Delhi High Court
Food Corporation Of India vs M/S S.K. International Rice ... on 23 October, 2018
$~41
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: 23rd October, 2018
+ O.M.P. 487/2011
FOOD CORPORATION OF INDIA ..... Petitioner
Through: Mr. Deepak Dewan, Advocate.
versus
M/S S.K. INTERNATIONAL RICE MILLS,
GURDASPUR ..... Respondent
Through: Mr. Ajay Gaind & Mr. Abhy Gaind,
Advocates (M-9818634415).
CORAM:
JUSTICE PRATHIBA M. SINGH
Prathiba M. Singh, J. (Oral)
1. The present petition under Section 34 of the Arbitration and
Conciliation Act, 1996 arises out of award dated 24th February, 2011 passed
by the learned sole arbitrator under the aegis of the Indian Council of
Arbitration.
2. Briefly stated the facts are that an agreement for milling of paddy was
signed by the Food Corporation of India (hereinafter, 'FCI') with M/s S.K.
International Rice Mills (hereinafter, 'miller'), on 13th October, 1994. The
miller was supplied 37010 bags (24038-06-000 quintals) of superfine variety
of raw paddy and 9539 bags (6193-85-000 quintals) of common variety of
paddy. The paddy was understood as being in the joint custody of FCI and
the miller.
3. The miller had to undertake the milling of the paddy and supply rice
back to the FCI. The process of milling was to be completed by 28th
February, 1995 which period was thereafter extended to 31st May, 1995.
During the currency of the contract, the miller returned 6250 bags (5926-75-
000 quintals) of superfine variety rice and 2496 bags (2362-47-000 quintals)
of common variety of rice by 31st May, 1995 to FCI. The quantity milled by
the miller was 13,991 bags (8,912-40-000 quintals) of superfine variety and
5454 bags (3474-22-000 quintals) of common variety. The unmilled
balance available with the contractor was 23,019 bags (14943-77-700
quintals) of superfine variety paddy and 4085 bags (2648-72-800 quintals)
of common variety paddy. The time for milling was extended till 31st May,
1995.
4. However, prior to that, due to various reasons, the Government
decided to resort the open sale of unmilled paddy. This is clear from a letter
written by the Government to Managing Director, FCI, which is extracted
herein below:
"Copy of Government of India's letter No.8/(1)/95
DR-III, dated 14th March, 1995 addressed to
Managing Director, FCI, New Delhi.
---
Subject: - Open sale of paddy procurement in
Punjab in Kharif season 1994-95.
---
In supersession of this Ministry's letter of
even number dated 13th March, 1995, I am
directed to convey the approval of this Ministry to
dispose of the stocks of the paddy procured in
Punjab during the Kharif season 1994-95 through
open sale subject to the following conditions: -
1) The open sale would cover the fine and
superfine paddy in the custody of both FCI
and State Agencies.
2) The sale of paddy is permitted at the
minimum price of Rs.442/- per Qtl. plus
taxes for superfine variety and Rs.422 plus
taxes for the fine variety. The above prices
are inclusive of the cost of gunny.
3) The sale of paddy in lots exceeding 100 MTs
would be allowed;
4) The rice procured from this paddy would be
exempted from levy. The Punjab
Government would amend their levy order
accordingly.
5) The sale of paddy would cover the stock
procured in the kharif season 1994-95 only;
6) The sale will be open to all the interested
parties for any quantity without any ceiling
limits;
7) The sale will not adversely affect the issue of
stocks for the PDS or RPDS and other
welfare programmes.
It is expected that the sale of paddy will help
in the creation of storage space for storing
incoming wheat and also help in disposal of
accumulated stocks which otherwise FCI may have
to carry for over two years or more."
5. Pursuant to the above letter, an open sale notice was issued on 14th
March, 1995, which reads as under:
"FOOD CORPORATION OF INDIA
PUNJAB REGION: CHANDIGARH
OPEN SALE OF PADDY
In consequence of the appointment of the
FCI as the nodal agency for organising the sale of
superfine and fine varieties of paddy procured and
stored in the State of Punjab during the Kharif
season 1994-95by FC, Department of Food and
Supplies, Government of Punjab; MARKFED,
PUNSUP and Punjab State Warehousing
Corporation, interested parties are invited to
purchase the abovementioned paddy at Rs. 442/-
(Rupees Four Hundred and Forty Two only) plus
taxes per quintal for superfine variety and Rs.
422/- (Rupees Four Hundred and twenty Two only)
plus taxes per quintal for fine variety. The above
princes are inclusive of cost of gunny but tax at the
rate of 4.4% on the cost of the gunny shall be
levied for the sale of the abovementioned paddy
within the State of Punjab and additional CST at
the rate of 4% on the differential of paddy sale and
purchase price shall be payable in the event of the
sale of the abovementioned paddy to buyers from
outside the State of Punjab. The paddy stocks shall
be subject to all applicable Central/ State laws on
the subject. The sale of paddy shall be in a lot of
exceeding 100 (one hundred only or above) MTs
without any upper limit, subject to availability. The
resultant rice milled out of the above mentioned
paddy thus sold shall be exempted from levy. The
State Govt. have been requested to amend the levy
order accordingly. It is open to the buyers to
inspect paddy stocks before submitting the offer.
The paddy will be issued after sale on actual
weighment basis on receipt of 100% pre-payment
of the total sale price on 'first-come first served'
basis, except in cases where the stocks are stored
in miller's' premises where the concerned miller
may be given the first preference in case he desires
of purchasing such stocks within the time limit to
be prescribed by the SRM, Punjab. Interested
parties may submitoffers on plain paper to the
Dist. Manager, FCI of the District where the
paddy sought to be purchased is stored along with
such particulars as details as the department/
agencies to which the paddy belongs, name of the
district, name of the centre, name/ identification of
the storage point, stock identification particulars,
variety and quantity sought to be purchased. While
submitting their offers, the interested portion
should take remittance of full value of the
quantities they intend to purchase in the form of
Bank Demand Draft in favour of the Food
Corporation of India. The decision regarding
acceptance/ rejection of the offer shall be made in
consultation with the Department of Food &
Supplies, Govt. of Punjab/ State agencies wherever
necessary within seven working days of the date of
receipt of the offer. In case of rejection of offer, the
amounts so received from the parties concerned
shall be refunded immediately without an interest
or other liability. The party having purchased the
paddy shall be required to get the paddy issued
and / or lifted as the case may be within 10 days of
the date of issue of the release offer, failing which
SRM, FCI reserves his right to dispose of the
balance stocks at the risk and cost of the defaulting
buyers. The deliveries shall be on the free on truck
(FOT) basis wherever required. Orders without
the prescribed Bank Demand Draft of full payment
shall not be entertained. SRM, FCI Punjab Region
reserves the right to reject any or all offers without
assigning any reason whatsoever or to close the
sale at any time without notice.
