Citation Codes

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Case Number

C.W 1190/92

Attorney(S)

Mr. Mukul Rohtagi, Senior Advocate With Ms. Anuradha Dutt, advocate for Petitioner.
Ms. Barkha Babbar, Advocate Mr. Rakesh Tikku, Advocate for Respondents.

Judges

Y.K Sabharwal
D.K Jain, J.

Acts

Essential Commodities Act, the Fertilisers (Control) Order 1985

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Smart Summary

Structured Summary of the Opinion (Y.K. Sabharwal, J.)

Factual and Procedural Background

The Fertilisers (Control) Order under the Essential Commodities Act required fertiliser producers to submit production cost data to the Fertiliser Industry Co-ordination Committee (FICC) for fixation of a retention price, with differences between retention price and selling price payable to manufacturers under a notified Scheme. The petitioners obtained an industrial licence in 1979 to set up an ammonia fertiliser plant at Taluja, with commercial production agreed to commence within 30 months from 31st December 1979 (i.e., by 1st July 1982). Actual commercial production commenced on 1st December 1983 (a delay of 14 months).

The petitioners' unit was covered by the Scheme; provisional retention prices were fixed and interim payments made. After increases in several costs (notably gas supplied by ONGC, electricity tariffs, and wages), the petitioners submitted escalation claims which FICC did not consider. The petitioners filed this writ petition in February 1992. During the petition's pendency FICC fixed a final retention price retrospectively from 1st December 1983 (on 31st March 1992). The petitioners challenged aspects of that fixation as arbitrary. On 23rd November 1993, the court directed the petitioners to place supporting documents before FICC, ordered FICC to hear the parties and to take an independent decision; FICC subsequently decided the matter.

Following FICC's decision, three issues remained for determination by the court: (i) project cost disallowance (relating to delay and capital cost), (ii) reimbursement of transport cost for ammonia between Taluja and Trombay (sic Tromway in the opinion), and (iii) interest for delayed payments by FICC. The court considered these issues seriatim.

Legal Issues Presented

Whether FICC's allocation of responsibility for the 14-month delay (allowing cost overrun for only five and a half months) and the resulting project cost disallowance was arbitrary, unjust or discriminatory.
Whether the petitioners were entitled to reimbursement of actual road transport costs for ammonia transfers between Taluja and Trombay (Tromway), in light of representations including a letter dated 2nd June 1984 and the lack of a rail link.
Whether the petitioners were entitled to interest on amounts found payable to them by reason of delay in payment by FICC under the Scheme.

Arguments of the Parties

Petitioners' Arguments

The petitioners argued their commercial production was delayed for reasons beyond their control: delayed gas supply from ONGC, non‑supply of electricity by MSEB, a crane accident, and strikes/lockouts of major suppliers.
They contended that FICC's final retention price was arbitrary because it disallowed part of the project cost (by condoning only five and a half months of the 14-month delay), thereby reducing depreciation and interest allowances and lowering the retention price and subsidy (claimed impact quantified in the petition as about Rs. 4.5 crores over about nine years and about Rs. 65 per MT).
The petitioners alleged discrimination, comparing their treatment unfavourably with M/s Nagarjuna Fertilisers Ltd., which they asserted had a much larger condonation of delay.
They claimed entitlement to reimbursement of actual road transport costs (they say transported under pressure in container trucks; their promoter invested in 18 trucks), relying on a letter dated 2nd June 1984 from the Ministry of Chemicals and Fertilisers that reimbursement would be made where certain conditions applied; sealed tenders in 1983–84 showed contractor quotes between Rs. 250–280 per MT while FICC initially approved lower normative rates.
They sought payment of interest on amounts payable by FICC, submitting that the respondent had wrongfully withheld sums and should pay interest on delayed payments.
The petitioners also relied on observations in an arbitration award (which stated there was no intentional negligence and delay was beyond their control), arguing those observations supported their claim that the entire period of 14 months should have been condoned.

