F.A.O No.2957 of 2006 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. F.A.O No.2957 of 2006 Date of Decision: 03.09.2009 M/s Mithan Lal Kalra Rice Mills, Muktsar ....Appellant Versus Punjab State Warehouse Corporation and others ...Respondents CORAM : Hon'ble Ms. Justice Nirmaljit Kaur Present:- Mr. S.K. Singla, Advocate for the appellant. Mr. Harsh Aggarwal, Advocate for respondents No.1 and 2. ***** 1. Whether Reporters of Local Newspapers may be allowed to see the judgment ? 2. To be referred to the Reporters or not ? 3. Whether the judgment should be reported in the Digest ? ** NIRMALJIT KAUR, J. This is an appeal against the order dated 15-12-2005 passed by District Judge, Faridkot, vide which, the objections of the appellant against the award dated 07-03-2002, were dismissed. The dispute, in this case, is with respect to the delivery of rice upto 31-08-1996. As per the claim, the appellant-miller failed to shell 1261 bags weighing 764.21 quintals of paddy within the stipulated period. It was alleged that the appellant-miller violated the terms and conditions of the agreement and did not mill and supply the rice as per the contract. The solitary argument raised by learned counsel for the appellant is that the appellant entered into an agreement with the Punjab F.A.O No.2957 of 2006 2 State Warehouse Corporation on 11-07-1996 for milling of paddy of the crop year 1995-96. As per the terms of the agreement, 21620 bags of paddy were entrusted to the appellant-miller for milling. The miller was required to deliver the rice upto 31-08-1996. The appellant-miller supplied only 8470.10 quintals of fine quality of rice contained in 8950 bags to the F.C.I in the account of the Corporation. The appellant-miller failed to shell 1261 bags weighing 764.21 quintals of paddy within the stipulated period. It was stated that the Managing Director of the Corporation appointed the Arbitrator to settle the disputes between the parties, instead of deciding it himself in accordance with Clauses 6(iii) and 16(c) of the agreement. The Arbitrator after considering the record and ex-parte evidence adduced by the Corporation respondents No.1 and 2 passed the ex-parte award against the appellant-miller for the recovery of Rs.16,96,024/- along with interest @ 21% per annum till the filing of the petition and thereafter @ 12% till the recovery of the amount. Aggrieved, the appellant filed objection petitioner under Section 34 of the Arbitration and Conciliation Act, 1996, which was also dismissed. For proper adjudication, it would be appropriate to reproduce Clause 6(iii) and Clause 16(c), which read as follows :- “Clause 6 : (i) and (ii) xxx xxx (iii) The Miller shall complete delivery of the rice within 10 days of issuance of paddy to him and rice due to the State Govt. 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 Govt. paddy and delivery of rice in the following manner :- October/November : 20% December : 26% January : 26% February : 28% F.A.O No.2957 of 2006 3 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 quality/stocks of paddy/rice. The decision of Director in this behalf shall be final.” Clause 16 : Period of Contract (a) and (b) xxx xxx (c) The miller shall be responsible to make good all shortage/in paddy rice and gunny bags that might occur while in the custody till the entire stocks are returned. Those shortage can with the consent of the MD, be make good in kind according to the specifications and variety of rice and gunny bags involved. In case the miller fails to do so recovery should be made from him for shortage of paddy and rice at 1.5 time the economic cost of equivalent paddy according to the variety involved.” The relevant part of Clause 20 of the agreement reads thus : “ Arbitration : All the disputes and difference arising out of the or in any manner touching or concerning this agreement whatsoever extend 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 M.D. PSWC or any person appointed by him in this behalf.” Thus, the aforesaid dispute or claim for the delayed supply and shortage was covered under the Agreement between the parties and there was no need to refer the Arbitrator for adjudication. This being the only dispute, a combined reading of Clause 6(iii) , Clause 16(c) and Clause 20, clearly show that the remedy of the dispute is made available in the agreement itself. The decision given by the Managing Director would be final. The Managing Director was the only competent authority under the agreement to decide the dispute. The reference to the Arbitrator was illegal. 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 judgment that :- F.A.O No.2957 of 2006 4 “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 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 judgment 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 judgment was dismissed. This Court, vide order dated 28-07-2009, while deciding FAO No. 3521 of 2007 titled as District Food and Supplies, Controller, Moga vs. M/s Aggarwal Rice Mlls, Baghapurana, Distt. Moga, disposed of a bunch of similar appeals, by relying on the judgments of Hon'ble the Apex Court, rendered in the case 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.', (supra). Learned counsel for the respondents, however, disputed that the F.A.O No.2957 of 2006 5 same was covered by the above judgments. Learned counsel for the respondents tried to distinguish the same, on the ground that the award was an ex-parte award and no objections were raised by the appellant with respect to the jurisdiction of the Arbitrator. It was further pleaded that the plea of an `excepted matter' was never raised before the Arbitrator. As such, the appellant is deemed to have waived off the objection and relied on the judgment of Delhi High Court, rendered in the case of S.N. Malhotra & Sons vs. Airports Authority of India and Ors. 2008(2) Arb. LR 76. Learned counsel for the appellant, however, pointed out that the same was factually incorrect as an application under Section 16 of the Arbitration and Conciliation Act, 1996 was duly moved before the Arbitrator. Section 16 of the Arbitration and Conciliation Act, 1996 reads as follows :- “16. Competence of arbitral tribunal to rule on its jurisdiction.- (1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,- (a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and (b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. (2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator. (3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.” It is, therefore, evident that the said objection was duly raised at the first instance. Thus, it was incumbent upon the Arbitrator to decide the same even though the parties had been proceeded against ex-parte. In view of the F.A.O No.2957 of 2006 6 same, it cannot be said that the appellant had waived off the objection in the facts of the present case. Thus, the controversy is fully covered by the judgment, rendered in the case of Shree Krishna Rice Mills (supra) and in the case, titled as District Food and Supplies Controller, Moga (supra) (FAO No.3521 of 2007, decided on 28-07-2009). The question, in the present case, is also an excepted matter and, therefore, required to be decided by the Managing Director and not by the Arbitrator. The Arbitrator had no jurisdiction to decide the dispute referred to him. Accordingly, the appeal is allowed and the order dated 15-12-2005 passed by District Judge, Faridkot, vide which, the objections of the appellant against the award dated 07-03-2002, were dismissed, is set aside. The Managing Director is at liberty to recall the record of the arbitration proceedings and proceed with the matter, in accordance with law. (NIRMALJIT KAUR) 03.09.2009 JUDGE gurpreet