Fci, Bhatinda vs M/S Malwa Rice Mills And Ors., ...
2018 Latest Caselaw 5453 Del

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*      IN THE HIGH COURT OF DELHI AT NEW DELHI
                                      Date of Decision: 11th September, 2018
+                                  O.M.P. 397/2012
       FCI, BHATINDA                                        ..... Petitioner
                          Through:      Mr. Sukumar         Pattjoshi, Senior
                                        Advocate with       Mr. Mohan Lal
                                        Sharma, Advocate.
                          versus
       M/S MALWA RICE MILLS AND ORS.,
       BHATINDA                                             ..... Respondents
                    Through: None.

       CORAM:
       JUSTICE PRATHIBA M. SINGH

Prathiba M. Singh, J. (Oral)

1. The Food Corporation of India (hereinafter 'FCI') has filed the present petition challenging the award dated 14th December, 2011 whereby all the claims of FCI had been rejected.

2. The chronology of facts and events are that an agreement was entered into on 17th October, 1994 between FCI and M/s. Malwa Rice Mills, Bhatinda - Respondent (hereinafter, 'Respondent'). As per the said agreement, the Respondent was to store paddy in its mill, and mill the same. After undertaking the process of milling, the resultant rice was to be supplied to FCI. The terms and conditions as contained in the contract are as under: -

             "AGREEMENT             FOR       STORAGE-CUM-
            MILLING     OF     FCI      PADDY     STORED         IN

MILLERS PREMISES INTO CONVENTIONAL RATE/PERIODICAL RICE."

"1. The miller shall be supplied paddy available at R Phul as per the arrangements agreed upon by the miller and accepted by the Corporation.

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 threes 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.

3. The Miller shall undertake shelling of paddy at FCI applicable custom milling rate which will include all services as per details given below:- SERVICES :

a) Lifting paddy from storage points in the mills, loading into trucks and carriage to the mills.

b) Drying of paddy;

c) Katal of paddy bags before dehusking;

d) Dehusking of paddy;

e) Filling of bags of rice prior to dara-

making;

f) Dara making of rice bags and filling / sewing of bags;

g) Transportation of milled rice to railway stationed loading into wagons, inspection,

weighment and sampling as per directions of the Corporation; or transportation of milled rice to the storage points to the Corporation including those of CWC/SWC hired godowns as per directions of the Corporation, unloading of trucks and delivery after inspection, weighment, sampling at scale point at the cost of miller.

Name of Name Variety of Weight of the District of the paddy paddy in qtls.

                                 storage                       For         which
                                 centre                        contract is to
                                                               make for storage
                                                               and milling.

                 Bhatinda        R Phul    Fine                30390=19753-50
                 Out-turn        Milling   Qty. of paddy
                 ratio     for   Rate      out of which
                 conservatio               (col.4) rice will
                 n of paddy                be
                 into rice                 manufactured

                 67%As                     19358.43=129
                    fixed                  70.14.900
                    by FCI
            ...........................

7. The miller shall be responsible for the safe custody miling 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 may 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(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.

9(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 the 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                    28%

However, in case of 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.

16(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 from him for shortages of paddy and rice at 1 & half times the economic cost of equivalent paddy/rice according to the variety involved."

3. It is the admitted position that a total 19753.5 quintals in 30390 bags

of paddy was stored in the Respondent's mill for the purposes of milling. The total paddy milled was to the tune of 8493.121 quintals in 13333 bags. The remaining paddy continued to be stored in the Respondent's premises. It was neither milled nor returned to FCI. The contract was for a period of around 4 months i.e., from 17th October, 1994 to 28th February, 1995. The contract was to be completed by 28th February, 1995 which was extended till 31st May, 1995. However, since the Respondent did not complete the milling, the left over paddy was considered to be sold and a sum of Rs.4,10,748/- was adjusted from the said sale. A huge loss was caused to the FCI because of which FCI invoked the arbitration clause in the agreement which is as under:

"21. ARBITRATION:-

All the disputes or differences but ever arising between the parties out of or relating to the agreement meaning and operation or effect of this agreement or the breach thereof shall be settled by the arbitration in accordance with the rules of arbitration of the Indian Council of Arbitration and the award made in pursuance thereof shall be binding of the parties the Senior Regional Manager/ Zonal Manager of the corporation shall appoint/ nominate arbitrator out of person in the penal of the arbitrators maintained by ICA. It is the terms of this contract that in the event of arbitrator being transferred, vacation of office, death or in ability shall appoint another person out penal maintained by ICA to act as arbitrators. Such a person shall be entitled to proceed with reference from the stage where is left by his predecessor. Provided further that any demand for arbitration in respect of any claim(s) of the miller, under the contract shall be in writing and mad within one year of the date of completion of expiry of the period of contract if the demand is not made within the period, claim(s) of the

miller shall be deemed to have been waived off and absolutely barred and the corporation shall be discharged and released of all liabilities under the contract in respect of these claims. The cost of proceeding in connection arbitration shall be the discretion of the arbitrator who may make suitable provision for the same in his award...."

