FOOD CORPORATION OF INDIA & ORS. versus ABHIJIT PAUL on 18 November 2022

1. Leave granted.

2. Food Corporation of India[1], the Appellant herein, procures anddistributes foodgrains across the length and breadth of the country as apart of its statutory duties. In the process, it enters into many contractswith transport contractors. In one such contract, the subject matter ofpresent appeals, the Corporation empowered itself (under clause XII(a)) to recover damages, losses, charges, costs and other expensessuffered due to the contractors’ negligence from the sums payable tothem. The short question arising for consideration is whether thedemurrages imposed on the Corporation by the Railways can be, in turn,recovered by the Corporation from the contractors as “charges”recoverable under clause XII (a) of the contract. In other words, doescontractors’ liability for “charges”, if any, include demurrages?

3. The Single Judge and the Division Bench of the High Court ofTripura have held that demurrages cannot be recovered as a charge bythe Corporation. After examining the contract in its entirety, including itsnature and scope, we conclude that the parties did not intend to includeliability on account of demurrages as part and parcel of the expression“charges”. The liability of the contractors in the present contracts isclearly distinguishable from other contracts entered into by the FCI in2010 and 2018, having a different scope and objective. Because of ourconclusions, we have upheld the judgments of the High Court anddismissed the appeals filed by the Corporation. Before considering thesubmissions, analysis and the conclusions, we will refer to the necessaryfacts and contractual provisions.

4. There are three appeals. In the first set of appeals arising outof Special Leave Petition Nos. 16009-16010 of 2019, the Corporation 1 hereinafter referred to as ‘Corporation’.

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Anotified a Tender inviting a bid from road transport contractors fortransporting foodgrains from railway siding, Churaibari in Assam, to FoodSecurity Depot Chandrapur in Tripura, on a regular basis for a period oftwo years. The Respondent – Mr. Abhijit Paul, was selected as thesuccessful tenderer[2]. He deposited an amount of Rs. 44,95,000/- towardsthe security deposit, leading to the execution of the contract[3]. TheBCorporation awarded several such Work Orders to the Respondent andalso to other contractors for transportation of foodgrains between itsmultiple Food Security Depots.

5. The contract was discharged by performance by July 2014.More than a year thereafter, by a letter dated 22.12.2015 followed by aCNotice dated 29.11.2016, the Corporation called upon the contractor toreimburse the amount of demurrages imposed on it by the Railways. Asthis demand was bereft of any reason and rightly objected to, it wasfollowed by another letter dated 27.06.2017 by the Corporation. In thisletter, the Corporation explained that it had incurred heavy losses onDaccount of demurrages due to the contractor’s inability to readily providetrucks at railway sidings, inhibiting the Corporation from unloadingfoodgrains from railway wagons within the “free time” specified by theRailways. The Corporation sought to recover the demurrages from thecontractor by withholding the security deposit tendered under the WorkOrder.E

6. The contractor objected to this unilateral action, contendingthat there was no power to recover demurrages under the Work Order.Being unsuccessful in pursuing the Corporation to withdraw the letters,demand and the unilateral action, the contractor filed a writ petition[4]before the High Court of Tripura for quashing the illegal and arbitraryFaction.

7. This writ petition was allowed by the Single Judge of HighCourt. It clarified that the Corporation was only entitled to recover lossesthat were incurred due to the contractor’s dereliction of duties under thecontract, as permissible under Section 73 of the Indian Contract ActG1872, which provides for recovery of damages for the breach of acontract. This would not permit the recovery of losses that were causally 2 hereinafter referred to as ‘contractor’.

3 Contract No. Cont.9/NEFR/TC/CBZ-CDR/2011 dated 25.04.2012, hereinafter referredto as ‘Work Order’ or the ‘contract’.H4 WP No. 1351 of 2016.

distant from the contractor’s actions. Further, it held that the Corporationhad unilaterally determined and imposed demurrages on the contractor,and directed it to settle its claims through a civil suit of recovery. TheCorporation filed a writ appeal[5] and the Division Bench of the HighCourt by its order dated 07.09.2018 dismissed the same on the ground ofdelay. A Review Petition[6] filed by the Corporation was also dismissedby the Division Bench of the High Court on 22.01.2019. The presentappeals are against the orders in the writ appeal as well as in the review.

