FOOD CORPORATION OF INDIA OFFICE AT WILLINGTON ISLAND, COCHIN v Prima Agro Products Ltd & State Bank of India

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MRS. JUSTICE C.S. SUDHA** **FRIDAY, THE 8[TH] DAY OF DECEMBER 2023 / 17TH AGRAHAYANA, 1945** ## **RFA NO. 100 OF 2003** **AGAINST THE JUDGMENT OF ADDITIONAL SUB COURT, KOCHI DTD 20.3.2003** ## **IN OS 183/2001** ## **APPELLANT/1ST DEFENDANT:** **FOOD CORPORATION OF INDIA OFFICE AT WILLINGTON ISLAND, COCHIN, REP.BY ITS DISTRICT MANAGER.** **BY ADV SMT.V.P.SEEMANDINI, SC, FCI** ## **RESPONDENTS/PLAINTIFF & 2ND DEFENDANT:** - **1 M/S.PRIMA AGRO PRODUCTS LTD REGD. OFFICE AT PRIMA HOUSE, BANERJI ROAD, COCHIN -18 REP.BY ITS MANAGING DIRECTOR MR.SANJAY GUPTA.** - **2 STATE BANK OF INDIA, BRANCH OFFICE AT KALOOR, COCHIN -17 REP.BY ITS MANAGER.** - **BY ADVS.R.MURALEEDHARAN N.MANI (VAIKOM)** **THIS REGULAR FIRST APPEAL HAVING COME UP FOR FINAL HEARING ON** **01/12/2023, THE COURT ON 08.12.2023 DELIVERED THE FOLLOWING:** 2 **R.F.A.No.100 of 2003** ## **C.S.SUDHA, J.** **---------------------------------------------------R.F.A.No.100 of 2003** **----------------------------------------------------** ## **Dated this the 8[th] day of December, 2023** ## **J U D G M E N T** This appeal under Order XLI Rule 1 CPC has been filed by the defendant, Food Corporation of India (FCI) against the judgment and decree dated 20/03/2003 in O.S.No.183/2001 on the file of the Subordinate Judge's Court, Kochi. The respondent herein is the plaintiff in the suit. The parties in this appeal will be referred to as described in the suit. 2. The allegations in the plaint are as follows - the plaintiff is a Public Limited Company incorporated under the Companies Act, 1956 having its registered office at Prima House, Banerji Road, Cochin. The plaintiff is engaged in manufacturing, processing and marketing of various items including cattle feed, poultry feed and wheat products like maida, sooji, atta etc. The plaintiff-Company had entered into contracts and undertaken to supply maida to many establishments including Government Companies. The Company used to purchase 1000 to 1200 metric ton (MT) wheat per month from FCI under their open sale procedure. As per the said 3 ## **R.F.A.No.100 of 2003** procedure adopted by the FCI, any customer who intends to purchase wheat, an essential commodity, will have to make an enquiry about its availability and price. A demand draft for the full value of the item will have to be entrusted along with a letter authorizing a representative of the purchaser to take delivery from the go-down of the FCI. The demand draft and letter will have to be submitted to the District Manager, FCI. The contract for supply of the item will then be concluded by the District Manager by accepting the payment. Thereafter, as per the instructions from the District Manager, a release order would be prepared in triplicate and the same handed over to the Assistant Manager Storage concerned or such other officer of the FCI. The Assistant Manager Storage will then effect physical delivery of the item either at one stretch in full quantity or as part consignments. Once the entire supply as per the release order is completed, the purchaser will have to sign the release order and the duplicate copy of the release order would be issued to the purchaser. The release order would be valid for the period mentioned therein. The FCI unilaterally dictates that the price prevailing as on the date of actual delivery would apply. Such a clause is invalid and unsustainable in law and the plaintiff had never given consent to such a term in the contract. 4 **R.F.A.No.100 of 2003** 2.1. The plaintiff through its authorized representatives approached the District Manager of FCI on 30/03/2000 at about 9.00 a.m. for the immediate purchase of 500 MT of wheat. The District Manager concerned informed that the total value for the quantity would be ₹35,60,250/- and the weightage charge, ₹175/-. As instructed by the District Manager, a demand draft bearing no.340996 dated 30/03/2000 for a total sum of ₹35,60,250/drawn on the State Bank of India in favour of the District Manager, FCI and another demand draft for ₹175/- towards weightage charges were taken by the plaintiff. The plaintiff-Company authorized one of its employees, M.B.Raju, to accept the delivery of wheat from the FCI. The demand drafts were accepted by the District Manager and necessary endorsements made in