Punjab-Haryana High Court
Food Corporation Of India vs M/S Vishnu Rice Mills And Others on 23 January, 2014
Author: Rakesh Kumar Garg
Bench: Rakesh Kumar Garg
RSA No.3428 of 2012 (O&M) 1
IN THE HIGH COURT OF PUNJAB AND HARYANA
AT CHANDIGARH
RSA No.3428 of 2012 (O&M)
Date of decision:23.01.2014
Food Corporation of India ....Appellant
Versus
M/s Vishnu Rice Mills and others ....Respondents
CORAM:- HON'BLE MR. JUSTICE RAKESH KUMAR GARG
1. Whether reporters of local newspapers may be allowed to
see judgment?
2. To be referred to reporters or not?
3. Whether the judgment should be reported in the Digest?
Present:- Mr. Ravi Kant Sharma, Advocate
for the appellant.
None for the respondents.
RAKESH KUMAR GARG, J (ORAL)
As per the averments made in the suit filed on behalf of the appellant, the defendants entered into an agreement dated 16.03.1981 with the appellant for milling paddy into rice. As per the aforesaid agreement, the respondents were awarded a contract for milling of 13,800 M.T.Paddy PR-106 at Khamano for its conversion into export quality rice in the ratio of 80:20. The defendants were to deliver rice after milling upto 5.7.1981. However in breach of the term of the agreement, the defendants lifted only 2461-86-300 Qtls paddy. Kadian Savita 2014.01.31 15:58 I attest to the accuracy and integrity of this document High Court Chandigarh RSA No.3428 of 2012 (O&M) 2 The balance paddy was neither lifted by the defendants for conversion into rice nor the defendants delivered any rice after shelling of 2461-86-300 Qtls paddy by them from time to time.
According to the appellant, it was entitled to recover a sum of ` 5,90,847-10 paisa as the value of the paddy which was not returned at the economic rate of ` 160/- per qtl. According to the plaintiff, the defendants have also not returned 3740 empty gunny bags of A-class valuing ` 29,920/- at the rate of ` 8/- per gunny bag. For non lifting of remaining paddy, the plaintiff was also entitled to recover liquidated damage at the rate of ` 2/- per qtl. Thus, as a whole, the plaintiff was entitled to recover a sum of ` 8,91,843-38 paisa. Out of this amount, the plaintiff-Corporation had recovered a sum of ` 4 lacs from Central Bank of India, Pheowa on account of bank guarantee furnished by the defendants in favour of the plaintiff. After adjusting the same, a sum of ` 4,91,843-38 paisa was still recoverable from the defendants. The plaintiff was further entitled to charge interest at the rate of 18% per annum on the aforesaid amount. The plaintiff requested the defendants several times to make payment. Regarding this a registered notice dated 24.6.1983 was also served upon the defendants but they failed to make the payment. Hence the instant suit for recovery.
Upon notice, the defendants raised various preliminary objections. It was submitted that the plaintiff had invited tenders for Kadian Savita 2014.01.31 15:58 I attest to the accuracy and integrity of this document High Court Chandigarh RSA No.3428 of 2012 (O&M) 3 the conversion of paddy into rice and it was represented that the paddy shall conform to PR 106 standard. There was implied warranty about the quality and standard of the paddy. It was only in respect of lifting condition that the paddy was loose in the godowns or was in gunny bags of different classes or was stored in private godowns by the plaintiff. The defendants were to arrange for themselves for lifting of paddy and for each lifting, a release order was to be issued by the plaintiff and it is only after that the paddy could be lifted. There was no breach of agreement in lifting the paddy on the part of the defendants. The only release order issued and handed over at the time of delivery related to the lifting which was done on 20/21-4-1981 and the paddy was rightly lifted. It was wrong to say that the defendants were to deliver rice upto 5.7.1981. In fact, as per the terms of the agreement, this paddy was to be shelled and delivered within 20 days of its lifting. Therefore, the defendants were to be delivered the rice by 11/12-5-1981. The plaintiff was not entitled to any damage rather the plaintiff has committed the breach of agreement and caused loss to the defendants. The plaintiff was not entitled to 1 ½ times price of the economic costs of the paddy. The gunny bags in which the paddy was lifted were of 'C' class and were not of 'A' class. The plaintiff has illegally recovered a sum of ` 4,00,000/- as bank guarantee which was deposited by them. Rather defendants have suffered loss to the tune of ` 5,35,000/- which they Kadian Savita 2014.01.31 15:58 I attest to the accuracy and integrity of this document High Court Chandigarh RSA No.3428 of 2012 (O&M) 4 were entitled to recover from the plaintiff. A specific stand was taken that no release order for lifting of paddy was ever issued after the disputed supply.
