Case BriefsSupreme Court

   

Supreme Court: In an appeal filed by the Food Corporation of India (‘FCI’) against the judgment of Tripura high Court wherein it held that demurrages cannot be recovered as a charge by the corporation, the division bench of Pamidighantam Sri Narasimha* and AS Bonappa JJ. after examining the contract, held that the parties did not intend to include liability on account of demurrages as part and parcel of the expression “charges” in the contract between them.

The issue is whether the demurrages imposed on the corporation by the Railways can be, in turn, recovered by the corporation from the contractors as “charges” recoverable under clause XII(a) of the contract between the parties?

The Court said that the scope of the expression “charges” must be understood as intended by the parties to the contract. Thus, the Court examined the expression “charges” in the context of its related words in the contract, which are costs, damages, registration fees, and expenses. These expressions indicate the different heads under which losses are recoverable from the contractors for acts of negligence, unworkmanlike performance of any service, breach of terms and failure to carry out the work in the context of the working of the contract. However, it said that these expressions are wide and do not aid in understanding the meaning of the expression “charges”, thus, the meaning must be understood in the larger context of the contract.

The Court said that the real question is whether the contractors had any obligation towards loading and unloading foodgrains from the railway wagons. After examining the contract, the Court said that there is no contractual provision requiring the contractors to undertake the task of loading and unloading foodgrains from the railway wagons.

Further, based on interpretation of the expression “charges” in the contractual context, it was opined that, it did not include liability on account of demurrages. Thus, the corporation cannot impose and collect demurrages from the contractors.

The Court while providing for intrinsic tools for interpreting a contract, said that interpretation of contracts concerns the correct intention of the parties to it and words and expressions used in the contract are principal tools to ascertain such intention. While interpreting the words, courts look at the expressions falling for interpretation in the context of other provisions of the contract and in the context of the contract as a whole. Further, courts do not resort to materials external to the contract for construing the intention of the parties, however, there are certain exceptions to this rule, for instance, in latent ambiguity, which cannot be resolved without reference to extrinsic evidence. Latent ambiguity exists when words in a contract appear to be free from ambiguity; however, when they are sought to be applied to a particular context or question, they are amenable to multiple outcomes.

The Court while comparing the present contracts with similar but not identical contracts entered by the corporation confirmed that the interpretation of the word “charges” in the contract is exclusive of liability for demurrages, as the present contract do not involve the task of loading and unloading foodgrains from the railway wagons as a part of the contractors’ responsibility. Thus, the liability of the contractors in the present contracts is clearly distinguishable from other contracts entered into by the FCI, having a different scope and objective, therefore the Court upheld the judgment of the High Court.

[Food Corpn. of India v. Abhijit Paul, 2022 SCC OnLine SC 1605, decided on 18-11-2022]

*Judgment by: Pamidighantam Sri Narasimha.


*Apoorva Goel, Editorial Assistant has reported this brief.

Case BriefsHigh Courts

Orissa High Court: A Division Bench of S. Muralidhar CJ. and B. P Routray J. dismissed the petition on grounds discussed below.

The facts of the case are such that the Food Corporation of India i.e. `FCI (Opposite 1 and 2) being the nodal organization of the Government of India, delivers food grains to different parts of the State of Odisha and for such purpose it uses the space available in different warehouses under OSWC for storing and facilitating movement of the food grains on contract basis. The Petitioner executed a contract with Odisha State Warehousing Corporation i.e. OSWC (Opposite Party 1 and 2) effective for a period of two years for Handling and Transportation (H & T) of foodgrains and other allied materials at OSWC as per the quoted rate of contract. The said contract was extendable for a further period of three months. The contract was extended twice before the expiration of their respective previous contracts as the tender issued for the purpose could not be materialized. Those two extensions were granted with the same rate of contract but on further extension, FCI expressed dissatisfaction and put a condition that, the rate applicable for the extended period would be the existing rate or the new rate, whichever is lower. The new agreement was executed and the rate of contract was much lesser than the earlier rate of contract fixed as per the original contract. Thus, for the bills raised by OSWC after 31st March 2017, FCI deducted the amount calculated on the differential rate between the rate of contract existed as per the 2013 agreement and 2017 agreement. As a result, OSWC realized the differential amount from the bill of the Petitioner and this is the subject matter of the dispute in the present petition.

Counsel for the petitioners Mr. P.K.Roy submitted that realization of differential amount from its bill with retrospective effect is grossly illegal and the same is violation of statutory rules as no opportunity of showing any cause or hearing has been granted. It is further contended that in the absence of any agreement after 31st October, 2015 till 31st March 2017, the rate applicable would be the existing rate as per the 2013 agreement.

Counsel for the respondents Mr. P.K. Rath, Mr. Bijay Kumar Dash and Mr. Debasish Nayak submitted that the Petitioner has not come with clean hands as the entire dispute has emanated from contractual obligations and, therefore, the writ petition under Article 226 would not be maintainable. It is further contended that the petitioner continued H & T work with OSWC having been aware of the stipulation of change in rate of contract, is estopped from raising the dispute at realization stage.

