Food Corporation Of India vs M/S Ashok Rice Mills & Ors
2018 Latest Caselaw 6393 Del

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*      IN THE HIGH COURT OF DELHI AT NEW DELHI
                                        Date of Decision: 23rd October, 2018
+                          O.M.P. 1670/2014
       FOOD CORPORATION OF INDIA               ..... Petitioner
               Through: Mr. Rajeev Sharma, Advocate
                        (M-9810194858).
                           versus
       M/S ASHOK RICE MILLS & ORS               ..... Respondents
                Through: Mr. Rajesh Chhetri, Mr. Pawan Upadhyay,
                         Mr. Rajeev Chhetri and Ms. Meenakshi
                         Rawat, Advocates. (M:9891675255)
       CORAM:
       JUSTICE PRATHIBA M. SINGH
Prathiba M. Singh, J. (Oral)

1. The present petition under Section 34 has been filed against the award dated 4th September, 2014 by which the learned sole arbitrator had dismissed the claims of the Food Corporation of India (hereinafter, 'FCI') and allowed the counter-claims of the miller M/s. Ashok Rice Mills, Muktsar (hereinafter, 'miller').

2. The parties had entered into a milling contract dated 7th October, 1994 for storing and milling of paddy. The miller was supplied a total quantity of 50075 bags (32548-75 quintals) of superfine paddy and 3200 bags (2080-00 quintals) of fine paddy. Against the paddy supplied, the miller supplied only 12950 bags of superfine rice (12259-10). Thus, there was a balance of 20796 bags (13524-62 quintals) of superfine paddy and 3200 (2080-00) of fine paddy lying with the miller. The same was not milled by the miller until 30th May, 1995 which was the date by which the milling had to be

completed.

3. 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 17651 bags (10995-74 quintals) and 3145 (2000-00) of superfine paddy along with 3200 bags (2030-00) fine paddy and sold the same in the open market at Rs.395/- and Rs.396/- for the superfine variety and Rs.378/- for the fine variety per quintal respectively. 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 1 ½ times the economic cost as per the contract and approached the Indian Council of Arbitration for appointment of an arbitrator.

4. In the arbitration proceedings, the miller filed counter-claims seeking refund of the earnest money, stitching charges and sums for cost of gunny bags, security deposits, etc. Admittedly, the FCI could not even retrieve the entire quantity of unmilled paddy from the miller's premises. There was a balance of almost 550 bags of unmilled paddy which the FCI could not retrieve.

5. 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.

6. 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."

7. Since the Government had taken a policy decision to retrieve the unmilled paddy and realise its sale price at the rates fixed, the penal economic cost is not liable to be granted to the FCI. The reasoning of the arbitrator that the economic cost is not liable to be granted is thus not interfered with.

8. However, considering the fact that the entire quantity of unmilled paddy could not be retrieved from the miller's premises, the grant of the counter-claims is not justified. The miller having retained some part of the paddy and having not accounted for the same and also having not milled the entire quantity of the paddy as per the agreement, cannot be given the benefit of his own conduct. Accordingly, the counter-claims awarded to the miller are set aside.

9. The OMP is, accordingly, disposed of in the above terms.

PRATHIBA M. SINGH JUDGE OCTOBER 23, 2018 'AA'