Calcutta High Court
Food Corporation Of India vs Gopal Chandra Mukherjee on 14 September, 2016
Author: Soumen Sen
Bench: Soumen Sen
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
ORIGINAL SIDE
BEFORE:
THE HON'BLE JUSTICE SOUMEN SEN
A.P. No.167 of 2005
FOOD CORPORATION OF INDIA
VS.
GOPAL CHANDRA MUKHERJEE
For the Petitioners : Mr. S.P. Majumdar, Sr. Adv.,
Mr. Arunabha Sengupta Adv.,
For the Respondents : Mr. S.N. Mookherjee, Sr. Adv.,
Mr. Saunak Mitra, Adv., Ms. Shreeja Singh, Adv.
Heard On : 28.07.2016, 04.08.2016,
11.08.2016, 18.08.2016,
01.09.2016, 08.09.2016.
Judgment On : 14th September, 2016
Soumen Sen, J. :- This is an application for setting aside of an award dated 23rd February, 2005. The respondent was the claimant.
The arbitration proceeding arose out of a reference made on the basis of an order dated 13th March, 2003 passed in AP No.177 of 2001 in an application filed by the respondent under Section 11(6) of the Arbitration and Conciliation Act, 1996. The arbitrator entered reference on 31st May, 2003.
In the arbitration proceeding, the petitioner has made a claim for a sum of Rs.1,30,63,295/- by way of damages or compensation on account of wrongful withholding of the claimant's godown for the period from 1st June,1997 to 30th November, 2000 and a sum of Rs.2,87,960/- by way of damages or compensation on account of expenses incurred by the claimant as ex-agent for running the establishment of the godown during the said period.
The respondent/claimant was appointed as agent of the petitioner under an agreement dated 2nd June, 1975 for the purpose of storing food grains of FCI up to a capacity of 12000 M.T. on the terms and conditions contained in the said agreement.
The claimant in terms of the agreement had taken godowns on rent at 493/B, G.T. Road, Shibpur, Howrah in the premises of Bengal Jute Mill measuring an area of 73000 Sq.ft. with high ceiling, adequate for storage of 12000 M.T. of food grains at a time. In pursuance of the said agreement, the claimant deposited with the respondent a sum of Rs.10,000/- as security deposit. The claimant was required to handle and receive only such consignments and number of bags of food grains as were allotted by the petitioner. The claimant was not authorized to store any food grain until and unless allotment was made by the respondent in favour of the plaintiff. In pursuance of the agreement diverse quantities of bags of food grains of various sizes were allotted to the claimant from time to time and upon receipt of allotment or authorization from FCI, the claimant removed such food grains from the Railway siding and stored the same at the godown for subsequent delivery to the persons authorized and nominated by the FCI after receiving dispatch instructions issued by the FCI to the claimant. It was alleged that on 10th October, 1988, a quantity of only 1900 M.T. of food grains was lying and stored at the godown, and the major portion of the godown remained unutilized. By reason of non-allotment of food grains by the Food Corporation of India, the claimant was suffering loss and damage day after day, particularly because the petitioner did not permit the claimant to store goods of other parties, so long food grains belonging to FCI were still in the godown. Pursuant to the aforesaid, the claimant by a letter dated 2nd November, 1991 terminated the said agreement after giving two months prior notice to the respondent. In terms of the said notice, the agreement would stand terminated on 2nd January, 1992. The claimant in the meantime invoked the arbitration clause of the agreement, that is, Clause 41 of the Agreement before the learned Assistant District Judge, 3rd Court, Howrah. In such proceeding an order was passed on 19th February, 1990 appointing an arbitrator to adjudicate the disputes and differences between the parties. The claims of the claimant in the said arbitration proceedings against the respondent was for the period from 2nd June, 1975 to 31st May, 1997.
