Corporation of India & Ors Vs. Jagannath Dutta & Ors  INSC 138 (18 March 1993)
Singh (J) Kuldip Singh (J) Kasliwal, N.M. (J)
1993 AIR 1494 1993 SCR (2) 497 1993 SCC Supl. (3) 635 JT 1993 Supl. 85 1993
of India 1950: Articles 14 and
226-Contractual agreement for clearing, transporting, storing and distribution
of foodgrains-FCI-Terminating agreement-Relief in writ petition-Whether
permissible-Held contractual agreement terminated pursuant to policy decision.
Food Corporation of India appellant entered into an agreement
dated August 14, 1967 with the respondent No. 1
entrusting him the work of clearing, transporting, storing and distribution of
food grains on behalf of the Corporation viz. a storage agency by the
Corporation. Clause 37 of the agreement provided that either party was at
liberty without assigning any reason to terminate the agreement on giving two
months prior notice in writing.
Managing Director of the Corporation in the meeting of the Zonal Managers,
Senior Regional Managers and other officers held on September 20/21, 19S4
pointed out that the private storage agencies were responsible for high transit
losses (if the foodgrains in the State of West Bengal, and directed that the
desirability of continuing the system of storage agents be examined.
Immediately a Committee was formed to go into this question. The Committee
reported against continuing the storage agency system, and the report was
accepted in principle, a final decision to abolish the storage agency was
taken, and a target date for abolition was fixed for compliance. This decision
was contained in the letter of the Zonal Manager dated 14th March 1985.
District Manager by his notice dated June 25, 1987 terminated the storage agency
agreement with the respondent with effect from August 31, 1987. The respondent challenged the validity of the notice by
way of a writ petition under Article 226 of the Constitution before the High
Court. The respondent challenged the termination notice on the grounds that : (i)
clause 37 of the agreement was arbitrary and as such violative of Article 14 of
the Constitution, (ii) clause 37 was unilateral, against natural 498 justice,
unlawful and as such was void under section 24 of the Indian Contract Act, and
(iii) the action of the Corporation was arbitrary against public policy and
Division Bench of the High Court did not go into any of the aforesaid grounds
contended by the respondent and instead examined the correspondence and various
office orders placed before it by the Corporation, and came to the conclusion
that in fact no policy decision was taken by the FCI before terminating the
agreement, and set aside the notice dated June 25, 1987.
the appeal of the FCI, this Court,
High Court was not justified in quashing the notice especially when the terms
and conditions of the Contract permitted the termination of the agreement by
either of the parties. [501G]
High Court should not have gone into the question of contractual obligation in
its writ jurisdiction under Article 226 of the Constitution. [501G]
High Court misread the documents on record and grossly erred in reaching the
conclusion that no policy decision was taken by the FCI to terminate the
storage agencies in the State of West Bengal. [501H] In the instant case, there is no manner of doubt
that a policy decision was taken at the level of the Zonal Manager to abolish
the storage agencies and the said decision was approved by the Head Office of
the FCI. The letter dated March 14, 1985
of the Zonal Manager indicates the plan to be worked out for abolishing the
storage agencies in the West Bengal Region. [504B-D]
APPELLATE JURISDICTION : Civil Appeal No. 977 of 1991.
the Judgment and Order dated 31.5.89 of the Calcutta High Court in Appeal No.
662 of 1987. K.T.S. Tulsi, Additional Solicitor General, Vivek Gambhir and S.K.
Gambhir for the Appellants.
R.K. Jain, Ascom Mehrotra, Sunil K Jain, Vijay Hansaria and Ms. Sangeet Mehrotra
for the Respondents.
Judgment of the Court was delivered by KULDIP SINGH, J. Food Corporation of
India (FCI) entered into an agreement dated August 14, 1967 with Jagannath Dutta entrusting him the work of clearing, transporting,
storing and distribution of foodgrains on behalf of the FCI. In other words he
was given a storage agency by the FCI. The District Manager, FCI by his notice
dated June 25, 1987, terminated the agreement with
effect from August 31,
Dutta challenged the validity of the notice by way of a writ petition under
Article 226 of the Constitution of India before the Calcutta High Court. A
Division Bench of the High Court by its judgment dated May 31, 1989 allowed the writ petition and set
aside the notice dated June
25, 1987. This appeal
by way of special leave is against the judgment of the High Court.
