FCI v. M/S Hemkunt Rice Mills & Its Partner

1. The present petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenges the award dated 19th December, 2011 passed by the Learned Sole Arbitrator.

2. The Petitioner – Food Corporation of India (hereinafter, „FCI‟) and M/s Hemkunt Rice Mills (hereinafter „miller‟) had entered into a milling agreement dated 25th October, 1994. Under the said contract, the miller was to mill the paddy and supply rice to FCI. As per the contract, FCI had supplied 58610 bags (38096-50-000 quintals) of fine variety paddy 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 8307 bags (5291-56-000 quintals) of paddy by 25th March, 1995. The balance paddy in 50303 bags (32696-94-000 quintals) was not milled and had to be sold by FCI at a lower 2018:DHC:7335 price.

3. The FCI, alleged breach of contract by the miller and invoked arbitration for failure to mill the paddy on or before 28th February, 2018, claiming 11/2 times rate of the unmilled paddy as the economic cost. The miller on the other hand claims that it had performed its part of the contract satisfactorily as it had milled 3796 bags of paddy and supplied it to FCI by 31st May, 1995. It had also purchased the unmilled paddy contained in 50303 bags after 1st June, 1995, and in any case before the extended period of 31st August, 1995. Thus, according to the miller, there was nothing outstanding left to be performed, and thus, FCI’s claims against it are completely baseless.

4. 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.

5. Under these circumstances, in FCI v. S. K. International (supra), this Court has held as under:

6. Here, the miller had purchased the entire balance quantity of unmilled paddy. The money in respect thereof had also been paid to the FCI. The Ld. Arbitrator has considered the various documents on record including a Zonal Committee report dated 24th August, 2004 for closure of all 374 arbitration/Court cases. In the said report, the following three categories of cases were considered as under: “a) No. of cases where NDCs have already 73 cases been issued b) No. of cases where F.C.I. has been able 261 cases to received the required percentage of rice and/or also cash in lieu of rice for the rest of the paddy stocks resulting therein that F.C.I. does not have any claim/demand from the party. c) No. of Cases consequent upon pilferage/ dispersal of stocks by the parties at their own without knowledge of F.C.I. 40 cases FIRs were filed followed by court cases both criminal cases/recovery suits. Total 374 cases”

7. In the present case, the miller falls in category (b) above. As per the Ld. Arbitrator, the Zonal Committee report dated 24th August, 2004 was based on three principal documents. Relevant part of the Award discussing the said Report is extracted below: “1.13 This committee report is based on the three principal documents as document no. 1, 2 with its annexure I to XII and the document No.3 which contain the authority and final conclusion of the Zonal Committee described below: • Document No.1 which is dated 15.09.2006 is the letter of the F.C.I., Headquarter, New Delhi, addressed to the General Manager (Region), F.C.I., Regional Office, Chandigarh (Punjab). • Document No.2 Is the F.C.I., Zonal Office Committee report dated 24.08.2004 on settling 374, Arbitration/Court cases arising out of paddy shelling in Punjab Region during 1994-95 crop year. The report is based on the documents as Annexures namely:

1. Annexure-I is the Zonal Manager office order No.Proc.30(64)/Rice Millers of Pb:/94-95/VoI.IX dated 16/19.01.2004 for constituting a committee of the following office of Zonal Office for studying the issue of cropping up of 374 arbitration cases arising out of paddy shelling during the crop year 1994-95 and suggest remedial action towards amicable settlement of the case.

1. Manager (Opn.)

2. Dy. Zonal Manager (N).II