B. PATIALA, FARIDKOT, JALANDAR
SH.AK SATIJA, AM(COMP.)
C. AMRITSAR, GURDASPUR, FEROZPUR
SH, RAMESH KUMAR, AM(STG)
D. LUDHIANA, BHATINDA, CHANDIGARH
SH. NEGI, AM(OC), NO, PB.
THE ASSTT. MANAGERS WILL DEAL
WITH THE OFFERS RECEIVED GROUPWISE,
SEPARATE THE DEMAND DRAFTS FROM THE
OFFER LETTERS AND PREPARE A
STATEMENT OF D.DS RECEIVED TO BE SENT
TO CASH SECTION OF RO PUNJAB FOR
ACCOUNTAL. THE ASSTT. MANAGERS WILL
ALSO ENSURE COMIPLATION OF THE
DISTRICTWISE DETAISLOF OFFERS
RECEIVED AND PREPARATION OF
STATEMENTS BY 10 AM EVERYDAY TO BE
PLACED FOR THE PERUSAL/ ORDERS BY THE
SRM."
6. While the open sale notice was in operation, the Government took a
further decision to extend the contract with the millers from May, 1995 and
August, 1995 in case of those millers who expressed interest to mill the
paddy. The said decision dated 14th August, 1995 reads as under:
"THE FOOD CORPORATION OF INDIA
REGIONAL OFFICE, PUNJAB,
CHANDIGARH
No.10/22(4)/P.Sh/Policy/94-95
Dated: -14.8.95
The Distt. Manager.
Food Corporation of India,
DO, Amritsar/Bhatinda/Chandigarh/
Pathankot/Ferozpur/Gurdaspur/
Hoshiarpur/Jalandar/Kapurthala/
Ludhiana/Patiala/Sangrur
Sub:- Grant of Extension in paddy milling
contracts ........reg
Sir,
The matter with regard to the extension of
contracts in paddy milling has been
examined/reviewed & it has been decided that the
period of milling of paddy be extended upto
31.8.95, if a miller is willing to mill FCI paddy but
has suffered delay due to reasons beyond his
contract, FCI will have to be liberal. However,
exceptions shall have to be made in case of those
millers who are defiant in view of their agitation
due to no implementation of CFTRI Report.
Action be taken accordingly.
Yours faithfully,
Sd/-
Joint Manager (Comml.)
For Sr. Regional Manager.
Copy to: -
1. The Dy. Manager (QC), FCI, RO (PB)
Chandigarh.
2. The Dy. Manager (A/cs) FCI, RO(PB)
Chandigarh.
3. PA to RM, M (F&A)/(S&C) FCI, RO(PB),
Chandigarh.
4. PA to SRM."
7. Simultaneously, another open sale notice was issued on 23rd August,
1995, which is extracted herein below:
"From
Director Food Supplies and
Special Secretary to Govt. Punjab
To
All plstt. Food & Supplies Controllers in the
State.
Memo No. RP-I (455-Part file) - 95/2357
Dated, Chandigarh 23.8.95.
Subject:- Open sale of paddy during 1994-95.
In partial modification of Head Office Memo
No. RP-I (455-Part file) - 95/2341 dated 21.8.95
on the subject cited above, Government of India
has approved disposal of unmilled stocks of paddy
belonging to state and its agencies which is lying
with Rice Millers Dealers at the following revised
rates:-
Fine: Rs. 375/- per quintal plus taxes.
Superfine: Rs.395/- per quintal plus taxes.
All other conditions for the sale/issue of paddy
stocks will be one same as conveyed vide Govt. of
India's letter dated 14.3.95, copy of which is
enclosed.
Sd/-
Deputy Director (Procurement)
For Director Food & Supplied
Punjab.
Ends.No.RP-(455-Part file)-95/2358 Dated
23.8.95
A copy of the above is forwarded to:-
1. Deputy Director (Field) Ferozepur, Jalandhar
and Patiala.
2. Controller Food Accounts.
Sd/-
Deputy Director (Procurement)
for Director Food & Supplies Punjab.
Endst.No.RP(455-Parte file)-95/2359 dt. 23.8.95
A copy of the above is forwarded to: -
1. Managing Director, Market (2) Managing
Director, Punsup. 3. Managing Director, FCI."
8. Thus, while on the one hand the time for milling was being extended,
initially until May 1995 and thereafter till August 1995, simultaneously open
sale notices were also issued for sale of the unmilled paddy. Thus, the
milling of paddy was no longer considered essential by the Government
itself, for various reasons.
9. The miller in the present case, entered into correspondence with the
FCI for the purchase of paddy pursuant to the open sale notices. The miller
wrote letter dated 15th May, 1995 informing the FCI that it had milled some
part of the paddy but the FCI was not accepting the delivery of the same. In
view thereof, the miller expressed his interest to purchase the paddy, in the
following terms:
"REGD
BATALA 15/5/1995
SKI/Paddy/Shelling/Crop/94-95
District Manager,
Food Corporation of India,
Gurdaspur
Sir,
In response to your letter dated 27-4-95 and
a telegram received from your Food Store Batala,
by which you are pressing hard to deliver the
resultant Rice against the paddy lying with us. In
this respect we may bring to your notice that the
paddy lying in our mill for shelling has not been
purchased under the required specifications and
the rice produced out of this paddy is not being
accepted by the FCI Deptt staff at Batala. Two
consignments of rice are lying dumped at the SWC
BAT-I since 17/4/95, out of which 125 bags were
lifted and headed for Jammu. We have not been
given any receipt by the concerned officials so far.