37 of the agreement dated August 14, 1967
is as under "Notwithstanding anything herein contained, either party may
be at liberty without assigning any reason to terminate this agreement on
giving two months' prior notice in writing so to terminate this
agreement." The operative part of the notice dated June 25, 1987 terminating the agreement is as under
:- "According to the Article 37 of the Agreement.. the Food Corporation of
Indian has the right to terminate the Agreement and relinquish your Agency with
two months prior Notice without assigning any reason.
Food Corporation of India has taken the policy of terminating the storing
Agencies gradually and I have been directed by the Food Corporation authorities
to give effect to that policy early.
the circumstances, 1, Dr. Priti Madhab Dey, District Manager, Food Corporation
of India, Hoogly... Serve this notice upon you under the provisions made in para
37 of the said Article of Agreement terminating your 500 storing Agency at Belmuri
with effect from 31st day of August, 1987." Jagannath Dutta challenged the
termination-notice on the grounds that (i) clause 37 of the agreement was
arbitrary and as such violative of Article 14 of the Constitution, (ii) clause
37 was unilateral, against natural justice, unlawful and as such was void under
section 24 of the Indian Contract Act and (iii) the action of the FCI was
arbitrary against public policy and public interest. The High Court did not go
into any of these questions and instead set aside the impugned notice on the
short ground that the FCI had not taken any policy decision before terminating
High Court examined the correspondence and various office-orders placed before
it by the FCI and came to the conclusion that in fact no policy decision was
taken by the FCI. The High Court held that the impugned notice having been
issued apparently as a result of a policy decision by the FCI and there being
no such decision on the record the impugned notice was liable to be quashed. We
reproduce the High Court reasoning hereunder :
the foregoing facts, it appears that the desirability of abolishing the system
was raised by the Managing Director and the entire correspondence shows that it
was an issue which was pending at the Headquarters's level and the decision was
expected to be taken at the level of the Managing Director. The Zonal Manager
(East) or the Zonal Office did not and could not take any decision in the
issue always remained pending for decision at the level of the Managing Director
assuming that the letter dated 14th March, 1984
does, contain a policy decision and the letter dated 30th March/2nd April, 1985 contains the Headquarters' approval
to the above decision, the said policy decision as contained in the letter
dated 14th March, 1985 is not a valid policy decision. If
a phase-wise or a gradual abolition. of a system is to take place there must be
a plan this plan must be preconceived. The preconceived plan must be reasonable
and rational with particular reference to the local conditions.
of any such policy must 501 depend on an action plan drawn up and implemented
on a rational basis with reference to the arising situation and
the foregoing reasons we, are of the view that the case of the F.C.1 to the
effect that the policy decision was taken in the Zonal Office and endorsed
and/or approved by Chief Commercial Manager, New Delhi, runs wholly contrary to
the records of the case and therefore cannot be accepted...
have already observed that no policy decision was finalised by the F.C.I. and
they were proceeding arbitrarily by picking and choosing for the purpose of
terminating the storing agency. In some cases, terminations were made not on
the ground of policy decision, but on the ground of misappropriation. In some
cases, as we have already referred to, the order of termination was withdrawn
or kept in abeyance. Where the Court has passed ad-interim order staying the
order of termination, no further steps have been taken by the F.C.I. In one of
the cases we have referred to hereinbefore, would show that termination was
kept in abeyance on a consideration that the concerned storing agent would
provide the FCI with a godown.
the termination of this particular, agreement by invoking clause 37 has to be
justified by the F.C.I. on the basis of policy decision and implementation on the
policy uniformly in cases of the storing agents.
termination cannot be justified with reference to other extraneous
considerations." We are of the view that the High Court was not justified
in quashing the impugned notice especially when the terms and conditions of the
contract permitted the termination of the agreement by either of the parties.
The High Court should not have gone into the question of contractual-obligation
in its writ jurisdiction under Article 226 of the Constitution.
otherwise the High Court misread the documents on the record and grossly erred
in reaching the conclusion that no policy decision was taken by the FCI to
terminate the storage agencies in the State of West Bengal. We may refer to 502 some of the documents on the record.
Managing Director, FCI, in a meeting of Zonal Managers, Senior Regional
Managers and other officers held on September 20/21, 1984 pointed out that the
private storage agencies were responsible for high transit losses of the foodgrains
in the State of West
Bengal. He directed
that the desirability of continuing the system of storage agents be examined.
