Dismissed

Food Corporation of India v. Kerala State Civil Supplies Corporation

Kerala HC19 Jul 2017WA/544/2016

Case brief

AI extract

What is this about?

The High Court affirmed the Single Judge's judgment dismissing writ appeals filed by the Food Corporation of India. The Court held that the State Government complied with Central directives by capping flour prices to control inflation, and that FCI could not deduct price differences from refunds to either mills or the State Corporation once property rights were transferred upon payment.

What did the court decide?

The writ appeals filed by the Food Corporation of India were dismissed, affirming the lower court's direction for full refunds without deduction.

Food Corporation of India Vs Kerala State Civil Supplies Corporation — Kerala HC (2017) — LawSathi Research

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT:

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THE HONOURABLE THE CHIEF JUSTICE MR.NAVANITI PRASAD SINGH

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THE HONOURABLE MR. JUSTICE RAJA VIJAYARAGHAVAN V

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WEDNESDAY, THE 19TH DAY OF JULY 2017/28TH ASHADHA, 1939

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WA. No.544 of 2016 ()

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(AGAINST THE JUDGMENT IN WP(C) NO.37758/2010 DATED 04-02-2016.)

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APPELLANT(S)/RESPONDENTS 1 TO 3 IN THE WRIT PETITION (CIVIL):

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THE FOOD CORPORATION OF INDIA, REPRESENTED BY THE MANAGING DIRECTOR, 16-20, BARAKHAMBA LANE, NEW DELHI-110 001.

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THE GENERAL MANAGER, FOOD CORPORATION OF INDIA, KESAVADASAPURAM, PATTOM, PALACE P.O., THIRUVANANTHAPURAM-695 004.

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THE EXECUTIVE DIRECTOR (SOUTH), FOOD CORPORATION OF INDIA, CHENNAI-600 006.

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BY ADVS.SRI.T.P.M.IBRAHIM KHAN (SENIOR), SC, FCI SRI.K.M.ABDUL MAJEED, SC

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RESPONDENT(S)/PETITIONER & RESPONDENT 4 IN THE WRIT PETITION (CIVIL):

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KERALA STATE CIVIL SUPPLIES CORPORATION LIMITED, REPRESENTED BY ITS CHAIRMAN AND MANAGING DIRECTOR, MAVELI BHAVAN, GANDHI NAGAR, KOCHI-682020.

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UNION OF INDIA, REPRESENTED BY ITS SECRETARY, MINISTRY OF FOOD & CONSUMER AFFAIRS, DEPARTMENT OF FOOD & PUBLIC DISTRIBUTION, NEW DELHI-110001.

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R2 BY ADV. SRI. N.NAGARESH, ASSISTANT SOLICITOR GENERAL R1 BY ADVS. SRI. N.D.PREMACHANDRAN,SC,SUPPLYCO SMT. MOLLY JACOB,SC,SUPPLYCO

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THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 19-07-2017, ALONG WITH WA. 1475/2016, AND OTHER CONTD. CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

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NAVANITI PRASAD SINGH, C.J. & RAJA VIJAYARAGHAVAN V., J.

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W.A. Nos. 544, 1475, 1630, 1631,

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1731, 1901, 2080 & 2142 of 2016

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- - - - Dated this the 19^th day of July, 2017

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JUDGMENT

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Navaniti Prasad Singh, C.J.

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All these eight intra court appeals are by the Food Corporation of India ('FCI', for short) being aggrieved by the judgment of the learned single Judge dated 04.02.2016 passed in W.P.(C) No.37758 of 2010 and analogous writ petitions.

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We have heard learned Senior Counsel appearing for the FCI at length. The FCI is also fighting and representing the case of the Union of India. We have heard learned counsel for the Kerala State Civil Supplies Corporation and learned Government Pleader. The other main contesting parties are different Roller Flour Mills in the State, who are private parties.

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The facts are not in dispute and having heard the learned counsel, with their consent, we are disposing of these appeals at this stage itself.