Respondent / FICC's Position and Contentions

FICC examined the delay and apportioned responsibility: petitioners responsible for eight and a half months, ONGC responsible for five and a half months (by treating certain segments as attributable to each party); FICC allowed cost overrun only for five and a half months.
FICC maintained that its factual apportionment was the result of examining relevant material and was not arbitrary. It treated the Nagarjuna comparison differently by reference to the actual facts in that case (nine months' overrun due to natural impediments in pipeline-laying), contending there was no relevant discrimination.
On transport reimbursement, FICC had fixed transportation cost on a normative basis (initially Rs. 103/MT, later adjusted to Rs. 121/MT and Rs. 143/MT for earlier periods) subject to verification of reasonableness; the respondents relied on normative fixation rather than paying the petitioners' claimed actuals without verification.
Regarding interest, the respondent pointed to the Scheme's provisions (or lack thereof) and to the position that the Scheme contains specific stipulations for payment of interest by units in certain circumstances, but does not expressly provide for payment of interest to units entitled to receive amounts from the Fund; thus, there was no automatic right to interest from FICC under the Scheme.
The respondent noted the arbitration award relied upon by the petitioners was under challenge before the Bombay High Court and argued collateral observations in that award could not bind FICC or this court's consideration of FICC's fixation of retention price.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Ram Ganga Fertiliser etc v. Union of India and others, C.W. 2062/93 (decided 30th July 1993)	Where the Scheme contains a specific stipulation for payment of interest by parties to the Fund but lacks a corresponding stipulation for payment of interest to an applicant entitled to receive amounts from the Fund, interest should not be awarded unless compelling reasons exist; each case's facts must be examined to justify awarding interest.	The court applied this principle to conclude that no compelling reasons existed to award interest in favour of the petitioners under the Scheme, and accordingly denied their claim for interest.

Court's Reasoning and Analysis

The court addressed the three surviving issues in sequence and applied both factual review and legal principle as follows:

Project cost disallowance:
- The court reviewed FICC's factual determination that of the 14-month delay, petitioners were responsible for eight and a half months while ONGC was responsible for five and a half months (with three months apportioned equally for finalising the agreement). FICC had condoned only five and a half months for the petitioners.
- The court observed these were disputed questions of fact arising from the factual matrix. It found, after examining the FICC report dated 31st January 1994 and the documents placed before FICC, that there was no basis in the record to conclude FICC considered irrelevant facts or ignored relevant facts such that its decision could be characterized as arbitrary, unfair or unjust.
- The discrimination claim comparing the petitioners with Nagarjuna was rejected because the facts showed Nagarjuna's overrun amounted to about nine months (not nine years), and the causes (natural impediments in pipeline-laying) were materially different; thus no established discrimination in treatment was made out.
- The court also declined to treat collateral observations in an arbitration award as determinative: the award was under challenge and the arbitration's observations could not override the administrative factual determination by FICC in fixation of retention price.
- Conclusion: the court was unable to fault FICC's allocation and disallowance and therefore upheld FICC's decision on project cost disallowance.
Reimbursement of transport cost:
- The court noted there was no rail link between Taluja and Trombay and that the Department of Fertilisers had permitted road transfer and payment of road transport cost subject to FICC's verification of reasonableness.
- FICC had fixed transportation rates on a normative basis at various levels over time (Rs. 103/MT, revised to Rs. 121/MT, and later Rs. 143/MT with retrospective effect). The transport cost was thus fixed normatively, not on actuals.
- The court found the petitioners had been informed by a letter dated 2nd June 1984 that transportation costs would be "reimbursed." The court explained that "reimburse" in ordinary parlance (and by reference to Black's Law Dictionary definition quoted in the opinion) means repayment of what has been expended, and that the petitioners had a legitimate expectation that actual, reasonable costs would be reimbursed subject to verification.
- Crucially, nothing showed the petitioners were informed at the time that reimbursement would be on a normative/railway-freight basis. FICC had not examined the petitioners' claimed actual costs for reasonableness. The court concluded it would be unreasonable and arbitrary to read the 2nd June 1984 letter as meaning reimbursement only on a normative/railway-freight basis without such notice.
- Accordingly, the court directed FICC to re-examine the petitioners' transportation claim and supporting documents, to fix transportation cost after assessing reasonableness, to do so within three months, and to reimburse any further amounts within one month of FICC's decision. If FICC failed to reimburse within that period, the petitioners would be entitled to interest at 18% per annum on the further amount.
Interest for delayed payments:
- The court analysed the Scheme and noted that while it contains stipulations for payment of interest by units in certain circumstances (for example where a unit's retention price is lower than ex-factory price), it does not provide for payment of interest by FICC to units entitled to receive amounts from the Fund.
- Relying on Ram Ganga Fertiliser (one of the judges of the present Bench having authored that decision), the court reiterated that in the absence of a specific stipulation in the Scheme for payment of interest to a claimant, there must be compelling reasons to award interest and such reasons depend on facts of each case.
- The court found no compelling reasons in the present facts to award interest to the petitioners and therefore declined to award interest on amounts payable to them by FICC under the Scheme.

