Delhi High Court
Food Corporation Of ... vs M/S Garg Ginning & Rice Mills And ... on 25 October, 2018
$~36
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: 25th October, 2018
+ O.M.P. 580/2012
FOOD CORPORATION OF INDIA,BHATINDA ..... Petitioner
Through: Mr. Mohan Lal Sharma, Advocate
(M-9811537909).
versus
M/S GARG GINNING & RICE MILLS AND ITS
PARTNERS ..... 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 29th February, 2012
passed by the Learned Sole Arbitrator.
2. The Petitioner - Food Corporation of India (hereinafter, 'FCI') and
M/s Garg Ginning & 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 42579 bags (27657.75.000 quintals) of fine variety to the
miller for milling and to be delivered to FCI by 28th February, 1995. It is
claimed by FCI that the miller had milled only 20481 bags (13046-39-700
quintals) of paddy by 28th February, 1995. The miller had also milled 9360
bags (5962.32.000 quintals) and supplied 4023.75 quintals after 28th
February, 1995 and by 31st May, 1995. The balance paddy weighing
8055.11.800 quintals was not milled and sold by FCI to the miller.
3. The FCI, however, alleging breach of the agreement on part of the
miller invoked arbitration for failure to mill the paddy on or before 28th
February, 2018, claiming 11/2 times rate of unmilled paddy as the economic
cost. This claim of the FCI was rejected by the Learned Arbitrator.
4. A perusal of the award shows that the FCI had, after entering into the
contract with the miller, for various reasons advertised for the open sale of
unmilled paddy. It was the case of the miller that though the miller was
ready and willing to mill the paddy and supply the rice, the FCI did not have
adequate godown space to store the same and the FCI also did not
communicate to the miller the place where the delivery was to be given. The
Learned Arbitrator has recorded the submissions of the miller as under:
"The Respondents had milled 201481 bags of paddy
weighing 13046-39-700 quintals by 28.2.2008. However,
the period of the Agreement was extended to 30.4.1995
and further to 31.5.1995 vide DCI letter dated 02.05.1995.
This period was again extended to 31.8.1995 vide FCI
letter dated 14.08.1995.
That before the expiry of the extended date of 31.8.1995
the Respondents had milled further 9360 bags weighing
5962-32-00 quintals.
That the balance paddy in 12738 bags with a weight of
8055-11-800 was sold to the Respondents by the Claimant
for Rs.33,13,753.00 before the end of the extended period
of 31.08.1995.
That the Agreement was converted into agreement of sale
and upon sale of balance paddy by the Claimant to the
Respondents the principal Agreement stood concluded and
nothing survived.
Furthermore, in 2004 following Hon'ble Supreme Court's
decision for appointment of an arbitrator FCI decided to
settle all these cases out of court settlement on instructions
from FCI Headquarters. A zonal committee was
accordingly set up which recommended to ignore the
provisions of claiming 1½ times of economic cost as
balance paddy had been sold to the Millers and amount
realized at government rates.
That the report of the zonal committee had revealed that
FCI did not have any claim against the parties in 261
cases (which included the Respondents). It also
recommended that the security deposit of the parties which
were lying with FCI for years together be also released
immediately without interest. The Committee report of
24.08.2004 was duly implemented by FCI and the matter
was finally settled by a Deed of Settlement.
That having received the required percentage of rice and /
or also money in lieu of the rice for the rest of the paddy
stocks the Claimant did not have any claim / demand from
the Respondents."
5. A perusal of the above submissions made by the miller before the
Arbitrator shows that FCI itself taken a policy decision to resort to having an
open sale of unmilled paddy and under the said policy, the miller was given
the option to purchase the unmilled paddy. It is categorically recorded that
M/s Hindustan Rice Mills had milled and supplied 19,491.55 quintals and
the balance was purchased by them at the approved rate.
6. 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.
7. 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."
8. 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.
9. 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.
10. The Arbitrator in the impugned award, in these facts, has held as
under:
"According to the accounts rendered above by the
Claimant himself the Claimant owes Rs.48,463.00 to the
Respondent. But the Respondent has not made any counter
claim. Under the circumstances one can only leave it to the
good conscience of the Claimant FCI which is a Public
Sector Undertaking to deal with it appropriately,
The Claimant's claim of 1 ½ times the economic cost is
denied and the claim petition dismissed. Both parties will
pay their arbitration fee and bear their own costs. The
Award is made accordingly."
11. This reasoning of the Arbitrator is sound and tenable inasmuch as
once the FCI itself had fixed the rate for open sale of the paddy and the
miller had purchased the entire unmilled paddy and paid rate fixed by the
FCI, the penal rate of the economic cost cannot be demanded by the FCI.
Accordingly, the award does not warrant any interference. The petition is,
accordingly, dismissed.
PRATHIBA M. SINGH
JUDGE
OCTOBER 25, 2018/Rahul