8. The second set of civil appeals are also filed by the Corporation.It arises out of Special Leave Petition Nos. 16063-16068 of 2019 and itimpugns the decision of the Division Bench of the High Court of Tripuradated 15.05.2019. Therein, the High Court similarly dismissed the writappeals on the ground that the Corporation had no power to recoverdemurrages from contractors under the clauses of the contract therein.

9. The third set of civil appeals, arising out of Special LeavePetition Nos. 4045-4046 of 2021, are filed by the contractors. They havechallenged the orders of the Division Bench of the High Court of Tripuradismissing their writ appeals[7] and upholding the decision of the SingleJudge of the High Court dated 25.11.2019, directing the contractors toavail alternative remedies.

10. Submission of Parties : Shri Neeraj Kishan Kaul, learnedSenior Counsel appearing on behalf of the Appellant started hissubmissions preempting a preliminary objection about the dismissal of aSpecial Leave Petition against an adverse order of the High Court onthe same issue[8], and relatedly, aboutnot appealing another adverse decisionof the High Court of Tripura on identical issues[9]. Relying on State ofMaharashtra v. Digambar[10], he submitted that the dismissal of a SpecialLeave Petition at the admission stage did not operate as res judicata.He also explained that the Corporation refrained from appealing againstthe aforementioned judgment of the High Court because the amountrecoverable therein was low. Moreover, in those cases, the Corporationhad already issued No Dues Certificates to the contractors.

5 Writ Appeal No. 56 of 2018.

6 Review Petition No. 02 of 2019.

7 Writ Appeals Nos. 186 of 2020 dated 04.01.2021 and 187 of 2020 dated 18.01.2021.

8 SLP No 3391 of 2018, dismissed in limine on 26.03.2018.

9 Writ Appeal Nos. 25-27 of 2016 (Tripura High Court)

10 (1995) 4 SCC 683.

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A11. Before proceeding any further, we make it clear here itselfthat we do not propose to dismiss the Corporation’s appeals on preliminaryobjections. We will therefore consider Shri Kaul’s submission on themerits of the case.

12. Referring to and relying on the contractual clauses, Shri KaulBsubmitted that the expression “charges” in clause XII (a) of the WorkOrder clearly includes demurrages, and the Corporation is empoweredto recover the same. He relied on the decision of this Court in RaichandAmulakh Shahand Anr. v. Union of India[11 ]and Trustees of the Portof Madras v. Aminchand Pyarelal & Ors[12 ]to say that demurragesconstitute a charge. He also submitted that the Handbook used byCCorporation[13] would demonstrate that “charges” certainly include“demurrage”.

13. Supplementing the above submissions, Shri Ajit Puduserry,AOR submitted that in the construction of contractual terms, theinterpretation proposed by the author of the tender document must beDrelied on. He referred to Agmatel India Pvt Ltd v. Resoursys Telecom& Ors[14] for this purpose. He further submitted that the action of theCorporation is unexceptionable as it merely followed the directions ofthe High Court in an earlier round of litigation where the court directedit to issue notice before taking a decision on the contractors’ liability. It isEhis contention that notices were accordingly issued before recoverieswere made. Appearing on behalf of the Corporation in the third appeal,Shri Abhay Kumar, AOR, supported the arguments of the AppellantCorporation on the same grounds.

14. Shri Sanjay Parikh, learned Senior Counsel appearing on behalfFof the Respondents submitted that the Corporation acted arbitrarily. Itfailed to follow due process of law to determine the liability of thecontractors, despite specific instructions in a previous round of litigation.He also submitted that contractors were not responsible for loading andunloading of foodgrains from railway wagons. Hence, the event whichleads to the incurrence of demurrages, i.e., delayed unloading ofGfoodgrains from railway wagons, was not within the scope of contractor’sresponsibilities. He took us through the contracts that were executed in 11 (1964) 5 SCR 148.12 (1976) 3 SCC 167.13 Movement Operations in Food Corporation of India (FCI Handbook 2020).H14 (2022) 5 SCC 362.

2010 and 2018 by the Corporation, which delegated the task of loadingand unloading the foodgrains to contractors, and therefore the relevantexpression “demurrages” was present in the liability clauses in thosecontracts.