Holding and Implications

Holding (core rulings):

The court upheld FICC's factual allocation of responsibility for the project delay and sustained FICC's disallowance of portion of the project cost (i.e., it did not allow the petitioners' claim to condone the entire 14-month delay).
The court directed FICC to re-fix the transport cost after examining the petitioners' claims and documents and any material the respondent places before FICC, to do so within three months, and to reimburse any additional amount within one month of FICC's decision; failure to reimburse within one month will attract interest at 18% per annum on the further amount.
The court held that the petitioners are not entitled to interest on delayed payments under the Scheme and declined to award interest, following the reasoning in Ram Ganga Fertiliser.

Direct consequences and implications:

On the project-cost issue the direct effect is that FICC's apportionment and corresponding retention-price computation remain intact; the petitioners do not receive the additional project-cost allowance sought for the uncondoned months.
On transport costs the direct effect is a directive for administrative re-examination by FICC with concrete timelines (3 months to fix cost; 1 month to reimburse), and an express interest rate (18% p.a.) to protect the petitioners if reimbursement is delayed beyond the ordered timetable.
On interest claims the petitioners receive no relief; the court refused to award interest because the Scheme does not provide for interest to recipients from the Fund absent compelling reasons, which were not shown.
The court allowed the petition in part (to the extent indicated in its directions) and made the writ rule absolute to that extent, leaving parties to bear their own costs.
No new legal precedent was created by this opinion beyond application of existing administrative-law principles and the cited authority (Ram Ganga Fertiliser); the decision primarily upholds FICC's factual determinations and issues administrative directions concerning transport-cost reconsideration.

Disposition: The petition was allowed only to the extent set out above; parties to bear their own costs.

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Deepak Fertilizer & Petrochemicals Corporation Ltd v. Union Of India

Y.K Sabharwal, J.:— Under the Essential Commodities Act, the Fertilisers (Control) Order 1985 (earlier it was ‘Fertiliser Control Order, 1957) was enacted to ensure that fertilisers are available to the farmers at a subsidised price. A Scheme was notified on 1st November 1977 under which a fertiliser producing unit was to submit data of its cost of production to Fertiliser Industry Co-ordination Committee (for short ‘FICC’) alongwith other fixed/capital cost related details. FICC was to work out a retention price which is a combination of norms and actuals in regard to the cost of production plus depreciation plus interest plus 12% post tax return on net worth. If the selling price at which a manufacturer is compelled to sell is less than the retention price fixed for the unit, the difference between the two is payable to the manufacturer under the Scheme.

2. The petitioners in the year 1978 sought for an industrial licence to set up a plant of Ammonia fertiliser at Taluja. The industrial licence was issued on 5th December 1979. It was agreed between the parties that commercial production in the said plant would commence within a period of 30 months of entering into agreement with effect from 31st December 1979. The said period of 30 months ended on 1st July 1982. The petitioners, however, commenced commercial production of ammonia, which is a fertiliser, from 1st December 1983.

