FAO No. 4060 of 2008 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH -- FAO No. 4060 of 2008 Date of decision: August 31, 2009 M/s Dashmesh Rice Mills and others ........ Appellants Versus The Punjab State Civil Supplies Corporation Limited (PUNSUP and others .......Respondent(s) Coram: Hon'ble Ms Justice Nirmaljit Kaur -.- Present: Mr. S P Garg, Advocate for the appellants Mr. C S Bakshi, Advocate for the respondents -.- 1. Whether Reporters of local papers may be allowed to see the judgement? 2. To be referred to the Reporter or not? 3. Whether the judgement should be reported in the Digest? Nirmaljit Kaur, J. The respondent-PUNSUP entered into an agreement with the appellant-miller on 22.10.1995, for custom milling of paddy for the crop year 1995-96 and to supply the rice. The dispute, herein, was with respect to the delay in delivery of the rice as well as the shortage of the rice. The agreement was time bound and the appellant miller was under an obligation to perform its part of the agreement within the stipulated period. According to the respondent PUNSUP, the appellant miller failed to mill the rice within the stipulated period FAO No. 4060 of 2008 2 and having failed to do so, the miller was liable to pay the PUNSUP cost of the paddy, equivalent to the shortfall in supply of the rice at the rate of 1.5 times of the economic costs of the paddy. The appellant miller was bound to deliver 10,900,22.00 quintals of rice against the balance paddy with it within the extended period of milling. But the appellant-miller delivered only 9,948,25.00 quintals of rice leaving a balance of 9,51,57,000 quintals of rice. The appellant delivered the rice of 10,500 bags against the total of 25,540 bags leaving balance of 15,040 bags. The solitary arguments raised by the learned counsel for the appellant miller, is that the Arbitrator had no jurisdiction to entertain the claim because the dispute was covered under the 'excepted matters' , as it has been duly provided in the Contract that in case of shortage or delay, the recovery can be made at the rate of 1½ time of the economic cost of the shortage of the rice and if the Rice miller failed to supply the rice within time, PUNSUP shall be entitled to interest at the rate of 21% per annum on the economic cost of the left over quantity of the paddy rice for which, the decision of the Managing Director of the PUNSUP will be final. Learned counsel for the respondent-PUNSUP, on the other hand, submitted that the aforesaid objection was never raised before the 'appropriate authority' within the stipulated time as provided under the Arbitration and Conciliation Act, 1996 (in short the 1996 Act). It was submitted that the failure to do so, amounts to waiver of the right to object and refer to Section 4 of the 1996 Act. Section 4 of the 1996 Act reads as under:- FAO No. 4060 of 2008 3 4. Waiver of right to object. A party who knows that – (a) any provision of this Part from which the parties may derogate. or (b) any requirement under the arbitration agreement has not been-complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time limit is provided for slating that objection, within that period of time, shall be deemed to have waived his right to so object. To controvert the arguments, learned counsel for the appellant-miller invited the attention of the Court to para 21 of the award, from perusal thereof, it is evident that the said objection was duly raised, in accordance with Section 61 of the 1996 Act. Learned counsel for the respondent PUNSUP has not been able to dispute the aforesaid position. As such, it cannot be said that the appellant miller had waived off the right of objections. It is also not disputed that the dispute was only with regard to the shortage of rice delivered by the appellant-miller and the same was not delivered within the stipulated period. Thus, the decision of the dispute in question is already available under Clause 6(i) and (iii) of the agreement, itself and, therefore, the same was not required to be referred to the Arbitrator. The relevant portion of Clauses 6 (i) and 6(iii) of the agreement are reproduced below:- Clause 6 (i) .......... In the event of his failure to supply rice within the prescribed specifications, shall be liable to pay to the PUNSUP for the quantity of rice short supplied at penal rate of one and half times the economic cost of the converted variety of paddy FAO No. 4060 of 2008 4 equivalent to the shortages. The decision of the Managing Director, Punjab State Civil Supplies Corporation Ltd. (hereinafter referred to as the MD PUNSUP) in this behalf shall be final. (ii) xx xx xx (iii) ......In the event of his failure to supply rice within 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 Managing Director in this behalf shall be final.” In a case 'Shree Krishna Rice Mills v. The Punjab State Co-op Supply and Marketing Federation Ltd.', The Punjab Law Reporter-Vol CXXXV (2003- 3) 341, this Court, on a similar proposition of law, has observed in para 12 of the said judgement that:- “12. Therefore, the combined reading of Clauses 18, 5 and 6 of the aforesaid agreement, clearly show that all disputes between the Markfed and the miller were liable to be referred to the arbitration concerning the agreement except disputes regarding the matters, the decision of which is expressly provided for in the contract. Under Clauses 5 and 6 of the aforesaid agreement, the decision with regard to 1.5 times economic costs and interest at the rate of 21% is clearly provided in the agreement, itself and as such, the aforesaid matters were not liable to be referred to the Arbitrator and reference in this regard was beyond the scope of arbitration clauses and the proceedings before the Arbitrator were clearly liable to be FAO No. 4060 of 2008 5 terminated on the short ground alone. In such circumstances, neither the Managing Director had any authority to refer aforesaid dispute to the Arbitrator, nor the Arbitrator had any jurisdiction to continue with the proceedings under any circumstances. The observation of the learned additional District Judge at page 13 of the judgement that the claim with regard to the economic cost and interest was liable to be decided by the Arbitrator and the dispute is not frivolous, is not based on the appreciation of Clause 18 read with Clauses 5 and 6 of the agreement but he has misinterpreted these clauses and had failed to appreciate the same properly and as such, has misdirected himself. Consequently, the findings of the Additional District Judge on this score cannot be sustained.” The Special Leave Petition filed against the aforesaid judgement was dismissed. The same controversy, in some what similar facts, as in the present case has already been adjudicated upon by this Court in FAO No. 3521 of 2007 and other connected appeals, decided on 28.07.2009 whereby reliance has been placed on the judgements rendered by Hon'ble the Supreme Court in the cases of 'Food Corporation of India v. Surendra, Devendra and Mahendra Transport Co', The Punjab Law Reporter Vol CXXXIII (2003-1) 843 and 'Shree Krishna Rice Mills v. The Punjab State Co-op Supply and marketing Federation Ltd.', The Punjab Law Reporter Volume CXXXV (2003-3) 341. The question involved in the present case is fully covered by the judgement rendered in FAO No. 3521 of 2007, referred to above. The question in the present case is also an excepted matter and was, therefore, required to be decided by the Managing Director and not by the Arbitrator. FAO No. 4060 of 2008 6 In view of the discussion made above, the order dated 11.08.2008 passed by the Additional District Judge, Chandigarh and the Award dated 19.05.2005 passed by the Arbitrator are hereby set aside. The appeal is accordingly allowed with liberty to the Managing Director, PUNSUP to receive back the record of the arbitration proceedings and proceed with the matter, in accordance with law. (Nirmaljit Kaur) Judge August 31, 2009 mohan