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PETITIONER: FOOD CORPORATION OF INDIA AND ORS.

       Vs.

RESPONDENT: JAGANNATH DUTTA AND ORS.

DATE OF JUDGMENT18/03/1993

BENCH: KULDIP SINGH (J) BENCH: KULDIP SINGH (J) KASLIWAL, N.M. (J)

CITATION:  1993 AIR 1494            1993 SCR  (2) 497  1993 SCC  Supl.  (3) 635 JT 1993  Supl.     85  1993 SCALE  (2)84

ACT: Constitution 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.

HEADNOTE: The  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 foodgrains 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. The  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. The  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

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Corporation  was arbitrary against public policy and  public interest. A  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.      Allowing the appeal of the FCI, this Court,      HELD : 1. The 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]      2.  The  High  Court  should not  have  gone  into  the question of contractual obligation in its writ  jurisdiction under Article 226 of the Constitution. [501G]      3.  The 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]

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 977 of 1991. From  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. 499 R.K. Jain, Ascom Mehrotra, Sunil K Jain, Vijay Hansaria  and Ms. Sangeet Mehrotra for the Respondents. The 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,  1987. Jagannath 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.               Clause  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

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             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.               The  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.               Under  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 the  agreement. The  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 :               "From 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  matter.               The issue always remained pending for decision               at the level of the Managing Director ....               Even  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.               Implementation 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 circumstances...               For the foregoing reasons we, are of the  view               that the case of the F.C.1 to the effect  that

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             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...               As  we  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.               Therefore, 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.               Such  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. Even  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. The 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

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Manager by his letter dated March 14, 1985 communicated  the decision to the Senior Regional Manager for compliance.  The said letter is reproduced hereunder:               "No.  E. 12(1)/81-Stg.                   Dated               : 14.3.1985               TO                Shri B.K. Mukhopadhyay,                Senior Regional Manager,               Food Corporation of India,                Calcutta.                Sub  :  Abolition of Storing Agency  in  West               Bengal Region, FCI.               Sir,               Please  refer  to the  correspondence  resting               with your letter No. E/25/(17)/82-Stg.  (c)/74               dated  21st January, 1985 regarding  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.               1.    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.               2.    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 India.               3.    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 absolutely necessary.               You  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 Headquarters.               You  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.               Approved by Zonal Manager.                          Your 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. The 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.

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We  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. Although  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. It was 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. It is 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. We,  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. N.V.K.                     Appeal allowed. 505