3. The aforesaid scheme is applicable to the petitioners. The FICC fixed provisional retention price from time to time and in accordance with the scheme, the petitioners were paid difference between the retention price and the selling price.

4. The petitioners claim that sometime after 1986, the cost of production of the petitioner's unit escalated due to increase in price of gas by ONGC, increase in electricity tariff, a revised wage settlement with the Union and various other heads of expenses. The petitioners filed its escalation claims from time to time but the same were not considered by FICC.

5. This petition was filed in February 1992. During the pendency of the writ petition, on 31st March 1992, FICC declared a final retention price. This fixation was retrospective from 1st December 1983. The petitioners claim that final price so fixed was arbitrary inasmuch as it disallows a part of the project cost and also did not take into account several other costs escalation claims made by the petitioner. On 23rd November 1993 this court directed the petitioners to place their claims alongwith other supporting documents for consideration of FICC. The FICC was directed to fix a date for appearance of the parties after receipt of documents from the petitioner. The court directed FICC to afford an opportunity of hearing to the petitioners and expressed the hope that it will take independent decision without being influenced by decisions taken earlier from 1st December 1983 till 24th August 1992. In accordance with the directions of the court, FICC decided the matter.

6. After decision of FICC the only issues which now survive in this petition are:—

i) Project cost disallowance.

ii) Reimbursement of Taluja-Tromway transport cost.

iii) Interest due to delay in making payments by FICC.

We will now consider them seriatim.

i) Project Cost Disallowance

The capital cost as per the project report was Rs. 55.35 crores as against the actuals of Rs. 64.43 crores as indicated in the published accounts of the petitioner's company for 1983-1984. The project was to be completed and commercial production started from 1st July 1982. The commercial production actually started on 1st December 1983. There was thus delay of 14 months. According to petitioners this delay occurred on account of reasons beyond their control such as delay of supply of gas from ONGC, non supply of electricity by MSEB, a crane accident and strike/lockouts in major suppliers' units. The petitioners also claim that it has been discriminated in the matter inasmuch as in the case of Nagarjuna Fertilisers Ltd., delay of more than 9 years has been allowed by FICC.

Out of the aforesaid 14 months delay FICC has allowed cost overrun to the extent of five and a half months which means that delay to the extent of five and a half months has been condoned and project cost worked on that basis. According to the petitioners, the disallowance of remaining eight and a half months by FICC has affected the retention price in the following manner:—

“Depreciation @ 10% and average interest @ 12% is disallowed on approx. Rs. 2.28 crores, for a total period of about 9 years which approximately comes to Rs. 4.5 crores. Hence, the Retention Price is lower by about Rs. 65 per MT, and, therefore, the subsidy amount is also lower by about Rs. 65 per MT which totally aggregates to about Rs. 4.5 crores for a total period of about 9 years.

After analysing the facts and documents placed before it, the FICC concluded that while petitioners could be held responsible for delay of 7 months, the ONGC also appears responsible for delay of 4 months. As regards delay of 3 months in the finalisation of the agreement, FICC concluded that it appears equitable to apportion equally the delay of 3 months between the parties. In this manner the petitioners were held to be responsible for delay of eight and a half months and ONGC for delay of five and a half months.

The contention that the entire delay of 14 months in commencing commercial production ought to have been condoned depends upon examination and analysis of various factual matrix. We find from the report of FICC dated 31st January 1994 that after examination of all relevant facts it came to the conclusion about the apportionment of 14 months as above. We are afraid that disputed questions of fact sought to be raised by the petitioners cannot be appropriately gone into in exercise of our writ jurisdiction. From the material placed on record it is not possible to hold that FICC took into consideration any irrelevant facts or failed to take into consideration the relevant facts. The decision of FICC, on the facts and circumstances of the case, cannot be held to be unfair, unjust or arbitrary.

