FAO No. 5274 of 2008 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH -- FAO No. 5274 of 2008 Date of decision: November , 2009 M/s Jai Ambe Rice Mills ........ Appellant Versus Punjab State Civil Supplies Corporation Ltd. (PUNSUP( and others .......Respondent(s) Coram: Hon'ble Ms Justice Nirmaljit Kaur -.- Present: Mr. Mrigank Sharma, Advocate for the appellant Ms Ritam Aggarwal, Advocate for the respondent -.- 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. This is an appeal against the order dated 02.06.2007 passed by the District Judge, Ferozepur, dismissing the objection petition filed by the appellant under Section 34 of the Arbitration and Conciliation Act, 1996 (in short the 1996 Act) against the award dated 23.09.2003. While challenging the aforesaid order as well as the award, the learned counsel for the appellant submitted that the arbitral award dealt with a dispute not contemplated by or not falling within the terms of the submission FAO No. 5274 of 2008 2 to the Arbitration and rather, it contained decisions on matters beyond the scope of submission to the arbitrator. The arbitration Clause of the agreement on the basis of which, the reference was made to the arbitrator runs as under:- “22. Arbitration: All the disputes and differences arising out of or in any manner touching or concerning this agreement whatsoever (except as to any matter the decision of which is expressly provided for in the contract) shall be referred to the sole arbitration of the Managing Director or any person appointed by him in this behalf. There will be no objection to any such appointment that the person appointed is or was an employee of PUNSUP or that he had to deal with the matters in which the contract relates and that in the course of his duties such an employee of PUNSUP had expressed views on all or any of the matters in disputes or difference. The award of such Arbitration shall be final and binding on the parties to this contract. It is a term of this contract that in the event of Arbitrator being transferred or vacating his office or being unable to act for any reasons, the Managing Director at the time of such transfer, vacation of office, death or inability shall appoint another person to act as Arbitrator. Such a person shall be entitled to proceed with reference from the stage where it was left by his predecessor. Learned counsel for the appellant also submitted that it is clear from the above that only those matters could be referred to the arbitrator, the decisions of which matters was not given in the agreement, itself. The present FAO No. 5274 of 2008 3 dispute has already been covered vide clause 9 and 8 of the Agreement. Learned counsel further submitted that since, there is a special clause in the agreement to meet with an eventuality of late delivery of rice and hence, the matter could not be referred to the Arbitrator and the reference was bad in the eyes of law because it was well within the competence of the Managing Director to direct the party to pay the interest and in case of non- payment, civil suit for recovery was to lie. In other words, only those matters could be referred to the Arbitrator, the decision of which matters was not given in the agreement. This view has been supported in a case titled as 'M/s Shri Krishna Rice Mills v. Marked'-2003 (2) Civil Court Cases 167, 'M/s Ahluwalia and Company and others v. Surinder Mohan and others'-2004(2) Civil Court cases 486 (Punjab) and 'Food Corporation of India v. Surindera, Mahindera and Davindera Transport Co.'-2003(1) PLR 843. The lower Court has already given finding in M/s Behari lal Paras Ram v. DFSC and M/s New Kissan Rice Mill v. PSWC and Lord Shiva Rice Mill v. PSWC that when there is a specific clause in the agreement to meet with the eventuality of shortage of paddy or rice, it falls under excepted matters and the Arbitrator cannot enter into the reference. In the present case, the loser court has given a contradictory finding. Learned counsel for the respondent, on the other hand, stated that the dispute herein did not fall under the excepted matters, as the dispute herein, was not that there was any shortfall in supply of rice or that there was late delivery of the rice, but on account of the fact that there was non-delivery of certain amount of rice. Hence, the dispute herein was different and could not be included in either Clause 9 or 8 (iii) of the agreement, itself. FAO No. 5274 of 2008 4 Learned counsel for the parties have been heard. After hearing learned counsel for the parties, I find merits in the contention raised by the learned counsel for the respondent. The dispute as referred to the Arbitrator is evident from para 3 of the Award, itself. Para 3 reads as under:- “3. The respondent had supplied 10,886 quintals of rice of grade A filled in 11,500 bags to the FCI up to 29.02.2000 and 8,982.50 quintals of rice of Grade A quality filled in 9,500 bags during the period 14.03.2000 to 31.08.2000. The respondent did not supply the remaining rice weighing 22,975,44.400 quintals of grade A variety and 1485.12 quintals of rice of common variety. Thus, by converting the above balance rice into paddy, the paddy comes