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Case Number

Civil Misc. Writ Petn. No. 14805 of 1983

Judges

Gopi Nath
M.P Mehrotra, JJ.

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Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

The petitioner is a rice miller operating at Bisalpur, Pilibhit, whose activities are regulated by the U.P. Foodgrains Dealers' Licensing Order, 1976 and the U.P. Rice and Paddy Levy Order, 1981. The petitioner claims to be a licensed miller under the 1981 Levy Order.

The dispute arose after the petitioner supplied levy rice to the State Government and submitted bills to the Regional Accounts Officer, Bareilly. The respondents withheld payment of those bills on the ground that the petitioner allegedly failed to supply the full quantity of rice corresponding to paddy that the State Government had given to the petitioner for hulling and conversion into rice.

The petitioner also alleged that the respondents refused to issue release certificates (for the petitioner's released share of rice/paddy) on the same ground of alleged short supply. A prior writ petition (Civil Misc. Writ Petition No. 397 of 1983) relating to the custom hulling dispute for Kharif 1981–1982 remained pending. Respondents filed a counter-affidavit (by Sri Amar Singh, Senior Marketing Inspector, Bisalpur) alleging the existence of an agreement between the parties (annexed as C.A.1).

Legal Issues Presented

Whether the State Government (or its officers) was legally entitled to withhold payment for levy rice supplied by the petitioner on the ground that the petitioner allegedly failed to supply the full quantity of rice corresponding to Government-supplied paddy that the petitioner had hulled.
Whether the respondents were entitled to withhold the release certificate (required under Cl. 3(4) and equivalent provisions for paddy) on the same ground of alleged short supply.
Whether any deduction from the price payable under Cl. 7 of the U.P. Rice and Paddy Levy Order, 1981 could be lawfully made by the State Government on account of alleged breach under the separate agreement for custom hulling (including whether Cl. 9 empowers such action).

Arguments of the Parties

Petitioner's Arguments

Even if there was some failure to supply the full quantity of rice, the State Government and its officers were not entitled in law to withhold payment of the petitioner's levy-rice bills or to withhold release certificates.
Reliance was placed on provisions of the U.P. Rice and Paddy Levy Order, 1981—specifically Cl. 3(4) (obligation to obtain release certificate after selling prescribed percentage to State) and Cl. 7 (payment at notified price in accordance with specifications)—to argue that once the prescribed percentage was shown to have been sold, the respondents were bound to issue release certificates and make payment without deductions not authorised by the Order.
The claim allegedly made by the State Government for shortage was argued (by learned counsel) to be in the nature of compensation or unliquidated damages; until quantified, such claims could not be recovered by deducting from amounts otherwise payable to the petitioner. The petitioner relied on certain precedents for this point.

Respondents' (State's) Arguments

The State Government contended that it was justified in withholding both the price payable to the petitioner and the release certificate if the petitioner had failed to perform its obligations under the agreement between the parties.
Reliance was placed upon Cl. 9 of the U.P. Rice and Paddy Levy Order (power to direct a mill to convert Government paddy into rice) as supporting the State's method of addressing alleged breaches under the agreement.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Ganesh Rice Mills v. State of U.P., Civil Misc. Writ Petn. No. 11831 of 1983 (reported in 1984 All LJ 272)	Held that no deduction can be made from the price payable under the U.P. Rice and Paddy Levy Order unless such deduction is claimable under the provisions of that Order.	The Court cited this decision to support the proposition that the State could not make deductions from the price payable to the petitioner except as permitted by the Levy Order.
R.K. Industries, Kashipur v. State of U.P., (1979 All LJ 574)	Earlier decision relied upon by the Division Bench in Ganesh Rice Mills to the effect that deductions not authorized by the Levy Order are impermissible.	The Court noted that the Division Bench in Ganesh Rice Mills placed reliance on this earlier decision, thereby reinforcing the principle relied upon by the petitioner.
Union of India v. Raman Iron Foundry ((1974) 2 SCC 231 : AIR 1974 SC 1265)	Authority relied upon by the petitioner for the proposition that a claim for compensation or unliquidated damages cannot be recovered by unilateral deduction until determined and quantified.	The Court recorded that this case was cited by the petitioner for the second contention, but stated that it was unnecessary to decide that contention because the petition succeeded on the primary ground.
Mirza Javed Murtaza v. U.P. Financial Corporation, Kanpur (AIR 1983 All 234)	Another authority cited by the petitioner in support of the position regarding recovery of unquantified/unspecified claims (relating to damages/compensation).	The Court acknowledged reliance on this case as part of the petitioner's second line of argument, but did not adjudicate that point because it was unnecessary in view of the primary ruling.