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WA.544/16 & contd. appeals

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-:2:-

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Out of the writ petitions filed, W.P.(C) 37758 of 2010 was the writ petition filed by the Kerala State Civil Supplies Corporation ('State Corporation', for short). The rest of the writ petitions were filed by various flour mills.

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The learned single Judge allowed all the writ petitions as against the FCI and the Union of India. All these appeals have been filed only by the FCI. Learned Senior Counsel for the FCI submits that he, as per instructions, would be representing the interest of the Union of India as well. But, we may note that Union of India has not filed even a single appeal against the impugned judgment. The Union of India are respondents in the appeals, wherever they have been made a party in the writ petitions.

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The contesting respondents in the appeals are in two groups; one, the State Corporation and two, the Roller Flour Mills. The dispute which brought the State Corporation and the Roller Flour Mills to this Court was the action of the FCI pursuant to the directives of the Union of India in appropriating the price difference of wheat supplied and the cost of wheat under different schemes, which was supplied to Roller Flour Mills and thus, appropriation was done from the amounts which had been deposited by the State

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WA.544/16 & contd. appeals

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Corporation, in advance, while returning/re-funding the advance to the extent not utilised by the State. Thus, the money advanced and unutilised was not fully refunded to the State Corporation. This brought the State Corporation to prefer the writ petitions. Consequently, when wheat was not supplied to the Roller Flour Mills to the extent they have paid, the Roller Flour Mills being entitled to full refund, were given partial refund by the State Corporation because of deductions made by the FCI. This brought the flour mill owners to this Court.

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The facts lie within a narrow compass and are not in dispute.

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We would refer to the facts primarily from the records of W.P.(C) No.37758 of 2010 against which, W.A. No.544 of 2016 was filed. It appears that there were huge stocks of wheat and rice lying with the FCI in its various godowns all over the country. Substantial quantities were getting rotten and being spoiled. A public interest litigation was filed before the Apex Court and the Apex Court has issued various directions, including a direction to make available the stocks to poor and needy, rather than allowing them to rot and be eaten by rats. Pursuant to the said direction, it appears that the

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WA.544/16 & contd. appeals

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Central Government took a decision and informed all the States by Exhibit P6 communication dated 12.10.2009 that they were releasing substantial quantities of wheat and rice to the States under Open Market Sales Scheme ('OMSS', for short), to check inflationary trends for the Month of October, 2009 to December, 2009. It clearly stipulates that so far as wheat is concerned, State of Kerala would be allotted 40,660 metric tonnes. It indicated that the release of wheat would be at the minimum support price plus cost of handling, transportation etc., as would be fixed by the FCI. This letter laid down certain modalities and conditions for the use of wheat so allotted by the Central Government to the State Government. They are contained in paragraphs (5) and (6) of Exhibit P6 and are quoted hereunder:-

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“5. State/UT Governments should lift the allocated quantity of wheat and rice from the godowns of FCI and distribute it to retail consumers through their own Corporations/cooperatives/federations/self-help groups or any, other Government or Semi-Government organization. The State/UT Government may also use this wheat/rice for various educational institutions, SC/ST/women hostels, etc. The State Governments may also convert wheat into flour for distribution to retail consumers. In additional to retail consumers, State Governments may sell wheat to small processors of

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WA.544/16 & contd. appeals

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wheat like chakkies, bakeries etc. whose monthly consumption of wheat is less than 30 tonnes.

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In order to make this intervention meaningful so that inflationary trends in food economy are checked and that benefit is passed on to consumers, State Governments, may ensure that not more than Rs.200 per quintal is added in the end retail prices (above the rate at which rice has been released to State Governments) on account of handling, transportation, etc.”

