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Food Corporation Of India v. Shanti Cereals (P) Ltd.
Factual and Procedural Background
The dispute originates from an Agreement between the Food Corporation of India (FCI), a statutory corporation established under the Food Corporation Act, 1964, and the Respondent for milling 10,000 metric tons of paddy into rice. The milling was to be carried out in three phases, with the Respondent providing advance rice to FCI to receive equivalent paddy. The Respondent allegedly failed to supply the processed rice, prompting FCI to initiate arbitration claiming breach of contract and damages for paddy left unattended and damaged. The Respondent contended that the paddy supplied was substandard and that any damage was due to FCI's careless storage. The Arbitral Tribunal rejected FCI's claims, and subsequent objections by FCI before the Single Judge were dismissed on 12.10.2007. The present appeal challenges that dismissal and the arbitral award dated 12.8.1999.
Legal Issues Presented
- Whether the Arbitral Tribunal’s Award rejecting FCI’s claims was sustainable in law or was contrary to the express terms of the contract.
- Whether the Award qualified as a 'Speaking Award' as required by the agreement and law.
- Whether the Court should interfere with factual findings of the Arbitral Tribunal under Section 34 and Section 37 of the Arbitration and Conciliation Act, 1996.
- Whether the claim related to the cost of gunny bags was improperly ignored by the Arbitral Tribunal.
- Whether reliance on precedents such as Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd. and Hindustan Zinc Ltd. v. Friends Coal Carbonisation justified setting aside the Award.
Arguments of the Parties
Appellant's Arguments
- The Award is unsustainable as it contradicts the express terms of the contract.
- The agreement required a ‘Speaking Award’, but the Tribunal passed a nonspeaking Award without adequately explaining the rejection of claims.
- The Tribunal failed to address the contention that the Respondent breached the contract causing significant losses to FCI.
- The Tribunal ignored the claim for the cost of gunny bags used for transporting paddy.
- Reliance was placed on precedent cases to argue that the Award conflicted with the contract and the Arbitration Act, 1940, warranting court scrutiny and setting aside of the Award.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705 | Arbitral Award in conflict with express contract provisions and Arbitration Act, 1940, is open to court scrutiny and liable to be set aside. | The Court found reliance on this precedent unavailing as no such conflict or error was shown in the present Award. |
| Hindustan Zinc Ltd. v. Friends Coal Carbonisation (2006) 4 SCC 445 | An error apparent on the face of the Award can make it vulnerable to being set aside. | The Court noted no such manifest error on the face of the Award in this case. |
Court's Reasoning and Analysis
The Court examined the Award and the Single Judge’s Judgment and found no substantial ground to intervene. Although the Award was brief, it was not nonspeaking as it sufficiently articulated reasons for rejecting the Appellant’s claims. The Court emphasized that an Arbitral Tribunal is not required to issue verbose orders to qualify as a speaking Award.
The Court reiterated the principle that factual disputes in arbitration must be resolved by the Tribunal, not courts under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996. It held that the Tribunal, as the master of facts, has the discretion to decide factual issues even if it errs, unless an error is manifest and grave enough to cause a miscarriage of justice.
Regarding the claim for gunny bags, the Court found no evidence that the Respondent was ever demanded to pay or refused payment, and thus no illegality in ignoring this claim.
The Court also rejected the Appellant’s reliance on precedents, finding that unlike the cited cases, there was no apparent error or conflict with the contract or law in the Tribunal’s Award. The Respondent had informed FCI about the inferior quality of paddy, and FCI did not raise any grievance at the time, justifying the Tribunal’s decision on damages.
Holding and Implications
The Court’s final decision was to DISMISS THE APPEAL as the Appellant failed to demonstrate any ground for interference with the Arbitral Award or the Single Judge’s Order.
The direct effect is that the Arbitral Award dated 12.8.1999 rejecting FCI’s claims stands confirmed. No new legal precedent was established by this decision.
Vikramajit Sen, J.:—This Appeal assails the Order of the learned Single Judge dated 12.10.2007 dismissing the Objections filed by the Appellant against the Award dated 12.8.1999 by the learned Arbitral Tribunal whereby the claims of the Appellant, Food Corporation of India (FCI) came to be rejected by the Award.
2. The dispute arises from an Agreement between the parties for milling of 10,000 metric tons of paddy into rice by the Respondent. The Appellant is a statutory corporation of Government of India established under the provisions of the Food Corporation Act, 1964 primarily entrusted with the purchase, storage, movement and sale of food grains in order to effectively implement the Food Policy of Government of India.
