Delhi High Court
Food Corporation Of India vs Mahavir Rice And General Mills And ... on 15 November, 2018
$~42 & 43
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: 23rd October, 2018
+ O.M.P. (COMM) 333/2016
NEELAM SHARMA ..... Petitioner
Through: Mr. Rajesh Chhetri, Mr. Pawan
Upadhyay, Mr. Rajeev Chhetri & Ms.
Meenakshi Rawat, Advocates (M-
9891675255).
versus
FOOD CORPORATION OF INDIA & ANR. ..... Respondents
Through: Mr. Paritosh Budhiraja, Ms. Surabhi
Maheshwari & Mr. Ashwani Ahuja,
Advocates for R-1 (M-9810100237).
AND
+ O.M.P.(COMM) 335/2016
FOOD CORPORATION OF INDIA ..... Petitioner
Through: Mr. Paritosh Budhiraja, Ms. Surabhi
Maheshwari & Mr. Ashwani Ahuja,
Advocates for R-1 (M-9810100237)
versus
MAHAVIR RICE AND GENERAL MILLS
AND PARTNERS ..... Respondents
Through: Mr. Rajesh Chhetri, Mr. Pawan
Upadhyay, Mr. Rajeev Chhetri & Ms.
Meenakshi Rawat, Advocates for R3
(M-9891675255) .
None for other Respondents.
CORAM:
JUSTICE PRATHIBA M. SINGH
Prathiba M. Singh, J. (Oral)
1. OMP (COMM) 333/2016 has been filed on 9th July, 2012 challenging
the award dated 27th January, 2012. The counsel for the Respondent submits
that the petition is not maintainable as it is filed beyond the period specified
in Section 34 of the Arbitration and Conciliation Act, 1996. The award
challenged in OMP (COMM) 335/2016 relates to the non-grant of interest
for the period 1st March, 1995 to 21st March, 2010.
2. Disputes arose out of an agreement dated 21st January, 1995 which
was entered into between the Petitioner and the Respondents. The same
relates to milling of paddy, which was to be done by the Respondents. FCI
had invoked arbitration and raised claims against the Respondents. Award
dated 27th January 2012 was passed by the Ld. Sole arbitrator. Operative
portion of the award is set out herein below:
"23.14 As discussed above, I allow the claim of
Rs.84,27,253 (Rs. Eighty four lakhs Twenty seven
Thousand and Two hundred fifty three only) in favour of
the claimant against the respondents towards shortage
and drainage suffered by the claimant on account of the
breach agreement dated 21st January, 1995 by the
respondents.
3. OMP (COMM) 335/2016 filed by the FCI is limited to the interest
component in the award. The claim of FCI was for interest @18% from 1st
March, 1995 till date of payment. The Arbitrator granted 18% p.a., but only
from 22nd March, 2010, i.e., from the date the Indian Council of Arbitration
issued notice to the Respondents.
4. A perusal of the award shows that the Learned Arbitrator had issued
notices to the partners of Mahavir Rice and General Mills (hereinafter,
'miller'). The first notice was issued on 22nd March, 2010 by registered post
where the endorsement was recorded at internal page 9 of the award that
Mrs. Neelam Sharma had refused to accept the notice. Subsequently, another
notice dated 14th May, 2010 was issued where the endorsement was "left".
Notice was also published in the newspapers in Punjab Kesary and Jagbani
on 30th September, 2010. Again in the Tribune on 16th December, 2010 and
in Jagbani on 16th December, 2010, notices were published. Thus, all steps
were taken by the Arbitrator to ensure that the millers are duly served in the
arbitration proceedings. However, the millers chose not to appear before the
Arbitrator leading to the ex-parte award. Insofar as the OMP(COMM)
333/2016 is concerned, as per page 19 of the petition, the Petitioner claims
that no copy of the award was ever received by the Petitioner. The relevant
para at page 19 is set out herein below:
"...
