Awarded ₹6.91 lakh, paid ₹2 crore: Supplyco caught in legal trouble over an unusual settlement

Thiruvananthapuram: Supplyco is caught in a legal tangle over what appears to be an unprecedented settlement. Here is how the issue unfolded.

In 2007, Supplyco entered into an agreement with Sans Spices and Curry Powders, an MSME firm based in Wayanad, to supply pure coffee and blended coffee under the Sabari brand.

Supplyco unilaterally terminated the contract, alleging that the company had failed to supply the required quantity of products within the stipulated period. Challenging the decision, the company approached the Micro and Small Enterprises Facilitation Council, seeking ₹36 lakh in compensation.

The council directed Supplyco to pay ₹6.91 lakh as compensation, along with interest at the rate charged by the Reserve Bank of India to banks on loans. Supplyco challenged the order in the High Court, which referred the matter back to the council. The council subsequently ordered Supplyco to pay interest at three times the applicable rate. With interest calculated from August 2007, the amount payable by Supplyco came to ₹94.93 lakh.

After receiving legal advice that there was little scope for an appeal and that a settlement was the best option, Supplyco managing director invited the company for discussions on January 20, 2020. The company claimed that it had suffered losses of ₹10.21 crore. Eventually, Supplyco settled the dispute by paying ₹2 crore.

However, the CAG was taken aback when it examined the accounts. It questioned why Supplyco had not simply implemented the council's final order to pay ₹94.93 lakh, which would have saved the corporation ₹1.07 crore. The CAG also demanded that the excess amount paid over and above the court-ordered sum be recovered.

The issue subsequently came before the Legislative Assembly committee that examines matters concerning public sector undertakings. Supplyco informed the committee that the managing director who had reached the settlement had since died and that efforts could be made to recover the amount from his relatives.