3. The facts, in a nutshell, leading to the dispute are that the Appellant, namely, FCI, entered into an agreement with the Respondent to mill 10,000 metric tons paddy which was to be carried out in three phases. Under the contract, the Respondent was to provide advance rice to the FCI in order to get equivalent paddy from them. Owing to the failure of the Respondent to supply the converted/processed paddy, the FCI brought a Claim against them through arbitration. Before the Arbitration Tribunal, the Appellant had alleged breach of contract by the Respondent for not milling the agreed bulk paddy. Claims were also raised against the paddy which according to Appellant was damaged because of it having been left lying unattended by the Respondent. The Respondent took the defence that the paddy which was supplied to them by the FCI was already of a substandard quality and, therefore, it was not contractually feasible to convert it into rice, and further that the paddy was damaged because of the fault of FCI as it was carelessly stored in the open.
4. The Arbitral Tribunal, after going into the facts of the case and considering the rival contentions of the parties, has returned the following findings:-
1. The Respondent had informed the claimants of the fact of the paddy being highly in damaged condition; and thus further supplies were not effected to which no grievance is shown to have been raised by the FCI. Thus, the Claimants (FCI) had accepted the stand.
2. Though the agreement contained a clause that the work was to be executed at the risk of the Miller/Respondent. However, since no efforts were made by FCI to mitigate the losses by selling the rice to other mills, the Respondent could not be held liable for the losses.
5. These Findings were assailed by the Appellant by filing Objections before the learned Single Judge which have been dismissed vide Order dated 12.10.2007 against which the Appellant has filed the present Appeal. Mr. Yashobant Das, learned Senior Counsel for the Appellant, seeks to assail the Judgment of the learned Single Judge, and consequently the Arbitral Award, on the ground that the Award passed by the Tribunal is unsustainable in law as it is in contravention of the expressed terms of the contract between the parties. The agreement provided for a ‘Speaking Award’, whereas the Tribunal passed a nonspeaking Award inasmuch as no determination or dialectic had been articulated while rejecting some of its Claims and that the Award also did not deal with the contention of the Appellant that the Respondent was guilty of breach of contract which has amounted to great losses to FCI and the return of the cost of the Gunny Bags. Thus, the procedure adopted was not in consonance with the law and Public Policy of India.
6. We have perused the Award and the Judgment of the learned Single Judge and do not find any appreciable ground that warrants our intervention in the impugned Judgment. The Award passed by the Tribunal, though brief and concise, is not a nonspeaking order, as noted by the learned Single Judge. The Award adequately sets out the reasons for rejecting the Claim of the Appellant. It is not required or expected of an Arbitral Tribunal to pass a verbose or detailed order to qualify the criteria of speaking Award.
7. Further, the argument of learned Senior Counsel for the Appellant that the rice supplied by FCI to the Respondent was not damaged and, in fact, was of a fine quality, cannot be sustained by us. As has been consistently held by this Court, as well as the Hon'ble Supreme Court, the forum to raise factual pleas and contentions in an arbitration matter is only the Arbitral Tribunal. It is against the proprietary of the legal regime, as well as the mandate of law set out in Section 34 of the Arbitration and Conciliation Act, 1996 that the Courts in Objection (and more so in appeal under Section 37) should entertain the arguments that are purely factual in nature. There is no gainsaying that the Arbitral Tribunal is the master of the factual arena and has the right to even go wrong while deciding the factual issues, unless there is something manifest from the face of the Award that is so grave as to move the conscience of the Court that the error would result in a monumental miscarriage of justice.
8. The claim of Rs. 1,98,884/- pertains to the gunny bags which, according to Appellant, were used to carry the first and only installment of paddy to the Respondent; the Appellant asserts that the Claim has been completely ignored by the Arbitral Tribunal. In our opinion, no illegality has occurred that requires setting aside of Award on this score. No evidence has been shown by the Appellant of any demand for these gunny bags being made to the Respondent at any stage and/or that the same was either declined or not adhered to.
9. After considering the submissions of counsel for the Appellant and perusing the Award and the record, we find no manifest error that warrants our intervention in the Judgment of the learned Single Judge or the Arbitral Tribunal passed by the learned Arbitral Tribunal. Appellant has sought reliance on Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705 and Hindustan Zinc Ltd. v. Friends Coal Carbonisation, (2006) 4 SCC 445 to argue that since the Arbitral Tribunal has made an Award in conflict with the express provisions of the subject Contract and the Arbitration Act, 1940, the same is open to scrutiny of the Court and liable to be set aside. In our considered opinion, reliance on both these Judgments is of no avail to the Appellant. In the present case, since the Respondent had written to the Appellant about the impossibility of carrying out the contract because of the inferior quality of the paddy supplied to it, and no grievance having been raised to that effect at that time by the Appellant, the learned Arbitral Tribunal was justified in deciding the question of damages against the Appellant. In Hindustan Zinc, the Court noted an error apparent on the face of the Award which made it vulnerable and liable to be set aside. Learned Counsel for the Appellant has not pointed out any such error on the face of the Award.
10. In the light of the above noted facts and arguments, the Appellant has failed to make out any cause for our interference. The Appeal is, therefore, without merit and is dismissed.
VIKRAMAJIT SEN, J.
MANMOHAN SINGH, J.
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