The claimant alleged that the said godown was without any operation since 1991 but since then the respondent did not remove the stock including the damaged rice for several years and the claimant was unable to use the said godown. The claimant by a letter dated 18th May, 1998 requested the respondent for taking necessary steps for lifting the said stocks from the godown of the claimant. Despite the receipt of the said letter, the respondent neither took steps in terms thereof, nor gave any reply thereto. The said request was again repeated by a letter dated 25th September, 1999. The claimant further alleged that during the aforesaid period between 14th May, 1998 and 30th November, 2000 he forwarded various bills of diverse dates demanding compensation for wrongful withholding of his rented godown by not removing or shifting the food grains and for causing loss to the claimant by preventing him to utilize the space measuring 72776 Sq. ft. at the rate mentioned in the bills, which amounted to a sum of Rs.1,33,51,255/-. The claimant by a letter dated 15th December, 2000, requested the respondent to pay the aforesaid sum together with interest accrued thereon within 15 days from the receipt thereof. Since the respondent had failed, neglected and refused to pay the aforesaid sum, the claimant on 2nd February, 2001 invoked Clause 41 of the Agreement dated 2nd June, 1975 and requested the Managing Director, Food Corporation of India, to appoint an arbitrator in terms of the arbitration clause contained in the said agreement within a period of 30 days from the date of receipt of the said request. The appointing authority refused, failed and neglected to appoint an arbitrator. This has resulted in the filing of the application under Section 11(6) of the Arbitration and Conciliation Act,1996 in which an order was passed on 13th March, 2003 appointing an arbitrator to adjudicate the dispute.
The petitioner filed a counter statement-cum-written objection. The petitioner contended that the claimant was required, at his own cost and expenses, to provide and maintain suitable godowns for storage of Corporation stock and not for any other purpose and not for any other party except that of FCI. It was the duty and obligation of the claimant to secure and procure godowns irrespective of its dimensions for the purpose of the opposite party in terms of Clause 3 of the Agreement. In terms of the said Clause, there was no provision as regards the full utilization of the godown. The petitioner denied that there was any failure to take any steps for removal of the balance stock lying in the godown. It was alleged that it would be evident from the letter No.F/10(115)/90-Stg(C)/965 dated 6th September, 1993 issued on behalf of FCI to the claimant that in spite of express acceptance of termination of storing Agency with effect from 2nd January, 1992 and engagement of a Transport Contractor for shifting the stock of FSD Brooklyn Depot, the claimant obstructed the shifting of stock on the alleged ground of non- payment of bills. The petitioner in the said letter also alleged that a sum of Rs.17,64,898/- only is due and payable by the claimant to the petitioner on account of demurrage and wharfage charges pending recovery from the claimant. The said letter also stated that in the event of the claimant still not allowing the FCI to lift the stocks, the petitioner would be entitled to recover the costs of food grains at penal rate by taking appropriate steps as deemed fit and failure to comply within 14 days from the date of the said letter would render the claimant with entire liability of the stock. The genuinity and veracity of the bills raised were also denied. The petitioner relied upon Clause 17 of the Agreement which envisaged that the Storing Agent appointed under the Agreement would be responsible for the godown rent and all other establishment and incidental charges and the claimant would have no claim whatsoever against the FCI in respect of such charges.
The petitioner has also raised the point of limitation. It was pleaded that by reason of Clause 41 of the Agreement time for referring any dispute to arbitration is one year from the date of termination of the contract and on this ground alone, the reference made on 2nd February, 2001 is not sustainable in the eye of law.
On the basis of the pleadings, the Arbitral Tribunal has framed the following issues for the purpose of determination:-
1. Is the claimant entitled to any compensation on account of rent and establishment charges for withholding godown of the claimant from the opposite party - FCI on account of failure of removing or lifting stock therefrom?
2. Is the arbitration maintainable?
3. Is the claim barred by limitation?
4. Was the opposite party - Food Corporation of India obliged to utilize the godown in full capacity?
5. Did the opposite party - Food Corporation of India failed to remove the stock of food grains after the termination of the Agreement?
6. Was the claimant guilty of putting obstruction in the matter of removal of Stock?
7. Is the claimant entitled to recover the claim amount of Rs.1,33,51,255/- only from the opposite party- Food Corporation of India?
8. Is the claimant entitled to any interest on the Award amount?
9. To what relief, if any, is the claimant entitled?
The claim in the arbitration proceeding is on account of compensation for wrongful withholding of the rented godown between 1st June, 1997 and 30th November, 2000 for a sum of Rs.1,30,63,295/-. The respondent has also claimed reimbursement and establishment costs for the aforesaid period for a sum of Rs.2,87,960/-.