4. Thereafter, FCI issued notice dated 23rd January, 1998 to the Respondent and sought payment of a sum or Rs.53,26,241/-. Vide the said notice, the claims raised by FCI are as under: -

Year 1994-95

1. Paddy stored in Mill 30390=19753-50-000 Premises/contracted. qtls.

2. Paddy Milled 13333=8493-12-100 qtls.

3. Rice delivered 6000=5690-25-000 qtls.

4. Storage loss at the rate of 2% =173-32-900 on paddy milled up to 28.2.95

5. Sale of paddy upto 28.2.1995 ------

6. Balance paddy upto 28.02.95 17057=1187-05-000 qtls.

7. Cost of balance paddy at the Rs.9281746-00 rate of 1-1/2 times of economic cost fine @ Rs.837.17 per qul. For Super Fine Rs.876.21P

8. Paddy soled after 28.02.95 Rs.410748-00 and amount realized under open/ tender sale

9. Amount payable on Rice Rs.3561110-00/-

Received after 28.02.95 in terms of paddy @ 360/- per qtl.

10. Amount recoverable from Rs.8970998-00/-

miller (colum 7+8)

11. Amount recoverable on Rs.310084-00 account of quality cuts / gunnies retained by miller sale Tax / I. Tax

12. Total amount recoverable Rs.9131082-00 (colum 10+11)

13. Amount payable to miller Rs.3854841-00 towards milling charger / stitching charges / Transpiration charges / cost of gunnies deposited security (column 9).

14. Net amount Recoverable Rs.5326241-00

5. Vide the said letter, FCI called upon the miller i.e., the Respondent herein, after invoking clause 16(c) that the Respondent is liable to pay 1½ times the economic cost of the paddy/rice which comes to Rs.53,26,241/- along with interest. Claim statement was filed by FCI before the Indian Council of Arbitration as per which it was acknowledged by FCI that the total sum recoverable from the miller for the unprocessed un-milled paddy was Rs.91,61,028/- from which the expenses payable to the Respondent were Rs.38,54,841/-. Accordingly, Rs.53,26,241/- was recoverable from the Respondent. Before the Arbitrator, it was the plea of FCI that the entire sum is payable by the Respondent. Evidence was also led by Area Manager, Mr. E.V. Paul. On behalf of the miller, one Mr. Yogendra Kumar led evidence. He claimed that the agreement was extended till 31st August, 1995 vide letter dated 14th August, 1995.

6. The arbitrator after going through the pleadings and evidence, rejected most of the claims of FCI except claim no.2 towards the cost of gunnies for which the claim of Rs.2,12,709/- was allowed. As against this amount, the

Learned arbitrator, relying on the claim statement also held that FCI is to pay a sum of Rs.2,93,709/- and hence it directed FCI to pay a sum of Rs.85,000/- to the Respondent. The relevant portions of the award are extracted below:

" Claim No.5 - For Rs.83,941/- towards Quality Costs.

The Claimant has not proved this claim by producing any documents/evidence - which shows that the Claimant has accepted the rice delivered by the respondents stating that it was not as per standard specifications and that they were liable to pay towards quality costs. Therefore, I disallow the same. Thus, the Respondents are in all liable to pay only Rs.2,12,709/- to the Claimant.

As against the above, as per the Claim Statement the Claimant is to pay Rs.2,93,731/- as per item Nos (i) to

(v) of paragraph 16 of the Claim Statement. In view of the above position, it is the Claimant who is liable to pay a sum of Rs.81,000/- (approx) to the Respondents."

7. A perusal of the award shows that the same lacks any coherence or reasoning. The findings of the Ld. Arbitrator are not discernable. An order of the Ld. Single Judge passed by the Hon'ble Punjab & Haryana High Court, wherein a PIL was filed being Civil Writ 18980/1995 seeking directions to safeguard, use, lift or dispose of or transport to deficit states the huge stocks to paddy lying in the mills in the State of Punjab. The said order made the following observations: -

"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."

8. This order was passed on 30th May, 1996 and completely safeguarded the right of FCI to claim damages despite the paddy being sold to the millers themselves. The reasoning of the Ld. arbitrator that since the paddy was sold to the millers, there was complete performance of the contract, is completely unsustainable.

9. Admittedly, the quantity of paddy received by the Respondent is not disputed. The amount of actual paddy milled and rice supplied is also not disputed. FCI was admittedly forced to make a distress sale to the Respondent. This fact is clear from the timelines. The Respondent failed to supply the milled paddy which was lying in its godowns. Under such circumstances, the liability of the Respondent cannot be questioned.

10. The only question is as to whether the Respondent is liable to pay 1½

times the economic cost of paddy. Even if 1½ times economic cost is considered to be penal in nature, FCI would be entitled to recover the unreturned paddy.

11. The arbitrator's award that since the unmilled paddy was sold back to the Respondent, the contract is deemed to have been performed by the Respondent is wholly unsustainable. Under these circumstances, the award dated 14th December, 2011 is liable to be set aside. It will be open to the parties to begin fresh arbitration, if they so desire.

PRATHIBA M. SINGH JUDGE SEPTEMBER 11, 2018 Rekha