbitration cases are being pursued for more than two
decades now. The FCI itself having taken a decision and
given the option to the miller to purchase the paddy or
having recovered the cost of the paddy by selling in the
open market, was clearly in the knowledge of the fact
that it had taken a policy decision consciously not to
press the claim of economic cost. Despite this, in the
arbitration proceedings it raised claims for the same
which are totally untenable - except in the case where the
millers had indulged in pilferage and siphoning off of
paddy. Thus, the claim of 1½ times of the economic cost
is not liable to be granted in favour of the FCI, in the
facts of the present case."
8. Insofar as the FCI's right to obtain the right price for unmilled paddy
as per the sale price in the open sale notice is concerned, the Arbitrator has
already taken that into consideration and has awarded a sum of
Rs.10,60,743/-. Insofar as the award of this amount to FCI is concerned, the
Miller has filed a challenge to the award in the District Court, Gurdaspur.
No interference is called for in the award in so far as the objections of FCI
are concerned. The petition is dismissed.
9. The miller will have to however reimburse to the FCI 50% of the
costs of arbitration, paid by FCI to the ICA, and as directed by the
Arbitrator.
PRATHIBA M. SINGH
JUDGE
DECEMBER 14, 2018/Rahul