The Court observed that realization of the differential amount at a lower rate in absence of any existing contract is not contentious as it is clear that being fully aware of the lower rate, which may be stipulated in the new contract, the Petitioner continued with the work for the extended period.

The Court observed “Once the Petitioner has accepted the condition with a lower rate than the existing rate which may be effected for the period it continued with the work on extension, it hardly makes any difference whether a written contract on specific term is executed or not. Thus, the Petitioner now cannot claim that such a stipulation at the lower rate to realize the differential amount was without his knowledge.”

The Court relied on judgment Kerala State Electricity Board v. Kurien E. Kalathil (2000) 6 SCC 293 wherein it was held that

“11. A statute may expressly or impliedly confer power on a statutory body to enter into contracts in order to enable it to discharge its functions. Dispute arising out of the terms of such contracts or alleged breaches have to be settled by the ordinary principles of law of contract. The fact that one of the parties to the agreement is a statutory or public body will not by itself affect the principles to be applied. The disputes about the meaning of a covenant in a contract or its enforceability have to be determined according to the usual principles of the Contract Act.

The Court observed that the petitioner is unable to point out the violation of any statutory rule in its favour. The rate on which work is to be performed, flows from the contract executed between the Petitioner and OSWC.

The Court thus held “….Therefore, adjudication of the dispute in the writ jurisdiction in the present form is neither appropriate nor feasible.”[Jayasingh Bhoi v. OSWC, 2021 SCC OnLine Ori 630, decided on 31-05-2021]


Arunima Bose, Editorial Assistant has reported this brief.

Case BriefsSupreme Court

Supreme Court: A Division Bench of A.M. Khanwilkar and Dinesh Maheshwari, JJ., while addressing a contempt petition held that,

“…to constitute civil contempt, it must be established that disobedience of the order is wilful, deliberate and with full knowledge of consequences.”

Grievance

Non compliance of direction to Food Corporation of India to regularise and departmentalise workers concerned who had initiated industrial disputes before Industrial Tribunal, Chennai under Section 10(1)(d) of Industrial Disputes Act.

The employees concerned were employed as daily-rated labour or casual labour and had been working for some time with some cases of 15 to 20 years.

Contempt Petition against FCI

FCI contended that it had already regularised the eligible employees who were under Direct Payment System (DPS) and nothing further was required to be done.

Further the Corporation stated that claim was restricted to regularisation of the employees concerned after abolition of the contract labour system. There was no prayer for absorbing the concerned employees under any specific system of regular labour prevailing in the Corporation. The Corporation has four systems of labour engagement, namely, (i) Departmental Labour System, (ii) Direct Payment System, (iii) No­-Work-­No-­Pay System and (iv) Mate System.

Corporation’s Stand

In the decision of SAIL v. National Union Waterfront Workers, (2001) 7 SCC 1 (Constitution Bench), it was held that, contract labour need not be absorbed after abolition of contract labour system.

Taking reference from the above, Corporation stated that the provision of FCI and its primary duty is to undertake purchase, storage, movement, transport, distribution and sale of food grains and other food stuff.

Continuing its’ contention, Corporation stated that, If all the regular workers in the Corporation are brought under the Departmental Labour System, there will be recurring liability on public exchequer to the tune of Rs 3,000 crore per annum and if arrears are also given with effect from 2003, there will be additional financial burden of more than Rs 40,000 crore.

As per the extant policy, the respondent could have regularised the workers concerned only under theDirect Payment System and therefore, it is certainly not a case of disobedience, much less wilful or deliberate disobedience of the order passed by this Court.

Decision of the Court

Bench adverted to the exposition of Supreme Court’s decision in Ram Kishan v. Tarun Bajaj, (2014) 16 SCC 204, wherein the Court had delineated the contours for initiating civil contempt action.

Excerpts from the referred SC decision:

“…in order to punish a contemnor, it has to be established that disobedience of the order is “wilful”. The word “wilful” introduces a mental element and hence, requires looking into the mind of a person/contemnor by gauging his actions, which is an indication of one’s state of mind.”

“Even if there is a disobedience of an order, but such disobedience is the result of some compelling circumstances under which it was not possible for the contemnor to comply with the order, the contemnor cannot be punished.”

Court in the present case observed that, neither the relief in the References was specific for regularisation in Departmental Labour System only nor the Tribunal, the Madras High Court/Kerala High Court or this Court was called upon to deal with that issue specifically.

Subject References, as well as, the direction issued by the Tribunal, which has been upheld upto this Court is silent about the system in which the concerned workers have to be regularised and departmentalised, therefore, it is incomprehensible as to how it would be a case of disobedience.

Therefore, Court held that, no specific direction had been given to the Corporation to regularise the workmen concerned only in the Departmental Labour System.

Furthermore, the Departmental Labour System is now a dying cadre and the policy of the Corporation at the relevant time entailed regularisation of such workmen only under the Direct Payment System (DPS).

Hence, no contempt action can be initiated on the basis of general direction to the respondents to regularise and departmentalise the concerned workmen.