The arbitrator has held that in the arbitration proceeding, the respondent has failed to prove and/or substantiate that the petitioner was obstructed in removing the food grains from the godown. The arbitrator has recorded that Shri Satindra Nath Mondal, District Manager, FCI, Howrah during his evidence has stated that he did not face any obstruction during his visit and he was not aware of any information being lodged with the concerned Police Station alleging obstruction. On the aforesaid basis, the arbitrator held that the plea of obstruction held by the petitioner is untenable and cannot be entertained. The arbitrator in this regard has also relied upon the letters dated 18th May, 1998, 20th June, 1998, 16th April, 1999, 10th July, 1999, 25th September, 1999, 3rd June, 2000, 22nd/30th September, 2000 and 24th August, 2002. The arbitrator has proceeded on the basis that since these letters were not replied and the petitioner has failed to take any steps for removal of the stocks from the godown until 13th June, 2001. Accordingly the petitioner would be required to compensate the respondent for wrongful withholding of the godown for the aforesaid period. The arbitrator further held that since the food grains were stored in the godown, the respondent could not have thrown away the said food grains and was compelled to store the food grains in the godown and thereby was prevented from utilizing the godown for other purposes as he was prevented from doing so under the terms of the agreement. The arbitrator has relied upon Clause 3 of the agreement which prohibits the agent from using the said godown for storing either his own goods or the goods of any other party or parties. The arbitrator proceeded notwithstanding the termination of the agreement and its acceptance by the letter dated 6th September, 1993 that the respondent would be obliged not to use the said godown for any other purpose once the petitioner had refused to take back the stock.
The issue of obstruction was decided on the basis of few letters exchanged by and between the parties and the evidence of the District Manager of the petitioner.
In the letter dated 6th September, 1993, the Regional Manager of FCI while accepting the termination has referred to the letter dated 8th April, 1993 by which the representative of FCI was obstructed in removing the materials from the godown on the ground of non-payment of bills since 1992. The fact that the respondent, in fact, had prevented the petitioner from removing the materials would be evident from the letter dated 8th April, 1993 and the letter dated 10th May, 1993. However, subsequent letters on record would show that the respondent requested the District Manager, FCI to take delivery of the stocks and to release the godown in favour of the respondent. The petitioner has referred to the letters dated 16th November, 1995, 12th December, 1995, 24th December, 1996, 28th December, 1996 and a letter from a successful tenderer, namely, Mr. N.K. Banik, Habra alleging that he was not allowed lifting the stocks on 20th December, 1996 due to refusal to execute the release order. The arbitrator appears to have not taken into consideration the said letters and proceeded on the basis that there was no evidence of any obstruction being caused by the respondent. The arbitrator also appears to have ignored the letter dated 8th April, 1993 by which the respondent had refused to allow the petitioner to remove the stocks on termination without the payments against outstanding bills or without any ad hoc payment. The evidence of the petitioner was disbelieved as the respondent has failed to produce any evidence from any other person alleging obstruction.
The petitioner appears to have acted irresponsibly in conducting their affairs as it fails to remove the food grains and allowed it to deteriorate. The petitioner is supposed to ensure for distribution of food grains. The petitioner has failed to discharge its statutory obligation. The petitioner on being refused to remove the food grains did not take immediate steps for removal of the food grains. The petitioner ought to have taken legal recourse instead of facilitating the respondent to make this absurd claim. Having regard to such conduct, it needs to be reviewed whether such important matters are required to be left in the hand of the petitioner. The petitioner apart from issuing few letters and few attempts to remove the goods that too after considerable gaps practically abandoned it thereby allowing colossal loss to take place only to benefit and help the respondent to make such a tall claim. The only person who is benefited by such irresponsible action of the petitioner is the respondent who practically without discharging any function has instituted a fresh proceeding for the subsequent period which is the subject matter of challenge in this proceeding. The conduct of the officials of FCI is required to be investigated.
