FAO No.3778 of 2004 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH FAO No.3778 of 2004 (O&M) Date of Decision: 01.02.2011 M/s Shiv Shankar Rice Mills ...Appellant Versus PUNSUP and others .....Respondents CORAM: Hon'ble Mr. Justice Rajesh Bindal Present:- Mr. H.S. Saggu, Advocate for the appellant. Ms. Ekta Thakur, Advocate for the respondents. ..... RAJESH BINDAL, J. Challenge in the present appeal is to the order passed by the learned District Judge, Sangrur dated June 2, 2004 whereby the objections filed by the appellant against the award of the Arbitrator, were dismissed. Briefly, the facts are that the parties entered into an agreement for milling of paddy on October 06, 1994. The dispute arose on account of non delivery of rice by the appellant against the paddy supplied to it. The matter was referred for arbitration. The Arbitrator submitted his award holding that the appellant is liable to pay ` 3,48,099/- along with interest thereon till its payment under various heads. Against the aforesaid award, the appellant filed objections before the court below. The same having been rejected, the appellant-miller is before this court. Learned counsel for the appellant raised solitary argument regarding the jurisdiction of the Arbitrator to award interest on the cost of paddy and the rice which was not delivered to the respondent. His submission was that in terms of Clause 6 (iii) of the Agreement dated October 06, 1994, the Managing Director of the corporation has been given right to decide the issue regarding levy of interest on account of failure of the miller to supply rice within the stipulated period on the basis of economic cost of left over quantity/stocks of paddy/rice. His further submission was that ` 2,69,803.37 awarded by the Arbitrator on the claim made by the respondent-corporation on account of interest on late deposit of cost of paddy was not within the jurisdiction of the Arbitrator, as this issue FAO No.3778 of 2004 2 could be decided by the Managing Director of the corporation. In support of his submission reliance was placed on the judgment of Hon’ble the Supreme Court in Food Corporation of India Vs. Surendra, Devendra & Mahendra Transport Co. 2003 (1) PLR 843. On the other hand, learned counsel for the respondents submitted that Clause 6 (iii) of the Agreement being binding between the parties, the claim for interest on account of late deposit of sale proceeds of paddy could very well be decided by the Managing Director. Learned counsel for the respondents further submitted that in case on account of jurisdiction, award of the Arbitrator to that extent is to be set aside, the Managing Director be given liberty to decide the dispute afresh. Heard learned counsel for the parties and perused the relevant referred record. Clause 6 (iii) of the Agreement on which reliance is sought to be placed by the learned counsel for the appellant is extracted below:- “(iii) The Miller shall completed delivery of rice within 10 days of issuance of paddy issued to him and rice due to the Punsup on the total quantity of paddy issued to him or in joint custody released at regular interval shall be delivered not later than the 28th February, 1995. The Miller shall further ensure milling of Punsup paddy and delivery of rice in the following manner:- October/November:- 20% December:- 26% January:- 26% February:- 28% In the event of his failure to supply rice within the stipulated period he shall be liable for an interest @ 21% on the basis of economic cost of left over quantity/stocks of paddy/rice. The decision of MD Punsup in this behalf shall be final.” In the award of the Arbitrator certain facts regarding the paddy supplied to the appellant-miller for shelling, have been noticed 67,885 bags of fine paddy weighing 44,125.25 quintals and 308 bags of common paddy weighing 200.20 quintals was handed over to the appellant-miller for shelling. After giving allowance of driage 28,972.64 quintals of fine rice and 135.37.500 quintals of common rice was to be delivered by the FAO No.3778 of 2004 3 appellant to Food Corporation of India in the account of respondent. As against this the appellant delivered only 13,057.19 quintals of fine rice leaving balance of 15,915.45 quintals of fine rice. Entire quantity of rice of common variety was not delivered. The claim statement filed by the