Regarding the plea of discrimination about the time overrun having been allowed to M/s. Nagarjuna Fertilisers Ltd and not to the petitioners, it may first be noticed that according to respondent and as per minutes regarding fixation of retention price of Urea produced by M/s. Nagarjuna, it appears that the time overrun in the implementation of the project was 9 months and not 9 years as contended by the petitioners. The said unit commenced commercial production on 1st August 1992 (47 months from zero date) while the project should have commenced commercial production on 4th November 1991 (i.e 38 months from the zero date of 5th September 1988). The principal reasons for delay, as accepted by FICC while fixing the retention price, was about 8 months delay in the receipt of natural gas. The minutes of the meeting fixing retention price in their case show that though the unit had taken prompt action for getting natural gas supplied, GAIL could not do so due to natural impediments faced by them in laying the pipeline below the river bid by Horizontal Directional Drilling method for crossing the river Gautami and Vainateyam. On consideration of these and other factors in the case of Nagarjuna Fertilisers Ltd it was held by FICC that time overrun appeared to be entirely beyond the control of management inasmuch as the supply of natural gas did not commence on the due date on account of natural impediments. In our view the petitioners have failed to make out any case of discrimination.

Learned counsel for the petitioner also placed strong reliance on certain observations made in an award rendered between the parties. The said observations are to the effect that there was no intentional negligence on the part of the petitioners and delay in production within the specified time was beyond their control. The claim of the respondent that the petitioners were liable to pay to them the huge amounts as penalty plus interest on account of delay in commencement of production, were referred to the sole arbitration of Sh. B.S Hegde, Joint Secretary and Legal Advisor, Ministry of Law, Justice and Company Affairs. The arbitrator held that considering various factors it is just, fair and proper that the claimant should be imposed minimum penalty as there was no intentional negligence on their part and delay in production within the specified period was beyond their control and thus penalty of Rs. 8.50 lakhs was imposed on the petitioners as against the huge claims which added with interest would run into crores. Apart from the fact that the observations made in collateral proceedings have no relevance while considering legality of action of FICC in fixation of retention price, we cannot ignore that the award is under challenge and objections filed by the respondent are pending before the Bombay High Court. Under these circumstances it cannot be held that in view of the observations made in the award the time overrun of entire period of 14 months should have been allowed by FICC.

We are, therefore, unable to find fault with the decision of FICC in allowing cost overrun to the petitioner only for the period of five and a half months,

ii) Reimbursement of Transport Cost

Since there was no Rail link between the unit of the petitioners at Taluja and RCF - Tromway, the Department of Fertilisers permitted the transfer of ammonia by road and payment of road transport cost subject to its reasonableness being verified by FICC. The FICC approved the rate of Rs. 103 per metric tonne for transportation of amonia from Taluja to Tromway which started in 1983-1984. Subsequently, on. the representation of the petitioners the matter was reconsidered and the number Of round trips fixed at 2 per day were revised to 1.25 trips per day. As a result of this revision the transport cost was enhanced to Rs. 121/- per metric tonne with effect from 1st April 1988. Later it was increased to Rs. 143/- per metric tonne with effect from 1st December 1983. The transportation cost has been fixed on normative basis and not on actuals.

The petitioners claim that they are entitled to reimbursement of actual cost of transportation incurred by them. In this regard reliance is placed by the petitioners on letter dated 2nd June 1984 sent to them by Ministry of Chemicals and Fertilisers. This letter, interalia, clarifies that the cost of transportation of Octroi and taxes would be reimbursed by FICC in case of supply of ammonia from a unit with planned surplus to a unit with planned deficit provided that the distance between the two units is not more than 700 kms. In the present case the distance is about 150 kms. The case of the petitioners is that it could not find any contractor to undertake transportation as the ammonia is required to be transported under pressure in container trucks and, therefore, petitioners requested its promoter company M/s. Deepak Nitrite Ltd to do so. The said company made investments in 18 trucks. Petitioners say that on cost plus basis the transportation cost was Rs. 235/- per metric tonne in 1983-1984. The grievance of the petitioners thus is that it has been under reimbursed for the transportation cost.