The arbitrator rejected the claim of the petitioner for a sum of Rs.17,64,898/- on account of demurrage charges and warfare charges in absence of evidence. The arbitrator has relied upon the documents being Annexure K and L to the Statement of Claim which are orders for lifting of stock. The said documents would show that some stock was removed on 3rd June, 2001. The arbitrator held that by reason of termination of contract, the claimant would not be entitled to receive from the petitioner any amount on account of rent or establishment charges but the claimant would be entitled to damages and compensation for the service rendered not gratuitously after 2nd January, 1992. The arbitrator further held that the claimant would be entitled to such damages or compensation/rent paid and establishment charges incurred by the claimant and the amount which would be receivable by the claimant needs to be ascertained with reference to the expenses actually incurred by the claimant for rendering the service to store the food grains after the termination of the agreement and rent paid and establishment charges incurred. Although the arbitrator held that rent paid and establishment charges incurred are actual expenses incurred by the claimant as the services were not intended to be rendered gratuitously, the arbitrator quantified damages without proof of any rent being paid for the said godown. The arbitrator has proceeded on the basis of bills raised by the respondent and has allowed the said claim without requiring the petitioner to produce some evidence in support of such claim. The arbitrator has also not given any reason for accepting compensation of Rs.4/- per sq.ft. for the areas occupied by FCI inasmuch as there was no evidence before the arbitrator that the respondent has other contract from which the respondent could have earned such amount or a portion thereof. The respondent has also not produced any rent receipt from the landlord which would show the amount of rent the respondent was paying to its landlord. The respondent although obliged has not adduced any evidence of mitigation of damages. If the respondents were to be believed that notwithstanding such obstruction, the petitioner had failed to remove food grains from the godown, it was always open for the petitioner to return the food grains to the petitioner and claim reimbursement of the expenses incurred in transporting the goods to the claimant due to alleged failure on the part of the petitioner to remove the materials. The respondent could have also delivered the materials to the tenderers mentioned in the correspondence and claim reimbursement of the expenses incurred. There was also no evidence before the arbitrator that the entire godown was occupied with the food grains of the petitioner. The claimant has also not produced any books of account and/or any register of any employees or of labourers in support of its claim on account of salary and wages of the staff alleged to have been paid by the petitioner during the aforesaid period. Although in an arbitration proceeding, the provisions of the Evidence Act may not strictly apply but the principles would apply and an award based on no evidence is liable to be set aside. A party may not be held to the strict proof of the documents produced but there has to be some evidence before the arbitrator in support of the claim. The basic documents are to be produced. The arbitrator is required to satisfy himself that there is some cogent evidence and reliable materials on the basis of which an award for compensation can be granted. There has to be a rationale basis and some acceptable evidence to support and justify the conclusion. There was no evidence before the arbitrator to arrive at a finding that the rate of Rs.4/- per sq.ft. is reasonable. If the godown is of no use, it is difficult to accept that the claimant had incurred expenses of Rs.6000/- per month for running establishment and Rs.5000/- per month on the account of salary of the Manager, Accountant and Clerk. The arbitrator records that there was no detail furnished. However, he was allowed travelling allowance of Rs.8000/- per month by applying rule of thumb. Although, it appears that the stocks were not removed until May/June, 2001, the entitlement of the claim would rest upon considerations of the aforesaid factors even if a finding is arrived at that some compensation is to be paid.
Mr. S.N. Mookherjee, learned Senior Counsel would remind this Court of the limitation of the Court in exercising its jurisdiction in interfering with an award passed by the arbitrator. The limits of the Court in scrutinizing the award was discussed in Bharat Coking Coal Ltd Vs. L.K. Ahuja reported at (2004) 5 SCC 109 Paragraph 11 which reads:-
"11. There are limitations upon the scope of interference in awards passed by an arbitrator. When the arbitrator has applied his mind to the pleadings, the evidence adduced before him and the terms of the contract, there is no scope for the court to reappraise the matter as if this were an appeal and even if two views are possible, the view taken by the arbitrator would prevail. So long as an award made by an arbitrator can be said to be one by a reasonable person no interference is called for. However, in cases where an arbitrator exceeds the terms of the agreement or passes an award in the absence of any evidence, which is apparent on the face of the award, the same could be set aside."
The same principle was reiterated in State of Rajasthan & Anr. Vs. Ferro Concrete Construction Pvt. Ltd. reported at 2009(12) SCC 1 Paragraphs 52 to 58, Associate Builders Vs. Delhi Development Authority reported at 2015 (3) SCC 49, McDermott International Inc. Vs. Burn Standard Co. Ltd. reported at 2006 (11) SCC 181 Paragraphs 55 to 57 and Som Datt Builders Ltd. Vs. State of Kerala reported at 2009 (10) SCC 259 Paragraph 20, 21, 22, 23 and 25.
In McDermott (supra) indicated in Paragraphs 55 to 57, the said principle was reiterated in the following terms:-
"55. Another important change which has been made by reason of the provisions of the 1996 Act is that unlike the 1940 Act, the Arbitrator is required to assign reasons in support of the award. A question may invariably arise as to what would be meant by a reasoned award.