15. Supplementing the above submissions, Shri Shoeb Alam,Advocate, submitted that the Corporation was not entitled to be a judgein their own cause and to unilaterally determine the liability with respectto demurrages. He placed reliance on State of Karnataka v. ShreeRameshwara Rice Mills[15],BSNL and Anr. v. Motorola India (P) Ltd[16]and J.G. Engineers (P) Ltd v. Union of India[17].

Analysis:

16. The core question arising for our consideration is whether thecontractual clause enabling the Corporation to recover “charges” includesthe recovery of demurrages. It is pertinent to extract the relevant clausesof the road transport contract, i.e., Work Order. The clauses detailingthe description of work, liability of the contractors, and the power torecover losses, which are identical in the three appeals before us, readas under:

“(B) Brief description of work:

i) Transportation of foodgrains from Depots/Mandis/RailHeads of Churaibari to various destinations as per Appendix-I...

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X. Liability of Contractor for losses suffered by Corporation

a) The Contractor shall be liable for all costs, damages,registration fees, charges and expenses suffered or incurredby the Corporation due to the Contractor’s negligence andunworkmanlike performance of any services under thisContract, or breach of any terms of the Contract, or failureto carry out the work under the Contract, and for all damagesor losses occasioned to the Corporation, or in particular toany property or plant belonging to the Corporation, due toany act whether negligent or otherwise, of the Contractor orhis employees. ...

15 (1987) 2 SCC 160.

16 (2009) 2 SCC 337.

17 (2011) 5 SCC 758.

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XII. Recovery of losses suffered by the Corporation (a) The Corporation shall be at liberty to reimburse themselvesfor any damages, losses, charges, costs or expenses sufferedor incurred by them, or any amount payable by the ContractorBas Liquidated Damages as provided in Clauses X above. Thetotal sum claimed shall be deducted from any sum then due,or which at any time thereafter may become due, to theContractors under this, or any other, Contract with theCorporation. In the event of the sum which may be due fromthe Contractor as aforesaid being insufficient, the balanceCof the total sum claimed and recoverable from the Contractorsas aforesaid shall be deducted from the Security Deposit,furnished by the contractor as specified in Clause IX...”

17. The Corporation seeks to recover demurrages as a part ofD“charges” provided under clause XII(a) as extracted hereinabove. Theexpression “charges”, stand alone, is not amenable to a precise meaning.Its dictionary meaning is open textured, defining “charges” as “anyconsideration that one must pay for goods and services provided”.Therefore, the scope of the expression “charges” must be understoodEas intended by the parties to the contract. The process of interpretation,though the exclusive domain of the Court, inheres the duty to decipherthe meaning attributed to contractual terms by the parties to the contract.It is with this purpose that we shall now proceed to understand themeaning of the expression “charges”.

18. There are certain basic principles evolved by courts of lawFfor deciphering the true and correct meaning of expressions in a contract.In Bihar State Electricity Board, Patna and Ors. v. M/sGreen RubberIndustries and Ors.[18], this Court observed that, “Every contract is tobe considered with reference to its object and the whole of its termsand accordingly the whole context must be considered inGendeavouring to collect the intention of the parties, even thoughthe immediate object of enquiry is the meaning of an isolated clause.”

19. In Union of India v. Raman Iron Foundry[19], this Court heldthat contractual terms cannot be interpreted in isolation, following strict18 (1990) 1 SCC 731, ¶23.H19 (1974) 2 SCC 231.

FOOD CORPORATION OF INDIA & ORS. v. ABHIJIT PAUL[PAMIDIGHANTAM SRI NARASIMHA, J.]

etymological rules or be guided by popular connotation of terms, atvariance with the contractual context. It observed:

“8. It is true that the words “any claim for the payment of asum of money” occurring in the opening part of Clause 18are words of great amplitude, wide enough to cover even aclaim for damages, but it is a well settled rule of interpretationapplicable alike to instruments as to statutes that the meaningof ordinary words is to be found not so much in strictetymological propriety of language nor even in popular useas in the subject or occasion on which they are used and theobject which is intended to be attained.The context andcollocation of a particular expression may show that it wasnot intended to be used in the sense which it ordinarily bears.Language is at best an imperfect medium of expression and avariety of meanings may often lie in a word or expression.The exact colour and shape of the meaning of any word orexpression should not be ascertained by reading it in isolation,but it should be read structurally and in its context, for itsmeaning may vary with its contractual setting. We must,therefore, read the words ‘any claim for the payment of a sumof money’ occurring in the opening part of Clause 18 not inisolation but in the context of the whole clause, for the intentionof the parties is to be gathered not from one part of the clauseor the other but from the clause taken as a whole. It is in thelight of this principle of interpretation that we must determinewhether the words ‘any claim for the payment of a sum ofmoney’ refer only to a claim for a sum due and payable whichis admitted or in case of dispute, established in a Court oflaw or by arbitration or they also include a claim for damageswhich is disputed by the contractor.”