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The Government of Kerala, in turn, allotted the entire quantity of rice and wheat to the Kerala State Civil Supplies Corporation Limited, as is evident from Exhibit P6(a). It may be noted that the Chairman-cum-Managing Director of the State Corporation by Exhibit P7 letter dated 12.11.2009 has intimated the State Government that in view of the issue price on wheat being raised from Rs.1,080/- to Rs.1,295.74 per quintal under the OMSS and the slow movement and also the hike in prices, it may not be possible for the State Corporation to purchase the allocation as made by the State. However, the State then called for a meeting and laid out modalities as to how the allotment would be utlised. This decision was taken on 19.11.2009. Pursuant to this, the Food and Civil Supplies Corporation issued Exhibit P9 newspaper

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WA.544/16 & contd. appeals

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advertisement on 19.11.2009 which would clearly state that wheat, which was being offered under the OMSS of the Central Government, would be lifted from the FCI being distributed through the State Corporation and could be purchased by intending persons at the rate of Rs.1,358.20/- per quintal. It may be noted that this advertisement made no distinction or put no restriction on the person who purchases the wheat. Accordingly, advertisements having been issued, the Government again addressed the State Corporation and the FCI by Exhibit P11 on 25.11.2009 directing that on remittance of the amount at the rate of Rs.1,295.74 plus VAT per quintal with the State Corporation charges of Rs.50/- per quintal, wheat may be supplied from FCI to dealers/millers in sufficient quantities. Accordingly, various flour mills have deposited substantial amount of money for their requirement of wheat under this Scheme to the State Corporation and the State Corporation advised the FCI to release sufficient quantities to the flour millers. It may also be noted that soon thereafter another communication was issued on 08.12.2009 by the State Corporation to various persons, who had purchased wheat under OMSS, clearly specifying that the wheat so purchased would be utilised in the State of Kerala itself and the wheat or wheat product should be sold at economical

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WA.544/16 & contd. appeals

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prices. The retail price should not exceed Rs.1.50 kg. as compared to issue price of wheat. Thereafter, the State Corporation remitted all the money which they have received from the millers to FCI in anticipation of full release of the allotment, as made by the Central Government.

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When stocks were delivered by the FCI, they apparently noticed that the stocks were being lifted by the Roller Flour Mills. Accordingly, the FCI, by Exhibit P15 letter dated 04/07.12.2009, wrote to the Food Secretary and Commissioner (Civil Supplies) as well as the Managing Director of the State Corporation pointing out that the wheat, which was being delivered under the OMSS, has not reached the retail consumers, but was going to the millers. It was also pointed out therein that this was contrary to the Government of India guidelines, for, in respect of supply of wheat to the Roller Flour Mills, Government of India had separately framed a scheme wherein, the rates were much higher than applicable. It clearly pointed out that unless a clarification was received from the State, the FCI was not in a position to continue supply of subsidised wheat. In response to this, it seems that a high level meeting at the State level was called for, which included Executive Director of FCI and its

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WA.544/16 & contd. appeals

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General Manager apart from others, including Minister of the concerned department of the State. The minutes of the meeting are in detail and is produced as Exhibit P16. The meeting was held on 16.12.2009. In sum and substance, what was noted in Exhibit P16 is that the State Government intended to push the stock of wheat into market in order to meet the demand and to bring down inflation. The State Government did not have the wherewithal to deal with such huge stocks. There were no merchants who could take such huge stocks, nor were there any such atta chakkies who could even lift 30 metric tonnes a day.

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Faced with the above situation to bring down the inflationary rate, in view of the option given to the State, to get the wheat grown into flour, the wheat was allowed to be sold to the flour mills with a stipulation that they would not sell it at more than Rs.1.50 over the cost price of wheat. Thus, according to the State Government, as per the options already noted above with reference to Exhibit P6, the State was of the view that it had not violated the guidelines of the Central Government. But, as there were reservations by the FCI, it decided that the balance quantity, which would be about 16000 metric tonnes, would not be lifted by the