Court's Reasoning and Analysis

The Court's analysis focused on the relevant provisions of the U.P. Rice and Paddy Levy Order, 1981 and on the relationship between the statutory levy regime and any separate agreement under which the Government's paddy might have been converted into rice.

Key statutory provisions identified and considered by the Court included:

Cl. 3(4): Obliges a licensed miller not to sell or otherwise dispose of stocks of rice (or remove them from usual place of business) unless the prescribed percentage has been sold to the State Government and a release certificate obtained for the balance.
Cl. 5: Contains a similar levy and release-certificate mechanism in relation to paddy.
Cl. 7: Provides that payment for levy paddy or rice shall be made at the notified price in accordance with specifications notified by the State Government.
Cl. 8: Provides for adjustment in notified price and settlement of quality disputes (referred to but not recited in detail).
Cl. 9: Gives the State Government power to direct a licensed rice mill to convert stocks of Government paddy into rice "on such terms and conditions as may be agreed upon".
Cl. 12: Obligates licensed millers to comply with orders/directions issued under the Order.

The Court reasoned that Cl. 9, although it authorises the State to direct conversion of paddy to rice, expressly leaves the terms and conditions of such conversion to agreement between the parties ("such terms and conditions as may be agreed upon"). Consequently, the agreement under which custom hulling was performed could not be treated as a statutory contract merely because Cl. 9 grants the State a power to direct conversion.

The Court noted that the agreement annexed to the counter-affidavit (C.A.1) contained an arbitration clause (Cl. 11) for resolution of disputes arising out of the agreement. On that basis the Court concluded that if the State had a grievance that the miller failed to fulfill the agreement's terms, the State's remedy lay in the agreed contractual mechanism (including arbitration), and it could not obtain redress by withholding release certificates under Cl.3(4) or by making deductions from amounts payable under Cl.7 of the Levy Order.

The Court also referred to the line of authority (Ganesh Rice Mills and R.K. Industries) supporting the proposition that no deduction can be made from the price payable under the Levy Order except insofar as the Order itself authorizes such a deduction. Finally, the Court recorded that the petitioner had also relied on authorities concerning recovery of unliquidated damages, but held it unnecessary to decide those points because the petition succeeded on the statutory-construction/Cl.3(4) & Cl.7 ground.

Holding and Implications

Holding: The Court allowed the petition. The operative directions were:

The respondents are directed to pay the amount payable to the petitioner in respect of the levy rice sold by the petitioner to the State Government, and such payment shall be made without making any deduction on account of the alleged shortage in delivery of the custom-hulled rice.
The petitioner shall be issued a release certificate in respect of the levy rice or levy paddy sold to the State Government; such release certificate shall be issued without any deduction or adjustment on account of the alleged non-supply of custom-hulled rice.
There was no order as to costs.

Implications: The decision directly affects the parties by requiring immediate payment and issuance of the release certificate without deductions or adjustments arising from the alleged contractual breach. The Court's ruling rests on construction of the Levy Order and the separation between statutory levy entitlements and remedies under any separate agreement; it did not purport to resolve the contractual dispute itself (which contained an arbitration clause) nor did it decide the second line of argument concerning unliquidated damages because that was unnecessary in light of the primary statutory ruling.

Miscellaneous

The opinion records the existence of the parties' agreement (annexed as C.A.1) and that the counter-affidavit was filed on behalf of respondents Nos. 1, 2 and 3 by Sri Amar Singh, Senior Marketing Inspector, Bisalpur, district Pilibhit.

Final disposition: Petition allowed.

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M/S. Vishnu Rice Mill, Bisalpur v. Regional Food Controller, Bareilly And Others

1. This petition under Art. 226 of the Constitution of India has been filed by a Rice Miller, who carries on business of milling the paddy and producing rice therefrom at Bisalpur in the district of Pilibhit. The business activities of the petitioner are regulated by the provisions of the U.P Foodgrains Dealars' Licensing Order, 1976 and by the provisions of the U.P Rice and Paddy Levy Order, 1981. The petitioner claims that he is a licensed miller as defined in sub-cl. (d) of Cl. 2 of the U.P Rice and Paddy Levy Order, 1981.