20. In Provash Chandra Dalui and Anr. v. Biswanath Banerjeeand Anr.[20], noting that the intention of the parties must be discernedfrom the context of the contract, this Court observed:

“10. ‘Ex praecedentibus et consequentibus optima fitinterpretatio.’ The best interpretation is made from the context.

20 1989 Supp (1) SCC 487.

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AEvery contract is to be construed with reference to its objectand the whole of its terms.The whole context must beconsidered to ascertain the intention of the parties. It is anaccepted principle of construction that the sense and meaningof the parties in any particular part of instrument may becollected ‘ex antecedentibus et consequentibus;’ every partBof it may be brought into action in order to collect from thewhole one uniform and consistent sense, if that is possible.

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In construing a contract the court must look at the wordsCused in the contract unless they are such that one may suspectthat they do not convey the intention correctly. If the wordsare clear, there is very little the court can do about it. In theconstruction of a written instrument it is legitimate in order toascertain the true meaning of the words used and if that bedoubtful it is legitimate to have regard to the circumstancesDsurrounding their creation and the subject matter to which it”was designed and intended they should apply.

21. In BESCOM v. E.S. Solar Power Pvt Ltd and Ors[21], thisCourt held that in case of two possible interpretations of a contractualEterm, the court must accord primacy to the one that is consistent withthe underlying purpose of the contract. It noted:

“17. ... In seeking to construe a clause in a contract, there isno scope for adopting either a liberal or a narrow approach,whatever that may mean. The exercise which has to beFundertaken is to determine what the words used mean. It canhappen that in doing so one is driven to the conclusion thatclause is ambiguous, and that it has two possible meanings.In those circumstances, the court has to prefer one above theother in accordance with the settled principles. If one meaningis more in accord with what the court considers to be theGunderlined purpose and intent of the contract, or part of it,than the other, then the court will choose the former or rather”than the latter...

22. Keeping in mind the above referred principles we have toexamine the expression “charges” in the context of its related words inthe contract, which are costs, damages, registration fees, and expenses.These expressions indicate the different heads under which losses arerecoverable from the contractors for acts of negligence, unworkmanlikeperformance of any service, breach of terms and failure to carry out thework in the context of the working of the contract. These expressionsare equally wide and do not aid us in understanding the meaning of theexpression “charges”. Under these circumstances, we have to understandthe meaning of the expression “charges” in the larger context of thecontract.

23. The preamble of the contract, i.e., the Work Order, reads thatthe contractor is engaged for “transportation of foodgrains fromdepots, mandis, rail heads of Churaibari to various destinations asper appendix 1”. Further, clause XIII of the Work Order detailing theresponsibilities of the contractor, to the extent relevant for our purposes,reads as under:-

XIII. Responsibilities of the Contractor (a) The Contractor shall be responsible to supply adequateand sufficient number of trucks for transportation of foodgrainsand carrying out any other services under the Contractin accordance with the instructions issued by the GeneralManager or an officer acting on his behalf.

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(f) The Contractor shall be responsible for the safety of thegoods from the time they are loaded on their truck fromgodowns/mandis/rail heads until they have been unloadedfrom the trucks at godownsor at other destinations as specifiedin the Contract or as directed by the General Manager/Area”Manager or any other officer acting on his behalf...