Under the prevailing circumstances we are
totally helpless to deliver your rice stocks. Please
let us know as to what is the rate of paddy super
fine and common, if we so wish to purchase it.
Thanking You,
Yours faithfully,
Sd/-
S.K. International Rice Mills.
C.C. to A.M. Depot Unit-III
For information and n/a."
10. As per the above letter, therefore, the miller offered to purchase the
paddy. Another letter written by the miller on 1st June 1995 shows that the
FCI was in fact guilty of misleading and creating huge amount of distress to
the millers. The said letter reads as under:
"From:-
S.K. International Rice Mills,
Aliwal Road, Bye Pass,
BATALA.
To
The Senior Regional Manager
Food Corporation of India, Punjab Region
Chandigarh
Sub:- Storage of FCI Paddy in our Mill
premises during crop year 1994-95.
Offer to deposit the cost of balance
paddy.
Respected Sir,
With due respect we bring to your kind
notice the following facts and figures relating to
the paddy stored by the FCI in our Mill premises
during crop year 1994-95 and the harassment
being meted out on us due to the reasons which are
un-understandable.
1. Due to shortage of space FCI decided to
store the FCI's Paddy in the Rice Mill premises
during crop year 1994-95. We offer storage and
milling of FCI paddy up to 2000 MT.
2. When the purchases of paddy by FCI
exceeded its target, we were forced to store
additional quantity of 1000 MT. of Paddy.
3. That we started milling and delivery of
resultant rice as per the terms and conditions of
the agreement, executed between us and the Food
Corp. of India.
4. As per agreement We were to mill entire
paddy up to 28.2.95 and we started milling of
Paddy and delivery of resultant rice as per the
target, terms and conditions of agreement.
5. During the month of Jan. 1995 and Feb.
1995 some special squads visited Gurdaspur
District for inspection of rice stocks i.e. levy and
custom milling.
6. The squads were authorised to inspect rice
consignments taken by FCI after Dec. 1994.
7. Due to the fear that any consignment of rice
may not fall below the prescribed specifications,
the technical and depot staff refused to accept new
consignments on one pretext or the other. This
halted the process of milling the FCI paddy.
8. In the mean time assessing that rainy season
was approaching we insisted FCI officers a
number of time through our various
representations dated 10-3-1995, 21-3-95, 27-3-
95, 4-4-95, 10-4-95, 20-4-95, 26-4-95, 1-5-95 and
15-5-95 (copies enclosed for reference), that since
the resultant rice was not being accepted due to
the reasons which were well in the notice of
District Manager and Senior Regional Manager
Punjab and had represented to take delivery of
resultant rice at a number of times rice
consignments were dumped in FCI godowns but
the so were rejected without making any inspection
either by the depot staff or the technical staff. For
instance, we dumped rice in FCI depot at Batala-I
on 17-4-95 which remained dumped there for
about three months and we were forced to lift
without making any inspection.
9. The FCI introduced a policies to sell the
Paddy at fixed rate of Rs.442/- per Qts. for
superfine paddy. We were forced to make purchase
of paddy by the local FCI staff and we deposited
the cost and received 100 mt paddy superfine.
10. The FCI introduced a policy for sale of
paddy stored in the Mill premises and we offered
to purchase the entire paddy i.e. superfine and
common stored in our Mill premises. A copy of our
offer against tender enquiry dated 16-6-95 is
enclosed herewith ( AS annexure - 'A')
11. Till the time 1300 MT. paddy superfine and
200 MT. paddy common remained balance in our
mill premises as unmilled and unpurchased and we
offered to purchase the same.
12. The FCI accepted our offer to purchase
1300 MT. paddy superfine @ 413/- per Qts. (copy
enclosed as Annexure-'B')
13. We deposited the cost of entire paddy
purchased by us, i.e. 1300 MT. and the District
Manager FCI Gurdaspur issued release orders for
lifting this paddy. (Copy enclosed as Annexure -
'C')
14. The offer to purchase IR-8 paddy against
tender enquiry dated 16-6-95 is still lying in FCI
Headquarters awaiting decision by the authorities
concerned.
15. That we are enclosing herewith a balance
sheet (Annexure - D) giving details of total paddy
store (variety-wise) in our mill premises, paddy
milled and rice delivered, paddy purchased @ Rs.
442/- per Qtl. and paddy purchased by us against
tender enquiry dated 16-6-95 and balance paddy
still lying in our mill premises.
16. That floating all the norms and principles
and ignoring all documents even issued by the FCI
offices, the District Manager FCI Gurdaspur has
served a notice to us to deposit 9200000,/- (Ninety
two Lacs) against unmilled paddy.
17. That vide our request dated 18-12-95 (copy
enclosed), we requested DM FCI Gurdaspur as to
how this amount has been calculated, but since
then nothing has been conveyed to us in writing.
However, unofficially it is gathered that FCI has
claimed one and half time the economic cost of not
only the balance IR-8 paddy but also for the
paddy, we have already purchased on FCI's offer
and for which release orders meant for lifting of
paddy by us have also been included.
18. Despite repeated request to DM Gurdaspur
and SRM Punjab to give justice, nothing has been
done in this regard and the records/calculations
made at District Office Gurdaspur level, have been
hidden as the records maintained by a private
concern and not by the public enterprise.
19. The concealing of the facts and figures and
all related matters and its the purposes are not
understandable by us, but are best known to FCI
officers. Now, efforts are being made for getting
the case registered against us under criminal laws.
20. As per the terms and conditions of the
agreement all the matters of differences and
disputes are to be referred to an arbitrator for
adjudication. On the directions of Regional Office
Punjab, the DM FCI Gurdaspur has also initiated
the process of referring the cases to an arbitrator
and it is gathered that the matter is pending in the
zonal office (north) FCI headquarters.
