PR. COMMISSIONER OF INCOME TAX-DELHI-2 vs. BSES RAJDHANI POWER LTD

The Food Corporation of India („FCI‟) has filed this petition under Section 34 of the Arbitration & Conciliation Act, 1996 („Act‟), challenging the impugned Award dated 19th September 2013, modified by the Addendum Award dated 21st February 2014 and further modified by the Supplementary Award dated 6th June 2014 passed by the sole Arbitrator in the disputes between FCI and the Padda Trading Company („PTC‟) (Respondent No. 1) and its partners (Respondent Nos. 2 to 5), arising out of an Agreement dated 12th October 1994 for the purposes of storing paddy.

By the aforementioned impugned Award, the learned Arbitrator rejected the claim of FCI in the sum of Rs. 40,50,309.42 towards cost of balance paddy at the rate of one and half times of the economic cost of paddy as

FCI supplied to the Respondent 24,057-93-000 quintals of super fine variety of paddy (in 37158 bags), 486-51-000 quintals of fine variety of paddy (in 764 bags) and 8,724-06-000 quintals of paddy (in 13,518 bags). In terms of Clause 12 of the Agreement, PTC deposited Rs. 30,000 as security deposit with FCI. In terms of Clause 9 (3) of the Agreement, the PTC was to complete delivery of the milled rice within ten days of issuance of paddy i.e., not later than 28th February 1995 except where the milling slowed down due to operational exigencies beyond the miller‟s control. The Schedule for milling of paddy and delivery of the rice is set out in Clause 9

According to FCI, PTC failed to mill the paddy by 28th February 1995 and further failed to complete the milling work despite an unconditional extension being granted by the Petitioner up to 31st May 1995.

As already mentioned, the arbitration took place under the aegis of ICA. FCI filed seven claims of which Claim Nos. 2 and 5 were allowed

FCI‟s claim for Rs. 40,50,309.42 towards the cost of balance paddy at rate of 1-1/2 times of the economic cost was rejected by the sole Arbitrator. It was noticed that although FCI had extended the time for PTC to supply the milled paddy up to 31st May 1995, PTC could not avail that opportunity because FCI had already withdrawn and sold the un-milled paddy in the open market. This was to enable creation of storage space for the incoming wheat. Further, the sole Arbitrator found that FCI failed to issue any notice regarding shortfall of the milled paddy to PTC. Also, it did not inform PTC that it had sold the remaining paddy in the market.

The Court on pursuing the impugned Award finds that, importantly, the learned Arbitrator stated that FCI admitted that the paddy milled up to 31st May 1995 was 35,861 bags i.e., 22843-98-500 quintals of super fine paddy and 7661 bags of common variety of paddy i.e., 4880-88-200 quintals. Further, the finding that FCI withdrew the un-milled paddy and sold it in the open market to minimise its losses and, therefore, deprived PTC of the opportunity of availing the extension of time to perform its obligation has not been factually countered by FCI except by stating that no paddy was sold by it.

This appears to be a factual finding which cannot be revisited by re- examining the evidence. That would be beyond the scope of the present petition under Section 34 of the Act. Apart from placing on record the copy

The learned Arbitrator also discussed Claim No. 2 being the costs towards 24,022 gunny bags. This was, in fact, allowed on the failure of the Respondent to produce accounts. Likewise, Claim No. 5 towards quality cuts was also allowed. Claim No. 3 towards sales tax and Claim No. 4 towards income tax were rejected in the absence of any documentary proof.

Now, coming to the counter-claim, the learned Arbitrator notes that the claimant had filed its claim in 1998 but the first arbitral proceedings was held on 5th September 2006. It is then noted, “however subsequently the counter claim was filed by the Respondent in the year 2010 but despite the issue of limitation the Hon‟ble Tribunal deals with the counter claims on merits”. Having found that the counter-claim was barred by limitation, the learned Arbitrator could not have proceeded to allow such counter-claim on merits. This is clearly a perverse finding and requires to be set aside by the Court under Section 34 of the Act.

Consequently, the Court hereby sets aside the impugned Award to the extent that it has allowed the counter-claim of the Respondent, PTC, amounting to Rs. 4,03,898.80. The net result is that the impugned Award is upheld to the extent it has rejected the claim of FCI in Claim Nos. 1, 3 and 4, and Claim Nos. 2 & 5 are allowed as indicated above. The Award is set aside as regards allowing the counter-claim of PTC. Consequently, PTC is

The petition and the pending application are disposed of in the above terms.