24. We have scanned the entire contract, in addition to scrutinisingthe provisions extracted above, and seen that there is no contractualprovision requiring the contractors to undertake the task of loading andunloading of foodgrains from the railway wagons.This is confirmed bythe written submissions on behalf of the Corporation, where the imposition A

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Aof demurrages is justified only for the reason that the contractor did notprovide adequate number of trucks near the railway sidings, to enablethe Corporation to promptly hand over the foodgrains to them tocommence transportation. The relevant portion is extracted as under:- “10.The reason why demurrage charges get levied during theBperformance of an RTC contract is on account of the failureof the contractor to supply required number of trucks evenafter prior intimation about the placing of the railway rakesdue to which the Petitioner is unable to empty the wagons asthe foodgrains are liable to get spoiled if they are unloadedonto the siding due to rain etc. Even after unloading unlessCthey are removed from the railway premises within the freetime available wharfage is charged by the Railways. Thefailure to prove trucks leads to detention of wagons beyondthe free time allowed by the Railways...”

25. We may note that there is a dispute about the availability ofDtrucks for the transportation of foodgrains by the contractor. While theCorporation asserts that trucks were not made available in numbers aswell as in time, the contractor denies the same stating that their truckswere kept waiting at the Corporation’s Food Security Depots.

26. Irrespective of the disputed fact, the real question is whetherEthe contractors had any obligation towards loading and unloading offoodgrains from the railway wagons. It is evident from the contractualprovisions and also the admissions of the Corporation in writtensubmissions, that the task of loading or unloading of foodgrains from therailway wagons was not a part of the contract. Thus, based onFinterpretation of the expression “charges” in the contractual context, weare of the opinion that it did not include liability on account of demurrages.Consequently, the Corporation cannot impose and collect demurragesfrom the contractors.

27. Interpretation of contracts concerns the discernment of theGtrue and correct intention of the parties to it. Words and expressionsused in the contract are principal tools to ascertain such intention. Whileinterpreting the words, courts look at the expressions falling forinterpretation in the context of other provisions of the contract and alsoin the context of the contract as a whole. These are intrinsic tools forinterpreting a contract. As a principle of interpretation, courts do notHresort to materials external to the contract for construing the intention of the parties. There are, however, certain exceptions to the rule excludingreference or reliance on external sources to interpret a contract. Onesuch exception is in the case of a latent ambiguity, which cannot beresolved without reference to extrinsic evidence. Latent ambiguity existswhen words in a contract appear to be free from ambiguity; however,when they are sought to be applied to a particular context or question,they are amenable to multiple outcomes.This position is well-explainedin the following passage of Halsbury’s[22]:

“Latent ambiguity: When the instrument appears on its faceto be free from ambiguity but, upon the endeavour being madeto apply it to persons or things indicated, it appears that thewords are equally applicable to two or more persons, or twoor more things, either without any inaccuracy or with acommon inaccuracy...”

Extrinsic evidence, in cases of latent ambiguity, is admissible bothto ascertain where necessary, the meaning of the words used, and toidentify the objects to which they are to be applied.[23]

28. Applying the above-referred principles to the present case,we will juxtapose the present contracts with similar but not identicalcontracts entered into by the Corporation, to confirm our interpretationthat the word “charges” in the contract is exclusive of liability fordemurrages. Pursuantly, we will examine certain contracts entered intoby the Corporation with other transporters. For example, we will referto a contract entered into by the Corporation in 2010, which is prior intime to the present contract. The relevant clauses read as under:- “B. Brief description of work

I.Unloading/Loading of foodgrain bags from/into railwaywagons, trucks etc. stacking...and transporting of foodgrainsfrom Railway Station to Corporation’s Godown or vice-versa...”

XII. Liability of Contractors for losses etc. suffered byCorporation

a) The contractor shall be liable for all costs, damages,demurrages, wharfage, forfeiture of wagon, registration fees, 22 Halsbury’s Laws of England (5th edn, 2012) vol 32, para 409.

23 Halsbury’s Laws of England (5th edn, 2012) vol 32, para 394.

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charges and expenses...due to...their failure to carry out thework with a view to avoid incurrence of demurrage etc...

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b) The Corporation shall be at liberty to reimburse themselvesof any damages, losses, charges, costs, or expenses sufferedor incurred by them due to contractors negligence and un-Bworkmanlike performance of service under the contract orbreach of any terms thereof...”

29. It is evident from the above that the contracts delegating theresponsibility of loading and unloading of foodgrains from railway wagons,Cas an integral part of the contract, include a clear and distinctive clausefor the imposition of liability, inter alia, on account of demurrages.Evidently, the liability clause in these contracts, termed the Handling andTransport Contracts, is starkly distinct from the present Road TransportContracts.