to the tune of 33,787.42 quintals of grade A variety and 2184 quintals of paddy of common variety, which remained with the respondent regarding which the claimants are entitled to recover the economic costs of the above paddy from the respondent along with interest @21% per anum for the first year and @ 30% per annum for the subsequent period. Apart from it, the claimant is entitled to recover from the respondent interest @ 21% per annum on the value of rice supplied by respondent late i.e. between 14.03.2000 to 31.08.2000, which was after the stipulated period. An amount of Rs.2,84,58,495/- is recoverable from the respondent as on 30.04.2001, the details of which are as under:- Details of amount recoverable from the respondent Mill FAO No. 5274 of 2008 5 No. Particulars Amount (Rs.) Amount (Rs.) 1. Economics cost of Rs.2,18,48,635 33787.42 qntls GR-A paddy at the provisional rate of Rs.646.65 per Q. 2. Economic cost of Rs.13,37,656 2184 Q common paddy at provisional rate of Rs.612.48 per qntl. 3. Cost of 23952 empty Rs.3,45,490 gunny bags as per details attached. 4. Sales tax @ 4.4% on Rs.15,202 cost of empty gunny bags. 5. T.D.S. of Income Tax Rs.16,320 @ 2.34% 6. Quality Cut Rs.29,348 Total Rs.2,35,92,651 Rs.2,35,92,651 Details of amount payable to the respondent Mill 1. Milling charges of Rs.6,97,443 29218.38 qntls paddy @ Rs.23.87 per qntl. 2. Stitching charges of Rs.21,500 21500 bags @ Re.1 per bag. Total Rs.7,18,943 (-) Rs.7,18,943 Balance amount recoverable from the respondent Mill Rs.2,28,73,708. Amount deposited by the respondent Mill Rs.6,00,000 Balance amount recoverable from respondent mill Rs.2,22,73,708 Interest on late delivery of rice + Rs.5,68,305 Interest @ 21% from 01.03.2000 to 28.02.2001 + Rs.50,67,268 Interest @ 30% P.A. From 01.03.2001 to 30.04.2001 + FAO No. 5274 of 2008 6 Rs.5,49,214 Total amount recoverable from the respondent mill as on 01.05.2001 Rs.2,84,58,495. A registered notice dated 15.05.2001 was issued to the respondent to make the payment of this amount, but to no effect. Hence this claim petition. It is apparent from the above that the decision of the dispute is available in the agreement, itself. The relevant clauses of the said agreement are as follows:- “8. The miller shall ensure that:- i) xx xx ii) xx xx iii) In case there is short fall in the recovery of rice provided sub clause (i) above the miller shall pay to the PUNSUP the price of rice fixed by FCI plus interest at the rate of 21% from the date it becomes payable till the date of actual realisation equivalent to the short fall. iv) xx xx v) xx xx 9. The entire quantity of rice of all varieties delivered by the miller to the PUNSUP shall confirm to the specifications laid down in the Punjab Rice Procurement (Levy) order 1983, as amended from time to time and in any other Order or Notification issued by the State Government from time to time. The stocks of the rice not confirming to the specifications so laid down, shall be labile to be rejected in respect of such quantity of rice which is not found to be FAO No. 5274 of 2008 7 within the specifications and the miller shall be liable to pay to PUNSUP for the quantity of rice short supplied, a penalty at the custom milling rate fixed by Government of India plus 21% interest from the date it becomes payable till the actual realisation of the converted variety of rice. The decision of the Managing Director, PUNSUP (hereinafter referred to as M.D. PUNSUP) in this behalf shall be final. ii) xx xx iii) The miller shall complete delivery of rice within 10 days of issuance of paddy to him and rice due to PUNSUP on the total quantity of paddy issued to him or in joint custody released at regular intervals shall be delivered not later than total quantity of paddy issued to his or in joint custody released at regular intervals shall be delivered not later than the 29th Feb. 2000 or up to the period extended by Government of India from time to time. In the event of his failure to supply rice within the stipulated period, he shall be liable for an interest @21% for the first year of default and @30% for the subsequent period on the custom milled price fixed by Government of India from the date it becomes payable till the date of actual realisation towards the left over quantity/stocks of paddy. The decision of the MD PUNSUP in this behalf shall be final.” Learned counsel for the respondents submitted to say that the agreement, itself, covers a dispute where there is failure to deliver the rice, is FAO No. 5274 of 2008 8 incorrect as the provisions referred to above do not cover a similar dispute where shortage is on account of non-delivery and does not cover the recovery of the price for such shortage. No doubt, a perusal of Clause 9 talks about the shortage which occurs on account of rice rejected being not in accordance with the specifications and not with respect to shortage on account of non- delivery but it is difficult to understand as to how the short supply of rice on account of not being as per the specifications will be different from the shortfall on account of shortage due to non-delivering of the rice. For the purpose, the miller is liable to pay the PUNSUP for