56. In Bachawat's Law of Arbitration and Conciliation, Fourth Edition, pages 855-856, it is stated:
"... 'Reason' is a ground or motive for a belief or a course of action, a statement in justification or explanation of belief or action. It is in this sense that the award must state reasons for the amount awarded.
The rationale of the requirement of reasons is that reasons assure that the arbitrator has not acted capriciously. Reasons reveal the grounds on which the arbitrator reached the conclusion which adversely affects the interests of a party. The contractual stipulation of reasons means, as held in Poyser and Mills' Arbitration In Re, "proper, adequate reasons". Such reasons shall not only be intelligible but shall be a reason connected with the case which the court can see is proper. Contradictory reasons are equal to lack of reasons.
The meaning of the word "reason" was exaplained by the Kerala High Court in the contest of a reasoned award...
"Reasons are the links between the materials on which certain conclusions are based and the actual conclusions....."
A mere statement of reasons does not satisfy the requirements of Section 31(3). Reasons must be based upon the materials submitted before the arbitral tribunal. The tribunal has to give its reasons on consideration of the relevant materials while the irrelevant material may be ignore...
Statement of reasons is mandatory requirement unless dispensed with by the parties or by a statutory provision."
57. In Konkan Railway Corporation Ltd. v. Mehul Construction Company [(2000) 7 SCC 201], this Court emphasized the mandatoriness of giving reasons unless the arbitration agreement provides otherwise."
The learned Counsels for both the parties in support of their contention have relied upon a fairly recent decision of the Hon'ble Supreme Court in Associated Builders Vs. Delhi Development Authority reported at (2015) 3 SCC 49. In Associate Builders (supra), the Hon'ble Supreme Court has considered the heads of "public policy of India". In the said decision, the Hon'ble Supreme Court has taken into consideration its earlier decisions and has laid down certain principles which recognize that an award based on no evidence or on irrelevant consideration or ignoring vital evidence in arriving at a decision would constitute perversity. The decision which is perverse or so irrational that no reasonable person conversant with the facts could have arrived at the same is an important factor and would be one of the factors while scrutinizing an award. There cannot be any dispute that some kind of informality is attached to an arbitration proceeding and, accordingly, the Court takes a lenient view even if it appears to the Court that the arbitrator has committed an error within its jurisdiction. The Court ordinarily does not interfere with the construction of the contract made by the arbitrator. Similarly, a possible view by the arbitrator on facts is to "pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award". The broad distinction between perversity and those which are not, was also noticed in Associate Builders (supra) and discussed in Paragraphs 31, 32 and 33 of the said report which read:-
"31. The third juristic principle is that a decision which is perverse or so irrational that no reasonable person would have arrived at the same is important and requires some degree of explanation. It is settled law that where:
(i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into account something
irrelevant to the decision which it arrives at; or
(iii) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse.
32. A good working test of perversity is contained in two judgments. In Excise and Taxation Officer-cum-Assessing Authority v. Gopi Nath & Sons; 1992 Supp (2) SCC 312, it was held:
"7. ...It is, no doubt, true that if a finding of fact is arrived at by ignoring or excluding relevant material or by taking into consideration irrelevant material or if the finding so outrageously defies logic as to suffer from the vice of irrationality incurring the blame of being perverse, then, the finding is rendered infirm in law."
In Kuldeep Singh v. Commr. Of Police; (1999) 2 SCC 10, it was held:
"10. A broad distinction has, therefore, to be maintained between the decision which are perverse and those which are not. If a decision is arrived at on no evidence or evidence which is thoroughly unreliable and no reasonable person would act upon it, the order would be perverse. But if there is some evidence on record which is acceptable and which could be relied upon, howsoever compendious it may be, the conclusions would not be treated as perverse and the findings would not be interfered with."
