Food Corporation of India v. M/S Lekh Raj Dhawan Rice & General Mills

1. In the present case, the Food Corporation of India (hereinafter, ‘FCI’) entered into a contract for storage-cum-milling of paddy dated 20th October, 1994 with M/s. Lekh Raj Dhawan Rice & General Mills, Amritsar. The arbitration was conducted under the aegis of the Indian Council of Arbitration (hereinafter, ‘ICA’). Disputes had arisen between the parties which were decided by the impugned award of the Sole Arbitrator dated 9th May, 2013.

2. An application under Order I Rule 10 CPC was filed in this case on 16th November, 2016 whereby FCI sought to implead the seven partners of the firm, who were inadvertently left out. Thereafter, the partners of the firm were represented by counsels. During the pendency of this application, it 2019:DHC:167 was reported that the proposed Respondent Nos.4, 5 and 6 have also expired.

3. The matter was then placed before Court on 15th November, 2018 on which date, notices were issued to the counsels who were earlier appearing. Mr. Arvind Kumar Tiwary has appeared and put in his appearance for Shri Gurucharan Rai, one of the partners of the firm. Submissions have been heard on behalf of the Petitioner and the said Respondent. In view of the fact that this matter is covered by the judgment of this Court in Food Corporation of India v. S. K. International [OMP 487/2011 decision dated 23rd October, 2018] (hereinafter, „FCI v. S.K. International‟), no useful purpose would be served by impleading the legal heirs of the proposed Respondent Nos.4, 5 and 6 who have since expired.

4. Both counsels have addressed their submissions.

5. The present petition has been filed challenging the award dated 9th May, 2013 by which the learned Sole Arbitrator has rejected the claim of FCI that it is entitled to 1.[5] times economic cost of the unmilled paddy.

6. FCI i.e., the claimant before the learned Arbitrator had entered into an agreement dated 20th October, 1994 for storage-cum-milling of paddy. The total quantity of paddy stored in the miller’s premises was 15412.15 quintals of common variety paddy, 7020.65 quintals of fine variety paddy and 864.50 quintals of superfine variety paddy. The Miller was to mill the paddy and return the same to FCI at the agreed price on or before 28th February, 1995. The date of completion was extended to 31st May, 1995. One of the clauses of the contract required the miller to pay 1 ½ times the economic cost of the paddy in the relevant season, in case of failure to supply the milled paddy.

7. As against the paddy stored in the miller’s premises, the miller milled, 4112.29.40 quintals of common variety paddy, 2497.04 quintals of fine variety paddy and 353.73 quintals of superfine variety paddy, and accordingly delivered the same to FCI by 31st May, 1995.

8. The FCI in the meantime issued, under a policy decision taken by the Government, a notice for open sale of paddy whereby millers were given an option to purchase the unmilled paddy failing which the same would be sold in the open market. The price was also fixed for such open sale. The Miller herein, purchased the unmilled paddy and paid the entire consideration as fixed in the said notice. However, the FCI was of the opinion that it is entitled to recover 1 ½ times the economic cost, despite the miller having purchased the unmilled paddy. The Miller did not agree to pay the amount demanded by FCI.

9. The FCI, alleged breach of contract by the miller and invoked arbitration for failure to mill the paddy on or before 28th February, 1995, claiming 11/2 times rate of the unmilled paddy as the economic cost. The total damages calculated to be due by the FCI amounted to a sum of Rs.94,00,012.65/-. The miller, on the other hand, claims that it had performed its part of the contract satisfactorily and there was no unmilled paddy lying in its premises as it had sold by the FCI. The miller further submitted that it purchased the balance unmilled paddy from FCI, pursuant to the open sale notice, and thus, no claim of the FCI for damages can be entertained.

10. The findings of the Arbitrator are as under:-

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 (supra). 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 in the said case: 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.