No copy of the Award qua the present matter is ever
received upon the Petitioner. The Petitioner came
across and received a photocopy of the award which
was annexed to the objection Petition filed by the FCI.
This is the only occasion where the petitioner came to
know about the arbitration proceedings which was
already decided ex-parte. The Petitioner has not got
any opportunity to defend his case on merits."
5. Mr. Paritosh Budhiraja, Ld. Counsel for the Food Corporation of
India (hereinafter, 'FCI') submits that the FCI had filed OMP 450/2012
which is now numbered as OMP (COMM) 335/2016. The said petition was
duly sent to all the partners of the miller. In fact, a perusal of the records of
the said OMP (COMM) 335/2016 shows that the petition was sent on 5th
May, 2012. Considering that the petition of FCI was served on Mrs. Neelam
Sharma only when it was sent on 5th May, 2012 by FCI, the present petition
is not time barred as it was filed on 9th July, 2005.
6. The question that thereafter arises is whether Mrs. Neelam Sharma
was proceeded ex-parte in the arbitration proceedings incorrectly. The
Learned Arbitrator had taken all steps to serve Mrs. Neelam Sharma who
obviously, with complete knowledge, failed to appear in the arbitration
proceedings. Thus, the award is not liable to be set aside on the ground that
Mrs. Neelam Sharma was wrongly proceeded ex-parte.
7. However, this Court is now examining the matter on merits. In the
present case, the parties had entered into a milling contract dated 21st
January, 1995 for storing and milling of paddy. The miller was supplied a
total quantity of 25631 bags (16658-95-00 quintals) of paddy. Against the
paddy supplied, the miller supplied only 2220 bags of rice (1414-17-900
quintals) by 31st May, 1995. Thus, there was a balance of 15229.52.200
quintals of paddy lying with the miller
8. The FCI issued a notice for the sale of unmilled paddy in the open
market. Option was given to the miller to purchase the same. However, the
miller did not purchase the said paddy. Thus, the FCI retrieved
15229.52.200 quintals of paddy and sold the same in the open market.
Since, the unmilled paddy was simply sold, without the FCI being able to
sell the same duly milled and converted into rice, the FCI raised claims at
1½ times the economic cost of paddy as per the contract and approached the
Indian Council of Arbitration for appointment of an arbitrator.
9. This Court has had the occasion to deal with a similar matter of the
same season 1994-95, in FCI v. S. K. International [OMP 487/2011
decision dated 23rd October, 2018] (hereinafter, 'FCI v. S.K.
International'). The facts, in the present case, are similar to the said case.
After a perusal of the various policy decisions of the government, the
various circulars issued, etc., this Court has arrived at the following
conclusions/findings:
a. That during the season of 1994-95 a large number of contracts of
similar nature were entered into;
b. Though the paddy was stored in the miller's premises, but it was in
joint custody of the miller and FCI;
c. That several millers had milled the paddy but FCI could not accept the
supplies of the rice for various reasons.
d. Various policy decisions were taken, pursuant to which the
government decided to issue notices for open sale of unmilled paddy.
The said open sale notices were issued in March, 1995 and August,
1995.
e. Pursuant to the said open sale notices, several millers purchased the
unmilled paddy or the same was sold in the open market.
f. Question of award of damages would have arisen if there was a
breach of contract, whereas there was a supervening circumstance
before the completion of the contract period i.e. the purchase under
the open sale notices.
g. The Government also took policy decisions to enter into settlements
with the millers.
h. Insofar as the millers, who had purchased the paddy was concerned,
no legal claims were to be pursued against them.
i. Primarily legal claims were to be pursued against the millers who had
pilfered or siphoned off unmilled paddy.
j. In several cases, no dues certificate and settlements were entered
into.
10. Under these circumstances, in FCI v. S. K. International (supra), this
Court 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."