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30. We have every reason to believe that the Corporation,statutorily obligated to procure and distribute foodgrains across the nation,enters into contracts depending on the services it requires. Thesecontracts naturally vary depending on the needs and purposes of theCorporation. With the aid of the provisions in the Handling and TransportEContract from 2010, we are able to understand the intention of the partieswhile entering into the present Road Transport Contracts. As the presentcontracts do not involve the task of loading and unloading of foodgrainsfrom the railway wagons as a part of the contractors’ responsibility,there is no clause enabling the recovery of demurrages from them bythe Corporation. Thus, our interpretation of the expression “charges”,Fas exclusive of liability for demurrages, stands confirmed.

31. We will proceed to examine yet another Handling and TransportContract which was executed seven years after the present contract,i.e., in 2018. The relevant clauses of the contract are as under:- “B. Brief description of workG

I.Unloading/Loading of foodgrain bags from /into railwaywagons, trucks etc. stacking the foodgrains in bags, bagging,weighment, standardization, cleaning of foodgrains, etc., andtransporting of foodgrains from Railway Good Shed/sidingto Corporation Godown or vice-versa or transporting them H

from any place to any other place in and around RailheadKUMARGHAT/FSD KUMARGHAT...

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X. Liability of Contractors for losses etc. suffered byCorporation

a) The contractor shall be liable for all costs, damages,demurrages, wharfage, forfeiture of wagon, registration fees,charges and expenses suffered or incurred by the Corporationdue to the contractor’s negligence and un workmanlikeperformance of any services under this contract, or breachof any terms thereof or his failure to carry out the work witha view to avoid incurrence of demurrage etc. under thiscontract or breach of any terms thereof or his failure to carryout the work with a view to avoid incurrence of demmurage;etc. and for all damages or losses occasioned to theCorporation due to any act whether negligent or otherwiseof the contractor themselves or his employees. The decisionof the General Manager regarding such failure of thecontractor and their liability for the losses, etc. suffered bythe Corporation, and the quantification of such losses, shallbe final and binding on the contractor...”

32. It is evident from the above that the Handling and TransportContract from 2018, similarly involved loading and unloading of foodgrainsfrom the railway wagons within the scope of contractors’ duties, therebynecessitating the inclusion of demurrages as a penalty for non-performance of contractual duties. Thus, the present Road TransportContract is distinct from the Handling and Transport Contract from 2018,as the responsibility of loading and unloading of foodgrains from railwaywagons is absent in the present contract. For this reason, the Corporationin the present contract has chosen not to include the power to recoverdemurrages and as such the expression “charges” cannot be interpretedto include demurrages.

33. In light of the foregoing conclusions, we are not inclined toadopt a textual approach for the interpretation of the contractual term“charges”, and hence, the decisions of this Court in Raichand Amulakh A

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AShah[24]and Trustees of the Port of Madras[25] are of no aid, as theysimply describe demurrages as a charge. Demurrage is undoubtedly acharge, however, such a textual understanding would not help us decipherthe true and correct intention of the parties to the present contract.

34. For these reasons, Civil Appeals arising out of SLP Nos. 16009-B16010 of 2019 and SLP Nos. 16063-16068 of 2019, filed by theCorporation are dismissed. The decisions of the High Court of Tripura inWrit Appeal No. 56 of 2018 dated 07.09.2018 and Review Petition No.02 of 2019 dated 22.01.2019 are upheld. The decision of the High Courtof Tripura in Writ Appeal Nos. 53-58 of 2017 dated 15.05.2019 is alsoupheld. We may clarify that our decision has no bearing on any otherCremedy available to the Corporation, like the institution of a suit forrecovery, if law enables them to do so.

35. In so far as Civil Appeals arising out of SLP Nos. 4045-4046of 2021 filed by the contractors are concerned, they are allowed for thesame reasons as indicated above. The judgments of High Court of TripuraDin Writ Appeal Nos. 186 of 2020 and 187 of 2020 dated 04.01.2021 and18.01.2021 respectively are set-aside and the Civil Appeals stand allowed.

36. The parties shall bear their own costs.

EAnkit Gyan(Assisted by : Shevali Monga, LCRA)

Appeals disposed of.

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25 Supra note 12.