Demurrages cannot be recovered as a charge by the FCI: Supreme Court

FCI, jurishour

The Supreme Court ruled that demurrages cannot be recovered as a charge by the FCI.

Background 

Food Corporation of India , the Appellant, procures and distributes foodgrains across the length and breadth of the country as a part of its statutory duties. In the process, it enters into many contracts with transport contractors. 

In one such contract, the subject matter of present appeals, the Corporation empowered itself (under clause XII (a)) to recover damages, losses, charges, costs and other expenses suffered due to the contractors’ negligence from the sums payable to them. 

The short question arising for consideration is whether the demurrages 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, does contractors’ liability for “charges”, if any, include demurrages? 

Arguments 

Senior Advocate Neeraj Kishan Kaul, appearing for the Appellant, submitted that the dismissal of a Special Leave Petition at the admission stage did not operate as res judicata. 

He also explained that the Corporation refrained from appealing against the judgment of the High Court because the amount recoverable therein was low. Moreover, in those cases, the Corporation had already issued No Dues Certificates to the contractors.

He submitted that the expression “charges” in clause XII (a) of the Work Order clearly includes demurrages, and the Corporation is empowered to recover the same.

Ajit Puduserry, AOR, submitted that in the construction of contractual terms, the interpretation proposed by the author of the tender document must be relied on. 

Sanjay Parikh, appearing for the Respondents, submitted that the Corporation acted arbitrarily. It failed to follow due process of law to determine the liability of the contractors, despite specific instructions in a previous round of litigation. 

Decision 

The division bench of Justice A.S. Bopanna and Justice Pamidighantam Sri Narasimha observed that there is no contractual provision requiring the contractors to undertake the task of loading and unloading of foodgrains from the railway wagons.

Based on interpretation of the expression “charges” in the contractual context, the bench was of the opinion that it did not include liability on account of demurrages and said that consequently, the Corporation cannot impose and collect demurrages from the contractors. 

The court juxtaposed the contracts with similar but not identical contracts entered into by the Corporation, to confirm its interpretation that the word “charges” in the contract was exclusive of liability for demurrages. 

It was observed that the Road Transport Contract is distinct from the Handling and Transport Contract from 2018, as the responsibility of loading and unloading of foodgrains from railway wagons is absent in the contract.

It added that for this reason, the Corporation in the contract has chosen not to include the power to recover demurrages and as such the expression “charges” cannot be interpreted to include demurrages. 

Case title: Food Corporation of India & Ors. v/s Abhijit Paul 

Citation: Civil appeal nos. 8572­8573/2022 

Date: 18/11/2022

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