33. It must clearly be understood that when a court is applying the "public policy" test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score. Once it is found that the arbitrators approach is not arbitrator or capricious, then he is the last word on facts. In P.R. Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H. Securities (P) Ltd; (2012) 1 SCC 594, this Court held:-
"21. A court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or reappreciating the evidence. An award can be challenged only under the grounds mentioned in Section 34(2) of the Act. The Arbitral Tribunal has examined the facts and held that both the second respondent and the appellant are liable. The case as put forward by the first respondent has been accepted. Even the minority view was that the second respondent was liable as claimed by the first respondent, but the appellant was not liable only on the ground that the arbitrators appointed by the Stock Exchange under Bye-law 248, in a claim against a non-member, had no jurisdiction to decide a claim against another member. The finding of the majority is that the appellant did the transaction in the name of the second respondent and is therefore, liable along with the second respondent. Therefore, in the absence of any ground under Section 34(2) of the Act, it is not possible to re-examine the facts to find out whether a different decision can be arrived at."
Another important factor which is required to be taken is the qualification of the arbitrator as some latitude could be shown to an award passed by an untrained legal mind as opposed to trained legal mind.
In the instant case, as noticed earlier, the evidence relied upon was completely unreliable inasmuch as having regard to the fact that the arbitrator is a former District Judge, the Court expected the arbitrator to require the claimant to produce some reliable evidence in support of its tall claim.
Mr. S.P. Majumdar, the learned Senior Counsel appearing on behalf of the petitioner has submitted that the arbitrator has committed an error of law in applying Section 70 of the Indian Contract Act, 1872. It is submitted that the Hon'ble Supreme Court in State of West Bengal Vs. B.K. Mondal & Sons reported at AIR 1962 SC 779 in Paragraphs 13 to 18 of the said report has held that following three conditions must be satisfied in order to in a claim passed in Section 70 of the Indian Contract Act which are:-
(i) the person must do it lawfully,
(ii) the same was not intended to be done gratuitously and
(iii) the person must enjoy the benefit of such doings.
The learned Counsel has referred to the observation of the Hon'ble Supreme Court at page 786 of the said report which reads:-
"Similarly, if a person does something for another it would be open to the later person not to accept what has been done by the former; in that case again S.70 would not apply. In order words, the person said to be made liable under S.70 always has the option not to accept the thing or to return it. It is only where he voluntarily accepts the thing or enjoys the work done that the liability under S.70 arises."
The learned Senior Counsel has also referred to the decision of the Privy Council in Governor General in Council Vs. The Municipal Council Madura reported at AIR 1949 P.C. 39 and submits that the petitioner in order to succeed in its claim under Section 70 must show that the other person directly enjoyed benefit of such work. In the instant case, the claimant did not do anything voluntarily nor for the benefit of FCI but withheld the goods for his own benefit and ultimately damaged it. The claimant, moreover, exercised his lien for his claim against FCI and made in the first reference and after exercise of lien it must be his responsibility to keep the goods at his risk and cost. It is submitted that there was no pleading of Section 70 of the Indian Contract Act and, accordingly, the finding of the arbitrator that "circumstances are such that it cannot be said that the claimant intended to provide this service to the opposite party gratuitously" is contrary to record inasmuch as FCI was not given any opportunity to argue this point.
It is further argued that the decision of the Division Bench of this Court in Food Corporation of India Vs. Gopal Chandra Mukherjee reported at 2003 (3) CLT 10 (HC) which is the sheet anchor of the reference resulted in the present award is a decision per incurium as it has failed to take into consideration the Constitution Bench decision of the Hon'ble Supreme Court in State of West Bengal (supra). The learned senior Counsel has also submitted that the claim is barred by limitation as there was no continuous cause of action in view of the termination of the contract on 2nd January, 1992.
This Court is unable to accept the aforesaid submission as the petitioner has in the petition specifically pleaded that due to failure on the part of the FCI to remove the goods, the petitioner was compelled to store the said goods until it was removed in May/June, 2001 and such act was not done gratuitously.
The three essential conditions for invoking Section 70 are:-
(1) The goods are to be delivered lawfully or something has to be done for another person lawfully;
(2) The thing done or the goods delivered must be done or delivered without intention to do so gratuitously; (3) The person to whom goods are delivered enjoys the benefit thereof.