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WA.544/16 & contd. appeals

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State Corporation and the FCI was requested to refund the money in respect of the un-lifted stock. Here, while refunding the money, what the FCI did was, for the stocks released and utilised by the flour mills, it calculated the price at a higher rate and the difference was then deducted from the money and balance refunded to the State Corporation. Consequently, when the State Corporation was to refund the money to the Roller Flour Mills, they refunded not the full money, but proportionate to the money as received from the FCI. Thus, Roller Flour Mills also got money less than what they had deposited. Hence, both the parties, i.e., the State Corporation and the Roller Flour Mills have filed writ petitions. The learned single Judge heard the parties and allowed the writ petitions, inter alia, directing that FCI and the Central Government were bound to refund the entire money without deductions as the State Government and the State Corporation had not in fact violated the Central Government's directives or scheme.

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Though the FCI has preferred all these appeals, the Central Government has not preferred any appeal against the impugned judgment. Learned counsel for the respondents herein submits that as the Central Government has accepted the judgment

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WA.544/16 & contd. appeals

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under appeal, it is not open for the FCI to contest the matter. To us, he may be correct, but we would not rest our decision on that technicality, for, the learned Senior Counsel for the FCI has made a clear statement that he has been instructed to represent the Central Government as well. We see that it would not make any difference because, we are of the view that the learned single Judge has rightly decided the issue.

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First we would deal with the case of the Roller Flour Mills. There is no dispute that pursuant to Exhibit P9 advertisement dated 19.11.2009, they had deposited the money, received the stocks of wheat, processed it and sold. There were no conditions attached except, they would not sell it at a price to be more than Rs.1.50 over the purchase price. They have abided. Thus, though their purchase was not being conditioned upon the conditions as imposed by the Central Government, they have not been paid. It is undisputed that they had purchased wheat on full payment of price, their property in wheat was transferred to them and there could be no subsequent enhancement or change in the sale price. We have considered the same aspect on 19.07.2017 in W.A. No.1287 of 2017 and having noticed the judgments of the Apex Court in A. Venkata

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WA.544/16 & contd. appeals

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Subbarao and others v. The State of Andhra Pradesh, etc.

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[AIR 1965 Supreme Court 1773] and other cases under similar circumstances, we did not interfere with the view taken by the learned single in his judgment.

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For the reasons aforesaid, so far as appeals as against the writ petitions filed by the Roller Flour Mills are concerned, those writ appeals are dismissed.

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Now coming to the cause of FCI as against the State Corporation. As noted above, we see no reason to interfere with the order of the learned single Judge. The Central Government had given liberty to the State Government apart from others, to get the wheat milled and to sell the flour to the consumers. It had clearly stipulated that the price difference should not be more than Rs.200/- per quintal. Exhibit P16 would show that the State Government was aware of such directions. It had no infrastructure, but wanted to control the inflation by pushing the stocks of wheat into market. It, therefore, took a conscious decision that let the flour mills mill the wheat and, as noticed above, issued a direction with regard to the price difference between wheat and flour. Thus, substantially the spirit of the order of the Central Government was

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WA.544/16 & contd. appeals

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fully complied with. This being the position, we are of the view that FCI was not correct in deducting the amounts treating to be a sale to flour mills simpliciter. We may add that if it was a sale to flour mills simpliciter then, the wheat would have been very expensive, but, at the same time, there would have been no restriction on the price at which flour could be sold.

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In the present case, it is not in dispute that the State had restricted the price, as directed by the Central Government. Thus, we find that the State Government had not violated the orders rather, they had consciously decided and tried to implement the order. There being no violation, we are not inclined to interfere with the judgment of the learned single Judge under appeal.

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The writ appeals are thus, meritless and dismissed as such.

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Sd/Navaniti Prasad Singh, Chief Justice

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Sd/Raja Vijayaraghavan V., Judge

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//true copy//

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P.A. To Judge

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krj.20/7

Food Corporation of India v. Kerala State Civil Supplies Corporation

Case brief

What is this about?

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Food Corporation of India v. Kerala State Civil Supplies Corporation

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