21. That from the above we expect that you will
be judicious enough to consider that -
a) FCI officials failed to take delivery of
resultant rice due to the reasons best known
to them.
b) When the offer was made by FCI to us for
purchase of unmilled paddy we accepted it.
c) Till date we are ready to deposit the cost of
balance/unmilled paddy at the same rate,
which we offered against FCI's tender
enquiry dated 16-6-1994.
d) That FCI has been considering to refer the
case for arbitration.
e) That ignoring all the principles, norms,
terms and conditions of the agreement,
efforts are being made for registration of
cases under criminal laws simultaneously.
We request your kind honour to intervene and save
us from unnecessary harassment and kindly inform
us whether we may deposit the cost of remaining
paddy as requested above. This may save us as
also to the FCI from litigation. Hoping for an early
decision and intimation.
Yours Sincerely,
Enclosures as above.
Sd/-
for S.K. International
Rice Mills, Batala."
11. A perusal of the above two letters dated 15th May, 1995 and 1st June,
1995, shows that the miller repeatedly tried to mill the paddy and deliver the
rice. But FCI was not taking the rice due to its own internal issues. On at
least one occasion, the miller who had supplied the rice had to take it back
as inspection of the rice was not being conducted by the FCI inspectors.
Under those circumstances, the miller started purchasing the unmilled paddy
by paying the advertised rate. The miller expressed huge grievance about the
criminal cases being pursued against the millers in spite of the reasonable
steps having been made by the miller to FCI and no fault lying with the
miller.
12. The FCI then responded to the letters of the miller on 16th June, 1995
in the following manner.
"THE FOOD CORPORATION OF INDIA
DISTRICT OFFICE
GURDASPUR
No.D/22(4)/P.sh/94-95/
Dated:-16.6.1995."
M/s S.K. International Rice Mills ......
Sub:- Milling of FCI paddy stored in the mill
premises - ........regarding.
Sir,
Reference this office registered Notice of
even no.1714 dated 25.5.1995 regarding delivery
of balance rice due against paddy IR-8 and PR-
106 stored in your mill premises. You are also at
the choice to deposit the cost of paddy S/Fine if
you are interested for the same. But you have
neither delivered the balance rice nor deposited
the cost of paddy S/fine sofar.
You are once again requested to deliver the
balance rice IR-8 and PR-106 or deposit the cost
of paddy S/fine within three days of the issue of
this letter otherwise the legal action will be
initiated against you as per terms and condition of
the agreement.
Yours faithfully,
Sd/-
District Manager"
13. Consequent to the open sale notices, the miller purchased various
quantities of unmilled paddy on various dates, details of which, inter alia,
are set out below:
Dates Quantity (in Amount paid (in
Quintals) rupees)
20th July 1995 2600-00-000 5,36,900/-
25th July 1995 2600-00-000 5,36,900/-
3rd August 1995 2545-00-000 5,36,900/-
19th August 1995 2560-00-000 10,73,800/-
15th September 1995 2540-00-000 5,36,900/-
14. Thus, a substantial stock of unmilled paddy was bought back by the
miller and the remaining was sold by FCI in the open market. Out of the
14943 quintals of superfine variety, the miller had bought back 12845
quintals which was quite substantial. The representation made by FCI in the
above letter is clear - either purchase the stock or legal recourse will be
adopted - meaning thereby if the Miller purchases the stock of unmilled
paddy, the disputes would come to a close.
15. After the miller had purchased the entire stock by paying the value for
the unmilled paddy, FCI invoked arbitration. There were various issues as to
the manner in which the arbitration was to be conducted and whether the
arbitration clause itself survived. The Supreme Court, vide order dated 17th
July, 2003, referred all the matters of the FCI to the arbitration under the
aegis of the Indian Council of Arbitration. The relevant portion of the order
of the Supreme Court in Food Corporation of India v. Indian Council of
Arbitration AIR 2003 SC 3011 reads as under:
"15. Keeping into consideration all these aspects
we consider it just and more appropriate, proper and
reasonable - both in law and in equity and interests of
justice to direct ICA to forthwith and not later than
sixty days from this date nominate the arbitrator as
sought for by the appellants and place the matter
before such arbitrator, leaving open to the parties to
raise and pursue all objections and contentions and
thereby seek for the decision of the arbitrator as
envisaged under Section 16 of the 1996 Act, besides
getting adjudication of the respective disputes in these
cases on merits and in accordance with law. Both
parties will have leave and liberties to do so before the
arbitrator on being nominated/appointed by the ICA,
pursuant to these orders."
16. FCI filed its claims against the miller under various heads. The Miller
filed its pleadings and documents. The main claim of FCI was in respect of
the unmilled paddy and the recovery of economic cost of the same from the
miller. On this issue, the finding of the learned Arbitrator is as under:
"..... It appears that as the required work could
not be completed in time and then as the new crop
was expected to come the FCI decided to sell the
remaining un-milled paddy by open sale and the
Miller purchased the paddy at offered price. This
fact has been disclosed in the letter of S.K.
International dated 1st June, 1995. One more fact
which has been disclosed in para 8 of the
aforesaid letter is that the respondent had
represented to the claimants to take delivery of
resultant rice at a number of times and rice
consignments were dumped in FCI godowns but
these were rejected without making any inspection
either by the depot staff or the technical staff. One
consignment remained dumped for about three
months and then the respondent were forced to
take it back.
Due to paucity of space for new crop the
claimants took action to sell the paddy in open
market. All the terms and conditions relating to the
sale of paddy were conveyed by the Ministry's
letter dated 14th March, 1995. Due to this decision,
it appears, the claimants did not take any action as
per terms and conditions of the agreement to get
the paddy milled at the cost of the Miller or take
any other action by forfeiting the security deposit.
As per clause 16 the Sr. Regional Manager
reserves the right to terminate the agreement, to
withdraw from the contract and to do the recovery
for shortages of paddy and rice at 1 ½ times the
economic cost of equivalent paddy/rice. The
claimants did not give any notice also to the
respondent regarding any shortfall in the recovery
of rice, short supplied quantity of rice or shortage
in paddy rice.