It may be noticed that despite revision in the number of trips as aforesaid, the petitioners have been representing for reimbursement of actual transportation cost. It appears that in 1983-1984 the petitioners had invited and sent to FICC sealed tenders from independent contractors for transportation which showed the rate of transportation between Rs. 250/- and Rs. 280/- per metric tonne.

Nothing has been placed on record to show that the petitioners were ever informed that they would not be reimbursed of the cost of transportation and that the cost of transportation would be fixed on normative basis. It has not been disputed that the cost of transportation claimed by the petitioners was not examined by FICC to find out and determine the reasonableness of such cost. The petitioners were told that cost of transportation would be ‘reimbursed’ to them. ‘Reimbursement’ means in ordinary parlance repayment of what has been spent. According to Black's Law Dictionary, 6th Edition Page 1287 the definition of ‘reimburse’ is ‘to repay that expended’. When the petitioners were informed by letter dated 2nd June 1984 that cost of transportation would be reimbursed, they had legitimate expectation that actual cost of transportation would be reimbursed by FICC subject to the same being just and reasonable. Nothing has been shown by the respondent justifying the denial of reimbursement of cost of transportation. It was open to respondent to inform the petitioners that the cost of transportation would be fixed on normative basis but that was not done. The petitioners not having been told that the transportation cost would be worked out on normative basis, now, it is too late in the day for the respondents to fix the cost of transportation on normative basis and not even go into the question of reasonableness of the cost of transportation claimed by the petitioners. We are unable to read in the letter dated 2nd June 1984 that the reimbursement in the said letter connotes transportation cost equivalent to normal railway freight. The railway freight, in absence of rail link between Taluja and Tromway, being the basis for fixing the cost of transportation on normative basis would be unreasonable and arbitrary.

Under the aforesaid circumstances we direct FICC to refix the cost of transportation after examining the claim and documents of the petitioners and such documents and material as may be placed by respondent before FICC, so that FICC may examine the reasonableness of the cost of transportation claimed by the petitioners. The cost of transportation would be fixed by FICC within a period of 3 months after giving due and reasonable opportunity to the parties and further amount, if any, on that account shall be reimbursed to the petitioners within one month of date of decision by FICC failing which petitioners will be paid interest @ 18% per annum,

iii) Interest

Petitioners submit that the respondent shall also be directed to pay the amount which may become payable to them in 1983 with interest as the respondent has wrongfully withheld the amount due to the petitioners. Petitioners submit that under the Scheme the delay in payment of the excess amount attracts payment of interest at the rate of 16% p.a by the unit whose retention price is lower than the ex-factory price. That may be so but it has to be borne in mind that Scheme does not provide for payment of interest to the units whose retention price under the Scheme is higher than the ex-factory price and who are entitled to receive difference from the Fund Account on submission of claim. The Scheme thus does not contemplate payment of interest by FICC. The fixation of price is a time consuming process and that may be the reason that Scheme does not postulate payment of interest from the Fund. Reference may also be made to the decision of one of us (D.K Jain, J.) in Ram Ganga Fertiliser etc v. Union of India and others, C.W 2062/93 decided on 30th July 1993 holding that where a specific stipulation for payment of interest by petitioners to respondent exists in the Scheme and such a stipulation for payment of interest to the petitioner is absent, there have to be compelling reasons to award interest for which facts of each case have to be seen. The position is similar in the present case. Having regard to the facts and circumstances of the case, in our view, the petitioners are not entitled to payment of any interest. We find no compelling reasons to award interest in favour of the petitioners.

For the aforesaid reasons we allow the petition to the extent indicated hereinbefore and to that extent make the rule absolute leaving the parties to bear their own costs.

Deepak Fertilizer & Petrochemicals Corporation Ltd v. Union Of India

Structured Summary of the Opinion (Y.K. Sabharwal, J.)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioners' Arguments

Respondent / FICC's Position and Contentions

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Deepak Fertilizer & Petrochemicals Corporation Ltd v. Union Of India

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