Immediately thereafter the Senior Regional Manager, West Bengal formed a Committee to go into the
question. The Senior Regional Manager by his letter dated January 21, 1985 forwarded the report of the
Committee to the higher authorities. The Committee had reported against
continuing the storage agency system. The report of the Committee was accepted
in principle Deputy Zonal Manager in the office note dated February 23, 1985 examined the Committee-report and
suggested fixation of target date for abolition of the storing agencies. The
Deputy Manager (Finance) on March 4, 1985
also recommended the abolition of storing agency by giving additional reasons.
A meeting was held in the chamber of the Zonal Manager in the first week of
March, 1985 which was attended by five senior zonal officers including the
Zonal Manager. In the said meeting the report of the Committee was accepted and
the final decision to abolish the storage agency was taken. The Zonal Manager
by his letter dated March
14, 1985 communicated
the decision to the Senior Regional Manager for compliance. The said letter is
E. 12(1)/81-Stg. Dated : 14.3.1985 TO Shri B.K. Mukhopadhyay, Senior Regional
Manager, Food Corporation of India, Calcutta.
Abolition of Storing Agency in West Bengal
Please refer to the correspondence resting with your letter No. E/25/(17)/82-Stg.
(c)/74 dated 21st January,
abolition or otherwise of Storing Agency 503 System in West Bengal Region. The
matter has been examined in consultation with the Zonal Finance and the
following decisions have been taken.
Immediate abolition of Storing Agency depots in the Districts falling under the
M.R. areas where CWC, SWC and owned godowns including JM(PO) exists.
Where there is no existence of SWC, CWC and owned godowns, FCI should make
arrangement for hiring godowns to replace the storing agents godowns in phases
keeping in view the distribution in M.R. areas and rake points to accommodate
stocks from Northern
Storing Agents godowns in S.R. areas of Calcutta Complex may continue for some
time for maintaining supply' line, but all our efforts should be made by SRM,
West Bengal for sending as less stocks as possible to S.A. godowns in Calcutta
Complex. As for example, in Calcutta
(South) with the opening of Kalighat siding and two feeding depots like Lake and Behala, Storing Agents need be used only if
are, therefore, requested to take action on the line as aforesaid and draw out
an Action Plan and confirm the same to this Office under intimation to
are also requested to send us a detailed list of all the existing Storing
Agents godowns both for M.R. and S.R. areas district- wise on the line as
indicated above in (1), (2) & (3) as per proforma enclosed.
by Zonal Manager.
faithfully Sd/- V.Ballachandran Dy. Zonal Manager For Zonal Manager (East)."
504 Further the letter dated March 30, 1985
by Chief Commercial Manager '(in the Head Office) to the Zonal Manager shows
that the decision of the Zonal Manager to abolish the Storage agency was
approved by the Head Office.
sequence of proceedings narrated by us leaves no manner of doubt that a policy
decision was taken at the level of the Zonal Manager to abolish the storage
agencies and the said decision was approved by the Head Office of the FCI.
are, therefore of the view that the High Court was not justified in reaching
the conclusion that there was no policy decision by the FCI The High Court,
without noticing any specific instance, made general observations to the effect
that clause 37 of the contract was not uniformly invoked by the FCI. The High
Court failed to appreciate that the policy decision contained in the letter
dated March 14, 1985 indicates the plan to be worked out
for abolishing the storage agencies.
the decision to abolish the storing agencies with immediate effect was taken
but it was stated in para 2 therein that FCI should make arrangement for hiring
godowns to replace the storing agents in phases keeping in view the
distribution of the foodgrains arriving from Northern India.
also part of the decision that storing agents godowns in the Calcutta Complex
were to continue for sometime for maintaining the supply line. It was,
therefore, in the nature of the policy decision that the agreements with the
storage agents were to be revoked in phased manner.
not disputed that with effect from September 30, 1985 the West Bengal Government has
taken over the public distribution system in the State of West Bengal. The State of West Bengal has taken over the godowns from the
FCI and is operating the same. There is thus no scope for operating the private
storage agencies in the State of West Bengal.
therefore, allow the appeal, set aside the judgment of the High Court and
dismiss the Writ petition filed by respondent- Jagannath Dutta with costs. We
quantity the costs as Rs.10,000.