11. Apart from this, as per letter dated 8th November 2005, referred to in
FCI v. S. K. International (supra) the clear understanding was that in cases
where disputes were settled, no arbitrations were to be initiated. The said
letter reads as under:
"FOOD CORPORATION OF INDIA
REGIONAL OFFICE: PUNJAB
BAY NO.34-38, SECTOR 31-A
CHANDIGARH
No.D/22(4)/Paddy-sh-cum-stg./ICA-corres/
94-95/Vol.III/
Dated :- 08-11-2005
The District Manager,
Food Corporation of India,
Distt. Office,
Amritsar/Bhatinda/Chandigarh/Faridkot/
Ferozepur/Gurdaspur/Jalandhar/
Ludhiana/Patiala & Sangrur.
Sub:- 374 Paddy shelling cases pending
with ICA New Delhi relating to
Paddy shelling contract 1994-95
...regarding.
Sir,
Kindly refer to the communication on the
subject cited above.
In this context, it is informed that the above
matter has been examined in this office in
consultation with AGM(Legal) and Finance(local).
The photo copy of relevant noting sheet. Report of
Zonal Office Committee dated 24.8.04 & letter of
Zonal office No.Proc.30(64)Rice Millers of Ph/94-
95/05/NZ/Vol.XII dated 14.10.05 are enclosed
herewith.
The detailed list of Arbitration cases as
mentioned in Zonal Office Committee report is
given under:
(a) No. of cases where NDCs have been already
issued - 73 cases
(b) No. of cases where FCI has been able to
recover the required percentage of rice or
also also cash in lieu of rice for the rest of the
paddy stocks resulting therein that FCI does
not have any claim/demand from the party =
261 cases
(c) No. of cases consequent upon
pilferage/dispersal of stocks by the parties at
their own without knowledge of FCI. FIRs
were filled followed by court cases both
criminal cases/ recovery suits - 40 cases."
Negotiations may be held with these 40
millers who wish to deposit FCI claim for settling
the long pending dispute out of court/Arbitration.
You are therefore, requested to examine each
and every case in the light of direction imparted by
the Committee report of Zonal office and further
requested to get compromise petition from such
rice millers in consultation with FCI empanelled
Advocate to be submitted to ICA indicating
security deposits. After that take up the matter with
ICA for refund of tentative amount deposited with
ICA in each case for FCI share. The above said
process be completed within fortnight positively.
Further requested to furnish party-wise(details as
listed) under Col.A.B & C details of cases to this
office immediately.
Encls:- Photo copy of Zonal office
Committee report.
2. Photocopy of letter no. Proc.
30(64)Rice Millers of
Ph/94-95/05/NZ/ Yours faithfully,
Vol.XII dt 14.10.2005
Sd/-
Assistant General Manager (Comml.)
for Regional Manager"
The said settlements were to be out of court/Arbitration. However, despite
the same, arbitrations were initiated and claims were pursued.
12. In the present case, ld. Counsel for the Mrs. Neelam Sharma has
specifically relied upon a statement which was generated by the FCI, which
showed that there were no dues qua the miller M/s. Mahavir Rice and
General Mills. The note appended below the said statement is relevant and is
extracted below
"REMARKS:- In the cases where NDL's not yet
released, it is due to instructions received to lodge the
claims treating cutoff date 31.05.1995. However, the
parties had delivered either rice DR cost of paddy
against sale policy of paddy lying with them well
before 31.08.1995. However, nothing is recoverable
from them."
13. The fact that FCI settled with a large number of millers is not in
dispute. In some cases, the settlement amounts have been less than 10% of
the claimed amount due. Since the entire unmilled paddy has been sold
pursuant to the open sale notices and there is a clear statement
acknowledging that there are no dues from this miller, the award is not
sustainable and is liable to be set aside. OMP (COMM) 333/2016 is allowed.
14. In view of the findings above, the challenge by FCI to the award,
accordingly fails. OMP (COMM) 335/2016 is dismissed.
PRATHIBA M. SINGH, J.
OCTOBER 23, 2018
Rahul