Defendants also filed a counter claim submitting that the plaintiff invited tenders for milling of rice from the paddy PR 106 quality. Along with the tender a sum of ` 5,000/- was also called as tender money. Their tender was accepted vide telegram dated 9.3.1981. They further deposited ` 30,000/- as security against the said contract in addition to the sum of ` 5,000/- already deposited by the defendants. As per the conditions, the defendants-claimants opened a letter of credit in the sum of ` 4,00,000/- with the Central Bank of India, Pehowa Branch on 9.4.1981 which was valid upto 30.10.1981 only. The defendants have further claimed that only one release order dated 14.04.1981 of 2500 quintals was issued by the Food Corporation of India Khumano. The stocks were lying in the open or in loose scattered condition inside the storage depot. The Assistant Manager Quality Control was never present at the time of delivery of the paddy. The defendant /claimants on 5.5.1981 offered the delivery of rice to the District Manager, FCI, for taking delivery of the rice according to the terms of the contract. A telegram/letter dated 14.5.1981 was also addressed to the appellant about the non taking of the delivery of the rice. Again on 17.5.1981, it was informed that the rice was not being taken by the Food Corporation of India inspite Kadian Savita 2014.01.31 15:58 I attest to the accuracy and integrity of this document High Court Chandigarh RSA No.3428 of 2012 (O&M) 5 of letter dated 19.5.1981 and a telegram dated 22.5.1981, the delivery of rice was not taken by anybody. The plaintiff alleged that the percentage of damage grain was more in the rice and refused to accept the same. The defendants approached the District Manager, Ludhiana on 8.6.1981 and also wrote a letter dated 10.6.1981 informing that the paddy should be got inspected and milling test should be got done. As the paddy was not conforming P.R.106, therefore, it was not possible to procure export quality rice as per the specifications laid down in the agreement. Inspite of repeated requests to the milling test was not got done by the FCI. On 24.7.1981, a notice was served upon the District Manager, FCI, Ludhiana. They received a letter dated 23.7.1981 whereby the contract was cancelled by the FCI. Thereafter, they filed an application under Section 20 of the Indian Arbitration Act in the Civil Court. The stay of the release of bank guarantee was also granted by the trial Court but later on the stay was vacated.
On the merits, the FCI did not agree to make reference of the dispute to the arbitration. It is the plaintiff who has failed to fulfill their contractual obligations. The defendants never refused to deliver the rice procured, rather they made efforts to get the rice delivered and in that process they suffered heavy damage. As detailed in notice dated 24.7.1981, the defendants/claimants have suffered damages amounting to ` 6,77,500/- which are adjusted against the Kadian Savita 2014.01.31 15:58 I attest to the accuracy and integrity of this document High Court Chandigarh RSA No.3428 of 2012 (O&M) 6 value of the paddy. However, the plaintiff was liable to pay back the amount of letter of credit received by it illegally amounting to ` 4 lacs. They were further entitled to receive back the tender money of ` 5,000/- and security money of ` 30,000/- from the Food Corporation of India. They were further entitled to get interest on this amount at the rate of 12% per annum which comes out to be `1 lac so as a whole the defendants claimed ` 5,35,000/- from the plaintiff- Food Corporation of India.
The replication was filed by the plaintiff in which the facts as stated in the plaint were reiterated. Plaintiff denied all the allegations levelled by the defendants. It was further stated that when the defendants have committed breach in the terms of the agreement , they were not entitled to the damages as detailed in the counter claim.