the authorization letter handed over as is the usual practice for issuance of the release order. Pursuant to the same, release order bearing no.1121/49 dated 30/03/2000 was issued by the officer concerned of the FCI. In the release order it was mentioned that it would be valid till 31/03/2000. The District Manager advised the representative of the plaintiff-Company to take delivery of the entire quantity of 500 MT of wheat by 31/03/2000 itself, being the end of the financial year. The FCI by accepting the demand draft for the value of the goods and issuance of the release order after accepting 5 ## **R.F.A.No.100 of 2003** the weighment charge, agreed to supply the wheat on or before 31/03/2000. Therefore, the FCI had a duty to supply the wheat in stock at the price prevailing as on 31/03/2000. 2.2. As directed by the District Manager, FCI, the plaintiffCompany made arrangements for lifting the entire stock of 500 MT on 31/03/2000 itself. The plaintiff through a lorry broker arranged 50 lorries to transport the wheat from the go-down of the FCI at Willington Island. However, when the authorized representative of the plaintiff approached the FCI at about 09:00 a.m. on 31/03/2000, they were informed by the Assistant Manager, Storage that they were not prepared to supply the wheat on 31/03/2000 as they had been instructed by their higher authorities not to do so as the Government had taken a decision to increase the price by ₹1,965.50 per MT with effect from 01/04/2000. Though the representatives of the plaintiff-Company pleaded for the release of wheat as agreed and undertaken by them as they were in dire need of wheat to adhere to its commitments to its customers and also in view of the fact that the entire payment had been made, the stock was never supplied though wheat was available with the FCI. When the representatives of the plaintiff-Company demanded that they be shown the order of the Government restraining the 6 **R.F.A.No.100 of 2003** FCI from making the supply on 31/03/2000, the officers failed to do so. In fact it was seen that several other customers were also requesting for release of the item and the officers of the FCI released wheat in favour of a few customers. The plaintiff submitted a letter on 31/03/2000 to the District Manager seeking supply of wheat. Though the District Manager acknowledged receipt of the same, no action whatsoever was taken in the matter. However, the FCI effected delivery of wheat even on 31/03/2000 as per release order no.1129/48 dated 30/03/2000 to M/s.Sindu Traders, Cochin, from whom the plaintiff had to obtain wheat. The plaintiff was put to tremendous difficulties on account of the arbitrary action of the FCI. The plaintiff had arranged 50 lorries to lift the stock from the go-down. The drivers and several employees were made to wait for a considerable time. The lorry broker demanded a compensation of ₹10,000/- from the plaintiff. The plaintiff was constrained to pay an amount of ₹7,000/- to the lorry broker to settle his claim. The plaintiff-Company had to make alternate arrangements for supply of raw materials to meet their commitments to the customers. Since the action of the FCI was unreasonable and arbitrary, the plaintiff filed O.P.No.10898/2000. The FCI filed a counter raising untenable contentions that they had received a telegram from their office in 7 **R.F.A.No.100 of 2003** Delhi on 30/03/2000 to withhold stock and later at 03:35 p.m. on 31/03/2000 yet another telegram allowing them to give delivery on pending release orders and to complete the delivery within working hours on 31/03/2000. They also falsely contended that the representatives of the plaintiff never turned up to take delivery of the item on 31/03/2000. As per order dated 07/04/2000 in C.M.P.No.1804/2000 in the writ petition, the FCI was directed to release the goods on condition that a bank guarantee was furnished by the plaintiff. The plaintiff could arrange a bank guarantee only on 10/04/2001 as the previous two days were holidays. The plaintiff had to furnish a bank guarantee for a sum of ₹10,00,000/-. The FCI also demanded storage charges in view of the delay caused in the matter. The delay in taking delivery was never due to any laches or negligence on the part of the plaintiff but on account of the breach of contract committed by the FCI. The plaintiff was constrained to pay under protest the storage charges of ₹5,000/- vide demand draft no.043162 