FAO No.2064 of 2009 (0&M) 1 In the High Court for the States of Punjab and Haryana at Chandigarh. Decided on May 14.5.2010. Punjab State Civil Supplies Corporation Ltd through its Manager and another --Appellant vs. Dharampal and others -- Respondents CORAM: HON'BLE MR.JUSTICE RAKESH KUMAR JAIN Present: Mr.Ritam Aggarwal,Advocate,for the appellant Mr.H.R.Nohria,Advocate,for respondent No.1. Rakesh Kumar Jain, J, This judgement shall dispose of two appeals bearing FAO No. 2064 of 2009 titled as Punjab State Civil Supplies Corporation Ltd through its Manager and another Vs.Dharampal and others and FAO No.2059 of 2009 titled as Punjab State Civil Supplies Corporation Ltd through its Manager and another Vs. M/s.Samra Rice & General Mills, Faridkot through its partners and others, which have arisen out of a common order dated 24.10.2008 passed by learned District Judge, Faridkot whereby objections filed by Dharampal and M/s.Samra Rice & General Mills by way of arbitration case No.11dated 16.4.2005 and Arbitration Case No.1 dated 22,.3.2004 respectively, have been allowed and the arbitral award dated 7.11.2003 in the case of both Dharampal and M/s.Samra Rice & General FAO No.2064 of 2009 (0&M) 2 Mills, are set aside. However, the facts are extracted from FAO No.2064 of 2009. On 22.5.1996, an agreement was executed between M/s.Samra Rice & General Mills, Faridkot, (herienafter referred to as the Miller) and Punjab State Civil Supplies Corporation (hereinafter referred to as 'PUNSUP'), pursuant to which, PUNSUP supplied 31146 bags (4630 bags of common variety and 26516 bags of fine paddy) weighing 18849.74 quintals of paddy to the miller for its milling. The miller was to complete the delivery of rice in regular intervals but not later than 31.8.1996, but failed to deliver all the rice within the stipulated time. Thus, a dispute ensued between the parties, which was referred to the sole arbitrator at the instance of PUNSUP where claim of Rs.20,50,691/- was set up which was granted by the sole arbitrator vide his award dated 07.11.2003 with interest @ 21% per annum with effect from 1.3.2000. The Miller filed objections under Section 34 of the Arbitration & Conciliation Act,1996 (for short,the Act), which have been allowed by learned District Judge, Faridkot vide his order dated 24.10.2008 basically on the ground that the arbitrator had no jurisdiction to delve upon the dispute between the parties as it pertains to an 'expected matter' as provided in clause 7 (i) and 7 (iii) of the agreement. Relevant findings of the learned District Judge, Faridkot, are as under:- “I find merit in the contentions raised by the learned counsel for the objectors Miller. The arbitration file contains a copy of the agreement dated 22.5.1996 executed between the Miller M/S. Samra Rice and General Mills, Faridkot, and the PUNSUP. It includes clause No.20 (arbitration clause), FAO No.2064 of 2009 (0&M) 3 where under it was agreed between the parties that all the disputes/difference arising out of or in any manner touching or concerning the agreement whatsoever, shall be referred to the sole Arbitration of the Managing Director, PUNSUP or any other person appointed by him in this behalf. In order to adjudicate upon the matter properly, it is necessary to reproduce here the other relevant clauses of the agreement dated 22.5.1996. Clause No.7(i) of the agreement dated 22.5.1996 reads as under:- “7(i) The entire quantity of rice of all varieties delivered by the Miller to the PUNSUP shall conform to the Specifications laid down in the Punjab Rice Procurement (Levy Order 1983, as amended from time to time and in any other orders or notifications issued by the State Government, from time to time. The stocks of rice not conforming to the specifications so laid down, shall be liable to be rejected in respect of such quantity of rice, which is not found to be within the specifications and the Miller shall be liable to deliver fresh stocks of rice conforming to the specifications to the PUNSUP. In the event of his failure to supply rice within the prescribed specifications, the Miller shall be liable to pay the PUNSUP for the quantity or rice short supplied at penal rate of one and half times the economic cost or the converted variety of paddy equivalent to the shortages. The decision of the Managing Director of Punjab State Civil Supplies Corporation Limited in this behalf shall be final.” FAO No.2064 of 2009 (0&M) 4 Clause 7(iii) of the agreement reads as follows:- “ The Miller shall complete the delivery of rice within 10 days of issuance of paddy to him and rice due to the PUNSUP on the total quantity of paddy issued to him or in joint custody released at regular intervals, shall be delivered not later than 31.8.1996. The Miller shall further ensure milling