FAO No.812 of 2009 (O&M) -1- IN THE PUNJAB AND HARYANA HIGH COURT AT CHANDIGARH FAO No.812 of 2009 (O&M) Date of decision : 11.1.2010 Punjab State Civil Supplies Corporation Ltd. (PUNSUP) Chandigarh ..Appellant. Vs. M/s Jai Laxmi Rice Mills, Mehraj Road, Rampura Phul and others ..Respondents. CORAM: HON'BLE MR.JUSTICE RAKESH KUMAR JAIN Present : Mr.G.S.Sandhawalia, Advocate for the appellant. Mr.Mukand Gupta, Advocate for the respondents. RAKESH KUMAR JAIN, J. This appeal is directed against the order passed by Additional District Judge, Chandigarh dated 4.10.2007 whereby an Objection Petition filed under Section 34 of Arbitration and Conciliation Act, 1996 (for short `the Act') by the appellant has been dismissed. Stating briefly, Punjab State Civil Supplies Corporation Ltd.Chandigarh (for short `the PUNSUP') supplied 46,993 bags of paddy weighing 29,488.64 quintals (after 2% driage) to the respondent who was to deliver the milled rice by 28.2.1996. The agreement was extended upto 31.8.1996 but the miller failed to mill the paddy in time. The PUNSUP raised a dispute before the Arbitrator, who vide his award dated 5.1.2001, allowed Rs.5,17,129.37 together with future interest at the rate of 18% per annum with effect from 27.4.1999 till payment by the miller with further liability to pay cost assessed at the rate of Rs.8000/-. Award of the FAO No.812 of 2009 (O&M) -2- Arbitrator was challenged under Section 34 of the Act by the miller in which it was alleged that as per Clause 7(1) of the agreement, in the event of failure to supply rice as per the prescribed specifications, the Miller 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 equivalent to the shortage and for that purpose decision of the Managing Director of the PUNSUP shall be final. It was thus, claimed that dispute is with regard to short supply of paddy by the miller and liability of the miller to pay interest on the basis of economic cost of left over quantity/stocks of paddy/rice shall be finally decided by the Managing Director, who without deciding the matter himself had illegally referred the matter to the Arbitrator. In this regard, the learned Court below, observed as under: “Even the question involved in this case has also been settled in the similar matter by the Hon'ble High Court as even upto the Apex Court. Counsel for the Objectors has cited M/s Shree Krishna Rice Mills Versus the Punjab State Co- operative Supply and Marketing Federation Ltd., 2003(2) Civil Court Cases 167 (P&H). In the afore-cited judgment the similar matter was in dispute and in that case our own Hon'ble High Court has held that when there is such a clause in the agreement then dispute, the remedy of which is provided in the agreement cannot be referred to arbitrator. In that very case PUNSUP had gone to the Hon'ble Supreme Court of India, where the petition for special leave if appeal was dismissed vide order dated 2.8.2007. There is also another judgment on the point in case FOOD CORPORATION OF INDIA VERSUS SURENDRA AND MAHENDRA TRANSPORT CO.2003(1) PLR 843 (SC). In that case, Hon'ble Apex Court has held that the matters which were excluded from the reference to the FAO No.812 of 2009 (O&M) -3- arbitrator could not be referred to or decided by the arbitrator. Entrance of reference by the arbitrator on disputes which were excluded from reference and adjudication thereupon would amount to exceeding in the exercise of the jurisdiction. As such, in view of afore-discussed case law as well, I am of the considered view that since the dispute between the parties was regarding short supply of paddy and rice of 1.5 times of economic costs of balance paddy and the decision of which is expressly provided for in the contract, to be made by the Managing Director and has also been expected by arbitration clause contained in the agreement, therefore, the arbitrator was not competent to enter upon the reference made to him in this regard and since the arbitrator has entertained the reference and passed the award dated 5.1.2001, therefore, he has misconducted the proceedings and thus the award dated 5.1.2001, passed by respondent no.3 arbitrator is ordered to be set aside holding issue no.1 in favour of the objectors but against the respondents.” Still aggrieved, the PUNSUP has come up in this appeal in which notice of motion was issued. During the course of hearing, it has been brought to the notice of this Court by the learned counsel for the respondents that in terms of the impugned order passed by the Additional District Judge, Chandigarh the Managing Director has already taken up the matter which is pending before him. He has referred to a memo No.A/3/08/3874 dated 28.11.2008. This fact is not disputed by the learned counsel appearing on behalf of PUNSUP that the matter is pending before Managing Director. Thus, learned counsel for the respondents submits that PUNSUP cannot take two remedies at the same time to challenge the impugned order as well as complying with the impugned order. After hearing the learned counsel for the parties, I have found FAO No.812 of 2009 (O&M) -4- that this case falls within the excepted matter being a case of short supply and for that matter, decision of the Managing Director is final, who has also started proceedings. In view of the above, I do not find any illegality or irregularity in the order of the learned Court below in passing the impugned order and the same is hereby upheld and hence, the appeal is dismissed, though without any order as to costs. (RAKESH KUMAR JAIN) 11.1.2010 JUDGE Meenu