In the above circumstances in my view both
the parties have committed fault- the respondent in
not adhering to the schedule of milling of paddy
and delivery of rice as per agreement as the onus
of ensuring the schedule was on him and the
claimants in not taking timely action to give any
notice of default to the respondent and in not
taking any action under clause 16 of the
agreement. The claimants sold the paddy in open
market in their own interest. As the decision to
sale the paddy was taken in the month of March,
1995, the rice hereafter, as appears from the
records, was not excepted by the claimants from
the miller. Though extension was given upto 31st
May, 1995, but no apparent action regarding
milling of paddy was taken by the claimants. Now
the want to claim the cost of that paddy at 1½
times of the economic cost, which keeping the
circumstances in view cannot be allowed.
Therefore the claim for Rs.1,52,07,889.63 towards
cost of balance paddy at 1½ times of the economic
cost is rejected."
The arbitrator held that though both parties were in breach, since the
unmilled paddy was sold by FCI, no damages can be recovered.
17. The main objection pressed in this petition is against the rejection of
the claim relating to 1½ times the economic cost of paddy.
18. Mr. Deepak Dewan, Advocate for FCI submits that the notice for sale
in the open market was issued because the next Kharif season was coming
and in order to ensure that there is a circulation in the market, a policy
decision was taken to retrieve the paddy lying with the miller and sell the
same in the open market. The sale in the open market was also forced due to
the fact that the millers did not mill the paddy and supply the rice as per the
contract. The Punjab & Haryana High Court in its judgement dated 30th
May, 1996 had permitted the FCI to sell the paddy in the market, but it was
without prejudice to FCI's rights to claim damages from the miller. It is his
further submission that the Arbitrator has failed to consider the contractual
terms and hence the same requires interference.
19. The learned counsel for the miller submits that as per the contract, 1 ½
times economic cost can be recovered only in the situations as are
contemplated under clauses 7, 8(iii), 9(i), and 16(c) of the agreement. It is
his further submission that under clause 13, the FCI having not forfeited the
security amount and having given adjustment of the same to the miller itself
proves that the miller is not guilty of breach of any terms of the contract. It
is his submission therefore that the Arbitrator was right in not awarding the
1½ times economic cost to the FCI.
Analysis and Findings
20. Before going into the rival contentions, it is necessary to set out some
of the terms of the Milling contract entered into between the parties. The
same read as under:
"2. The miller may associate himself at the time
of paddy purchases in the mandis and weigh bridges
to cross check its quality and quantity respectively.
Paddy shall be moved from mandis to mill premises
to be stored in joint custody of FCI and the miller
and the transportation and stacking operations in
mills premises shall be arranged and cost against
these operations shall be borne by the Food
Corporation of India.
The miller shall undertake storage of paddy in his
premises without claiming any storage and
preservation charges.
7. The miller shall be responsible for the safe
custody milling of paddy issued to him for/delivery
of rice, as per agreed and recovery of out-turn ratio.
Miller shall also take good and losses that my be
incurred in paddy/rice during transit/storage at 1.5
times the economic cost of the variety of paddy/rice
towards the shortfall.
8. i) The miller shall ensure that the resultant rice
after milling the paddy is aerated for 72 hours
before begging.
ii) The degree of polish given to rice shall be 3 to
5% and shall not contravene the provisions of Rice
Milling Industries (Regulation and Licensing) Rules,
1959 as amended from time to time.
iii) In case there is shortfall in the recovery of
rice the miller shall pay to the Corporation the cost
of paddy equivalent to the shortfall at the rate of 1 &
half times the economic cost of paddy.
iv) The by-products viz. Broken rice, rice kani,
nakoo, phak and rice bran etc., obtained in the
shelling of paddy shall be the property of the miller
and the Corporation shall have no responsibility in
regard to these.
v) The miller will be paid shelling and other
charges at the milling operations are completed and
the entire rice is delivered to F.C.I.
9. i) The entire quantity or ice of all variations
delivered by the miller to the Corporation shall
confirm to the specifications as fixed by the
Government of India as amended from time to time
in any other orders of NOTIFICATIONS issued by
Government of India from time to time. The stocks of
rice not confirming to the specifications so laid
down, shall be liable to be rejected in respect of
such quantity of rice which is not found to be within
specifications and the miller shall be liable to offer
fresh stocks of rice conforming to the specifications,
he shall be liable to the Corporation for the quantity
of rice short supplied at the penal rate of one and
half times, the economic cost of the converted
variety of paddy equivalent to the shortages. The
decision of the Sr. Regional Manager, Food
corporation of India, Punjab (hereinafter referred to
as the SRM) in his behalf shall be final.
ii) The stocks of rice shall also be subject to the
inspection of the staff of the Corporation at the time
of delivery. Any quality allowance determined in
FCI laboratory according to the specifications shall
be recovered from the millers.
iii) The miller shall complete delivery of rice
within 10 days of issuance of paddy to him and rice
due to the Corporation on the total quantity of paddy
issued to him or in joint custody released at regular
interval shall be delivered not later than 28th
February, 1995. The miller shall further ensure
milling of paddy and delivery of rice in the following
manner: -
October / November 20%
December 26%
January 26%
February 26%
However, in case the process of milling
is slowed down due to operational exigencies
beyond the control of Miller/SRM may consider and
extend the above mentioned milling schedule.
13. If the miller fails or neglects to observe or
perform any of his obligations under the contract, it
shall be lawful for Corporation to forfeit the security
after giving due opportunity and get the work
executed at the Miller's risk and cost and to adjust
either in whole or in part extra expenditure and or
the damages, if any suffered by the Corporation as
consequence from out of the security deposit
furnished by the Miller or in any other manner.
Save as aforesaid, if the Miller duly performs and
completes and Contracts in all respect and presents
an absolute 'No Demand Certificate' from any other
Officer / Official nominated by him for the purpose
and returns in good condition any property of the
corporation remaining with him, the Corporation
shall refund the security deposits to the Miller after
deducting all costs and all other expenses that the
Corporation may have incurred and all dues and
other money including all losses and damages which
the Corporation is entitled to recover from the
Miller.
Provided that if the loss of damage
exceed the amount of security deposit, Corporation
shall be within its right to recover the same in
accordance within the law.