respondent-corporation before the Arbitrator specified that a sum of ` 1,04,30,566.06 was payable by the corporation to the miller. The aforesaid amount included milling charges, interest, amount realized of sale of paddy etc. As against that claim of ` 1,93,96,066.64 was made by the corporation from the miller on account of economic cost of paddy, cost of empty gunny bags, sales tax, quality cut and interest on late deposit of cost of paddy etc. The Arbitrator in his award dated 16.01.2002 noticed that the statement of amount mentioned in the claim filed by the respondent was not rebutted by the appellant herein. In terms of that ` 2,54,808/- was payable to the appellant on account of milling charges, double line machine stitching and interest on the sales proceeds deposited by the miller prior to June 30, 1995. As against that the corporation was entitled to recover ` 6,02,907/- from the appellant on account of cost of gunny bags lying with the miller, sales tax on the cost of gunny bags, TDS on milling/stitching conversation/transportation charges, quality cut and including ` 2,69,803.37 on account of interest on late deposit of cost of paddy. The claim statement filed by the respondent before the Arbitrator on the basis of which the aforesaid amount was calculated is extracted below:- “ Amount payable 1. Milling charges ` 1,75,395.08 2. Double line machine stitching ` 17,187.50 3. Amount of interest on the sales ` 62,225.48 Proceeds deposited by miller @ 15.50% on or prior to 30.06.1995 4. Amount deposited by miller against ` 1,00,830.00 Paddy or in any manner. 5. Amount realized from other ` 1,00,74,928.00 Miller/firm for sale of paddy ----------------------------- ` 1,04,30,556.06 ----------------------------- FAO No.3778 of 2004 4 Amount recoverable from the miller 1. One & half time economic cost ` 1,86,46,234.73 of balance paddy as on 30.6.95 ` 1,46,624.48 2. Cost of bags lying with miller ` 2,25,878.04 as approved by Food & Supplies Department. 3. Sales tax @ 4.4% on bags laying ` 9,938.63 with miller on & excess/used bags lying with miller. 4. TDS 2.3% on milling/stitching ` 4,429.39 conversation/transportation charges payable if any.] 5. Quality cut ` 93,198.00 6. Other if any (interest on late ` 2,69,803.37 deposit of cost of paddy) ------------------------------ Total ` 1,93,96,066.64 Less amount payable ` 1,04,30,556.06 ------------------------------ Net amount recoverable ` 89,65,500.58 Add interest from 1.7.95 to ` 51,77,576.58 31.3.1998 @ 21% p.a. ------------------------------ Total amount recoverable as on ` 1,41,43,077.16” 1.4.1998 The contention raised by learned counsel for the appellant is that claim regarding ` 2,69,803.37 on account of interest on late deposit of cost of paddy could not have been dealt with by the Arbitrator as the same was within exclusive jurisdiction of the Managing Director in terms of Clause 6 (iii) of the Agreement. The award of the Arbitrator to that extent is without jurisdiction. A perusal of the aforesaid Clause in the Agreement shows that in the event of failure to supply rice within the stipulated period the miller is liable to pay interest @ 21% p.a. on the basis of economic cost of left over quantity/stocks of rice. Decision of the Managing Director in that behalf was held to be final. A perusal of the claim statement shows that ` 2,69,803.37 is the amount of interest claimed by the corporation on account of late deposit of cost of paddy. The aforesaid interest would certainly falls FAO No.3778 of 2004 5 within Clause 6 (iii) of the Agreement, which was required to be dealt with the Managing Director and could not have been referred for arbitration. As the award of the Arbitrator to the extent of accepting the claim of the corporation for interest on late deposit of cost of paddy was beyond his jurisdiction, to that extent the same is set aside. However, the other portion of the award of the Arbitrator will remain intact. The impugned order passed by the learned court below is modified to the extent mentioned above. As far as claim made by the respondent-corporation regarding giving liberty to it to deal with this issue afresh is concerned, this court would not comment on this claim. However, in case the respondent is legally entitled to deal with the issue, it may do so. The appeal is disposed of. (RAJESH BINDAL) JUDGE 01.02.2011 sharmila