dated 13/04/2000 drawn on the Lord Krishna Bank, Cochin. Therefore, the plaintiff is entitled to recover an amount of ₹12,000/- towards the lorry charges as well as the storage charges paid by them. The writ petition was disposed on 02/11/2000 giving liberty to the plaintiff to avail remedies under law and to approach a 8 ## **R.F.A.No.100 of 2003** civil court. The FCI was bound by law and as per the contract between the parties to deliver the wheat at the agreed rate as per release order no.1121/49. The bank guarantee was furnished as a condition for release of wheat pending adjudication of the dispute. As the FCI is not entitled to collect enhanced price from the plaintiff, they do not have any right whatsoever to invoke or encash the bank guarantee furnished by the plaintiff. Therefore the suit seeking a declaration that the plaintiff is not liable to pay any enhanced price or storage charge as demanded by the FCI. The plaintiff also sought a decree of permanent prohibitory injunction restraining the FCI from invoking the bank guarantee and also allowing the plaintiff to recover damages to the tune of ₹12,000/- together with interest at the rate of 16% per annum from the date of suit till recovery from the FCI. 3. The defendant FCI filed written statement denying the plaint allegations. The allegation that the contract was completed when the demand draft was handed over to the officer concerned of the FCI is incorrect and false. The contract is completed and the goods transferred to the plaintiff only when the release order is executed and delivery of the goods is taken subject to the conditions mentioned in the release order. The release order is prepared in quadruplicate. The release order and the copies 9 **R.F.A.No.100 of 2003** thereof are to be accepted by the purchasers like the plaintiff or their representatives by signing the release order. On such acceptance by the purchaser or his representative, the duplicate copy of the release order would be given to him. It is only when the duplicate copy of the release order is issued and accepted by the purchaser or his representative, the contract for sale would be concluded. The reverse side of the release order refers to the stipulations that will have to be complied with by the purchaser. As per the same, the price prevailing on the date of physical delivery would be payable for the stock covered by the delivery order/release order irrespective of the date of issue of the order or receipt of payment. The purchaser would be entitled to take delivery of the goods only on payment of the difference in the price in case there was enhancement of the price before physical delivery. The allegation that the stipulations contained in the release order is a unilateral one is incorrect and false. The conditions contained on the reverse side of the release order are conditions of the contract for sale which have to be complied with by the purchaser, if delivery is to be effected. A demand draft along with application for release of 500 tons of wheat was produced on behalf of the plaintiff in the afternoon of 30/03/2000. A release order was accordingly made ready making it clear 10 **R.F.A.No.100 of 2003** that the validity period for the release of wheat was only up to 31/03/2000. However, none on behalf of the plaintiff-Company turned up to sign the release order. Since neither the plaintiff nor its representatives turned up to sign the release order, the original of the release order with carbon copy continued to remain in the release order book. Unlike the plaintiff, M/s. Sindhu Traders collected their release order from the office of the FCI on 30/03/2000 and took part delivery of wheat. It was only because the release order was not accepted by the plaintiff or its representative, delivery could not be effected. The allegation that the District Manager had advised the representative of the plaintiff to take delivery of the entire quantity of 500 MT of wheat by 31/03/2000 as the financial year was ending, is incorrect and false. The Government of India had taken a decision to increase the price of wheat with effect from 01/04/2000 which was widely published, of which the plaintiff was also aware. In the evening of 30/03/2000 instructions were received from the office of the FCI, Thiruvananthapuram, not to release any stock until further directions. On 31/03/2000 instructions were received to the effect that pending release orders