It is in the fitness of things that while leaving no room of scope for ambiguity of any kind, the Apex Court has in a most learned, laudable, logical, landmark and latest judgment titled Food Corporation of India & Ors vs Abhijit Paul in Civil Appeal Nos. 8572-8573/2022 arising out of SLP (C) Nos. 16009-16010 of 2019 and cited in 2022 LiveLaw (SC) 975 that was pronounced as recently as on November 18, 2022 in exercise of its civil appellate jurisdiction has minced just no words to observe explicitly that scope of contractual expressions must be understood as intended by the parties to the contract. It must be mentioned here that this writ petition arises out of impugned final judgment and order dated 07-09-2018 in WA No. 56/2018 22-01-2019 in RP No. 2/2019 passed by the High Court of Tripura at Agartala. The Bench maintained that, “The process of interpretation, though the exclusive domain of the Court, inheres the duty to decipher the meaning attributed to contractual terms by the parties to the contract. Words and expressions used in the contract are principal tools to ascertain such intention. While interpreting the words, courts look at the expressions falling for interpretation in the context of other provisions of the contract and also in the context of the contract as a whole. These are intrinsic tools for interpreting a contract. As a principle of interpretation, courts do not resort to materials external to the contract for construing the intention of the parties. There are, however, certain exceptions to the rule excluding reference or reliance on external sources to interpret a contract. One such exception is in the case of a latent ambiguity, which cannot be resolved without reference to extrinsic evidence. Latent ambiguity exists when 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. Extrinsic evidence, in cases of latent ambiguity, is admissible both to ascertain where necessary, the meaning of the words used, and to identify the objects to which they are to be applied. (Para 17, 27)”.
At the very outset, this brief, brilliant and balanced judgment authored by Hon’ble Mr Justice Pamidighantam Sri Narasimha for a Bench of Apex Court comprising of Hon’ble Mr Justice AS Bopanna and himself sets the ball in motion by first and foremost putting forth in para 2 that, “Food Corporation of India (hereinafter referred to as ‘Corporation’), the Appellant herein, procures and distributes food grains 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?”
As we see, the Bench then observes in para 3 that, “The Single Judge and the Division Bench of the High Court of Tripura have held that demurrages cannot be recovered as a charge by the Corporation. After examining the contract in its entirety, including its nature and scope, we conclude that the parties did not intend to include liability on account of demurrages as part and parcel of the expression “charges”. The liability of the contractors in the present contracts is clearly distinguishable from other contracts entered into by the FCI in 2010 and 2018, having a different scope and objective. Because of our conclusions, we have upheld the judgments of the High Court and dismissed the appeals filed by the Corporation. Before considering the submissions, analysis and the conclusions, we will refer to the necessary facts and contractual provisions.”
To put things in perspective, the Bench then envisages in para 4 that, “There are three appeals. In the first set of appeals arising out of Special Leave Petition Nos. 16009-16010 of 2019, the Corporation notified a Tender inviting a bid from road transport contractors for transporting foodgrains from railway siding, Churaibari in Assam, to Food Security Depot Chandrapur in Tripura, on a regular basis for a period of two years. The Respondent – Mr. Abhijit Paul, was selected as the successful tenderer (hereinafter referred to as ‘contractor’.). He deposited an amount of Rs. 44,95,000/- towards the security deposit, leading to the execution of the contract (Contract No. Cont.9/NEFR/TC/CBZCDR/2011 dated 25.04.2012, hereinafter referred to as ‘Work Order’ or the ‘contract’). The Corporation awarded several such Work Orders to the Respondent and also to other contractors for transportation of foodgrains between its multiple Food Security Depots.”
While explaining the sequence of events, the Bench then states in para 5 that, “The contract was discharged by performance by July 2014. More than a year thereafter, by a letter dated 22.12.2015 followed by a Notice dated 29.11.2016, the Corporation called upon the contractor to reimburse the amount of demurrages imposed on it by the Railways. As this demand was bereft of any reason and rightly objected to, it was followed by another letter dated 27.06.2017 by the Corporation. In this letter, the Corporation explained that it had incurred heavy losses on account of demurrages due to the contractor’s inability to readily provide trucks at railway sidings, inhibiting the Corporation from unloading foodgrains from railway wagons within the “free time” specified by the Railways. The Corporation sought to recover the demurrages from the contractor by withholding the security deposit tendered under the Work Order.”
As it turned out, the Bench then discloses in para 6 that, “The contractor objected to this unilateral action, contending that 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 (WP No. 1351 of 2016) before the High Court of Tripura for quashing the illegal and arbitrary action.”
In addition, the Bench then reveals in para 7 that, “This writ petition was allowed by the Single Judge of High Court. It clarified that the Corporation was only entitled to recover losses that were incurred due to the contractor’s dereliction of duties under the contract, as permissible under Section 73 of the Indian Contract Act 1872, which provides for recovery of damages for the breach of a contract. This would not permit the recovery of losses that were causally distant from the contractor’s actions. Further, it held that the Corporation had unilaterally determined and imposed demurrages on the contractor, and directed it to settle its claims through a civil suit of recovery. The Corporation filed a writ appeal (Writ Appeal No. 56 of 2018) and the Division Bench of the High Court by its order dated 07.09.2018 dismissed the same on the ground of delay. A Review Petition (Review Petition No. 02 of 2019) filed by the Corporation was also dismissed by the Division Bench of the High Court on 22.01.2019. The present appeals are against the orders in the writ appeal as well as in the review.”