16. The contract shall come into force with effect
from the date of execution of this agreement and
shall remain in force till the completion of milling.
The Sr. Regional Manager however reserves the
right.
a) To terminate the agreement with the
miller for shelling of paddy into rice at any time
during its currency without assigning any reasons.
In that event the miller shall render complete
accounts of paddy rice and gunny bags to the
corporation in its custody and also return the stocks
as per direction of the corporation.
b) To with draw from the contract at any
time the milling in respect of whole or part of the
stocks covered by the contract not yet lifted by them
if he considers it necessary to do so. The decision of
SRM in this regard shall be final and no claimed
shall be entertained against the corporation for any
loss of damage or suffered by the miller on the
account of such withdrawal of the work.
c) The miller shall be responsible to make
good all shortages in paddy, rice and gunny bags
that might occur while in his custody till the entire
stocks are returned. These shortages can with the
consent of the corporation be made good in kind
according to the specification and variety of paddy,
rice and gunny bags involved. In case the miller fails
to do so, recovery would be made form him for
shortages of paddy and rice at 1 & half times the
economic cost of equivalent paddy/rice according to
the variety involved."
21. A perusal of the contract reveals that the rights of the FCI to recover
1 ½ economic cost is provided only in clauses 7, 8(iii), 9(i), and 16(c). The
contract, is slightly contradictory in terms of the custody of the paddy. On
the one hand, in clause 2 of the contract, it is clearly mentioned that the
paddy is in the joint custody of the Miller and FCI but, in the other clauses,
they seem to suggest that the storage and safe custody is that of the miller.
Be that as it may, the fact remains that only in case the miller is in breach,
the economic cost @1 ½ times is recoverable.
22. Before going into the legal issues, it is clear from the analysis of the
correspondence that the miller was given a choice to, either mill the paddy
and supply the rice, or purchase the paddy itself. The miller in the present
case, chose the latter. Thus, upon the purchase being made, no claims could
have in fact been filed by the FCI against this miller. The clear
representation of the FCI in its letter dated 16th June, 1995, was that if the
miller purchased the paddy, no legal claims would be raised.
23. According to the Miller, the claim of 1 ½ times charge could be raised
only in the following circumstances:
"11.Claim of 1½ times charge preferable only
under Clause-7; 8(iii) and 16(c)
A. No rice milled at respondents risk and
cost.
B. Paddy continued to remain in joint
custody, no loss occurred in paddy/rice during
transit, Clause-7 not applicable.
C. No shortfall in recovery of rice, rice
milled appropriately accounted for. Rest of the
paddy sold in open market, as per FCI directions
without notice of withdrawal of same. No shortfall
under Clause 8(iii).
D. No failure under clause 16(c) attributed
to respondents; no shortage of paddy claimed.
Stocks could not be returned, as they were sold by
claimants in open market. On the said account also,
no loss attributable to answering respondents."
24. None of the above circumstances arose, as per the miller and since the
clause is penal in nature, it has to be strictly construed. The specific defences
of the Miller include:
i. That as per clause 9, though the paddy was stored in the
Miller's premises, the same was in joint custody but was under the
watch of the FCI. It was only when the FCI specifically released the
paddy, that the miller could mill the same. There is nothing on record
to show that the specific release orders were issued for milling at the
prescribed time;
ii. The quality of paddy released was also not appropriate leading
to change in the quality of rice that could be supplied. A decision was
in fact taken by the Government to reduce the quality of rice to be
supplied. This decision was taken only in May, 1995;
iii. The FCI committed breach of contract by announcing open sale
of the unmilled paddy on 14th March 1995;
iv. The unmilled paddy was sold by the FCI at a profit margin
which has not been accounted for;
v. There was no shortage of the unmilled paddy at the miller's
premises;
25. Apart from the correspondence with the miller, which are specific to
the present case, another important fact which is evident from the
correspondence and the documents on record, is that FCI was quite
conscious of the various issues faced by the millers. The main grievance of
FCI was only in respect of those parties who had indulged in pilferage and
siphoning off of unmilled paddy. This is clear from a letter dated 8th
November, 2005 sent by FCI, Chandigarh to all the District Managers of
FCIs located across Punjab. 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"
26. A perusal of the above letter shows that in respect of a large number
of millers No Due certificates had been issued; in respect of several millers,
settlements have been entered into and only 40 cases were those of millers
who had indulged in pilferage. Thus, broadly there were three categories of
millers:
i. Millers to whom No Due Certificates have been issued - 73 cases
ii. Millers in respect of whom FCI was able to recover 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 - 261 cases
iii. Millers who had committed pilferage/dispersal of stocks without the
knowledge of the FCI wherein FIRs were filed followed by civil suits
and recovery suits - 40 cases
Thus, in cases where rice was partly supplied and cost of unmilled paddy
was recovered, the FCI would not have any claims.
27. A number of settlement deeds have also been placed on record, which
show that the FCI had settled with millers on 20 to 30% of 1½ times
economic cost. The illustrative list of such settlements, which are placed on
record, as under:
i. M/s Vimal Sakhari & Brothers, Batala, where the 1 ½ times rate
worked out to Rs. 1,09,456/- the dispute was settled for Rs.
28,530/-. This was a case where the miller had committed pilferage
of the stock.
ii. M/s. Abrol Industries Rice Mills, Batala where the 1 ½ times rate
worked out to Rs.3,97,780.17/- the dispute was settled for
Rs.76,026.43/-. This was a case where the miller had committed
pilferage of the stock.
iii. M/s Ashoka Rice Mills, Batala where the 1 ½ times rate worked out
to Rs.3,59,457.47/- the dispute was settled for Rs.31,657/-. This
was a case where the miller had committed pilferage of the stock.
iv. M/s Shiv Shakti Rice & General Mills, Batala where the 1 ½ times
rate worked out to Rs.19,84,476.36/- the dispute was settled for
Rs.41,388.06/-. This was a case where the miller had committed
pilferage of the stock.
28. Thus, insofar as the millers who were given the option to purchase the
unmilled paddy are concerned, no arbitration was to be commenced by FCI.