Petition stands dismissed in the above view. [Workmen v. Ravuthar Dawood Naseem, 2020 SCC OnLine SC 461 , decided on 19-05-2020]

Chhattisgarh High Court
Case BriefsHigh Courts

Chhattisgarh High Court: Goutam Bhaduri, J., while allowing the petition and quashing the order issued by the State of Chhattisgarh held that,

“Two of the officers of Food Corporation of India who are not empowered to have attended the meeting to give away the FCI Land in absence of any resolution by the Board of Directors, acting on behalf of the Corporation cannot alienate the part of the land.”

In the present petition, the mention of a letter had been made which was addressed to the Collector wherein he had permitted the State to take possession of land of 100 acres from the Food Corporation of India. Further, the letter purported that the FCI holds the land ad-measuring 111.61 acres at village Kapa and out of the said land 100 acres was to be given to Chhattisgarh Housing Board and 11.61 acres was to be kept with FCI. In lieu of the land received by Chhattisgarh Housing Board, the board will give the government land of about 70 acres situated at village Sejbahar.

FCI challenged the direction issued by the State and the ground was that the general superintendence, direction and management of the affairs and business of the Corporation vests in the Board of Directors which exercise all such powers and do all such acts and things as may be exercised or done by the Corporation under the Food Corporation Act, 1964.

Further, as per Section 37 of the Act, FCI may delegate powers by general or special order to the Chairman or any other member of the Board of Directors or the Secretary or other officer of the Corporation with certain conditions and limitations as may be specified in the Order.

Delegation of power was made to the Managing Director for purchase of land/acquisition as on 31-03-1993, which implies that no officer other lower than the rank of the Managing Director can purchase or acquire the land on behalf of FCI.

Adding to the above, Corporation purchased the land of 111.61 acres from defence and some part of it was purchased from the State at village Kapa, for construction of grain storage depots.

A meeting was held for the above purpose wherein Collector, Regional and Deputy Manager of FCI and representatives of Chhattisgarh House Board had participated. Subsequently, Officers of FCI had communicated to Chhattisgarh Housing Board to evaluate the land but eventually, the said resolution was not acted upon.

Further, petitioner’s counsel submitted that property of FCI cannot be done away with by few of the officers and the State Government without any authority cannot force FCI to force to comply with the above-mentioned letter.

Decision

 On perusal of Section 3 to 7 of the Food Corporation Act, 1964, it would be noted that FCI is a body corporate having a juristic entity.

 The question that arose was,

“Whether the Regional Manager and Deputy Manager of the petitioner’s Corporation were authorised to deal with the matters of alienating and exchange of land of Housing Board?”

 Referring to Section 37 of the Act, that talk about the delegation of power wherein it is stated that,

Food Corporation may, by general or special order in writing delegate to the Chairman or any other member of the Board of Directors of the Secretary or other Officer of the Corporation, subject to such conditions and limitations, if any, as may be specified in the order, such of its powers and functions under the said Act.

Thus, with reference of Section 37 of the Act and annexure regarding delegation of powers, the Court held that,

If two of the officers of the Corporation participated in certain meeting and signed the resolution/agreement wherein they decided to give away 100 acres of the land of Food Corporation of India to the Housing Board and in lieu thereof, accepted to take the Government land of 70 acres situated at village Sejbahar at the expense of Housing Board, the same cannot be made binding to the Corporation which is a Body Corporate.

 Ratio of Vice-Chancellor v. S.K. Ghosh, AIR 1954 SC 217 was relied on and is applicable in the present case wherein it was stated that though a body corporate is a legal entity it has neither a living mind nor voice. It can only express its will in a formal way by a resolution.

Hence, in the present case, the alleged resolution cannot be acted upon and the resolution of meeting to give away 100 acres of land by FCI would be a scrap of paper and cannot be acted upon. [FCI v. State of Chhattisgarh, 2020 SCC OnLine Chh 10, decided on 14-02-2020]

Cabinet DecisionsLegislation Updates

The Cabinet Committee on Economic Affairs approved to increase the authorized capital of Food Corporation of India (FCI) from existing Rs 3,500 crore to Rs 10,000 crore.

With the increase of authorized capital, additional equity capital can be infused in FCI through Union Budget, to fund the foodgrains stock, perpetually held by FCI. This will reduce the borrowings of FCI, save interest cost of FCI and reduce food subsidy in consequence.

Background:

The operations of Food Corporation of India require maintaining perpetual stock of foodgrains which needs to be funded by the Govt. of India through equity or long term loan. The Govt. of India is providing equity to FCI for maintaining stocks. The present authorized equity capital of FCI is Rs 3,500 crore and paid up equity capital as on 31.03.2019 is Rs.3,447.58 crore.

Food Corporation of India was constituted under the Food Corporations Act, 1964, to implement the food policy of Government of India. Its primary objective is to ensure Minimum Support Price to farmers, maintain buffer stock of foodgrains and distribution of foodgrains under National Food Security Act and other welfare schemes of Govt. of India.


Cabinet Committee on Economic Affairs (CCEA)

[Press Release dt. 27-11-2019]

[Source: PIB]