The following issues were framed :-
1. Whether the suit has been instituted through duly authorized person? OPP
2. Whether the defendants committed breach of the terms of the agreement? OPP
3. Whether the plaintiff suffered damages on account of the breach of the terms of the agreement by the defendants if so to what extent? OPP
4. To what amount the plaintiff is entitled to recover from the defendant? OPP
5. Whether plaintiff is entitled to interest? If so at what rate? OPP Kadian Savita 2014.01.31 15:58 I attest to the accuracy and integrity of this document High Court Chandigarh RSA No.3428 of 2012 (O&M) 7
6. Whether the defendants are entitled to recover the amount of Rs.5,35,000/- as counter claim from the plaintiff? OPD
7. Whether the defendant firm is registered partnership firm and whether Mohan Lal is its registered partner? OPD
8. Whether the suit is beyond limitation? OPD
9. Relief.
Issue No.1 was decided in favour of the plaintiff. Under issue No.2 it was held that defendants did not commit any breach of terms of Tender Ex.P1 nor FCI has suffered any loss on that account. Under issue No.3, it was held that since the defendants did not commit any breach so FCI could not claim alleged damages at the rate of ` 2/- per quintal on un-lifted paddy or any interest thereon. Under issues No.4 and 5, it was held that the FCI was entitled to the costs of paddy at the economic rate and costs of gunny bags which were delivered to the defendants in pursuance of agreement Ex.P1. The costs of paddy at economic rate was determined at the rate of ` 3,93,504/- and the costs of gunny bags was assessed as ` 29920/- i.e. a total sum of ` 4,24,424/-. It was further observed that appellant had already got the bank guarantee of ` 4 lacs released on 31.8.1983. Thus, the FCI was entitled to recover a sum of ` 24,424/-. Under issue No.7, the trial Court held that defendants were entitled to the bank guarantee of ` 4 lacs and ` 35,000/- deposited as tender money and security with the appellant. After adjusting a sum of ` Kadian Savita 2014.01.31 15:58 I attest to the accuracy and integrity of this document High Court Chandigarh RSA No.3428 of 2012 (O&M) 8 24,424/- as payable to the defendants as held above, the defendants were entitled to recover a sum of ` 10576/-. Under issue No.7, it was further held that being partner of the defendant-firm, Mohan Lal was competent to defend the suit and to file the counter claim. Under issue No.8, the suit was held to be filed within limitation and in view of the aforesaid findings, since the amount recoverable by the FCI has already been adjusted with the amount due to the defendants, the defendants held entitled to recover ` 10576/- from the FCI. Thus, a decree for recovery of ` 10576/- was passed in favour of the defendants as counter claim with no order as to costs.
Plaintiff-appellant filed an appeal against the aforesaid judgment and decree of the trial Court which was modified by the Additional District Judge vide impugned judgment and decree dated 25.02.2012 holding that the appellant was entitled to a sum of ` 5,90,847/- towards value of paddy at the economic rate of ` 160/- per Qtl as claimed instead of a sum of ` 3,93,504/- as allowed by the trial Court. The remaining findings of the trial Court were upheld.
Still not satisfied, the appellant has filed the instant appeal. At this stage, it may be noticed that in the suit, appellant had claimed the following three relief:-
i) A sum of ` 5,90,847-10 paisa value of the paddy at the economic rate ` 160 per quintal.
ii) ` 29,920/- class value at the rate of ` 8/- per gunny bag and a sum of Rs.2,71076-28 paisa towards liquidated damages @ ` 2/- per quintal for Kadian Savita 2014.01.31 15:58 I attest to the accuracy and integrity of this document High Court Chandigarh RSA No.3428 of 2012 (O&M) 9 non-lifting of remaining paddy.
Iii) Appellant had also claimed interest on the outstanding amount for which he was entitled to. In the counter claim, respondents claimed bank guarantee for a sum of ` 4 lacs which was encashed by the appellant and ` 30,000/- as security and ` 5,000/- as tender money.
It is not in dispute that vide impugned judgment and decree of the Appellate Court, the appellant has already been entitled to value of the paddy at ` 5,90,847-10 paisa and ` 29,920/- as value of gunny bags as claimed. Further, there is no dispute with regard to bank guarantee of ` 4 lacs and deposit of ` 35,000/- by the defendants as security and tender money.
Thus, the dispute remains with regard to some of ` 2,71,076-28 paisa towards liquidated damages at the rate of ` 2/- per quintal for non-lifting of the remaining paddy for milling by the respondents.
Learned counsel for the appellant has restricted this appeal only with regard to aforesaid dispute.