The letter to the miller dated 16th June, 1995 is absolutely clear i.e. that the
miller could deposit the cost of paddy, failing which, legal action was to be
initiated. The miller, in the present case, had purchased the paddy in the
open sale with a clear understanding based on the representation of the FCI
that if he did not purchase the unmilled paddy, legal action would be
commenced. The question that, therefore, has arisen is as to whether by
issuing the open sale notice, by giving an option to the miller to purchase the
unmilled paddy, by issuing no demand certificates, by entering into the
settlements, had not the FCI waived its rights to claim damages from the
millers.
29. The Government's policy, for whatsoever reasons, which could
include the lack of storage space for the upcoming season, unrest among the
millers, lack of storage space for storing rice, issues with quality of paddy,
had taken a policy decision to conduct the open sale of the paddy.
30. The millers were permitted to purchase the unmilled paddy, which
were lying in their own premises at the rate fixed by FCI and were, in fact,
to be given the first preference to purchase the entire quantity of balance
paddy. The milling contracts were extended till May, 1995 and in some
cases till August, 1995. Simultaneously, the open sale notices were also in
operation. It is, therefore, clear that the millers had the option of either
abiding by the milling contract that they had executed with the FCI or
alternatively could pay the cost of the unmilled paddy and use the paddy for
their own consumption/sale. It was never in the contemplation of the millers
that even though they purchased the paddy, they would still be liable to pay
1½ times the economic cost. This is not reflected in the correspondence. In
fact, the representation by the FCI has been to the contrary.
31. The FCI has not alleged in the present case that any amount of the
paddy was either siphoned off or not retrieved in the present case. The entire
balance paddy was retrieved and was sold either to the miller or in the open
market at the price fixed in the sale notice. Once the price of the paddy was
fixed @ Rs.402/- for common variety and Rs.442/- for superfine variety by
the FCI itself, damages at a higher rate cannot be awarded in favour of the
FCI. Moreover, the intervening act of the Government in issuing the sale
notice also resulted in a situation wherein the miller could no longer mill the
paddy inasmuch as the first sale notice was issued in March, 1995 itself.
32. The 1 ½ times economic cost was, as per the relevant clauses of the
contract, a penal rate. It is the settled law as per the judgment in Oil and
Natural Gas Corporation v. Saw Pipes (2003) 5 SCC 705 that any amount
in the nature of penalty cannot be imposed or claimed unless and until the
same is proved in accordance with Sections 73/74 of the Indian Contract
Act, 1872. The relevant observations of the Supreme Court are extracted
below:
""68. From the aforesaid discussions, it can be
held that:--
(1) Terms of the contract are required to be taken
into consideration before arriving at the
conclusion whether the party claiming damages is
entitled to the same;
(2) If the terms are clear and unambiguous
stipulating the liquidated damages in case of the
breach of the contract unless it is held that such
estimate of damages/compensation is
unreasonable or is by way of penalty, party who
has committed the breach is required to pay such
compensation and that is what is provided in
Section 73 of the Contract Act.
(3) Section 74 is to be read along with Section 73
and, therefore, in every case of breach of contract,
the person aggrieved by the breach is not required
to prove actual loss or damage suffered by him
before he can claim a decree. The Court is
competent to award reasonable compensation in
case of breach even if no actual damage is proved
to have been suffered in consequence of the breach
of a contract.
(4) In some contracts, it would be impossible for
the Court to assess the compensation arising from
breach and if the compensation contemplated is
not by way of penalty or unreasonable, Court can
award the same if it is genuine pre-estimate by the
parties as the measure of reasonable
compensation."
Thus, the claims in respect of 1½ times economic cost are not liable to be
granted as the same is unreasonable, in the facts of the present case.
33. In a similar case of Food Corporation of India v. M/s Khosla
Brothers, Gurdaspur (Punjab) & Ors. [OMP 496/2011 decision dated 12th
January, 2017] A Ld. Single Judge of this Court has taken the view that the
economic cost is not liable to be recovered in view of the fact that the miller
had purchased the entire stock of the unmilled paddy. The observations are
set out below:
"11. The ground situation, however, different. The
extension of the period for completion of the
milling was extended suo motu by the FCI up to
31st May 1995. Under Clause 14 of the contract,
the issue in lifting of paddy was limited to the
extent of the advance rice delivered by the Miller
to the FCI. Supplies of the paddy were to be
regulated in accordance with the quantity of rice
returned by the Miller. When it transpired that the
milling could not be completed within the time
stipulated and as the new crop was expected to
come with there not being available the requisite
storage space, the FCI decided to sell the
remaining un-milled paddy by open sale and the
Miller purchased the paddy at offered price. The
FCI sent first a letter dated 11th July 1995 to the
Miller serving him the final notice to deliver the
resultant rice by getting the release order after
depositing the cost of the gunnies to be retained by
him against delivery of paddy. Another letter was
sent on 20th July 1995 asking him to deliver rice
Super Fine immediately against balance paddy. By
a further letter dated 11th October 1995, FCI
informed the Miller that the economic cost of
paddy crop for the year 1994-95 had been worked
out. In the meantime, the Miller by his letter dated
10th April 1995 informed the FCI that the staff of
the FCI had not been accepting the rice on one
pretext or the other and had been harassing him.
12. The learned Arbitrator on noting the above
conflicting versions of both the FCI and the Miller
concluded that both parties were blaming each
other for non-execution of the agreement in time.
The learned Arbitrator observed as under:
"Actually it appears that due to paucity
of space for new crop the claimants took
action to sell the paddy in open market.
All the terms and conditions relating to
the sale of paddy were conveyed by the
Ministry's letter dated 14th March, 1995.
Due to this decision, the claimants did
not take any action as per terms and
conditions of the agreement to get the
paddy milled at the cost of the Miller or
take any other action by forfeiting the
security deposit. As per clause 16 the Sr.
Regional Manager reserves the right to
terminate the agreement, to withdraw
from the contract and to do the recovery
for shortages of paddy and rice at 1½
times the economic cost of equivalent
paddy/ rice. The claimants did not give
any notice also to the respondents
regarding any shortfall in the recovery of
rice, short supplied quantity of rice or
shortage in paddy etc."