issued on 30/03/2000 only are to be entertained and delivery to be completed within working hours on 31/03/2000. Pursuant to the same, the representative of M/s 11 ## **R.F.A.No.100 of 2003** Sindhu Traders signed and collected the release order on 30/03/2000 and they took delivery of half of the wheat on 30/03/2000 and the balance in the afternoon of 31/03/2000. The plaintiff had never approached the defendant for taking delivery of the stock. The release order was never signed by the plaintiff or its representative and hence the reason why the stock was not released to them. The price of wheat was re-fixed by the Government of India with effect from 01/04/2000 and as the stock was taken by the plaintiff only after 01/04/2000, they are liable to pay the enhanced cost. No breach of contract has been committed by the defendant. There was no concluded contract by the plaintiff handing over the demand draft and the contract would stand concluded only when the plaintiff or its representative accepted the release order by fulfilling the conditions stated therein. 4. On completion of pleadings, necessary issues were framed by the trial court, pursuant to which the parties went to trial. PW1 to PW4 were examined and Exts.A1 to A14 were marked on the side of the plaintiff. DW1 and DW2 were examined and Exts.B1 to B3 were marked on the side of the defendants. The trial court on an appreciation of the oral and documentary evidence and after hearing both sides by the impugned judgment, decreed the suit. Aggrieved, the defendant FCI has come up in 12 ## **R.F.A.No.100 of 2003** appeal. 5. The points that arises for consideration in this appeal are -(i) was the trial court right in finding that the contract between the parties had been concluded when demand draft no.340996 dated 30/03/2000 for a sum of ₹35,60,250/- was handed over by the plaintiff to the FCI ; (ii) is there any infirmity in the findings of the trial court calling for an interference by this Court. 6. Heard both sides. 7. According to the learned counsel for the FCI, the trial court erred in finding that the contract between the parties had concluded when the plaintiff handed over the aforesaid D.D. to the FCI. The plaintiff was bound by the terms and conditions contained in Ext.B4 release order. The same was not been complied with and hence the reason why the goods were not released to the plaintiff. _Per contra_ it was submitted by the learned counsel for the plaintiff that the trial court relying on Sections 4 and 5 of the Sale of Goods Act, 1930 (the Act), had rightly found that the contract between the parties had concluded on the D.D. being accepted by the FCI. As the title in the goods had passed, the FCI was bound to release the goods. Having not done so, the plaintiff was entitled to the reliefs prayed for. 13 **R.F.A.No.100 of 2003** 8. Admittedly, there was no written contract between the parties when the plaintiff made the offer to buy 500 MT of wheat under the Open Market Sale Scheme (OMSS) for an amount of ₹35,60,250/-. This arrangement according to the parties was an oral agreement. Pursuant to the same, the plaintiff produced DD No.340996 dated 30/03/2000 for the aforesaid amount. Ext.B3 shows that the DD was received by the FCI on 30/03/2000 at 02:45 p.m. Now the question is by accepting the DD, was the contract between the parties concluded ? Here I refer to Ext.B4 which is admittedly the release order in favour of the plaintiff-Company in this case. The relevant portion of Ext.B4 dated 30/03/2000 reads thus - “ _Please deliver to Shri / Messrs Prima Agro Products Ltd., Kochi, Ernakulam, from Depot / Docks the undernoted quantity of foodgrains against the cost deposited by him / them as per details below in accordance with the usual terms and conditions governing the sale of foodgrains from Corporation Stocks vide conditions overleaf._ ” (Emphasis supplied) On the reverse side of Ext.B4 certain conditions have been referred to which reads - _“(1) “Prices prevailing on the date of physical delivery will be payable for the stocks covered by this delivery order / release order by the purchaser irrespective of the date of issue of this_ 14 **R.F.A.No.100 of 2003** _order or receipt of payment etc. The purchaser will be entitled to get delivery of the stocks only after payment of the difference in prices in case of enhancement before physical delivery. This is a condition of sale.”