According to the counsel for the appellant, the parties were bound by the terms of the contract wherein, admittedly, appellant was entitled to recover liquidated damages at the rate of ` 2/- per quintal for the non-lifting of paddy for milling as per the terms and conditions of the agreement. According to the learned counsel, respondents have failed to lift paddy, thus, they were entitled to the aforesaid amount. Counsel for the appellant has vehemently argued Kadian Savita 2014.01.31 15:58 I attest to the accuracy and integrity of this document High Court Chandigarh RSA No.3428 of 2012 (O&M) 10 that once the agreement in question is not disputed then there was no scope to get away from its terms. Non-lifting of paddy by the defendants is not in dispute. Once that is so, it cannot be disputed that defendants have committed any breach of agreement. Consequently as per the terms of the contract, respondents were liable to pay the damages to the appellant at the agreed rate of ` 2/- per quintal for non-lifting of paddy. According to the counsel for the appellant, when the respondents have accepted the terms and conditions of the contract without insisting any alteration or change or protest then, appellant cannot be permitted to impose the terms later on which are not mentioned in the contract. It was a case of pure commercial contractual obligations entered into between two parties and if there was any violation of the terms of the contract then the appellant was at liberty to sue for damages as per the contract agreement. In fact, the Court cannot deviate from the contract to grant concessions. Learned counsel for the appellant has further relied upon the condition No.m(2) of the agreement, according to which penalty could be recovered from the appellant at the rate of ` 2/- per quintal on the stocks which remain un-lifted by the stipulated date.
Covenant No.m(2) reads thus:-
"without prejudice to the provision of clause (m)(1) when an agent fails or neglects to complete the Kadian Savita 2014.01.31 15:58 I attest to the accuracy and integrity of this document High Court Chandigarh RSA No.3428 of 2012 (O&M) 11 lifting of paddy by the time stipulated in clause g(iii) penalty shall be recovered from him at the rate of Rs.2/- per quintal on stocks which remain unlifted by the stipulated date, the SRM/RM may however, waive or reduce this penalty depending upon specific circumstances."
Thus, according to the learned counsel for the appellants, the Courts below have misread and misinterpreted the covenant and therefore, the following substantial questions of law arises in this appeal:-
i) Whether the Court is bound by the terms of the covenant of the contract and cannot grant the concessions to the party against the contract which has duly been admitted?
ii) Whether the Court can interpret the terms of the contract to the disadvantage of one party and give benefit to the other party against under the Contract Act?
iii) Whether the security amount can be ordered to be refunded in piste of the fact that a respondent has breached the terms of the contract?
I have heard learned counsel for the appellant and perused the impugned judgments and decrees of the Courts below.
It is useful to refer to Clause M(1) of the the tender Ex.P1 which regulates the lifting of paddy and delivery of rice by the miller at this stage which reads thus:-
"i) The issue of the paddy shall be limited to the extent of the cost of paddy covered against bank Kadian Savita 2014.01.31 15:58 I attest to the accuracy and integrity of this document High Court Chandigarh RSA No.3428 of 2012 (O&M) 12 guarantee of cash deposited by the party.
ii) The agent shall be required to lift paddy stocks from the godown/mandis railway station and other places as mentioned in the release order within twenty days of issues of release order excluding Sunday and all other holidays observed by FCI.
iii) The agent will be required to lift the minimum 200 tones of paddy or 5% of the contracted paddy which ever is higher in every period of twenty days excluding Sunday and other holidays observed by FCI.
iv) The twenty days for lifting of the paddy will reckon from the date of the issue of the release order.
v) In the event of the failure of the agent to lift the paddy within 20 days of the issue of the release order he shall be liable to pay storage charges and interest to the corporation for such delay at the 5 paise per quintal per day.
vi) The agent shall deliver manufactured rice filled in bags be supplied by the FCI along with paddy or otherwise at the railway station FCI godown or local godowns of the CWC St. Govt.godowns/;SWC godowns/Pvt godowns as desired by the FCI at its costs. The bags will properly stitched as per instructions of the FCI and the costs of stitching will be borned by the agent for shot quality also see addenda.
vii) Agent will have to return rice within 20 days excluding Sunday and all other holidays of the FCI of lifting of paddy stocks. Further supplies will be regulated in accordance with the quantity of rice returned by the agent.