2. It seems that the petitioner supplied levy rice to the State Government and submitted its bills to the Regional Accounts Officer, Bareilly, being the price of the levy rice so supplied to the State Government. The payment of the said bills has been withheld by the respondents on the ground that the petitioner did not supply the full quantity of rice in respect of the paddy which had been given to it by the State Government for hulling and converting the same into rice.

3. The second grievance of the petitioner is that the respondents are not issuing the release certificate to the petitioner in respect of the released share of the petitioner on which it has already given due levy to the State Government. The reason why the State Government is not issuing such certificate is again the same viz., the alleged failure of the petitioner to supply the full quantity of rice in respect of the paddy which had been given to the petition by the State Government for hulling and converting the same into rice. It seems that during the Kharif season 1981–1982 the petitioner was supplied Government paddy for being hulled and converted into rice. Some dispute arose between the parties regarding the percentage of recovery of rice and also regarding the quality of rice supplied by the petitioner to the State Government in reference to the paddy supplied to it by the Government. The petitioner earlier filed Civil Misc. Writ Petition No. 397 of 1983, which is still pending. The said petition arose out of the dispute between the petitioner and the Government in regard to the custom hulling of the paddy which the petitioner did for the Government during the Kharif season 1981–1982. It may be stated that a counter-affidavit was filed by Sri Amar Singh, Senior Marketing Inspector, Bisalpur, district Pilibhit, on behalf of respondents Nos. 1, 2 and 3. It has been alleged in the counter-affidavit that there was an agreement between the parties. A true copy of the same is alleged to be Annexure C.A 1 to the counter-affidavit.

4. Learned counsel for the petitioner contends that even if for the sake of argument it be accepted that there was any failure on the part of the petitioner to supply the full quantity of rice in respect of the paddy which had been given to the petitioner by the State Government for hulling and converting the same into rice, still, the State Government and its officers were not entitled in law to withhold the payment of the petitioner's levy rice bills or to withhold the release certificates. For this contention, reliance has been placed upon certain provisions of the aforesaid the U.P Rice and Paddy Levy Order, 1981. Cl. 3 of the said Order provides for the levy on rice produced or in stock of a licensed miller. A certain percentage of such rice had to be sold to the State Government at the notified price by every licensed miller. Such percentage varied in the case of different divisions and districts. Cl. 3(4) lays down as follows:—

“3. Levy on rice produced or in stock—

(4) No licensed miller or licensed dealer shall sell or otherwise dispose of or remove to any place other than his usual place of business or storage in a particular locality his stocks of rice or paddy unless he has sold the prescribed percentage to the State Government and has obtained a release certificate in token thereof in respect of stocks left in balance with him.”

5. Cl. 5 provides for a similar levy on paddy. There is a provision for obtaining a release certificate in respect of the released paddy in the same manner as there is a provision for obtaining a release certificate in respect of the released rice under Cl. 3(4) quoted above.

6. Cl. 7 of the said Order lays down as under:

“7. Price and specifications, for the paddy or rice delivered as levy, payment shall be made at the notified price in accordance with the specifications to be notified by the State Government from time to time.”

7. Cl. 8 provides for adjustment in notified price and settlement of quality disputes.

8. Cl. 9 of the Order lays down as under:—

“9. Power to direct a rice mill to convert paddy into rice. The State Government may direct, a licensed rice mill to convert any stocks of paddy into rice held by the State Government or its agencies on such terms and conditions as may be agreed upon.”

9. Cl. 12 of the Order lays down as follows:—

“12. Duty to comply with order — Every licensed miller or licensed dealer to whom an order or direction is issued under any power conferred by or under this order shall comply with such order or direction.”

10. Learned counsel for the petitioner mainly placed reliance on Cl. 3(4) and Cl. 7 quoted above. On the basis of Cl. 3(4) it has been contended that the respondents are bound to issue the release certificate to the petitioner once it is shown that the latter has sold and supplied the prescribed percentage of rice (or paddy as the case may be) to the State Government.

11. On the basis of Cl. 7 it has been contended that the State Government is bound to make payment to the petitioner in respect of the levy rice which has been supplied to the State Government by the petitioner. Learned counsel further submitted that only the adjustment in ??? the said Order and there was no authority in the State Government or its officers to make any deduction from the price payable to the petitioner under Cl. 7 on the alleged ground that there had been a failure on the part of the petitioner to carry out its contractual obligation in regard to the custom hulling of paddy done by the petitioner for the State Government during the Kharif season 1981–1982.