13. Consequently, the learned Arbitrator
apportioned the blame for failure to complete the
contractual specifications both on the FCI as well
as the Miller. It was noted that the FCI had sold
the paddy in open market "in their own interest".
From the records, the learned Arbitrator was able
to ascertain that after March 1995, the FCI
decided not to accept rice from the Millers.
Further although extension of time was given up to
31st May 1995, no action regarding milling of the
paddy was taken by the FCI. A settlement deed was
signed in respect of some of the Millers but not in
the case of the Respondent herein.
14. In those circumstances, the learned Arbitrator
was unable to accept the claim of the FCI as
regards economic costs of the unmilled paddy."
34. Other judgements relied upon by the FCI are FCI v. The Indian
Council of Arbitration & Ors. [OMP 280/2000 decision dated 4th August,
2005] where the clause for recovering the 1 ½ times the rate as economic
cost was upheld but the ingredients of the clause were held to have been not
satisfied. In FCI v. Indian Council of Arbitration [OMP 78/2000 decision
dated 19th July, 2012], the judgement in OMP 280/2000 is followed. In FCI
v. Malwa Rice Mills & Ors [OMP 397/2012 decision dated 11th September,
2018], this Court had set aside the award passed by the Arbitrator as being
wholly unreasoned. All these three judgements were ex-parte decisions
wherein the Miller had not entered appearance and put forth their cases.
Moreover, there was no evidence to show as to whether the Millers in these
cases had purchased the unmilled stock or not. Further the award in the
Malwa Rice Mills case was completely self-contradictory and lacked
coherence. Under those circumstances the award had been set aside.
35. The FCI also relies upon the decision of the Ld. Single Judge of the
Punjab & Haryana High Court in a PIL being Civil Writ 18980/1995. The
Court had observed in the said matter as under:
"Under the circumstances, the petition is disposed
of with the directions to the respondents to take
steps and pass appropriate orders regarding the
disposal of 1994-95 paddy stocks on the basis and
in view of the joint inspection conducted and
reports submitted to the Govt. of India, within a
period of one month. The respondents are further
directed to get 1994-95 paddy crop milled on
priority basis. If the paddy stocks of 1994-95 crop
are not disposed of within a period of three months
from today all such remaining stocks shall be sold
in open market and in that eventuality no Rice
Millers in the State of Punjab shall be allowed to
purchase the stock either directly or indirectly. The
respondents are further directed to take steps for
the disposal of 1994-95 paddy stocks by
approaching different States requiring such paddy
stocks. This order would not in any way prevent or
hamper the Food Corporation of India to claim
damages or compensation from the mill owners for
the alleged violation of the agreement executed by
them. Till the stocks are disposed of, the
respondent No.3 shall take sufficient steps for the
safeguard of paddy crop lying in the godowns."
36. The above observations do permit the FCI to raise claims against the
Millers. However, the same does not mean that the claims are not to be
examined in each case. There are several cases where the unmilled paddy
was not recovered or was siphoned off. In some cases, the millers had not
themselves purchased the paddy. In yet other cases, part of the stock was
purchased by the millers and part was sold in the open market. The claims of
FCI are to be considered on a case to case basis. The above observations
cannot be construed to mean that 1 ½ times the rate has to be granted as
damages in the form of economic cost, even if the ingredients for applying
the clause are not made out.
37. The miller has relied on an award dated 9th September 2003, passed
by a three-member tribunal in the case of FCI v. M/s. Chotani Rice Mills
wherein the Tribunal observed as under:
"Penal rate of 1.1/2 times of "economic cost" can
be recovered where there are "shortfalls" or
"shortages" in paddy or rice in the "National
stocks"' while milling or returning the milled
quantity. Penal rate is applied to cases of
misappropriation or conversion. Whether it is
criminal offence of misappropriation or the civil
wrong of conversion (tort) the owner is deprived of
his property.
FCI is claiming 1.1/2 times of the
"economic cost" of the paddy which was never
given to the mills for milling. The mills did not lift
the balance quantity for milling as no release
order was issued by FCI and no advance rice was
given by the miller in terms of Clause 6. The
balance quantity remained in joint custody un-
milled and un-lifted. FCI therefore has grounded
the claim on the miller's failure to protect and
preserve the "national stock". But there was no
such duty on the miller, as we have said.
Clause 7, 8, 9 and 17 of the agreement apply
the penal rate where paddy is given to the miller
and the miller converts it to his own use for
example, he sells it in open market at a higher
rate. Paddy must be found short when the entire
stocks are returned.
Acts of conversion may be of various kinds.
The miller may wrongly retain or detain the paddy
or wrongly dispose if of or make away with it. He
may consume it or destroy it. The miller is
accountable for giving the requisite quantity of
rice for the lifted quantity by him. If he does not
give correct and true account of the lifted quantity,
he is guilty of the tort of conversion. For example,
he sells it to a third party and makes profit. The
clauses dealing with penal rate say that the miller
shall pay 1.1/2 times the "economic cost" of the
paddy unaccounted and found short. Shortages
and short falls are the essence of the clauses.
Deficiency must be found in the rice delivered after
milling qua the quantity lifted by the miller before
a claim for damages at 1.1/2 times of "economic
cost" case succeed.
In the present case the balance paddy was
not issued for milling. It remained in joint custody,
as we have said. The miller did not retain any part
of paddy or rice given to him for milling. In fact,
he returned excess quantity of what he was given."
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 milers 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.
41. The miller has been awarded a sum of Rs.1,95,638.49/- in terms of its
counter claims. The same was towards the various milling charges, stitching
charges, security deposit and cost of gunnies. The claim for the said amount
was raised by miller for the first time by filing counter claim in the
arbitration proceedings. Accordingly, the interest payable to the miller qua
the same would be from the date of the award i.e. 24th February, 2011 @ 9%
per annum simple interest. The amounts may be paid by the FCI within a
period of three months, failing which, interest @ 10% per annum would be
liable to be paid.
42. OMP is disposed of.
PRATHIBA M. SINGH, J.
OCTOBER 23, 2018
Rahul/dk