Simply put, the Bench then specifies in para 8 that, “The second set of civil appeals are also filed by the Corporation. It arises out of Special Leave Petition Nos. 1606316068 of 2019 and it impugns the decision of the Division Bench of the High Court of Tripura dated 15.05.2019. Therein, the High Court similarly dismissed the writ appeals on the ground that the Corporation had no power to recover demurrages from contractors under the clauses of the contract therein.”
Further, the Bench then mentions in para 9 that, “The third set of civil appeals, arising out of Special Leave Petition Nos. 4045-4046 of 2021, are filed by the contractors. They have challenged the orders of the Division Bench of the High Court of Tripura dismissing their writ appeals (Writ Appeals Nos. 186 of 2020 dated 04.01.2021 and 187 of 2020 dated 18.01.2021.) and upholding the decision of the Single Judge of the High Court dated 25.11.2019, directing the contractors to avail alternative remedies.”
Most significantly, the Bench minces no words to mandate in para 17 that, “The Corporation seeks to recover demurrages as a part of “charges” provided under clause XII(a) as extracted hereinabove. The expression “charges”, stand alone, is not amenable to a precise meaning. Its dictionary meaning is open textured, defining “charges” as “any consideration that one must pay for goods and services provided”. Therefore, the scope of the expression “charges” must be understood as intended by the parties to the contract. The process of interpretation, though the exclusive domain of the Court, inheres the duty to decipher the meaning attributed to contractual terms by the parties to the contract. It is with this purpose that we shall now proceed to understand the meaning of the expression “charges”.”
Do note, the Bench observes in para 18 that, “There are certain basic principles evolved by courts of law for deciphering the true and correct meaning of expressions in a contract. In Bihar State Electricity Board, Patna and Ors. v. M/s Green Rubber Industries and Ors. [(1990) 1 SCC 731, ¶23.], this Court observed that, “Every contract is to be considered with reference to its object and the whole of its terms and accordingly the whole context must be considered in endeavouring to collect the intention of the parties, even though the immediate object of enquiry is the meaning of an isolated clause.”
While citing yet another relevant case law, the Bench then observes that, “In Union of India v. Raman Iron Foundry [(1974) 2 SCC 231], this Court held that contractual terms cannot be interpreted in isolation, following strict etymological rules or be guided by popular connotation of terms, at variance with the contractual context. It observed:
“8. It is true that the words “any claim for the payment of a sum of money” occurring in the opening part of Clause 18 are words of great amplitude, wide enough to cover even a claim for damages, but it is a well settled rule of interpretation applicable alike to instruments as to statutes that the meaning of ordinary words is to be found not so much in strict etymological propriety of language nor even in popular use as in the subject or occasion on which they are used and the object which is intended to be attained. The context and collocation of a particular expression may show that it was not intended to be used in the sense which it ordinarily bears. Language is at best an imperfect medium of expression and a variety of meanings may often lie in a word or expression. The exact colour and shape of the meaning of any word or expression should not be ascertained by reading it in isolation, but it should be read structurally and in its context, for its meaning may vary with its contractual setting. We must, therefore, read the words ‘any claim for the payment of a sum of money’ occurring in the opening part of Clause 18 not in isolation but in the context of the whole clause, for the intention of the parties is to be gathered not from one part of the clause or the other but from the clause taken as a whole. It is in the light of this principle of interpretation that we must determine whether the words ‘any claim for the payment of a sum of money’ refer only to a claim for a sum due and payable which is admitted or in case of dispute, established in a Court of law or by arbitration or they also include a claim for damages which is disputed by the contractor.”
It is worth noting that the Bench notes in para 32 that, “It is evident from the above that the Handling and Transport Contract from 2018, similarly involved loading and unloading of foodgrains from the railway wagons within the scope of contractors’ duties, thereby necessitating the inclusion of demurrages as a penalty for non-performance of contractual duties. Thus, the present 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 present contract. For this reason, the Corporation in the present contract has chosen not to include the power to recover demurrages and as such the expression “charges” cannot be interpreted to include demurrages.”
As a corollary, the Bench then holds in para 33 that, “In light of the foregoing conclusions, we are not inclined to adopt a textual approach for the interpretation of the contractual term “charges”, and hence, the decisions of this Court in Raichand Amulakh Shah (Supra note 11) and Trustees of the Port of Madras (Supra note 12) are of no aid, as they simply describe demurrages as a charge. Demurrage is undoubtedly a charge, however, such a textual understanding would not help us decipher the true and correct intention of the parties to the present contract.”
As a corollary, the Bench then holds in para 34 that, “For these reasons, Civil Appeals arising out of SLP Nos. 16009-16010 of 2019 and SLP Nos. 16063-16068 of 2019, filed by the Corporation are dismissed. The decisions of the High Court of Tripura in Writ 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 Court of Tripura in Writ Appeal Nos. 53-58 of 2017 dated 15.05.2019 is also upheld. We may clarify that our decision has no bearing on any other remedy available to the Corporation, like the institution of a suit for recovery, if law enables them to do so.”
What’s more, the Bench then directs in para 35 that, “In so far as Civil Appeals arising out of SLP Nos. 4045-4046 of 2021 filed by the contractors are concerned, they are allowed for the same reasons as indicated above. The judgments of High Court of Tripura in Writ Appeal Nos. 186 of 2020 and 187 of 2020 dated 04.01.2021 and 18.01.2021 respectively are set-aside and the Civil Appeals stand allowed.”
Finally, the Bench then concludes by specifying in para 36 that, “The parties shall bear their own costs.”
All told, we thus see quite distinctly that the Apex Court has made it now indubitably clear that contractual expressions must be understood as intended by the parties to the contract. Of course, the same must be adhered to by all the Courts in similar such cases. No denying it!
Sanjeev Sirohi