_ - _(2) No delivery should be given unless the purchaser produces his copy (i.e., Duplicate of this Release Order)._ - _(3) Delivery must be completed on or before …........... otherwise the usual storage charges should be realised before completing delivery._ - _(4) The consignee's receipt should be obtained on this (original copy of the Release Order sent to you) as well as on the weighment sheets. The duplicate copy of the Release Order given to the purchaser should however be defaced with Rubber stamp as follows so that it cannot be presented again. Stocks issued on …................. 19 ….........._ ## _For and on behalf of_ _**FOOD CORPORATION OF INDIA** .”_ ## (Emphasis supplied) 9. The plaintiff has no case that they were not aware or ignorant of the condition number (1) contained on the reverse side of Ext.B4. It is admitted that even before the present transaction, the plaintiff-Company had several times earlier also purchased wheat from the FCI. Therefore they were well aware of the conditions contained on the reverse side of Ext.B4 15 **R.F.A.No.100 of 2003** even before they offered to purchase wheat on 30/03/2000. They do not have a case that the conditions were incorporated for the first time in Ext.B4 release order. Moreover their contention in the plaint regarding this condition reads thus - _“The 1st defendant unilaterally dictate that the price prevailing as on date of actual delivery will apply. It is respectfully submitted that such a clause is invalid and unsustainable in law and in the instant case the Plaintiff never gave consent to any such terms.”_ Therefore it is clear that the plaintiff was well aware of the conditions contained on the reverse side of Ext.B4 release order. ## 10. Section 4 of the Act reads - _“_ _**4. Sale and agreement to sell** .-(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another._ _(2) A contract of sale may be absolute or conditional._ _(3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell._ _(4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.”_ 16 ## **R.F.A.No.100 of 2003** Normally a sale is considered complete when the agreed upon payment for an item is provided by a buyer and accepted by a seller, and the item is presented to the buyer. Once the price is received and the property is delivered, the sale is complete. Going by the definition of sale contained in Section 4 of the Act, when the property is delivered for a price, the sale is complete. (See **Premsankar v. Sunil Krishnan, (2011)4 KHC 895** ). 11. Here it would also be apposite to refer to Section 19 of the Act which reads - _**“19. Property passes when intended to pass. – (** 1) Where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred._ _(2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case._ _(3) Unless a different intention appears, the rules contained in sections 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer.”_ 12. There can be no doubt that the property in a specific movable property is transferred to the buyer at such time as the parties to the contract intend it to be transferred provided such movable property is free to be 17 **R.F.A.No.100 of 2003** transferred, and/or in other words capable of being transferred. (See **Usha Beltron Ltd. v. State of Punjab, (2005)7 SCC 58** and **Surendra Kumar Bhilawe v. New India Assurance Company Ltd., AIR 2020 SC 3149** ). Therefore if there are any conditions to be fulfilled, the property would stand transferred only when the conditions are fulfilled and the price paid accordingly. Here as per Ext.B4, the first condition stated is that in case there is any increase in price, the difference will have to be paid before delivery is taken. Only if the said condition is fulfilled, the property in the goods would stand transferred to the plaintiffs. Therefore the plaintiff was bound to pay the excess amount before delivery was taken. Hence the trial court went wrong in holding that the contract was concluded and the title in the goods had passed by the plaintiff-Company handing over the demand draft to the FCI. Now coming to the question whether the plaintiff was ready to take delivery on 31/03/2000 itself as alleged by them or whether inspite of the plaintiff taking all necessary steps, the FCI committed any breach of contract by refusing to deliver possession of wheat ? 