viii) If the agent fails to deliver rice to the corporation within the stipulated period of 20 days of lifting of paddy stocks he shall liable to pay holding charges to the corporation for such delay @ 5 per quintal per day."Kadian Savita 2014.01.31 15:58 I attest to the accuracy and integrity of this document High Court Chandigarh RSA No.3428 of 2012 (O&M) 13
There is no dispute with regard to terms and conditions of the agreement in question. It is further not in dispute that agreement dated 16.03.1981 was executed between the parties, according to which respondents were to shell of 13800 Mt. Tones of paddy and the shelling was to be completed by 5.7.1981. It is further not in dispute that appellant has issued only one release order for the lifting of 2461-86-300 Qtls. of paddy for shelling and the same was lifted by the defendants. It is further not in dispute that there is nothing on record to prove that any further release order was issued by the appellant releasing further stock of paddy in favour of the defendants to be lifted for shelling and as per their own showing appellant has cancelled the contract.
At this stage, the relevant observations of the lower Appellate Court in this regard are useful to be referred, which read thus:-
"The other observations and findings that were made by the court specifically while deciding issues no.2,3,4 and 5 are found to be rightly arrived at so far as holding that the defendants had not committed any breach of contract and that FCI could not claim liquidated damages at the rate of Rs.2 per quintals on remaining unlifted paddy or any interest thereon. It was also correctly observed and found by the trial Court that the FCI after acceptance of the tender Ex.P1 issued release order ExP2 in favour of the defendants. This release order was not revolving one and it was only for 2500 quintals of paddy as it has been Kadian Savita 2014.01.31 15:58 I attest to the accuracy and integrity of this document High Court Chandigarh RSA No.3428 of 2012 (O&M) 14 clearly indicated in its column No.(iii) where its quantity has been mentioned. Although it was also stated in the release order that it would resolve upto 15.6.1981 but iut was made conditional further providing that against the deliveries of rice. In the case in hand the delivery of rice was offered by the defendants after shelling of the lifted stock which was not accepted and was rather rejected by the plaintiff. It was also provided and mentioned in the release order that the AM(D) may ensure that the costs of paddy with the miller/undelivered rice and empty gunnies etc. should not exceed the amount of bank guarantee in any case. But nothing has come on record that shows that FCI ever sent a communication to the defendants asking them to further deposit the guarantee amount specially when they rejected the offered delivery of the shelled rice that was lifted by them vide release order Ex.P2. The trial Court was very much right in finding that Ex.P2 in no way was actually a revolving order for the entire paddy i.e. 13800 Mt Tones but it was only for 2500 quintals of paddy. Hence the findings that have been arrived at by the trial court on all these issues were correctly arrived at which called for absolutely no interference except in the manner as has been discussed above."
At this stage, it may further be noticed that paddy was to be issued by the appellant to a limited extent i.e. equal to the cost of paddy covered against the bank guarantee/cash deposited by the contractor. The contractor was required to lift paddy stocks from the Kadian Savita 2014.01.31 15:58 I attest to the accuracy and integrity of this document High Court Chandigarh RSA No.3428 of 2012 (O&M) 15 godown and other places as mentioned in the release order and shell the same within twenty days of issue of release order. The Miller was required to lift the minimum 200 tones of paddy or 5% of the contract in every period of 20 days and 20 days for lifting of the paddy will reckon from the date of issue of the release order. In the event of failure to lift the paddy within 20 days of the issue of the release order he shall be liable to pay storage charges and interest to the corporation for such delay at the rate of 5 paise per quintal per day.
Taking into consideration, the aforesaid provisions and the fact that there is nothing on record to prove that Miller was offered/released further quantity of paddy for shelling, it cannot be said that there was any breach of conditions by the defendants. In fact, there is no evidence on record to prove that plaintiff suffered any loss on account of non-lifting of paddy by the Miller. In view thereof, findings of the Courts below on this issue cannot be held to be against law.
No other argument raised.
In view thereof, no substantial question of law, as raised, arises in this appeal.
Dismissed.
January 23, 2014 (RAKESH KUMAR GARG)
savita JUDGE
Kadian Savita
2014.01.31 15:58
I attest to the accuracy and
integrity of this document
High Court Chandigarh