12. Learned Standing Counsel, however, contended that the State Government was justified in withholding both the price payable to the petitioner and the release certificate claimed by the petitioner if it could be shown that the petitioner had failed to perform its obligation under the agreement between the parties. Learned Standing Counsel placed reliance upon Cl. 9 of the said Order which has been quoted above. In our opinion, this contention of the learned Standing Counsel is not tenable. Cl. 9 itself shows that even though the State Government has a statutory authority to direct a rice miller to convert State Government's paddy into rice, still, the terms and conditions on which the Government paddy will be converted into rice by the licensed rice miller will be ‘such terms and conditions as may be agreed upon’. The agreement itself containing the terms and conditions cannot be said to be a statutory contract merely because the State Government has a right under Cl. 9 to direct a rice mill to convert paddy into rice. It has been stated above that along with the counter-affidavit annexure C.A 1 has been annexed, which is said to be the agreement between the parties. In Cl. 11 of the said agreement there is a provision for arbitration in case of dispute, difference, or question touching or arising out of the agreement or the subject-matter thereof. In our view, if the State Government has any grievance that the licensed miller has failed to fulfill the terms and conditions of the said agreement between the parties, it is not open to the State Government to seek its redress in respect of such grievance by withholding the release certificate under Cl. 3(4) or by withholding or by making any deduction from the price which is payable by the State Government to the petitioner under Cl. 7 of the said Order.

13. In this connection a Reference may be made to certain cases upon which reliance has been placed by the learned counsel for the petitioner. In the unreported decision of a Bench of this Court in Civil Misc. Writ Petn. No. 11831 of 1983 (since reported in 1984 All LJ 272), Sri Ganesh Rice Mills v. State of U.P, it has been clearly laid down that no deduction can be made from the price payable to the petitioner under the U.P Rice and Paddy Levy Order, which is not claimable under the provisions of the said Order. The Division Bench placed reliance on an earlier decision of this Court reported in 1979 All LJ 574, R.K Industries, Kashipur v. State of U.P

14. Learned counsel for the petitioner contended that the claim of the State Government against the petitioner in respect of the alleged shortage of supply of rice in reference to custom hulling of paddy during the Kharif season 1981–1982 was in the nature of a claim for compensation or unliquidated damages and until such claim was determined and quantified, the Government could not claim to recover any amount from the petitioner. It is really not necessary to go into this contention because the petition succeeds on the first ground itself which we have considered above namely, that as the aforesaid U.P Rice and Paddy (Levy and Regulation of Trade) Order, 1981 stands, the State Government is bound to carry out the mandate which is contained in Cl. 3(4) and Cl. 7 thereof and it is not entitled to withhold either the release certificate or the price payable to the petitioner on the ground of the alleged default of the petitioner to make the full supply of rice in respect of the paddy which had been given to the petitioner by the State Government for being hulled.

15. It may be stated that on this second contention the learned counsel for the petitioner placed reliance on the following cases:—

(i) Union Of India v. Raman Iron Foundry . ((1974) 2 SCC 231 : AIR 1974 SC 1265).

(ii) Mirza Javed Murtaza v. U.P Financial Corpn., Kanpur (AIR 1983 All 234).

16. However, as stated above, it is really not necessary for us to pursue this aspect of the matter as the petition succeeds on the first ground urged by the learned counsel for the petitioner.

17. Accordingly, we allow this petition and issue a direction to the respondents to pay to the petitioner the amount payable to it in respect of the levy rice sold by the petitioner to the State Government and such payment shall be made without making any deduction on account of the alleged shortage in delivery of the custom hulled rice by the petitioner to the State Government. We further issue a direction that the petitioner shall be issued a release certificate in respect of the levy rice or levy paddy sold by it to the State Government. Such release certificate shall be issued without making any deduction or adjustment in respect of the alleged non-supply of custom hulled rice by the petitioner to the State Government. In the circumstances, there will be no order as to costs.

18. Petition allowed.

M/S. Vishnu Rice Mill, Bisalpur v. Regional Food Controller, Bareilly And Others

Structured Summary of the Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioner's Arguments

Respondents' (State's) Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Miscellaneous

M/S. Vishnu Rice Mill, Bisalpur v. Regional Food Controller, Bareilly And Others

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