The principle underlying Section 70 of the Contract Act makes a person who enjoys the benefit thereof liable to make compensation to the person who does something for the other not intending to do it gratuitously. Another principle which is required to be kept in mind is that the person who is tried to be held responsible must have had the opportunity or option to accept or not to accept the benefit. According to the Section it is not essential that the act shall have been necessary, in the sense that it has been done under circumstances of pressing emergency, or even that it shall have been an act necessary to be done at some time for the preservation of property. The Section is intended to protect transactions where it would be difficult to impute to the persons concerned relations created by contract and the Court to do substantial justice in such cases extend the equitable principle enunciate in Section 70 of the said Act. The implication of the word "lawfully" in Section 70 is recognition of a relationship which must arise not because of the party claiming something has done something for the party against whom compensation is claimed but because what has been done by the former has been accepted and enjoyed by the latter. It is only when the latter accepts and enjoys what is done by the former that a lawful relationship arises between the two and it is the existence of the said relationship which gives rise to the said claim for compensation. The basic purpose of the said Section is to compensate a person of a non-contractual obligation causing purely economic loss. The foundation of the claim is not a contract, express or implied liability is quasi-contractual. The basis of compensation would be in proportion to the benefit enjoyed by the party for whom anything is done and to whom anything is delivered and appropriate compensation is to be awarded mainly from that aspect. The words of the said Section do not oblige the Court to impose restrictions upon the equitable right of a person who only does something for another without an intent to do so gratuitously to recover compensation from that other person for the benefit so conferred upon and enjoyed by that other person.
In Food Corporation of India (supra) the Hon'ble Division Bench held that so far as the godown rent is concerned in view of Clause 17 of the Agreement, the same is not allowable to the claimant till the subsistence of the agreement. Once the agreement is terminated by reason of Section 70 of the Contract Act, such godown rent would be admissible to the claimant, namely, after 2nd January, 1992. All that the Hon'ble Division Bench has stated is that if a claim is made for the subsequent period it may be admissible under Section 70 of the Indian Contract Act. This observation is obviously subject to the claim being proved and establishing before the arbitrator that the ingredients of Section 70 of the Indian Contract Act have been fulfilled. What perhaps the learned Senior Counsel for the petitioner wanted to emphasize is that the arbitrator disregarding the conditions that are required to be proved in a claim based upon Section 70 of the Indian Contract Act has allowed it merely on the basis of the observation made by the Hon'ble Division Bench and some unreliable documents without any foundational facts.
The learned Arbitrator, in my view, has not blindly followed the judgment and has proceeded on the basis that the claimant was forced to store the food grains as the claimant could not have thrown away the said food grains which are of national importance and was forced to retain godown because of failure on the part of the petitioner to remove the stocks. This forceful retention of the godown after termination of the contract cannot be said to be gratuitous.
In the award, as noticed earlier, the arbitrator has failed to take into consideration few letters where the claimant has refused to release goods without payment of their bills. There are also few documents which go to show that the transporter was not allowed to remove the goods from the godown. The arbitrator on such facts would be required to assess the evidence in order to find out whether ingredients of Section 70 would apply. The other factor is that it was open for the petitioner to deliver the articles to the tenderers from its godown since they had the knowledge that the said tenderers have obtained necessary delivery orders from FCI for lifting the said materials. This would certainly minimize the loss. The arbitrator has failed to take into consideration that the claimant on their own has admitted that large portion of the godown has remained unutilized since October, 1988, and as it reveals only 111 bags are occupying a huge godown. The reason for the claimant to terminate the contract was that they were not getting adequate orders from the petitioner. After the termination of the contract, the restriction as to utilization of the said godown for other purposes or to utilize the vacant portion comes to an end and there was no evidence before the arbitrator that the claimant made any attempt to utilize the unutilized portion of the godown. The withholding of the goods was primarily due to non-payment of bills. The claimant cannot have any lien over the food grains. The arbitrator being a trained legal mind, in my opinion, should have adverted to this aspect of the matter as a huge claim has been made on account of damages.
In my view, the award passed by the learned Arbitrator is without evidence, perverse and unreasoned.
Although, the petitioner has raised objection with regard to the jurisdiction of the arbitral tribunal to decide the said dispute, in my view, such submission is unmeritorious. It is not in dispute that in an application filed under Section 11 of the Arbitration and Conciliation Act, 1996, the learned Arbitrator was appointed by an order dated 13th March, 2003 by consent of the parties. Moreover, during the course of proceedings before the learned Arbitrator, no objection was raised as to the composition of the arbitral tribunal. Under such circumstances, the said objection is unsustainable.
The application being A.P. No.167 of 2005 is allowed. The award is set aside.
Urgent Xerox certified copy of this judgment, if applied for, be given to the parties on usual undertaking.
(SOUMEN SEN, J.)