Food Corporation Of ... vs M/S Bharat Rice Mills(Bhatinda)
2018 Latest Caselaw 6848 Del

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*      IN THE HIGH COURT OF DELHI AT NEW DELHI
                                     Date of decision: 17th November, 2018
+                        O.M.P. 49/2014
       FOOD CORPORATION OF INDIA,BHATINDA                   ..... Petitioner
                         Through:     Mr. Mohan Lal Sharma, Advocate
                                      (M-9811537909).

                         versus

       M/S BHARAT RICE MILLS(BHATINDA)                   ..... Respondent
                     Through: None.

       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 27th August, 2013 passed by the Learned Sole Arbitrator.

2. The Petitioner - Food Corporation of India (hereinafter, „FCI‟) and M/s Bharat Rice Mills (hereinafter „miller‟) had entered into a milling agreement dated 17th October, 1994. Under the said contract, the miller was to mill the paddy and supply the rice to FCI. As per the contract, FCI had supplied 77730 bags (50524-50-000 quintals) of fine variety paddy to the miller for milling and to be delivered to FCI by 28 th February, 1995. It is claimed by FCI that the miller had milled only 29207 bags (18604-85-000 quintals) of paddy by 28th February, 1995. The balance paddy was not milled and had to be sold by FCI at a lower price pursuant to the open sale notice issued on 14th March, 1995.

3. The FCI, alleged breach of contract by the miller and invoked arbitration for failure to mill the paddy on or before 28 th February, 2018, claiming 11/2 times rate of the unmilled paddy as the economic cost. The miller on the other hand claims that it had performed its part of the contract satisfactorily and there was no unmilled paddy lying in its premises as it had sold by the FCI. It also referred to a zonal committee report which classified the cases of such kind into 3 categories which are:

 Category no.a - cases where NDCs are issued by the FCI;  Category no.b - cases in which the FCI has been able to receive the required percentage of rice and/or cash in lieu of rice for the rest of the paddy stocks resulting therein that FCI does not have any claim/demand from the miller;

 Category no.c - cases of pilferage/dispersal of stocks of their own without knowledge of FCI.

4. According to the miller, it squarely fell in category (b) of the report, which reads as under:

"No. of cases where FCI has been able to receive the required percentage of rice and/or 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."

5. The miller argued that it fell in this category (b) and that FCI could not have raised any claim against it. The miller also relied upon the statement of balance paddy prepared by FCI, wherein under the column "balance paddy" the quantity shown to be due qua the miller was "NIL". The miller also relied upon the remark at the end of the statement which reads as under:

"Parties listed at Sr. No.4 to 7 and 11 to 26 of Goniana and Rampuraphul centres respectively misappropriated paddy but has subsequently deposited cost of paddy under open sale/ ......... (illegible) sale/rice delivered."

In this statement, the miller's name appeared at Sr. No.12 and as per the FCI's own admission they had deposited the entire balance paddy with the FCI pursuant to the open sale notice, and there was nothing due qua it.

6. In light of the above facts and circumstances, the Ld. Sole Arbitrator passed the following award:

"In view of the above discussion, it can be safely concluded that the claimant due to paucity of space in their go-downs, as a matter of policy, sold the unmilled quantity of paddy lying in the premises of the miller through open sale. The respondent, therefore, can not be held liable to hypothetically calculated loss by the claimant at one and hald times of the economic cost of paddy, as the unmiller paddy was sold at the then prevailing market rate/price."

7. This Court also 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.

8. 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."

9. The claim for damages has been rejected on the ground that the entire unmilled paddy which was lying in the premises of the miller was permitted to be sold through open sale. The Ld. Arbitrator therefore rightly rejected the claim for damages on the basis of 11/2 times the economic cost of paddy. Following the view in the FCI v. S.K. International (supra), there is no allegation of pilferage or siphoning off of the unmilled paddy in the present case. Thus, the claim for damages is rejected rightly.

10. The OMP is, accordingly, dismissed.

PRATHIBA M. SINGH JUDGE NOVEMBER 17, 2018 Rahul