13. According to the plaintiff, on 30/03/2000 as well as on 31/03/2000 before the close of office hours, their representative had 18 **R.F.A.No.100 of 2003** approached the FCI for release of the goods. But the FCI refused saying that they had received directions from their higher-ups not to release the stock. They rely on Exts.B5 and B6, copies of fax messages received by the FCI. The fact that Exts.B5 and B6 were received and that initially FCI had expressed their inability to release the wheat, is admitted. However, their specific case is that after they received Ext.B6 fax, they were ready to release the stock as per Ext.B4 release order. However, none of the representatives of the plaintiff-Company came to the office on 31/03/2000 to sign the release order or to take delivery. This is disputed by the plaintiff who relies on the testimony of PW3, a lorry broker, to allege that the plaintiff was ready with 50 lorries. But for no reasons, the FCI refused to comply and release the stock. The plaintiff has also a case that the officers of the FCI had told that labour-gang was not available to load the stock in the lorries arranged by the plaintiff. This argument is met by the FCI by pointing out to Ext.A6 release order as per which wheat had been released to another company by name, M/s.Sindhu Traders, Cochin. When this aspect was brought to the notice of the learned counsel for the plaintiff, it was pointed out that on the ground that there was no sufficient number of labour-gang, the FCI had refused to release the stock to the plaintiff though 19 ## **R.F.A.No.100 of 2003** the latter had made all arrangements for lifting it. This case of the plaintiff apparently does not appear to be correct. In the first place in the plaint the plaintiff has no case that the FCI refused to release the stock on the ground that labour-gang was not available. In the plaint their only case is that for no reasons the FCI had refused to release the stock. But the plaintiff also admit that citing the directions of the higher-ups, the FCI had initially expressed their inability to release the stock. The plaintiff also had a case that though their representative demanded to see the order relied on by the FCI, no such order was shown to them. Exts.B5 and B6 which are not disputed, substantiate the contention of the FCI that they initially declined to release the stock due to the instructions contained in Ext.B5. Thereafter they were ready to release when direction as per Ext.B6 was received. Therefore the FCI was certainly justified in initially refusing to release the stock. It is also the case of the plaintiff that despite the stand taken by the FCI, it was seen that stock was being released to other purchasers on 31/03/2000 and that as per Ext.A6, stock was infact released to M/s.Sindhu Traders. 14. The plaintiff has no case that the officers of the FCI had any malice or ill-will or bias against the plaintiff-Company and that they had 20 ## **R.F.A.No.100 of 2003** deliberately refused to release the stock to the plaintiff though they released the stock to other purchasers like M/s.Sindhu Traders. In such circumstances there appears no reason why the FCI should not have released the stock had the representative(s) of the plaintiff presented themselves before the FCI and got the release order signed and issued. Ext.B4 shows that the release order was signed only on 12/04/2000 by the representative of the plaintiff pursuant to the writ proceedings being filed before this Court. In the said proceedings, this Court had ordered release of the stock on furnishing bank guarantee of ₹10 lakhs. PW3, an employee of the plaintiff-Company admits that the lorries arranged by PW4 had been engaged to remove the stock that was released by FCI to M/s.Sindhu Traders, Cochin. This is admitted by PW4 also. Therefore if FCI had permitted M/s.Sindhu Traders to remove the stock, there was no reason why the plaintiff-Company should not have been allowed to do so especially when they have no case of malice, bias, discrimination etc. against the officers of the FCI. In these circumstances it can only be held that the trial court has clearly erred in decreeing the suit by holding that the FCI by not handing over the stock or releasing the stock, had committed breach of the terms of the contract. That being the position, the findings of the trial court 21 ## **R.F.A.No.100 of 2003** needs to be interfered with and hence I do so. In the result, the appeal is allowed. Interlocutory applications, if any pending, shall stand closed. Sd/- **C.S. SUDHA JUDGE** ami/