of PUNSUP paddy and delivery of rice as per the following manner:- “In the event of his failure to supply rice within the stipulated period, he shall be liable for an interest @ 21% per annum on the basis of economic cost of left over quantity/stocks of paddy/rice. The decision of Managing Director in this behalf shall be final” The perusal of the afore referred clauses of the agreement executed between the parties, makes it is crystal clear that the disputes regarding 1.5 times economic cost of left over quantity/stocks of paddy/rice and interest @ 21% per annum on the basis of economic cost were excepted matters/penal clauses, which were to be settled/decided by the Managing Director, PUNSUP himself, as provided in the agreement and were not liable to be referred for arbitration and therefore, the Arbitrator's award on these matters is beyond his jurisdiction/scope and is held to be illegal. Further, since the dispute was not referable to the Arbitrator, therefore, the Managing Director erred and acted illegally to appoint the Arbitrator in this case. When the appointment of the Arbitrator was illegal, any award passed by him cannot FAO No.2064 of 2009 (0&M) 5 be held to be a legal award or sustainable in the eyes of law. In a similar matter, while interpreting the agreement/arbitration clause/exception thereto in the agreement, Hon'ble Mr. Justice K.C.Gupta held in case M/s. Shri Krishna Rice Mills Vs. The Punjab State Cooperative Supply and Marketing Federation Ltd. 2003(2), Civil Court Cases, 167 (P&H) that when regarding certain disputes remedy had been provided in the agreement itself, then the said matter cannot be referred to Arbitrator. Against the said judgment a review application was filed by the MARKEFD, which was also dismissed by the Hon'ble Division Bench of Hon'ble Punjab & Haryana High Court , vide order dated 16.7.2005 upholding the view of the Hon'ble Single Judge that where the remedy for any dispute between the parties was provided in the agreement itself, such dispute could not be referred for arbitration. The S.L.P. Against the afore referred judgments was also dismissed by the Hon'ble Supreme Court of India, vide judgment dated 2.3.2007 upholding the Judgments of the Hon'ble Punjab & Haryana High Court. The other ruling on the point is Vishwanath Sood Versus Union of India and another (1989) 1, Supreme Court Cases, 657, wherein also it was ruled by the Hon'ble Apex Court that the Arbitrator had no jurisdiction to award compensation under the penal clauses of the agreement. The facts of the case in hand are similar to the facts of the above referred cases. On the other hand, the learned counsel for the PUNSUP has not been able FAO No.2064 of 2009 (0&M) 6 to show as to how the matter in controversy involved in this case was different than the matter involved in the above said cases cited by the learned counsel for the objector Miller. Since in view of the above referred law, the dispute arose between the parties was not referable to the Arbitrator, the appointment of the Arbitrator by the Managing Director, PUNSUP regarding penal clauses/excepted matters, namely 1.5 times economic cost of left over quantity-stock of paddy/rice and interest @ 21% per annum was illegal and beyond the scope of the Arbitral Tribunal. Consequently, the award passed by the Arbitrator Shri J.R. Singla, District & Sessions Judge (Retired), respondent No.3 is held to be illegal” In this appeal, learned coumsel for the apellant has vehemently argued that it is not a case of short supply but it is a case of non-delivery of 1071.10 quintals of rice on the part of the miller. Therefore, the arbitrator had the jurisdiction to decide the dispute between them and as such, the order passed by the learned District Judge, Faridkot in the objection filed under Section 34 of the Act, is illegal. On the contrary, learned counsel for the respondents has argued that it is not a case of non-delivery, but it is a case of short supply of rice which is part of clause 7 (i) of the agreement dated 22.5.1996 and in such a case, the matter has to be decided by the Managing Director of PUNSUP and not by the Arbitrator. I am in full agreement with the submission made by learned counsel for the respondents as this matter has already been decided by this FAO No.2064 of 2009 (0&M) 7 Court in the case of M/S Shri Krishna Rice Mills Vs. The Punjab State Cooperative Supply and Marketing Federation Ltd. 2003 (2) Civil Court Cases, 167 (P &H) that when regarding certain disputes remedy had already been provided in the agreement itself, then the said matter cannot be decided by the arbitrator. In view of the above, I do not find any merit in these appeal and the same are hereby dismissed. No order as to costs. May 14,2010 (Rakesh Kumar Jain) RR Judge