Delhi High Court
Food Corporation Of India, ... vs M/S Jai Ambe Rice Mills & Its ... on 23 October, 2018
$~38
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: 23rd October, 2018
+ O.M.P. 347/2012
FOOD CORPORATION OF INDIA, FEROZEPUR ..... Petitioner
Through: Mr. Mohan Lal Sharma, Advocate
(M-9811537909).
versus
M/S JAI AMBE RICE MILLS & ITS PARTNER,
FEROZEPUR ..... Respondent
Through: Mr. Rajesh Chhetri, Mr. Rajeev
Chheti, Mr. Pawan Upadhyay,
Advocates.
CORAM:
JUSTICE PRATHIBA M. SINGH
Prathiba M. Singh, J. (Oral)
1. The present petition has been filed challenging the award dated 19th
December, 2011 by which the learned Sole Arbitrator has rejected various
claims of the Food Corporation of India (hereinafter, 'FCI') and directed the
Respondent/miller (hereinafter, 'miller') to pay to FCI a sum of
Rs.70,462.20/-.
2. FCI i.e., the claimant before the learned Arbitrator had entered into an
agreement dated 20th February, 1995 for storage cum milling of paddy. The
total quantity of paddy stored in the miller's premises was 37920 bags
(24648-00-000 quintals) of superfine paddy and 160 bags (104-00 quintals)
of common variety paddy. The Miller was to mill the paddy and return the
same to FCI at the agreed price. The milling was to be completed by 28th
February, 1995, however, extendable till 31st May, 1995 and thereafter to
31st August 1995, at the option of the miller. One of the clauses of the
contract required the miller to pay the economic cost i.e., 1 ½ times the rate
of the paddy in the relevant season.
3. As against the paddy stored in the miller's premises, the miller
supplied a total of 3750 bags (3548-00-000 quintals) of superfine rice. The
balance paddy in the miller's premises was 29729 bags (19323-87-000
quintals) of superfine paddy and 160 bags (104-00 quintals) of common
variety paddy. Due to various policy decisions taken by the
Government/FCI, an announcement was made for sale of unmilled paddy in
the open market, initially in March 1995 and again in August 1995. The
unmilled paddy in the Miller's premises, was sold in the open market and a
total sum of Rs.69,84,699/- was recovered. FCI calculated the cost of the
balance paddy @ 1½ times of the economic cost, which worked out to
Rs.1,70,14,772/-. After deducting the value recovered from the unmilled
paddy, FCI made a claim against the miller.
4. According to FCI, It was the case of FCI that the miller failed to
comply with the terms and conditions of the milling contract, and was liable
to pay damages.
5. The miller moved an application under Section 16 of the Arbitration
and Conciliation Act, 1996 and the case of the miller was that the
appointment of Arbitrator was not in accordance with the provisions of the
agreement. It was further submitted that the proceedings were initiated
beyond the period of limitation. Vide order dated 16th May, 2011, the
learned Arbitrator decided the objection as to maintainability and rejected
the same.
6. On merits, it was the case of the miller that there were no dues that
were to be paid to FCI. It was further submitted that the concerned office of
FCI had issued a no dues certificate and had entered into a settlement. Thus,
the miller argued that there are no live claims for adjudication.
7. It was further submitted by the miller that since the entire unmilled
paddy was sold in the open market, the penalty clause was not applicable, as
FCI had made huge profits by fixing the rate for open sale. FCI had taken
into consideration the various factors before fixing the rate. The miller also
argued that FCI was guilty of concealment of material facts before the
learned Arbitrator.
8. FCI adduced evidence of its area manager and Shri Surinder Kumar
Narun deposed on behalf of the miller. The witness on behalf of miller, who
was one of the partners, relied upon the notice for open sale issued by the
FCI dated 14th March, 1995.
9. The findings of the Arbitrator are as under:-
a. That there exists a valid and binding agreement between the parties.
b. That time for milling was not the essence of the contract, as the time
was repeatedly being extended till 31st May, 1995 and then 30th June,
1995, and thereafter till 31st August, 1995.
c. That the agreement dated 20th February, 1995 was converted into an
agreement for sale and purchase of balance paddy and hence, there
was novation of the contract. Thus, breach could not be attributed
against the miller, in view of Section 62 of the Indian Contract Act,
1872.
d. Pursuant to the open sale notices, the millers had themselves
purchased the paddy. Thus, there was no liability to pay damages, as
at the time when the purchase was made by the miller, the FCI
accepted the purchase price, without claiming any damages.
e. FCI was to be paid the cost of gunnies, including the sales tax, of
Rs.70,462 and the millers were entitled to sum of Rs.97,648/- which
included milling charges, stitching charges, transportation charges and
refund of security deposit. Thus, FCI had to pay to the miller a sum of
Rs.27,186/-. No interest was awarded by the learned Arbitrator.
10. The main objection of FCI is that the paddy having not been milled,
there is a clear breach of contract. On the other hand, on behalf of the miller
it is submitted that a no dues certificate was issued and the disputes were
settled with FCI, so economic cost is not liable to be paid.
11. 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.
12. 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."
13. In the present case also the miller purchased the entire stock of
unmilled paddy and paid the cost of the unmilled paddy. There was a clear
understanding that pursuant to the open sale notices, once the miller
purchases the paddy, no legal claims would survive against. Despite this
being the position, in the present case, criminal proceedings were also
initiated against the miller.
14. A perusal of the documents on record shows that in fact, in the open
sale, preference was being given to the millers to purchase the stock. Open
sale notices were issued during the currency of the agreement. The circulars
issued by the Government, taking the decision for open sale of the paddy,
also show that the reasons for the said notices were multifarious.
15. In the present case, the partners of the miller were, in fact, forced to
file for anticipatory bail before the High Court. The records clearly point to
the fact that FCI, in fact, had settled the matter but pursued arbitration for
various reasons, which are not decipherable. The understanding as per the
letter dated 8th November 2005 referred to in FCI v. S.K. International
(supra) was that in cases where disputes were settled, no arbitrations were to
be initiated. The said settlements were to be out of court/Arbitration. 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"
However, despite the same, arbitrations were initiated and claims were
pursued.
16. 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 liable
to be set aside.
17. The award records that the matter was settled. The learned
Arbitrator's view that the matter stood settled, once the miller purchased the
unmilled paddy, cannot be faulted with and is, in fact, the correct view. No
interference is called for. The OMP is, accordingly, dismissed.
PRATHIBA M. SINGH
JUDGE
OCTOBER 23, 2018/dk