the quantity of the rice short supplied on account of either of the two reasons. A shortage in supply of rice would remain the same whether it is on account of being rejected on the ground of being not in accordance with the specifications or on account of not being delivered at all. The interest is to be paid on the amount assessed on account of shortage of rice or rice being not supplied. Thus, Clause 8 (iii) would be useless until and unless the amount liable to be paid to the PUNSUP for the quantity of rice short supplied is not assessed. Thus, to separate the jurisdiction of authority for assessing the amount towards short supply of rice or lack of delivery of rice from the jurisdiction of the authority levying the interest on the shortage of rice or lack of delivery of rice, does not appear to reason. It is obvious that to levy the interest on account of shortage, then the loss in terms of price for the shortage will have to be assessed before imposing penalty as well as interest. In order to further clarify, it is apparent from the clauses, referred to above, that the authority which has the jurisdiction to levy the interest on the shortage in supply of rice on account of either late delivery, non-delivery FAO No. 5274 of 2008 9 or not being on account of specifications, is the same as the authority that would assess the quantity of shortage of rice and the price towards the shortages due to either of these three reasons. Learned counsel for the respondent, further submitted that the the judgement rendered by this High Court in the case of 'Shree Krishna Rice Mills v. The Punjab State Co-op. Supply and Marketing Federation Ltd.'-2003 P.L.J.341, is different as the shortage in that case was due to the fact that the rice was not in accordance with the specifications and the same was rejected. However, on reading of para 2 of the aforesaid judgement, it emerges that in that case also the shortage was on account of the fact that the miller had failed to adhere to the delivery schedule and committed breach of contract. In spite of clause 18 of the agreement under which a reference of dispute was to be made to the Arbitrator due to shortfall of the recovery of rice and on account of failure to supply the same within the stipulated period as per Clause 5 and 6 of the agreement, the matter was referred to the Arbitrator in spite of the Managing Director as stipulated in the agreement. It was under these circumstances that the Court came to the following conclusion:- “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 @ 21% is clearly provided in the FAO No. 5274 of 2008 10 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 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 observat5ion 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 appreciated the same properly and as such, has misdirected himself. Consequently, the findings of the additional District Judge on this score cannot be sustained.” Thus, to reject the argument that the dispute in question has to be decided by the Managing Director and not by the Arbitrator on the ground that the agreement does not include the recovery of the price of paddy which remain with the miller un-milled, is incorrect on account of the provisions of Clauses 9 & 9 (iii) and 8 (iii) reproduced and discussed herein-above. The Apex Court in the case Food Corporation of India v. Surendra, Devendra and Mahendra Transport Co, 2003 (1) PLR 843, held as follows:- FAO No. 5274 of 2008 11 “7. High Court issued a direction by order dated 16th June, 1988 referring the disputes for arbitration in terms of Clause XX. The matters which were excluded from the reference to the arbitrator therefore could not be referred to or decided by the arbitrator. Entrance of reference by the arbitrator on disputes which were excluded from reference and the adjudication thereupon would amount to exceeding in the exercise of the jurisdiction as held by this Court in Rajasthan State Mines and Minerals Ltd. Case (supra). Since there was a specific bar to the raising of a claim regarding transit, demurrage and wharfage charges, the award made by the arbitrator in respect thereof would be in excess of the jurisdiction.” Therefore, the Arbitrator in having adjudicated upon the dispute of which the decision is already provided in the agreement, itself has mis- directed himself. Consequently, the finding recorded by the District Judge, is set aside on this ground alone. In view of the foregoing discussion, I hold that the dispute regarding price for non-delivery of rice or the dispute with respect to the recovery of the price of non-delivery of paddy as well as the interest, is duly covered under the said agreement being 'except matters' and the same should have been decided by the Managing Director, himself and not by the Arbitrator. The award dated 23.09.2003 is therefore, beyond jurisdiction and is hereby set aside. However, the Managing Director is at liberty to decide the dispute afresh in accordance with law after summoning the record from FAO No. 5274 of 2008 12 the District Judge as well as from the Arbitrator. Disposed off in the above terms. (Nirmaljit Kaur) Judge November 12, 2009 mohan